UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Thirteen Weeks Ended June 25, 2005

¨	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 1-9647

MAYOR’S JEWELERS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

59-2290953

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

14051 N.W. 14th Street, Suite 200

Sunrise, Florida 33323

(Address of Principal Executive Offices) (Zip Code)

(954) 846-8000

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x

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

36,991,592 SHARES OF COMMON STOCK ($.0001 PAR VALUE)

AS OF AUGUST 5, 2005

MAYOR’S JEWELERS, INC.

FORM 10-Q

FOR THE THIRTEEN WEEKS ENDED JUNE 25, 2005

TABLE OF CONTENTS


			Page No.
PART I: FINANCIAL INFORMATION

	Item 1.	Consolidated Condensed Financial Statements - Unaudited

		Consolidated Condensed Balance Sheets as of June 25, 2005 and March 26, 2005	3

		Consolidated Condensed Statements of Operations for the thirteen weeks ended June 25, 2005 and June 26, 2004	4

		Consolidated Condensed Statements of Cash Flows for the thirteen weeks ended June 25, 2005 and June 26, 2004	5

		Notes to Consolidated Condensed Financial Statements	6-11

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	15

	Item 4.	Controls and Procedures	16

PART II: OTHER INFORMATION

	Item 1.	Legal Proceedings	18

	Item 6.	Exhibits	18

	Signatures		20

PART I: FINANCIAL INFORMATION

Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS - UNAUDITED

(Amounts shown in thousands except share and per share data)


	June 25, 2005			March 26, 2005
ASSETS
Current Assets:
Cash and cash equivalents	$	1,436		$	1,220
Accounts receivable (net of allowance for doubtful accounts of $878 and $962, at June 25, 2005 and March 26, 2005, respectively)		5,587			6,936
Inventories		84,120			80,439
Other current assets		596			632

Total current assets		91,739			89,227

Property, net		12,813			13,143
Other assets		234			416

Total non-current assets		13,047			13,559

Total assets	$	104,786		$	102,786

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	18,201		$	13,139
Accrued expenses		5,183			6,786
Credit facility		34,151			33,501

Total current liabilities		57,535			53,426

Term loan		11,668			12,668
Other long term liabilities		2,507			2,401

Total long term liabilities		14,175			15,069

Stockholders’ Equity:
Series A-1 convertible preferred stock, $.001 par value, 15,050 shares authorized, issued and outstanding at June 25, 2005 and March 26, 2005, liquidation value of $15,050,000		—			—
Common stock, $.0001 par value, 50,000,000 shares authorized, 46,975,546 issued at June 25, 2005 and March 26, 2005		5			5
Additional paid-in capital		206,574			207,100
Accumulated deficit		(144,103	)		(143,414	)
Less: 9,983,954 shares of treasury stock, at cost		(29,400	)		(29,400	)

Total stockholders’ equity		33,076			34,291

Total liabilities and stockholders’ equity	$	104,786		$	102,786

See notes to unaudited consolidated condensed financial statements.

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Amounts shown in thousands except share and per share data)


	Thirteen Weeks Ended June 25, 2005			Thirteen Weeks Ended June 26, 2004
Net sales	$	32,543		$	29,138
Cost of sales		18,130			16,985

Gross profit		14,413			12,153

Selling, general and administrative expenses		13,306			12,680

Other charges (credit)		(79	)		—
Depreciation and amortization		784			833

Total operating expenses		14,011			13,513

Operating income (loss)		402			(1,360	)
Interest and other income		—			3
Interest and other financial costs		(1,091	)		(1,115	)

Loss before income taxes		(689	)		(2,472	)
Income tax expense		—			—

Net loss		(689	)		(2,472	)
Preferred stock cumulative dividend		(301	)		—

Net loss attributable to common stockholders	$	(990	)	$	(2,472	)

Weighted average shares outstanding, basic and diluted		36,991,592			36,961,307

Net loss per share, basic and diluted	$	(0.03	)	$	(0.07	)

See notes to unaudited consolidated condensed financial statements.

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Amounts shown in thousands)


	Thirteen Weeks Ended June 25, 2005			Thirteen Weeks Ended June 26, 2004
Cash flows from operating activities:
Net loss	$	(689	)	$	(2,472	)
Adjustments to reconcile net loss to net cash used in by operating activities:
Depreciation and amortization		784			833
Amortization of debt issuance costs		131			125
(Recovery) provision for doubtful accounts		(3	)		106
Non-cash compensation (credit) expense related to warrants		(226	)		296
Gain on sale of fixed assets		—			(18	)
(Increase) decrease in assets:
Accounts receivable		1,353			1,483
Inventories		(3,681	)		1,757
Other assets		87			574
Increase (decrease) in liabilities:
Accounts payable		5,062			(3,156	)
Accrued expenses and other long term liabilities		(1,497	)		(1,974	)

Net cash provided by (used in) operating activities		1,321			(2,446	)

Cash flows from investing activities:
Capital expenditures, net		(454	)		(347	)
Proceeds from sales of fixed assets		—			18

Net cash used in investing activities		(454	)		(329	)

Cash flows from financing activities:
Borrowings under line of credit		34,338			32,749
Line of credit repayments		(33,688	)		(30,316	)
Principal payment on term loan		(1,000	)		—
Dividend payment		(151	)		—
Buyback of warrants		(150	)		—

Net cash (used in) provided by financing activities		(651	)		2,433

Net increase (decrease) in cash and cash equivalents		216			(342	)
Cash and cash equivalents at beginning of period		1,220			1,233

Cash and cash equivalents at end of period	$	1,436		$	891

Supplemental cash flow information:
Interest paid	$	934		$	1,115

Non-cash investing and financing activities:
Property acquired with debt	$	329		$	231

See notes to unaudited consolidated condensed financial statements.

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

A. Nature of Business

Mayor’s Jewelers, Inc. and its subsidiaries (the “Company” or “Mayor’s”) consolidated condensed financial statements as of June 25, 2005 and March 26, 2005, and for the thirteen week periods ended June 25, 2005 and June 26, 2004 have not been audited by a Registered Public Accounting Firm, but in the opinion of the management of the Company reflect all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows for those periods. In accordance with the rules of the Securities and Exchange Commission, these consolidated condensed financial statements do not contain all disclosures required by accounting principles generally accepted in the United States of America. Results of the thirteen week periods ended June 25, 2005 and June 26, 2004 are not necessarily indicative of annual results primarily because of the seasonality of the Company’s business. The information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Forms 10-K and 10-K/A for the year ended March 26, 2005.

Mayor’s is primarily engaged in the sale of fine quality jewelry, timepieces and giftware. The Company operates 28 locations in South and Central Florida and metropolitan Atlanta, Georgia.

Management believes that barring a significant external event that materially adversely affects the Company’s current business or the current industry trends as a whole, the Company’s borrowing capacity under the credit facility, projected cash flows from operations and other short term borrowings will be sufficient to support the Company’s working capital needs, capital expenditures, any dividend payments on its preferred stock and debt service for at least the next twelve months.

B. Newly Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R) “Share-Based Payment” which addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123(R) requires an entity to recognize the grant-date fair-value of stock options and other equity-based compensation issued to employees in the income statement. SFAS No. 123(R) generally requires that an entity account for those transactions using the fair-value-based method, and eliminates an entity’s ability to account for share-based compensation transactions using the intrinsic value method of accounting in APB Opinion No. 25, “Accounting for Stock Issued to Employees,” which was permitted under SFAS No. 123, as originally issued. SFAS No. 123(R) is effective for the Company for the first quarter of Fiscal 2006 which ends on June 24, 2006. The impact of the adoption of SFAS No. 123(R) on the financial position or results of operations of Mayor’s has not yet been determined.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” to amend the guidance in Chapter 4, “Inventory Pricing,” of FASB Accounting Research Bulletin No. 43, “Restatement and Revision of Accounting Research Bulletins.” SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The statement requires that those items be recognized as current-period charges. Additionally, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on the financial position or results of operations of Mayor’s.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-Monetary Assets - an Amendment of APB Opinion No. 29,” to address the accounting for non-monetary exchanges of productive assets. SFAS No. 153 amends APB No. 29, “Accounting for Non-monetary Exchanges,” which established a narrow exception for non-monetary exchanges of similar productive assets from fair value measurement. SFAS No. 153 eliminates that exception and replaces it with an exception for exchanges that do not have commercial substance. Under SFAS No. 153 non-monetary exchanges are required to be accounted for at fair value, recognizing any gains or losses, if the fair value is determinable within reasonable limits and the transaction has commercial substance. It specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective prospectively for non-monetary asset exchange transactions in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material effect on the financial position or results of operations of Mayor’s.

In March 2005, the FASB issued Interpretation No. 47 (“FIN 47”), Accounting for Conditional Asset Retirement Obligation to clarify that an entity must recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application of interim financial information is permitted but is not required. Early adoption of this interpretation is encouraged. The Company is evaluating the impact the adoption of FIN 47 would have on the financial position and result of operations of Mayor’s.

C. Accounting for Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock-based compensation plans. No stock-based compensation cost has been recognized for such plans in the accompanying consolidated condensed statements of operations as all options granted had an exercise price equal to the market value of the underlying common stock on the grant date. As required by Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” the following table estimates the pro-forma effect on net loss and loss per share had the Company applied the fair value recognition provision of SFAS No. 123 to stock-based employee compensation:


	Thirteen Weeks Ended June 25, 2005			Thirteen Weeks Ended June 26, 2004
	(In thousands, except per share amounts)
Net loss attributable to common stockholders as reported	$	(990	)	$	(2,472	)
Adjust for non-cash compensation expense for warrants recorded pursuant to APB 25		(226	)		161

Adjusted net loss		(1,216	)		(2,311	)
Stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax		(26	)		(191	)

Pro-forma net loss	$	(1,242	)	$	(2,502	)

Loss per share
As reported basic and diluted:	$	(0.03	)	$	(0.07	)

Pro-forma basic and diluted:	$	(0.03	)	$	(0.07	)

The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option-pricing model. There were no options granted during the thirteen weeks ended June 25, 2005 and June 26, 2004. The fair value of each warrant grant was estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants: expected volatility of 49.2%, risk-free interest rate of 4.48%, expected lives of approximately twenty years and a dividend yield of zero. The weighted average fair values of warrants granted during Fiscal 2002 were $0.26.

D. Term Loan and Credit Facility

As of June 25, 2005, the Company had a $58 million working capital credit facility with Fleet Retail Group LLC (formerly known as Fleet Retail Finance) and GMAC and an $11.7 million junior secured term loan with Back Bay Capital. On April 29, 2005, the Company paid down $1 million of the principal balance of the junior secured term loan without any prepayment penalty. Both of the debt facilities have a maturity date of August 20, 2006 and are collateralized by substantially all of the Company’s assets. Availability under the working capital facility is determined based upon a percentage formula applied to certain inventory and accounts receivable and has certain restrictions regarding borrowing availability. The weighted average interest rate under the working capital facility as of June 25, 2005 was 5.3% which was comprised of a prime based rate of 6.5% (prime plus 0.5%) and LIBOR based rates ranging from 5.15% to 5.35%. The Company was in compliance with the capital expenditure covenant for the thirteen weeks ended June 25, 2005. On May 3, 2005, the banking facilities were amended to allow for the interest rate of the Company’s working capital credit facility to be based on either a prime rate plus a specified margin dependant on the level of excess borrowing availability, or a LIBOR based rate plus a specified margin, based on the level of borrowing availability, at the Company’s election. The junior secured term loan currently bears an interest rate of 12.75% and is subject to similar restrictions and covenants as the working capital facility, including the capital expenditure covenant and certain prepayment penalties.

Based on this, after taking into consideration the foregoing borrowing restrictions, the Company had approximately $52.0 million of borrowing capacity under its working capital facility and term loan at June 25, 2005 and, after netting the outstanding borrowings of $34.2 million and letter of credit commitments of $550,000, the Company had excess borrowing capacity of approximately $17.3 million. The Company relies on its short-term borrowings under the credit facility to finance its operations on a day-to-day basis.

E. Inventories

Inventories are summarized as follows:


	June 25, 2005 Company Owned		March 26, 2005 Company Owned
	(Amounts shown in thousands)
Raw materials	$	881	$	893
Finished goods		83,239		79,546

	$	84,120	$	80,439

In addition, the Company held inventory on consignment at June 25, 2005 and March 26, 2005 with a cost of approximately $9,679,000 and $14,198,000, respectively.

F. Related Party Transactions

On August 20, 2002, the Company closed on a $15.05 million gross equity investment transaction with Henry Birks & Sons Inc. (“Birks”). The Company incurred expenses related to the raising of the capital of approximately $1.5 million, which was netted against the proceeds in stockholders’ equity. As consideration for the investment, Birks received 15,050 shares of Series A Convertible Preferred Stock (“Series A Preferred”), a newly formed class of stock that was initially convertible into 50,166,667 shares of common stock. The conversion ratio of the Series A Preferred to common stock is subject to certain anti-dilution provisions. Birks also received warrants that were exercisable for 12,424,596 shares of common stock at $0.30 per share, 12,424,596 shares of common stock at $0.35 per share and 12,424,595 shares of common stock at $0.40 per share. The warrants also contain certain anti-dilution provisions which upon the occurrence of certain events can increase the number of warrants and decrease the exercise price. The preferred stock and warrants were issued by the Company without being registered, relying on an exemption under 4(2) of the Securities Act of 1933, as amended. Birks had entered into an Amended and Restated Registration Rights Agreement with the Company, whereby Birks has the right to require the Company, on a best efforts basis, to register all of the shares underlying the above-described securities issued to Birks.

The proceeds of $15.05 million were assigned to the Series A Preferred and warrants based on their relative fair values pursuant to Emerging Issues Task Force, (“EITF”) 00-27 Applications of Issue No. 98-5 to Certain Convertible Instruments in the amount of $11.51 million and $3.54 million, respectively. The fair value assigned to the warrants represents a discount on the Series A Preferred that is treated as a non-cash dividend to Birks. Furthermore, the value of the common stock that the Series A Preferred were convertible into at the date of the investment was $15.05 million which creates a $3.54 million beneficial conversion feature for the Series A Preferred, as a result of the fair value assigned to the Series A Preferred of $11.51 million, and results in an additional non-cash dividend to Birks at the time of the investment since the Series A Preferred are convertible immediately. The dividends have a neutral effect on the Company’s total stockholders’ equity; however, they increased the net loss attributed to common stockholders for the year ended March 29, 2003.

On November 1, 2002 and March 14, 2003, Birks granted rights to receive 4,250,000 and 500,000, respectively, of its warrants to certain current or former employees of Birks or its affiliates, who were, or later became employees of or provided services to the Company. The rights to receive these warrants are contingent upon fulfillment of certain time based employment vesting requirements. The exercise price of the assigned warrants was $0.29 per share, after certain anti-dilution adjustments. The granted warrants subject Mayor’s to variable accounting rules due to their cashless exercise feature and vesting schedule which requires compensation expense (credit) calculated as the increase or decrease in intrinsic value of the vested warrants, based on the change in market value of the underlying stock. Non-cash compensation (credit) expense for the thirteen weeks ended June 25, 2005 and June 26, 2004 related to these warrants was approximately ($226,000) and $161,000, respectively. As of March 26, 2005, the number of warrants increased to 4,776,899, all of which were vested, and the exercise price was $0.29 as a result of the anti-dilution provisions contained in the warrant agreements. On May 26, 2005, the Company purchased 501,348 of these warrants from one of the holders at a negotiated amount of $150,000.

On November 6, 2003, Birks exercised 32,523,787 of the warrants on a cashless basis based on an average market price of $0.766, as defined in the warrant agreements. The cashless feature of exercise resulted in the issuance of 17,352,997 shares of common stock and the forfeiture of 15,170,790 warrants. Birks had 288,517, 306,317 and 306,317 warrants exercisable at $0.29, $0.34 and $0.39, respectively, including adjustments for the anti-dilution provisions as of March 26, 2005. A non-cash dividend of approximately $83,000 was recognized in the year ended March 29, 2003 related to the value of the additional warrants granted to Birks as a result of the anti-dilution provisions with a corresponding increase in additional paid-in capital. The anti-dilution provisions provide for the increase in the number of warrants issued to Birks and have potential to decrease the exercise price and are triggered each time the Company issues common stock, options or other convertible securities. The value of additional warrants granted to Birks pursuant to the anti-dilution provisions for the years ended March 26, 2005 and March 27, 2004 was insignificant.

On June 15, 2004, Birks sold 500,000 and 250,000 shares of Mayor’s common stock to one of the Company’s Directors and a consultant to Birks, who later became an employee of Birks, respectively, for $0.50 per share in a private placement sale. The sale of the 750,000 shares of common stock resulted in non-cash compensation expense of $135,000 recorded by Mayor’s which represented the difference between the market value of the stock and the selling price at the date of the sale. On March 22, 2004, Birks sold 1,000,000 shares of Mayor’s common stock at $0.50 per share in a private placement sale to the spouse of one of the Company’s Directors. The sale of stock resulted in non-cash compensation expense of $200,000 recorded by Mayor’s, which represented the difference between the market value of the stock and the selling price at the date of the sale.

The Company’s Certificate of Designation (the “Certificate”) for the Series A Preferred provided that the holders of the preferred stock were entitled to receive dividends on each share of preferred stock at a rate per annum of $95 per share which equates to approximately $1.4 million annually, a 9.5% yield on the $15,050,000 investment. The Certificate called for the dividends to remain unpaid until January 15, 2005 for dividends cumulated through October 14, 2004; thereafter, all dividends, including cumulative but unpaid, were to be payable quarterly in arrears on each January 15, April 15, July 15 and October 15 of each year, commencing on January 15, 2005 if declared by the Board of Directors. The Certificate further provided that the Series A Preferred had a liquidation value of $1,000 per share.

The Certificate also provided that Birks had the right to elect a percentage of the total authorized Directors of the Company, rounded to the next highest whole number, corresponding to the percentage of common stock that would be held by Birks on the record date of such election as if Birks had converted all of the Series A Preferred then outstanding into common stock. Currently, Birks has the right to elect seven of the nine members of the Company’s Board of Directors.

In January 2004, Birks asked the Company to consider paying an early payment of the cumulative dividends earned by Birks on the Series A Preferred, which approximated $2,185,755 through February 28, 2004. Also, in January 2004, the Company formed a committee of independent directors of its Board (the “Committee”) to evaluate Birks’ request. The Committee retained an investment-banking firm, Capitalink, L.C. (“Capitalink”) to perform certain analyses of the structure of the proposed transaction.

The Company determined that in order to effectuate the payment of an early dividend it would have to issue a new series of preferred stock to Birks in exchange for its shares of Series A Preferred (the “Exchange”). The Company also determined that it would have to borrow funds from Back Bay Capital Funding LLC to pay the dividend, (the “Loan”), on the newly created series of preferred stock (the “Dividend”). After extensive discussions, negotiations, deliberations, and considerations, the Committee unanimously recommended to the Board that it was in the best interests of the Company to approve the Exchange, the payment of the Dividend, and the Loan (collectively, the “Transaction”). On February 20, 2004, the Company’s Board of Directors unanimously (with the exception of Thomas Andruskevich and Filippo Recami, who abstained from voting, and Dr. Lorenzo Rossi di Montelera, who was unavailable to attend the Board meeting) approved the Transaction.

On February 20, 2004, the Company issued a newly created Series A-1 Convertible Preferred Stock (“Series A-1 Preferred”) to Birks in exchange for its shares of Series A Preferred. The Series A-1 Preferred is substantially identical to the Series A Preferred, with the exception of certain changes primarily to the provisions regarding the payment of dividends, future dividend rates, and the conversion rate. The Company entered into an Exchange Agreement with Birks whereby each share of Series A Preferred was exchanged for one share of Series A-1 Preferred. As of March 26, 2005, the Series A-1 Preferred were convertible into 51,499,525 shares of common stock of the Company which amount includes adjustments for the anti-dilution provision of the Series A-1 Preferred. The anti-dilution provisions provide for the increase in the conversion ratio into common stock and are triggered each time the Company issues common stock, options or other convertible securities. A non-cash dividend to Birks of approximately $358,000 was recognized in the year ended March 29, 2003 related to the value of the increase in the conversion ratio of the preferred stock into common stock as a result of the anti-dilution provisions with a corresponding increase in additional paid-in capital. The value of the increase in the conversion ratio for the

year ended March 27, 2004 was immaterial. The value of the increase in the conversion ratio for the year ended March 26, 2005 was approximately $17,000. Upon conversion of the preferred shares, Birks would own approximately 75.8% of the then outstanding common stock in Mayor’s.

In connection with the Exchange, Birks agreed to (a) reimburse the Company in full for all Transaction expenses, (b) reduce the dividend rate from $95 per share to $80 per share per annum on the Series A-1 Preferred, resulting in a savings in cumulative dividends of approximately $225,750 annually; and (c) waive the dividend on the Series A-1 Preferred for approximately one year. Capitalink advised the Committee that this waiver of one year of dividends equated to a net savings to the Company of approximately $920,000 since the Company would have to pay interest on the Loan of approximately $280,000. Additionally, if Birks decided to convert its Series A-1 Preferred into common stock before February 28, 2005, the conversion rate would have decreased so that the Company received the value of the waived dividend, on a pro rata basis. Although the Company has no right to redeem the shares of its outstanding Series A-1 Preferred, in the event that the Company were deemed to acquire any shares of its Series A-1 Preferred in a business combination or other transaction, then Birks will pay the Company a cash payment equal to the pro rata value of the waived dividend.

In connection with the Transaction, the Company received an opinion of Delaware counsel that the declaration and payment of the Dividend would not contravene Section 170 of the Delaware General Corporation Law, and an opinion from Capitalink that the Transaction was fair, from a financial point of view, to the minority stockholders of the Company. The Company also received various other analyses from Capitalink.

On February 20, 2004, the Company evidenced the Loan by entering into that certain Third Amendment to Revolving Credit, Tranche B Loan and Security Agreement, Limited Waiver and Consent (the “Amended Credit Agreement”), dated as of February 20, 2004, by and among Fleet Retail Group Inc., GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, the domestic subsidiaries of the Company and the Company. The Amended Credit Agreement provided for, among other things, effectively increasing the term loan by $2 million; modifying the calculation of the credit facilities borrowing formula so as to fully permit the payment of the Dividend without negatively impacting the availability of borrowings under the Company’s credit facility or otherwise creating a material adverse effect on the Company’s liquidity; and adjusting the borrowing base to provide for the inclusion of the Company’s accounts receivable, up to a maximum of $3 million.

Mayor’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Group VP-Finance, Chief Marketing Officer, Group VP-Supply Chain Operations, Group VP-Retail Store Operations, Group VP-Category Management, Group VP-Strategy and Business Integration, Group Creative Director and other members of Mayor’s management serve in similar capacities for Birks. In addition, Thomas A. Andruskevich, Chairman of the Mayor’s Board of Directors, and its President, and Chief Executive Officer, and Filippo Recami, a Director of Mayor’s, serve as Directors of Birks. Dr. Lorenzo Rossi di Montelera, a Director of Mayor’s through June 1, 2005 at which date he resigned, serves as the Chairman of the Board of Directors of Birks.

As part of Birks investment in 2002, the Company entered into a Manufacturing & Sale Agreement and a Management Expense Reimbursement Agreement with Birks effective August 20, 2002. The Manufacturing & Sale Agreement allows for the purchase of merchandise from Birks at market prices in accordance with a purchase plan, which is pre-approved annually by the Corporate Governance Committee of the Board of Directors of the Company. The Management Expense Reimbursement Agreement allows for the Company to acquire certain management services from Birks, at its cost, in accordance with a project schedule, which is pre-approved annually by the Corporate Governance Committee of the Board of Directors. At the end of each quarter, the Corporate Governance Committee reviews and approves all purchases and expense reimbursement transactions. The terms of these agreements are one year and automatically renew. The Company can sell merchandise and provide management services to Birks under terms similar to those in the agreements.

During the thirteen weeks ended June 25, 2005 and June 26, 2004, Mayor’s (charged) incurred approximately ($115,000) and $8,000, respectively, of net costs (to) from Birks related to advisory, management and corporate services pursuant to the Management Expense Reimbursement Agreement. Also, during the thirteen weeks ended June 25, 2005 and June 26, 2004, Mayor’s purchased approximately $1,726,000 and $327,000, respectively, of merchandise from Birks pursuant to the Manufacturing & Sale Agreement. As of June 25, 2005, the Company owed Birks $624,000 related to purchases of inventory, advisory, management and corporate services and for expenses paid by Birks on behalf of Mayor’s.

Effective May 1, 2005, the Company renewed for an additional year, its Management Consulting Services Agreement (the “Agreement”) with Regaluxe Investment Sarl, a company incorporated under the laws of Luxembourg (“Regaluxe”). Under the Agreement, Regaluxe provides advisory, management and corporate services to the Company for $125,000 per calendar quarter plus out of pocket expenses. The Company incurred $125,000 of costs during thirteen weeks ended June 25, 2005 and June 26, 2004 for these services including out of pocket expenses. The Agreement may be renewed for additional one-year terms by the Company subject to an annual review and approval by the Company’s Corporate Governance Committee.

Regaluxe is the controlling shareholder of Birks. One of the Company’s directors, Filippo Recami and one of the Company’s former directors, Dr. Lorenzo Rossi di Montelera, are affiliated with Regaluxe. Dr. Rossi resigned from the Board effective June 1, 2005. Mr. Recami is the Chief Executive Officer and managing director of Regaluxe and Dr. Rossi is a member of the Board of Directors of Regaluxe. Furthermore, Dr. Rossi shares joint voting control over the shares of Iniziativa S.A., which owns 100% of the outstanding stock of Regaluxe. The Board of Directors of the Company waived the provisions of the Company’s Code of Conduct relating to related party transactions when the Board of Directors approved the Company entering into the Agreement with Regaluxe.

On April 18, 2005, Mayor’s and Birks entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among Birks, the Company and Birks Merger Corporation, a Delaware corporation and wholly-owned subsidiary of Birks (the “Merger Sub”), pursuant to which the Merger Sub will be merged with and into the Company, with the Company surviving and becoming a wholly-owned subsidiary of Birks (the “Merger”).

Upon the consummation of the Merger, each outstanding share of the Company’s common stock not currently owned by Birks will be converted into 0.08695 Class A voting shares of Birks. As a result of the Merger, the Company’s common stock will no longer be listed for trading on the American Stock Exchange (the “AMEX”) although Birks intends to apply to list its Class A voting shares on the AMEX under the trading symbol “BMJ.” Consummation of the Merger remains subject to certain conditions, including the approval of the Company’s disinterested stockholders, a registration statement with respect to Birks’ securities being declared effective by the U.S. Securities and Exchange Commission and the listing of Birks’ Class A voting shares on the AMEX.

On June 17, 2005, the Board of Directors declared and approved a dividend payment to Birks of approximately $151,000 which cumulated from March 1, 2005 through April 15, 2005.

On July 27, 2005, the Company entered into an amendment to the Merger Agreement (the “Amendment”). The Amendment provides that as a condition to Birks’ and Merger Sub’s consummation of the Merger, the Company will grant 125,752 additional warrants to purchase the Company’s common stock to Joseph A. Keifer, Marco Pasteris and Carlo Coda-Nunziante, eliminate certain anti-dilutive provisions in the warrants to purchase the Company’s common stock held by Thomas Andruskevich, Filippo Recami and such individuals, revise Birks’ amended by-laws to provide that a quorum shall be based on voting power, and revise Birks’ amended charter to require approval of the holders of Birks Class B multiple voting shares for future equity issuances.

On July 27, 2005, Birks filed a Registration Statement on Form F-4 with the Securities and Exchange Commission which included the Company’s proxy statement for its 2005 special and annual meeting. The Merger is expected to close in the fourth calendar quarter of 2005.

G. Legal Proceedings

The Company and its landlord under its lease for the new corporate headquarters building in Tamarac, Florida are disputing whether the new landlord will be responsible for a portion of the hold over rent that equals approximately $95,000 per month. The new landlord has not completed the new building yet and this caused the Company to begin holding over in its current space as of August 1, 2005. The Company is obligated to pay its current landlord 200% of rent during any hold over period. It is the Company’s position (based on its new lease) that the new landlord is responsible for ½ of the hold over rent under its current lease (approximately $47,500 per month). The new landlord is disputing that it owes this amount. This dispute is still on-going. The Company believes that the resolution of these matters should not materially affect the Company’s financial position; however, there can be no assurance as to the final result of these legal matters.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Recent Developments

Effective August 1, 2005, Michael Rabinovitch became the Company’s Senior Vice President and Chief Financial Officer, succeeding Interim Chief Financial Officer Lawrence Litowitz. Mr. Litowitz will remain with the Company for a transition period as the Company’s Principal Accounting Officer.

Results of Operations

The discussion and analysis below contains trend analysis and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company’s actual results could differ materially from those anticipated in any forward-looking statements as a result of certain factors set forth below and elsewhere in this report and in the Company’s Annual Report on Forms 10-K and 10-K/A for the year ended March 26, 2005 and other reports filed with the Securities and Exchange Commission.

Overview

As of June 25, 2005, Mayor’s operated 28 luxury jewelry stores in South and Central Florida and metropolitan Atlanta, Georgia. On April 2, 2004, Mayor’s opened its first free-standing location in Florida at PGA Commons in Palm Beach Gardens to replace the store in the Gardens of the Palm Beaches mall which was closed on January 24, 2004. During the fiscal year ended March 29, 2003, the Company operated between 29 and 40 stores located in its core market of South and Central Florida and metropolitan Atlanta, Georgia as well as stores in non-core areas of Arizona, California, Illinois, Michigan, Texas and Virginia. The reduction in the number of stores was a result of the execution in Fiscal 2002 of a restructuring plan that was adopted in Fiscal 2001, which included closing under-performing stores outside of the Company’s core market of Florida and Georgia. During Fiscal 2002, Mayor’s operated an average of 36 stores both within its core marketplace and the non-core areas noted above.

The retail jewelry market is particularly subject to the level of consumer discretionary income and the subsequent impact on the type and value of goods purchased. With the consolidation of the retail industry, the Company believes that competition and consolidation both within the luxury goods retail industry and with other competing general and specialty retailers and discounters will continue to increase. The luxury watch brand business comprises a significant portion of the Company’s business, which management believes is a result of the Company’s ability to effectively market high-end watches. If, for any reason, the Company is unable to obtain or sell certain watches, it could have a material adverse effect on the Company’s business, financial condition and operating results.

The success of the Company’s operations depends to a certain extent on the ability of mall anchor tenants and other attractions to generate customer traffic in the vicinity of the Mayor’s stores. The negative performance of a mall could have an adverse effect on Mayor’s operations, caused by events such as the loss of mall anchor tenants in the regional malls where the Mayor’s stores are located, the opening of competing regional malls or stores, the occurrence of hurricanes or terrorist attacks and other economic downturns affecting customer mall traffic.

One of the Company’s goals is to increase gross profit and gross margin. The Company’s strategy for gross profit and gross margin improvement is to reduce the cost of merchandise purchased through leveraging the Company’s purchasing power and increasing sales of exclusive and brand merchandise, and to move the mix of sales towards higher margin jewelry items, including a continued emphasis on growing the bridal business. In addition, the Company expects to continue to refine the allocation and management of inventory in its stores, and as a result, other direct costs such as the cost of financing inventory and inventory markdowns are expected to decrease. However, there can be no assurance that the Company’s strategy to increase gross profit and gross margin will be successful. In addition, the Company is focusing on controlling and decreasing, where appropriate, operating costs which include the sharing of services of certain officers and other members of senior management. The relationship with Birks has brought synergies to both companies in several areas, including the production of holiday catalogs, television advertising campaigns and other marketing efforts; the attainment of favorable terms on its banking facilities and reduction in insurance premiums; and the ability to strengthen and/or consolidate supplier relationships with improved terms as a result of leveraging the credibility and stronger purchasing power of the combined companies.

The retail jewelry business is seasonal in nature with a higher proportion of sales and a significant portion of the Company’s earnings generated during the third fiscal quarter holiday selling season and, therefore, the results of its operations for the thirteen weeks ended June 25, 2005 and June 26, 2004 are not necessarily indicative of the results of the entire fiscal year.

Results of Operations

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results may differ from those estimates. These estimates and assumptions are evaluated on an on-going basis and are based on historical experience and on various factors that are believed to be reasonable.

The Company has identified certain critical accounting policies as noted below.

Inventory. The reserve for inventory shrink is estimated for the period from the last physical inventory date to the end of the reporting period on a store by store basis and at the Company’s distribution center. Such estimates are based on experience and the shrinkage results from the last physical inventory. The shrinkage rate from the most recent physical inventory, in combination with historical experience, is the basis for providing a shrink reserve.

The Company writes down its inventory for estimated slow moving inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Mayor’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Long-lived Assets. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Measurement of an impairment loss for such long-lived assets would be based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

Revenue Recognition. Sales are recognized at the point of sale when merchandise is taken by or shipped to a customer. Shipping and handling fees billed to customers are included in net sales. Revenues from gift certificate sales and store credits are recognized upon redemption. Sales of consignment merchandise are recognized at such time as the merchandise is sold and recorded on a gross basis in accordance with Emerging Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, because Mayor’s is the primary obligor of the transaction, has general latitude on setting the price, has discretion as to the suppliers, is involved in the selection of the product and has inventory loss risk. Sales are reported net of returns. Mayor’s generally gives its customers the right to return merchandise purchased by them within 30 days for jewelry and 10 days for timepieces and records an accrual at the time of sale for the effect of the estimated returns.

Thirteen Weeks Ended June 25, 2005 compared to the Thirteen Weeks ended June 26, 2004

The Company’s net sales for the thirteen weeks ended June 25, 2005 were $32.5 million compared to $29.1 million for the thirteen weeks ended June 26, 2004. The increase in revenues for the thirteen weeks ended June 25, 2005 is primarily due to an increase in the Company’s average sale, an increase in high-end sales, and strong results from annual marketing initiatives such as the spring catalog. Comparable store net sales, which includes stores that were open in the same periods in both the current and prior year, increased 11.5% over the similar thirteen week period in 2004. Stores are included in “Comparable store net sales” for the periods that they are open, which are not necessarily for the entire period presented. Stores that have been relocated to a different geographic area and operate in a different store format (i.e., mall store to stand-alone) are not included in the “Comparable store net sales” calculations until their thirteenth month of operations. Additionally, the “Comparable store net sales” calculations are not adjusted for any changes in the square footage of an existing store from period to period.

Gross profit was $14.4 million and 44.3% of sales for the thirteen weeks ended June 25, 2005 compared to $12.2 million and 41.7% of sales for the thirteen weeks ended June 26, 2004. The Company believes the increase in gross profit and gross margin (gross profit as a percentage of sales) is primarily due to the execution of a focused inventory management plan that included the assessment and disposal of aged inventory at better than expected results affecting gross margin by approximately 0.4% and the continued success of the previously discussed merchandising strategies which included sales of higher margin products.

Selling, general and administrative expenses were $13.3 million or 40.9% of net sales for the thirteen weeks ended June 25, 2005 compared to $12.7 million or 43.5% of net sales for the thirteen weeks ended June 26, 2004. The increase in selling, general and administrative expenses for the thirteen weeks ended June 25, 2005 is primarily due to $0.1 million of expenses incurred related to the Securities and Exchange Commission informal inquiry and approximately $0.3 million of expenses incurred related to the potential business combination with Birks, an increase in variable expense of $0.1 million related to the increase in sales and a net increase of all other selling, general and administrative expenses of $0.1 million. Non-cash compensation (credit) expense was ($226,000) for the thirteen weeks ended June 25, 2005. Non-cash compensation (credit) expense resulted from the decrease in the intrinsic value of vested warrants, based on the underlying value of the stock and

subject to variable accounting, issued to certain current or former employees of Birks or its affiliates, who were or later became employees of or provided services to the Company. Non-cash compensation expense was $296,000 for the thirteen weeks ended June 26, 2004. Non-cash compensation expense resulted from 1) the increase in the intrinsic value of vested warrants, based on the underlying value of the stock and subject to variable accounting, issued to certain current or former employees of Birks or its affiliates, who were or later became employees of or provided services to the Company in the amount of approximately $161,000; and 2) the private sale of the Company’s stock owned by Birks which resulted in non-cash compensation expense of $135,000 recorded by the Company, which represented the difference between the market value of the stock and the selling price at the date of the sale.

Other charges (credit) for the thirteen weeks ended June 25, 2005 were comprised of approximately ($79,000) and resulted from an adjustment of sales tax estimates.

Depreciation and amortization expenses were $0.8 million for the thirteen weeks ended June 25, 2005 and June 26, 2004.

Interest and other income was $3,000 for the thirteen weeks ended June 26, 2004. Interest and other financial costs were $1.1 million for the thirteen weeks ended June 25, 2005 and June 26, 2004.

FINANCIAL CONDITION

Liquidity and Capital Resources

During the thirteen weeks ended June 25, 2005, cash flows from operating activities provided $1.3 million in cash. Net cash provided by operating activities was primarily the result of the increase in accounts payable and the decrease in accounts receivable offset by working capital needs due to the net loss for the thirteen weeks ended June 25, 2005 and the increase in inventories and the decrease in accrued expenses. During the thirteen weeks ended June 26, 2004, cash flows from operating activities used $2.4 million in cash. The use of cash for operating activities was primarily the result of the working capital needs due to the net loss for the thirteen weeks ended June 26, 2004, the decrease in accounts payable and accrued expenses offset by the decrease in inventories and accounts receivable.

Net cash used in investing activities was $0.5 million and $0.3 million during the thirteen weeks ended June 25, 2005 June 26, 2004, respectively, and primarily related to capital expenditures.

Net cash used in financing activities was $0.7 million during the thirteen weeks ended June 25, 2005 which related to the $1.0 million principal payment on the term loan, the dividend payment to Birks and the purchase of warrants from one of the holders offset by net borrowings under the credit facility. Net cash provided by financing activities of $2.4 million during the thirteen weeks ended June 26, 2004 related to net borrowings under the credit facility.

Management believes that barring a significant external event that materially adversely affects Mayor’s current business or the current industry trends as a whole, Mayor’s borrowing capacity under the credit facility, projected cash flows from operations and other short term borrowings will be sufficient to support the Company’s working capital needs, capital expenditures and debt service for at least the next twelve months.

FORWARD-LOOKING STATEMENTS

This report and other written reports and releases and oral statements made from time to time by the Company contain forward-looking statements which can be identified by their use of words like “plans,” “expects,” “believes,” “will,” “anticipates,” “intends,” “projects,” “estimates,” “could,” “would,” “may,” “planned,” “goal,” and other words of similar meaning. All statements that address expectations, possibilities or projections about the future, including without limitation statements about the Company’s strategies for growth, expansion plans, sources or adequacy of capital, expenditures and financial results are forward-looking statements. These include statements regarding the Company’s expectation for no aberrations in earnings results, strong sales, margin and earning results for the remainder of the fiscal year, success of the Company’s marketing and business strategies, and future growth and profitability.

No forward-looking statement is guaranteed and actual results may vary materially. Such statements are made as of date provided, and the Company assumes no obligation to update any forward-looking statements to reflect future developments or circumstances. One must carefully consider such statements and understand that many factors could cause actual results to differ from the forward-looking statements, such as inaccurate assumptions and other risks and uncertainties, some known and some unknown. These risks and uncertainties include the possibility of additional hurricanes or other natural disasters, the Company’s ability to maintain strong sales, margins and earnings throughout the remainder of the fiscal year, the ability of the Company to maintain strong growth and profitability, the Company’s ability to compete with other jewelers, the successful completion of the proposed transaction between the Company and Birks, the Company’s controlling stockholder and the successful resolution of the informal investigation by the Securities and Exchange Commission previously disclosed by the Company and discussed in further detail below.

The Company is the subject of an informal inquiry by the Securities and Exchange Commission. Responding to the informal inquiry will require significant attention and resources of management. If the Securities and Exchange Commission elects to pursue a formal investigation or an enforcement action, the additional response and the defense could be costly and require additional management resources. If the Company is unsuccessful in resolving this or other investigations or proceedings, it could face civil or criminal penalties that could seriously harm the Company’s business and results of operations.

In addition, one should carefully evaluate such statements by referring to the factors described in the Company’s filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-K/A, 10-Q, 10-Q/A and 8-K. Particular review is to be made of Items 1, 2, 3 and 7 of the Forms 10-K and 10-K/A and Part I, Item 2 of the Forms 10-Q/A and 10-Q where the Company discusses in more detail various important risks and uncertainties that could cause actual results to differ from expected or historical results. The Company notes these factors for investors as permitted by the Private Securities Litigation Act of 1995. All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements. Since it is not possible to predict or identify all such factors, the identified items are not a complete statement of all risks or uncertainties.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risks

The Company’s working capital credit facility accrues interest at floating rates, currently based upon prime plus .5% or a LIBOR based rate plus a specified margin, based on the level of borrowing availability, at the Company’s election. The Company manages its borrowings under this credit facility each day in order to minimize interest expense. The impact on the Company’s earnings per share of a one-percentage point interest rate change on the outstanding balance as of June 25, 2005 would increase or decrease earnings per share by approximately $342,000 or less than $.01 per share.

The Company extends credit to its customers under its own revolving charge plan with up to three-year payment terms. Finance charges, when applicable, are generally currently assessed on customers’ balances at a rate of 1.5% per month. Since the interest rate is fixed at the time of sale, market interest rate changes would not impact the Company’s finance charge income.

Foreign Currency Risk

The Company is party to a Management Consulting Services Agreement (the “Management Agreement”) with Regaluxe Investment Sarl which is based in U.S. currency. The Management Agreement contains a provision that requires the parties

to reevaluate the fees and make adjustments to the fees as they deem necessary should the U.S. to Euro exchange rate increase to and remain above $1.3U.S./1 Euro or decrease to and remain below $1U.S./1 Euro for 15 consecutive business days. The Company’s exposure to market risk is limited primarily to fluctuating interest rates associated with variable rate indebtedness that is subject to interest rate changes in the United States and to foreign currency risk associated with the Management Agreement. The Company does not use, nor has it historically used, derivative financial instruments to manage or reduce market risk.

Item 4. CONTROLS AND PROCEDURES.

(a) Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Interim Chief Financial Officer of the Company, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. As a result of the material weaknesses identified below, management has concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report to ensure that information the Company is required to disclose in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Internal Control Over Financial Reporting

Changes in Internal Controls. During the financial reporting process associated with the Company’s financial results for fourth quarter ended March 26, 2005 and the fiscal year ended March 26, 2005, the Company identified three material weaknesses in the Company’s internal control over financial reporting. In addition, the Company identified a material weakness in the Company’s internal control over financial reporting in the third fiscal quarter of Fiscal 2004. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Mayor’s management identified the following material weaknesses as of March 26, 2005:

Material weaknesses identified in the fourth quarter of Fiscal 2004

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Adjustments to Inventory to the Lower of Cost or Market. The Company’s internal control policies and procedures over adjustments to inventory to the lower of cost or market do not ensure that adjustments were made in accordance with generally accepted accounting principles and specifically, did not prevent the adjustment of certain aged inventory to below current book value without adequate documentation and support.

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Accrued Legal Expenses. The Company’s internal control policies and procedures over the proper accounting for accrued legal expenses do not prevent the accrual of legal expenses (e.g., litigation costs, judgments and settlements) without adequate documentation and support.

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Related Party Transactions. The Company’s internal control over policies and procedures over the proper accounting for related party transactions fail to capture, control, process and record expenses related to transactions with related parties prior to the closing of the consolidated financial statements and issuance of a press release. In addition, the Company’s internal control policies and procedures did not properly provide for the proper accounting of related party transactions in accordance with generally accepted accounting principles.

Material weakness identified in the third quarter of Fiscal 2004

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Affiliate Agreements and Contracts Effecting the Company. The Company’s internal control over policies and procedures over the review of affiliate agreements and contracts for applicability and effect on the Company’s consolidated financial statements do not ensure that such agreements and contracts, where applicable, are properly disclosed and reflected in the consolidated financial statements.

The Company also identified one significant deficiency in the Company’s internal control over financial reporting during the financial reporting process associated with the Company’s fourth fiscal quarter and fiscal year 2004 financial results. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. Mayor’s management identified the following significant deficiency as of March 26, 2005:

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Allowance for Doubtful Accounts. The Company’s internal control policies and procedures over the estimation of the allowance for doubtful accounts do not include an effective process to document support for increases in the reserve for accounts aged less than 60 days delinquent.

These material weaknesses and this significant deficiency resulted in adjustments to the Company’s Fiscal 2004 consolidated financial statements subsequent to completion of the Company’s existing financial statement reporting process. Management and the Company’s Audit Committee are currently in the process of implementing remedial actions to correct these weaknesses, including, but not limited to, hiring additional accounting and financial reporting personnel and establishing processes and procedures to ensure that all transactions are properly accounted for and documented.

As previously reported, on November 9, 2004 and December 1, 2004, the Company released its preliminary conclusions regarding an expected restatement of its financial statements for the fiscal quarters ended November 2, 2002, September 27, 2003, December 27, 2003, and June 26, 2004, the fiscal years ended March 29, 2003 and March 27, 2004, and the selected quarterly financial data for the fiscal quarter ended March 27, 2004. For the reasons described below, which were discovered by the Company in the third fiscal quarter of 2004, management changed its conclusions that the Company’s disclosure controls and procedures were effective as of the end of the periods covered by the reports in the Company’s Form 10-K/A for the year ended March 27, 2004 and in the Company’s Form 10-Q/As for the periods ended September 25, 2004 and June 26, 2004, to ensure that information the Company is required to disclose in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management now believes that the Company’s disclosure controls and procedures were not effective as of the end of the periods covered by those reports.

During the financial reporting process associated with the Company’s third quarter of fiscal 2004 financial results, the Company determined that certain errors had occurred in the Company’s accounting treatment of certain warrants that were issued by the Company to Henry Birks & Sons Inc. (“Birks”), the Company’s majority stockholder, in connection with Birks’ August 20, 2002 equity investment of $15.05 million in the Company, and later assigned in part to certain individuals affiliated with Birks, and the Company also determined that it should reconsider certain conclusions regarding the allocation of the fair value of the equity investment between the Series A Convertible Preferred Stock (the “Preferred Stock”) and the warrants issued to Birks in connection with the transaction.

The Company has determined that as a result of the assignment of the warrants to those recipients, the Company should have reflected a non-cash compensation adjustment relating to the increase or decrease in the intrinsic value of the warrants that could be attributed to the services provided by the recipients to the Company based on the vesting schedule of the warrants. The increase or decrease in value of these warrants is required to be reflected in the Company’s financial statements as calculated at the end of each reporting period. The Company also concluded that a fair value of approximately $3.8 million should have been allocated to the warrants rather than the original allocation of approximately $1 million, and the Company recognized a beneficial conversion feature for the Preferred Stock as a result of the valuation of the warrants. After becoming aware of these accounting issues, the Audit Committee of the Board of Directors initiated a review with the assistance of independent legal counsel of the assignment of the warrants.

On March 21, 2005, the Company received a comment letter from the SEC with regard to its financial statements for the fiscal year ended March 27, 2004 and the periods ended September 25, 2004, June 26, 2004, and December 25, 2004. In connection with its response to this letter, the Company discovered that an additional restatement was required for the fiscal year ended March 29, 2003 and for the forty week period ended January 4, 2003.

The Company revised the fair value assigned to the convertible preferred stock and the warrants for the fiscal year ended March 29, 2003 and for the forty week period ended January 4, 2003. Such revision adjusted the previously recognized beneficial conversion feature of the convertible preferred stock. The Company also determined that it should recognize the fair value assigned to the warrants as a dividend to Birks. As a result of the revaluation of the preferred stock and warrants and to properly recognize the fair value assigned to the warrants as a dividend, the Net Loss Attributable to Common Stockholders and the Loss Per Share for the fiscal year ended March 29, 2003 and the forty week period ended January 4, 2003, were increased by approximately $3.3 million and $0.17, respectively.

The Company’s senior management team (“Management”) conducted a thorough review of the accounting treatment of the warrants and the allocation of the fair value of the equity investment by Birks. As a result of this review, the Audit Committee recommended to Management that the following corrective actions be taken:

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Establish a formal review procedure for all contracts, legal agreements and significant transactions;

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Establish a procedure to confirm that all of the appropriate documents and information have been properly considered in connection with the preparation, completeness and accuracy of the Company’s consolidated financial statements;

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Develop a procedure through which an appropriate person in the Company’s Accounting and Reporting Division is apprised on a timely basis of all significant capital transactions, compensation transactions, and significant related party transactions, of the Company and Birks, so that they can make decisions and determinations regarding the accounting and disclosure requirements for the Company, if any, that surround such transactions; and

•

Require that an appropriate person in the Company’s Accounting and Reporting Division issue a formal report each quarter to the Company’s Audit Committee on the accounting and reporting matters surrounding all major transactions or legal agreements that the Company entered into since the previous Audit Committee meeting.

The Company is also undertaking a review of its internal controls as a part of the Company’s preparation for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The changes identified above to the Company’s internal control over financial reporting have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

The Company is from time to time involved in litigation incident to the conduct of its business. Although certain litigation of the Company is routine and incidental, and such litigation can result in large monetary awards for compensatory or punitive damages, the Company believes that no litigation that is currently pending involving the Company will have a material adverse effect on the Company’s financial condition.

Item 6. Exhibits

List of Exhibits:


2.1		Agreement and Plan of Merger and Reorganization, dated April 18, 2005, among the Company, Birks and Merger Sub. Incorporated by reference from Exhibit 10.01 of Mayor’s Form 8-K filed on April 19, 2005.

3.1		Certificate of Incorporation. Incorporated by reference from Exhibit 3(i) of Mayor’s Form 8-K filed on July 14, 2000.

3.2		Bylaws. Incorporated by reference from Exhibit 3.2 of Mayor’s Form 10-K filed on May 15, 1995.

10.1		Employment Agreement by and between the Company and Daisy S. Chin-Lor, dated April 1, 2005. Incorporated by reference from Exhibit 10.30 of Mayor’s Form 10-K filed on June 24, 2005.

10.2		Sixth Amendment to Revolving Credit, Tranche B Loan and Security Agreement, dated as of March 3, 2005, by and among Fleet Retail Group Inc., GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and the Domestic Subsidiaries of the Company and the Company. Incorporated by reference from Exhibit 10.1 of Mayor’s Form 8-K filed on May 5, 2005.


10.3		Warrant Redemption Agreement by and between the Company and John Ball, dated May 26, 2005. Incorporated by reference from Exhibit 10.31 of Mayor’s Form 10-K filed on June 24, 2005.

31.1		Certification by Thomas A. Andruskevich, Chairman of the Board, President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

31.2		Certification by Lawrence R. Litowitz, Principal Accounting Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements 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.


	MAYOR’S JEWELERS, INC.
	(Registrant)

	By:	/s/ Thomas A. Andruskevich
Date: August 9, 2005		Chairman of the Board, President and
		Chief Executive Officer

	By:	/s/ Lawrence R. Litowitz
Date: August 9, 2005		Principal Accounting Officer

Exhibit Index


2.1		Agreement and Plan of Merger and Reorganization, dated April 18, 2005, among the Company, Birks and Merger Sub. Incorporated by reference from Exhibit 10.01 of Mayor’s Form 8-K filed on April 19, 2005.

3.1		Certificate of Incorporation. Incorporated by reference from Exhibit 3(i) of Mayor’s Form 8-K filed on July 14, 2000.

3.2		Bylaws. Incorporated by reference from Exhibit 3.2 of Mayor’s Form 10-K filed on May 15, 1995.

10.1		Employment Agreement by and between the Company and Daisy S. Chin-Lor, dated April 1, 2005. Incorporated by reference from Exhibit 10.30 of Mayor’s Form 10-K filed on June 24, 2005.

10.2		Sixth Amendment to Revolving Credit, Tranche B Loan and Security Agreement, dated as of March 3, 2005, by and among Fleet Retail Group Inc., GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and the Domestic Subsidiaries of the Company and the Company. Incorporated by reference from Exhibit 10.1 of Mayor’s Form 8-K filed on May 5, 2005.

10.3		Warrant Redemption Agreement by and between the Company and John Ball, dated May 26, 2005. Incorporated by reference from Exhibit 10.31 of Mayor’s Form 10-K filed on June 24, 2005.

31.1		Certification by Thomas A. Andruskevich, Chairman of the Board, President and Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

31.2		Certification by Lawrence R. Litowitz, Principal Accounting Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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MAYORS JEWELERS INC/DE 10-Q