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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 December 25, 2004

 

OR

 

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

 

For the transition period from              to             

 

Commission File Number 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 FEBRUARY 4, 2005

 



Table of Contents

MAYOR’S JEWELERS, INC.

 

FORM 10-Q

 

FOR THE THIRTEEN WEEKS ENDED DECEMBER 25, 2004

 

TABLE OF CONTENTS

 

          Page No.

PART I: FINANCIAL INFORMATION

    

        Item 1.

   Consolidated Condensed Financial Statements - Unaudited     
     Consolidated Condensed Balance Sheets as of December 25, 2004 and March 27, 2004    3
    

Consolidated Condensed Statements of Operations for the thirteen weeks ended December 25, 2004 and December 27, 2003

   4
    

Consolidated Condensed Statements of Operations for the thirty-nine weeks ended December 25, 2004 and December 27, 2003

   5
    

Consolidated Condensed Statements of Cash Flows for the thirty-nine weeks ended December 25, 2004 and December 27, 2003

   6
     Notes to Consolidated Condensed Financial Statements    7-11

        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    15-16

PART II: OTHER INFORMATION

    

        Item 1. Legal Proceedings.

   16

        Item 6. Exhibits

   17

         Signatures

   18

 

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Table of Contents

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)

 

    

December 25,

2004


   

March 27,

2004


 

ASSETS

                

Current Assets:

                

Cash and cash equivalents

   $ 7,187     $ 1,448  

Accounts receivable (net of allowance for doubtful accounts of $1,156 and $999, at December 25, 2004 and March 27, 2004, respectively)

     7,513       6,446  

Inventories

     83,258       80,825  

Other current assets

     1,586       1,194  
    


 


Total current assets

     99,544       89,913  
    


 


Property, net

     13,778       14,634  

Other assets

     591       668  
    


 


Total non-current assets

     14,369       15,302  
    


 


Total assets

   $ 113,913     $ 105,215  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Current Liabilities:

                

Accounts payable

   $ 22,267     $ 13,833  

Accrued expenses

     9,591       9,457  

Credit facility

     31,913       33,005  
    


 


Total current liabilities

     63,771       56,295  
    


 


Other long term liabilities

     2,487       2,768  

Term loan

     12,668       12,668  
    


 


Total long term liabilities

     15,155       15,436  
    


 


Stockholders’ Equity:

                

Series A-1 convertible preferred stock, $.001 par value, 15,050 shares authorized and issued at December 25, 2004 and March 27, 2004, liquidation value of $15,050,000

     —         —    

Common stock, $.0001 par value, 50,000,000 shares authorized, 46,945,261 issued at December 25, 2004 and March 27, 2004

     5       5  

Additional paid-in capital

     206,939       206,981  

Accumulated deficit

     (142,557 )     (144,102 )

Less: 9,983,954 shares of treasury stock, at cost

     (29,400 )     (29,400 )
    


 


Total stockholders’ equity

     34,987       33,484  
    


 


Total liabilities and stockholders’ equity

   $ 113,913     $ 105,215  
    


 


 

See notes to unaudited consolidated condensed financial statements.

 

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Table of Contents

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

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

 

    

Thirteen

Weeks Ended

December 25, 2004


   

Thirteen

Weeks Ended

December 27, 2003


 

Net sales

   $ 57,237     $ 50,318  

Cost of sales

     32,378       29,070  
    


 


Gross profit

     24,859       21,248  
    


 


Selling, general and administrative expenses

     16,044       15,234  

Non-cash compensation credit

     (145 )     (45 )

Other operating expenses (income), net

     722       —    

Depreciation and amortization

     818       813  
    


 


Total operating expenses

     17,439       16,002  
    


 


Operating income

     7,420       5,246  

Interest and other income

     12       2  

Interest and other financial costs

     (1,189 )     (1,183 )
    


 


Net income

     6,243       4,065  

Preferred stock cumulative dividend

     —         (357 )
    


 


Net income attributable to common stockholders

   $ 6,243     $ 3,708  
    


 


Weighted average shares outstanding:

                

Basic

     36,961,307       29,333,616  

Diluted

     95,582,537       88,077,141  

Income per share:

                

Basic

   $ 0.17     $ 0.13  
    


 


Diluted

   $ 0.07     $ 0.04  
    


 


 

See notes to unaudited consolidated condensed financial statements.

 

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Table of Contents

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

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

 

    

Thirty-nine

Weeks Ended

December 25, 2004


   

Thirty-nine

Weeks Ended

December 27, 2003


 

Net sales

   $ 111,859     $ 98,657  

Cost of sales

     64,245       58,003  
    


 


Gross profit

     47,614       40,654  
    


 


Selling, general and administrative expenses

     40,337       38,872  

Non-cash compensation (credit) expense

     (42 )     730  

Other operating expenses (income), net

     (68 )     —    

Depreciation and amortization

     2,492       2,525  
    


 


Total operating expenses

     42,719       42,127  
    


 


Operating income (loss)

     4,895       (1,473 )

Interest and other income

     18       30  

Interest and other financial costs

     (3,368 )     (3,456 )
    


 


Net income (loss)

     1,545       (4,899 )

Preferred stock cumulative dividend

     —         (1,072 )
    


 


Net income (loss) attributable to common stockholders

   $ 1,545     $ (5,971 )
    


 


Weighted average shares outstanding:

                

Basic

     36,961,307       22,850,079  

Diluted

     95,654,272       22,850,079  

Income (loss) per share:

                

Basic

   $ 0.04     $ (0.26 )
    


 


Diluted

   $ 0.02     $ (0.26 )
    


 


 

See notes to unaudited consolidated condensed financial statements.

 

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MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(Amounts shown in thousands)

 

    

Thirty-nine

Weeks Ended

December 25, 2004


   

Thirty-nine

Weeks Ended

December 27, 2003


 

Cash flows from operating activities:

                

Net income (loss)

   $ 1,545     $ (4,899 )

Adjustments to reconcile net income (loss) to net provided by operating activities:

                

Depreciation and amortization

     2,492       2,525  

Amortization of debt costs

     430       297  

Provision for doubtful accounts

     413       244  

Non-cash compensation (credit) expense related to warrants and Birks sale of stock

     (42 )     730  

Gain on sale of fixed assets

     (18 )     (35 )

(Increase) decrease in assets:

                

Accounts receivable

     (1,480 )     (3,452 )

Inventories

     (2,433 )     (6,390 )

Other assets

     (387 )     1,488  

Increase (decrease) in liabilities:

                

Accounts payable

     8,434       7,918  

Accrued expenses and other long term liabilities

     (147 )     3,047  
    


 


Net cash provided by continuing operations

     8,807       1,473  

Net cash used in discontinued operations

     —         (527 )
    


 


Net cash provided by operating activities

     8,807       946  
    


 


Cash flows from investing activities:

                

Capital expenditures

     (1,636 )     (807 )

Proceeds from sale of fixed assets

     18       35  
    


 


Net cash used in investing activities

     (1,618 )     (772 )
    


 


Cash flows from financing activities:

                

Borrowings under line of credit

     104,930       102,804  

Line of credit repayments

     (106,022 )     (99,883 )

Payment of commitment fee related to line of credit

     (358 )     (281 )
    


 


Net cash (used in) provided by financing activities

     (1,450 )     2,640  
    


 


Net increase in cash and cash equivalents

     5,739       2,814  

Cash and cash equivalents at beginning of period

     1,448       1,058  
    


 


Cash and cash equivalents at end of period

   $ 7,187     $ 3,872  
    


 


Supplemental cash flow information:

                

Interest paid

   $ 3,224     $ 3,412  
    


 


Non-cash investing and financing activities:

                

Property acquired with debt

   $ 231     $ 130  
    


 


Common stock issued pursuant to cashless exercise of warrants

   $ —       $ 2  
    


 


 

See notes to unaudited consolidated condensed financial statements.

 

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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 December 25, 2004 and March 27, 2004, and for the thirteen and thirty-nine week periods ended December 25, 2004 and December 27, 2003 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 and thirty-nine week periods ended December 25, 2004 and December 27, 2003 are not necessarily indicative of annual results 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 Form 10-K/A for the year ended March 27, 2004. Certain reclassifications were made to the prior period’s consolidated condensed balance sheet and consolidated statements of operations to conform to the current period presentation.

 

Mayor’s is primarily engaged in the sale of fine 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. 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 tables estimate 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 (amount shown in thousands except for per share data):

 

    

Thirteen

Weeks Ended

December 25, 2004


   

Thirteen

Weeks Ended

December 27, 2003


 
     (In thousands, except for per share amounts)  

Net income attributable to common stockholders as reported

   $ 6,243     $ 3,708  

Adjust for non-cash compensation credit for warrants recorded pursuant to APB 25

     (145 )     (45 )
    


 


Adjusted net income

     6,098       3,663  

Stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax

     (73 )     (372 )
    


 


Pro-forma net income

   $ 6,025     $ 3,291  
    


 


Income per share

                

As reported basic:

   $ 0.17     $ 0.13  
    


 


As reported diluted:

   $ 0.07     $ 0.04  
    


 


Pro-forma basic:

   $ 0.16     $ 0.11  
    


 


Pro-forma diluted:

   $ 0.06     $ 0.04  
    


 


 

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Table of Contents
    

Thirty-nine

Weeks Ended

December 25, 2004


   

Thirty-nine

Weeks Ended

December 27, 2003


 
     (In thousands, except for per share amounts)  

Net income (loss) attributable to common stockholders as reported

   $ 1,545     $ (5,971 )

Adjust for non-cash compensation (credit) expense for warrants recorded pursuant to APB 25

     (177 )     730  
    


 


Adjusted net income (loss)

     1,368       (5,241 )

Stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax

     (278 )     (1,150 )
    


 


Pro-forma net income (loss)

   $ 1,090     $ (6,391 )
    


 


Income (loss) per share

                

As reported basic:

   $ 0.04     $ (0.26 )
    


 


As reported diluted:

   $ 0.02     $ (0.26 )
    


 


Pro-forma basic:

   $ 0.03     $ (0.28 )
    


 


Pro-forma diluted:

   $ 0.01     $ (0.28 )
    


 


 

The fair value of each option 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 during the thirteen and thirty-nine weeks ended December 27, 2003: expected volatility of 96%, risk-free interest rate of 3.15%, expected lives of approximately five years and a dividend yield of zero for the periods presented. There were no options granted during the thirteen and thirty-nine weeks ended December 25, 2004. There were 50,000 and 90,000 options granted during the thirteen and thirty-nine weeks ended December 27, 2003, respectively. 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.

 

C. Term Loan and Credit Facility

 

As of December 25, 2004, the Company had a $58 million working capital credit facility with Bank of America (formerly known as Fleet) and GMAC and a $12.7 million junior secured term loan with Back Bay Capital. On September 7, 2004, the Company entered into a Fourth Amendment to the working capital facility and the junior secured term loan (the “Amended Credit Agreement”). The Amended Credit Agreement provides for, among other things, an extended maturity date to August 20, 2006, a 1.25% reduction of interest on the junior secured term loan, an interest reduction on the Bank of America-GMAC portion of the credit facility, the elimination of a financial covenant and the increase in the capital expenditures allowed pursuant to the sole remaining financial covenant. Availability under the working capital facility is determined based upon a percentage formula applied to certain inventory and accounts receivable as amended on February 20, 2004, and has certain restrictions regarding borrowing availability. The interest rate under the credit facility as of December 25, 2004 was 5.25% (prime plus 0.5%). The junior secured term loan currently bears an effective interest rate of 12.75% and is subject to similar restrictions and covenants as the working capital facility as well as certain prepayment penalties.

 

After accounting for the borrowing restrictions described above, the Company had approximately $55.9 million of borrowing capacity under its facility and, after netting the outstanding borrowings of $31.9 million and letter of credit commitments of $600,000, the Company had excess borrowing capacity of approximately $23.4 million.

 

D. Inventories

 

Inventories are summarized as follows:

 

     (amounts shown in thousands)

     December 25, 2004

   March 27, 2004

    

Company

Owned


   Company
Owned


Raw materials

   $ 1,026    $ 1,415

Finished goods

     82,232      79,410
    

  

     $ 83,258    $ 80,825
    

  

 

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Table of Contents

In addition, the Company held inventory on consignment at December 25, 2004 and March 27, 2004 with a cost of approximately $14,614,000 and $11,460,000, respectively.

 

E. 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 originally convertible into 50,166,667 shares of common stock. The conversion ratio of the Series A Preferred 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. A fair value of $3.8 million has been allocated to the warrants. The preferred stock and warrants were issued by the Company without being registered, relying on an exemption under Section 4(2) of the Securities Act of 1933, as amended. Birks had entered into a Registration Rights Agreement with the Company, whereby Birks has the right to require the Company to register all of the shares underlying the above-described securities issued to Birks.

 

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 granted warrants was $0.29 per share, after certain anti-dilution adjustments. The granted warrants are subject to variable accounting rules due to their cashless exercise feature which requires compensation expense (credit) calculated as the increase or decrease in intrinsic value of the vested warrants in proration to the level of services provided by the individuals to the Company, which is based on the change in market value of the underlying stock. Non-cash compensation (credit) for the thirteen and thirty-nine weeks ended December 25, 2004 related to these warrants was ($145,000) and ($177,000), respectively. Non-cash compensation (credit) expense for the thirteen and thirty-nine weeks ended December 27, 2003 related to these warrants was ($45,000) and $730,000, respectively. As of December 25, 2004, the number of warrants was 4,771,572, of which 4,696,354 were vested, and the exercise price was $0.29. On January 1, 2005, the number of warrants increased to 4,776,900 as a result of the sale and issuance of 30,285 shares of common stock pursuant to the Company’s Employee Stock Purchase Plan and the grant of 80,000 stock options to the Company’s non-employee Directors on such date. The exercise price remained at $0.29.

 

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 288,195, 305,976 and 305,976 warrants exercisable at $0.29, $0.34 and $0.39, respectively, including adjustments for the anti-dilution provisions as of December 25, 2004. On January 1, 2005, the number of warrants increased to 288,517, 306,317 and 306,317, as a result of the sale and issuance of 30,285 shares of common stock pursuant to the Company’s Employee Stock Purchase Plan and the grant of 80,000 stock options to the Company’s non-employee Directors on such date. The exercise prices remained at $0.29, $0.34 and $0.39, respectively.

 

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 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, which is included in non-cash compensation (credit) expense in the unaudited Consolidated Condensed Statement of Operations for the thirty-nine weeks ended December 25, 2004.

 

The Series A Preferred provided that the holders of the Series A Preferred were entitled to receive dividends on each share of Series A Preferred 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. During the thirteen and thirty-nine weeks ended December 27, 2003, approximately $357,000 and $1,072,000, respectively, of dividends were cumulated and reflected in the unaudited Consolidated Condensed Statement of Operations for that period.

 

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Table of Contents

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 whereby each share of Series A Preferred was exchanged for one share of Series A-1 Preferred. This exchange took place in order to effectuate the early payment of dividends already earned by Birks. 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. Birks entered into an Amendment to the Registration Rights Agreement with the Company, whereby Birks has the right to require the Company to register all of the shares underlying the above described securities issued to Birks. As of December 25, 2004, the Series A-1 Preferred were convertible into 51,442,085 shares of common stock of the Company which includes an adjustment pursuant to the anti-dilution provision of the Series A-1 Preferred. On January 1, 2005, the number of shares of common stock the Series A-1 Preferred is convertible into 51,499,525 shares as a result of the sale and issuance of 30,285 shares of common stock pursuant to the Company’s Employee Stock Purchase Plan and the grant of 80,000 stock options to the Company’s non-employee Directors on such date. Upon conversion of the Series A-1 Preferred, Birks would own approximately 75.8% of the then outstanding common stock in Mayor’s.

 

In connection with the exchange of Series A Preferred, 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 for one year on the Series A-1 Preferred. Therefore, there are no cumulative dividends affecting net loss attributable to common stockholders for the thirteen and thirty-nine weeks ended December 25, 2004.

 

Mayor’s Chief Executive Officer, Group VP-Finance, Group VP-Supply Chain Operations, Group VP-Strategy and Business Development, Group Creative Director and other members of Mayor’s management serve in similar capacities for Birks. As of July 2004, the VP-Retail Store Operations began serving in a similar capacity for Birks as for Mayor’s and the Group VP-Category Management began assisting Birks in the category management of Birks’ branded watch business. The Chief Financial Officer of Birks served in the same capacity for the Company through December 16, 2004, at which time the Company appointed an interim Chief Financial Officer. 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. Lorenzo Rossi di Montelera, a Director of Mayor’s, serves as the Chairman of the Board of Directors of Birks.

 

During the thirteen and thirty-nine week period ended December 25, 2004, Mayor’s charged Birks approximately $44,000 and $66,000, respectively, for net costs related to advisory, management and corporate services pursuant to a Management Expense Reimbursement Agreement, which was net of expenses charged from Birks for similar services. During the thirteen and thirty-nine weeks ended December 27, 2003, Mayor’s incurred approximately $25,000 and $83,000, respectively, of net costs from Birks related to similar services which was net of expenses charged to Birks from Mayor’s. Also, during the thirteen and thirty-nine weeks ended December 25, 2004, Mayor’s purchased approximately $6,842,000 and $8,594,000, respectively, and $214,000 and $472,000, during the thirteen and thirty-nine weeks ended December 27, 2003, respectively, of merchandise from Birks pursuant to a Manufacturing & Sale Agreement. As of December 25, 2004, the Company owed Birks $1,880,000 related to purchases of inventory, advisory, management and corporate services and for expenses paid by Birks on behalf of Mayor’s.

 

On April 22, 2004, the Company entered into a Management Consulting Services Agreement (the “Management Agreement”) with Regaluxe Investment Sarl (“Regaluxe”), a company incorporated under the laws of Luxembourg, which became effective on May 1, 2004. Under the Management Agreement, Regaluxe provides advisory, management and corporate services to the Company. During the thirteen and thirty-nine weeks ended December 25, 2004, the Company incurred costs of $125,000 and $375,000 related to such services. 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. As of February 3, 2005, the exchange rate was $1.3U.S./1 Euro, however, in December 2004, the exchange rate was above $1.3U.S./1 Euro for greater than 15 consecutive days, and as such the Corporate Governance Committee of the Company approved an adjustment in the management fee of an additional $1,252 for December 2004. There can be no assurance that the exchange rate will remain at or below $1.3U.S./1 Euro; and therefore, the Company may be required to re-evaluate the management fee.

 

Regaluxe is the controlling shareholder of Henry Birks & Sons Holdings Inc. which is the controlling shareholder of Birks. Two of the Company’s directors, Filippo Recami and Dr. Lorenzo Rossi di Montelera, are affiliated with Regaluxe. 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 Management Agreement with Regaluxe.

 

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On July 29, 2004, Birks, the controlling stockholder of Mayor’s, notified the Board of Directors of Mayor’s that Birks was interested in combining the Mayor’s and Birks companies. The Board of Directors of Mayor’s has formed a special committee composed only of independent board members in order to consider the Birks proposal. There can be no assurance that any discussions between Birks and Mayor’s will result in the parties entering into a definitive agreement regarding any such corporate reorganization.

 

F. Other Operating Expenses (Income), Net

 

Other operating expenses (income), net for the thirteen weeks and thirty-nine weeks ended December 25, 2004 include approximately $0.4 million of expenses incurred related to the restatement of certain reports previously filed with the Securities and Exchange Commission and approximately $0.5 million of expenses incurred related to the potential business combination with Birks. For the thirteen weeks ended December 25, 2004, other operating expenses (income), net included approximately ($0.2) million of income as a result of an adjustment of sales tax contingencies. For the thirty-nine weeks ended December 25, 2004, other operating expenses (income), net included approximately ($1.0) million of income as a result of a settlement of a sales tax audit for less than the amount accrued as well as the adjustment of other sales tax contingency estimates.

 

G. Legal Proceedings

 

The Company is from time to time involved in litigation incident to the conduct of its business. In these pending matters, 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. On December 1, 2004, the Company was notified that the Securities and Exchange Commission is conducting an informal inquiry regarding the Company. The Securities and Exchange Commission is primarily requesting documents relating to warrants that were issued by the Company to Birks in connection with Birks’ August 20, 2002 equity investment of $15.05 million in the Company, and that were later assigned in part to certain individuals affiliated with Birks, and other relevant documents. The Company intends to fully cooperate with the SEC in its inquiry.

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 Form 10-K/A for the year ended March 27, 2004 and other reports filed with the Securities and Exchange Commission.

 

Executive Overview

 

Mayor’s currently operates 28 luxury jewelry stores in South and Central Florida and metropolitan Atlanta, Georgia. 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 and other economic downturns affecting customer mall traffic. In addition, other factors outside of the Company’s control may negatively impact the Company’s operations, including, but not limited to, a decrease in the level of tourism to the areas in which Mayor’s operates and hurricanes. The Company’s operations were negatively impacted by three hurricanes in the second fiscal quarter ended September 25, 2004 which caused the closure of 24 stores at various dates resulting in lost revenues.

 

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One of the Company’s core strategies is to continue to increase sales, gross profit and gross margin (gross profit as a percentage of sales) over the next several years. The Company’s strategy for sales, gross profit and gross margin improvement is to reduce the cost of merchandise purchased through leveraging the Company’s purchasing power, to manufacture more fine jewelry items in Mayor’s and Birks, to increase sales of exclusive merchandise, and to move the mix of sales towards higher margin jewelry items, including a renewed focus on the bridal business. In addition, the Company expects 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 sales, 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 with Birks. The relationship with Birks has brought synergies to both companies in several areas, including the production of holiday catalogs, television campaigns and other marketing efforts; the attainment of favorable terms on its banking facilities; 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, which encompassed the thirteen weeks ended December 25, 2004 and the thirteen weeks ended December 27, 2003 in the prior 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 State 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. Those 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 below.

 

Allowance for inventory shrink and slow moving inventory. The allowance 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 allowance.

 

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, if less than cost, 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.

 

Thirteen and Thirty-nine Weeks Ended December 25, 2004 compared to the Thirteen and Thirty-nine Weeks Ended December 27, 2003

 

The Company’s net sales for the thirteen and thirty-nine weeks ended December 25, 2004 were $57.2 million and $111.9 million, respectively, compared to $50.3 million and $98.7 million, respectively, for the thirteen and thirty-nine weeks ended December 27, 2003. The increase in revenues for the thirteen and thirty-nine weeks ended December 25, 2004 is primarily due to the result of an effective mix of merchandising and an increase of the units of inventory in stores, due in part

 

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to the improved financial position of the Company, enhanced marketing and customer events, and the continued increase in consumer confidence and spending compared to the same period last year. Comparable store sales (sales in stores open in both thirteen and thirty-nine week periods), increased 13.5% and 12.8%, respectively, as compared to the thirteen and thirty-nine week periods ended December 27, 2003.

 

Gross profit was $24.9 million, or 43.4% of sales and $47.6 million, or 42.6% of sales, respectively, for the thirteen and thirty-nine weeks ended December 25, 2004 compared to $21.2 million, or 42.2% of sales and $40.7 million, or 41.2% of sales, respectively, for the thirteen and thirty-nine weeks ended December 27, 2003. The Company believes the increase in gross profit and gross margin is primarily due to the continued successful execution of merchandising strategies.

 

Selling, general and administrative expenses were $16.0 million, or 28.0% of net sales and $40.3 million, or 36.1% of net sales, respectively, for the thirteen and thirty-nine weeks ended December 25, 2004 compared to $15.2 million, or 30.3% of net sales and $38.9 million, or 39.4% of net sales, respectively, for the thirteen and thirty-nine weeks ended December 27, 2003. The increase in selling, general and administrative expenses for the thirteen and thirty-nine weeks ended December 25, 2004 is primarily a result of the increase in variable costs related to the increase in sales and expanded marketing efforts. The decrease in selling, general and administrative expenses as a percentage of sales for the thirteen and thirty-nine weeks ended December 25, 2004 is due to the positive impact of leveraging the incremental sales against that portion of the operating expenses which are fixed.

 

Non-cash compensation (credit) was ($145,000) and ($42,000) for the thirteen and thirty-nine weeks ended December 25, 2004, respectively. Non-cash compensation (credit) for the thirteen and thirty-nine week periods ended December 25, 2004 resulted from the decrease in the intrinsic value of vested warrants assigned by Birks to purchase the Company’s common stock to certain current or former employees of Birks or its affiliates, who were or later became employees of or provided services to the Company based on the market value of the underlying stock. Non-cash compensation expense for the thirty-nine weeks also includes 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. Non-cash compensation (credit) expense was ($45,000) and $730,000, respectively, for the thirteen and thirty-nine weeks ended December 27, 2003 as a result of the change in the intrinsic value of vested warrants.

 

Other operating expenses (income), net for the thirteen weeks and thirty-nine weeks ended December 25, 2004 includes approximately $0.4 million of expenses incurred related to the restatement of certain reports previously filed with the Securities and Exchange Commission and approximately $0.5 million of expenses incurred related to the potential business combination with Birks. For the thirteen weeks ended December 25, 2004, other operating expenses (income), net included approximately ($0.2) million of income as a result of an adjustment of sales tax contingencies. For the thirty-nine weeks ended December 25, 2004, other operating expenses (income), net included approximately ($1.0) of income as a result of a settlement of a sales tax audit for less than the amount accrued as well as the adjustment of other sales tax contingency estimates.

 

Depreciation and amortization expenses were $0.8 million and $2.5 million, respectively, for the thirteen and thirty-nine weeks ended December 25, 2004 which was flat as compared to the thirteen and thirty-nine weeks ended December 27, 2003.

 

Interest and other financial costs were $1.2 million and $3.4 million, respectively, for the thirteen and thirty-nine weeks ended December 25, 2004 compared to $1.2 million and $3.5 million, respectively, for the thirteen and thirty-nine weeks ended December 27, 2003. Interest and other income were $12,000 and $18,000, respectively, for the thirteen and thirty-nine weeks ended December 25, 2004 compared to $2,000 and $30,000, respectively, for the thirteen and thirty-nine weeks ended December 27, 2003.

 

Liquidity and Capital Resources

 

As of December 25, 2004, the Company had a $58 million working capital credit facility with Bank of America (formerly known as Fleet) and GMAC and a $12.7 million junior secured term loan with Back Bay Capital. On September 7, 2004, the Company entered into a Fourth Amendment to the working capital facility and the junior secured term loan (the “Amended Credit Agreement”). The Amended Credit Agreement provides for, among other things, an extended maturity date to August 20, 2006, a 1.25% reduction of interest on the junior secured term loan, an interest reduction on the Bank of America-GMAC portion of the credit facility, the elimination of a financial covenant and the increase in the capital expenditures allowed pursuant to the sole remaining financial covenant. Availability under the working capital facility is determined based upon a percentage formula applied to certain inventory and accounts receivable as amended on February

 

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20, 2004, and has certain restrictions regarding borrowing availability. The interest rate under the credit facility as of December 25, 2004 was 5.25% (prime plus 0.5%). The junior secured term loan currently bears an effective interest rate of 12.75% and is subject to similar restrictions and covenants as the working capital facility as well as certain prepayment penalties.

 

After accounting for the foregoing borrowing restrictions, the Company had approximately $55.9 million of borrowing capacity under its facility and, after netting the outstanding borrowings of $31.9 million and letter of credit commitments of $600,000, the Company had excess borrowing capacity of approximately $23.4 million. The Company relies on its short term borrowings under the credit facility to finance its operations on a day to day basis. Substantially all of the assets of the Company have been pledged under the facility and term loan.

 

During the thirty-nine weeks ended December 25, 2004, cash flows from continuing operating activities provided $8.8 million in cash. The cash provided by operating activities was primarily the result of the working capital changes and the net income for the thirty-nine weeks ended December 25, 2004; the increase in accounts receivable due to the holiday sales activity and the increase in the inventory position were offset by an increase in accounts payable from purchases of inventories not yet paid. During the thirty-nine weeks ended December 27, 2003, cash flows from continuing operating activities provided $1.5 million in cash. Cash flows for discontinued operations used $0.5 million in cash. The cash provided from operating activities were achieved despite the working capital needs due to the net loss for the thirty-nine weeks ended December 27, 2003, due primarily to the increase in accounts payable and accrued expenses more than offsetting the increases in accounts receivable and inventories.

 

Net cash used in investing activities was $1.6 million and $0.8 million during the thirty-nine weeks ended December 25, 2004 and December 27, 2003, respectively, and primarily related to capital expenditures.

 

Net cash used in financing activities of ($1.5) million during the thirty-nine weeks ended December 25, 2004 was a result of net repayments on the credit facility and the payment of related commitment fees. Net cash provided by financing activities for the thirty-nine weeks ended December 27, 2003 was $2.6 and related to net borrowings under the credit facility and the payment of related commitment fees.

 

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

 

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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 Form’s 10-K/A, 10-Q/A, 10-Q and 8-K. Particular review is to be made of Items 1, 2, 3 and 7 of the Form 10-K/A and Part I, Item 2 of the Form’s 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. 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 RISKS

 

Interest Rate Risks

 

The Company’s credit facility accrues interest at floating rates, currently based upon prime plus .5%. 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 December 25, 2004 would increase or decrease earnings per share by approximately $319,000 or less than $.01 per share.

 

The Company extends credit to its Mayor’s 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./1Euro or decrease to and remain below $1U.S./1 Euro for 15 consecutive business days. As of February 3, 2005, the exchange rate was $1.3U.S./1 Euro, however, in December 2004, the exchange rate was above $1.3U.S./1 Euro for greater than 15 consecutive days, and as such the Corporate Governance Committee of the Company approved an adjustment in the management fee of an additional $1,252 for December 2004. There can be no assurance that the exchange rate will remain at or below $1.3U.S./1 Euro; and therefore, the Company may be required to further reevaluate the management fee. Based on the adjustment scale used for the December 2004 period, for each 10% increase in the exchange rate above $1.3U.S./1 Euro or 10% decrease in the exchange rate below $1U.S./Euro, the management fee would be adjusted by approximately $4,200.

 

Item 4. CONTROLS AND PROCEDURES.

 

(a) Evaluation of Disclosure Controls and Procedures. As of the last day 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 Chief Financial Officer of the Company, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, for the reason described below, the Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were not effective as of the date of their evaluation in timely alerting them to material information relating to the Company (including the Company’s consolidated subsidiaries) required to be included in reports the Company files or submits under the Securities Exchange Act of 1934.

 

(b) Changes in Internal Controls. During the financial reporting process associated with the Company’s third fiscal quarter 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.

 

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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. 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 circumstances surrounding the assignment of the warrants.

 

As a result of the foregoing, on January 7, 2005, the Company restated its financial statements for the fiscal quarters ended November 2, 2002, 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.

 

As a result of these findings, Management, in consultation with the Audit Committee, has concluded that there was a material deficiency, which had not been fully remediated as of the last day of the period covered by this report, in the Company’s internal controls over financial reporting. The Company is in the process of implementing the following remedial actions:

 

    Establishing a formal process by which the Company monitors, reviews and documents all contracts, legal agreements and significant transactions between the Company and Birks, the Company and third parties and Birks and third parties;

 

    Establishing 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;

 

    Developing 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

 

    Requiring 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.

 

Additionally, as previously announced, on December 16, 2004, the Board of Directors of the Company supplemented its GAAP accounting capabilities appointing Lawrence R. Litowitz to serve as Interim Chief Financial Officer and the Principal Accounting Officer of the Company, and the Company reassigned the previous officer performing such duties. The appointment of Mr. Litowitz is considered interim until a permanent Chief Financial Officer is selected.

 

The Company is also undertaking a thorough 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. Section 404 requires the Company’s management to report on, and the auditors to attest to, the effectiveness of the Company’s internal control structure and procedures for financial reporting. Other than the changes identified above, there have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of the Company’s third fiscal 2004 quarter that 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. There are no pending legal proceedings at this time reportable pursuant to this Item 1. 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. On December 1, 2004, the Company was notified that the Securities and Exchange Commission is conducting an informal inquiry regarding the Company. The Securities and Exchange Commission is primarily requesting documents relating to warrants that were issued by the Company to Birks in connection with Birks’ August 20, 2002 equity investment of $15.05 million in the Company, and that were later assigned in part to certain individuals affiliated with Birks, and other relevant documents. The Company intends to fully cooperate with the SEC in its inquiry.

 

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Item 6. Exhibits

 

List of Exhibits:

 

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    First Amendment to Employment Agreement dated February 1, 2005, between Thomas Andruskevich and Mayor’s.
10.2    First Amendment to Employment Agreement dated February 1, 2005, between Thomas Andruskevich and Mayor’s.
10.3    Interim Executive Services Agreement between Tatum CFO Partners, LLP and Mayor’s dated December 16, 2004.
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, Interim Chief Financial 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 Chief Financial 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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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


    Chairman of the Board, President and
    Chief Executive Officer

 

Date: February 8, 2005

 

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EXHIBIT INDEX

 

 

Exhibit No.

 

Description


10.1   First Amendment to Employment Agreement dated February 1, 2005, between Thomas Andruskevich and Mayor’s.
10.2   First Amendment to Employment Agreement dated February 1, 2005, between Thomas Andruskevich and Mayor’s.
10.3   Interim Executive Services Agreement between Tatum CFO Partners, LLP and Mayor’s dated December 16, 2004.
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, Interim Chief Financial 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 Chief Financial 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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