Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended March 26, 2005

or

For the transition period from              to             

Commission File Number 1-9647

MAYOR’S JEWELERS, INC.

(Exact name of Registrant as Specified in its Charter)

14051 N.W. 14th Street, Suite 200

Sunrise, Florida 33323

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (954) 846-8000

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

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

As of September 24, 2004, the aggregate market value of the voting stock beneficially held by non-affiliates of the registrant was $13,211,234. The aggregate market value was computed with reference to the closing price on the American Stock Exchange on such date. Affiliates are considered to be executive officers and directors of the registrant and their affiliates for which beneficial ownership is not disclaimed.

As of June 10, 2005, 36,991,592 shares of common stock were outstanding.

Table of Contents

MAYOR’S JEWELERS, INC.

TABLE OF CONTENTS

Table of Contents

PART I

ITEM 1. BUSINESS

As used in this Report, unless the context requires otherwise, “we,” “us,” “our,” “Mayor’s,” or the “Company,” means Mayor’s Jewelers, Inc. and its consolidated subsidiaries.

General

Mayor’s Jewelers, Inc. is a premier luxury jeweler of fine quality jewelry, watches and giftware founded in 1910. The Company is a Delaware corporation incorporated in 1983 and as of March 26, 2005, operated 28 stores in South and Central Florida and metropolitan Atlanta, Georgia. Mayor’s has a long-established reputation in its core market areas as a premier luxury jeweler offering fine quality merchandise in an elegant environment conducive to the purchase of luxury items. As a premier luxury jeweler, the Company does not sell “costume” or gold filled jewelry; rather, all of its jewelry products are constructed of 18 karat gold, platinum, or sterling silver, with or without precious gemstones, with significant emphasis on quality craftsmanship and design.

Mayor’s distinguishes itself from most of its competitors by offering a larger selection of distinctive higher quality merchandise at many different price points, and by placing substantial emphasis on professionalism and training of its sales force. Mayor’s designs, develops, manufactures and procures distinctive merchandise directly from manufacturers, diamond cutters and other suppliers throughout the world, enabling Mayor’s to sell distinctive high quality merchandise often not available from other jewelers in its markets. Additionally, because of its strong relationships with its vendors, Mayor’s is able to secure exclusivity of certain products on a temporary and permanent basis. Management believes it has one of the best-trained staff of sales professionals in the industry as a result of Mayor’s emphasis on classroom training, in-store training and participation in industry-recognized educational programs.

Throughout this document, Fiscal 2004 refers to the Company’s fiscal year ended March 26, 2005. Throughout this document, Fiscal 2003 refers to the Company’s fiscal year ended March 27, 2004. Throughout this document, Fiscal 2002 refers to the fiscal year ended March 29, 2003.

The Company’s corporate headquarters are located at 14051 N.W. 14th Street, Suite 200, Sunrise, Florida 33323, and the Company’s telephone number is (954) 846-8000. The Company entered into a fifteen year lease agreement for a new corporate headquarters located in Tamarac, Florida to commence on the later of the completion date or August 1, 2005.

Products

Mayor’s offers a large selection of distinctive high quality merchandise at many different price points. This merchandise includes designer jewelry, diamond, gemstone, and precious metal jewelry, rings, wedding bands, earrings, bracelets, necklaces, broaches, charms, baby jewelry, timepieces and giftware. The Company has embarked on a strategic program of increasing the array of private label offerings to its customers primarily through bridal, diamond and other fine jewelry as well as gold and sterling silver jewelry to leverage the brand loyalty in its markets and to differentiate its products with unique and exclusive designs. In addition, Mayor’s is able to offer the finest brand name Swiss timepieces that are often not available from other jewelers in its markets. Mayor’s also carries an exclusive collection of high quality bridal jewelry, fine jewelry and watches manufactured by Henry Birks & Sons Inc. (“Birks”), the majority stockholder of Mayor’s.

All of Mayor’s jewelry products are constructed of 18-karat gold, platinum, or sterling silver with significant emphasis on quality craftsmanship and unique design. Mayor’s carries a large selection of brand name watches, including watches made by Rolex, Cartier, Patek Philippe, Jaeger Le Coultre, Baume & Mercier, Breitling, Tag Heuer, Omega, Charriol, Corum, Rado, Chopard, Locman and Raymond Weil. Mayor’s designer jewelry offerings includes jewelry made by David Yurman, Aaron Basha, Charriol, Roberto Coin and DiModolo and a variety of high quality giftware, including writing instruments, accessories and giftware made by Correia, Mont Blanc, Cartier and Cristalleries Royales de Champagne. In addition, Mayor’s has an assortment of fine jewelry designed by its signature designers: Esty, Michele della Valle and Toni Cavelti.

During Fiscal 2004, product category sales as a percentage of net sales were as follows: watches — 53%; fine jewelry — 40%; other — 7%. The Rolex brand, which is included in watch sales, accounted for approximately 38% of Mayor’s total net sales. In Fiscal 2004, Mayor’s purchased merchandise for sale in Mayor’s stores from over 200 suppliers. Many of these suppliers have long-standing relationships with Mayor’s.

3

Table of Contents

Product Development and Sourcing

One of Mayor’s key strategies is to design, develop, source and manufacture as much of our product as possible in order to increase the unique and exclusive items offered by the Company. Mayor’s staff of category managers and Birks’ gemstone acquisition team on behalf of Mayor’s, procure distinctive high quality merchandise directly from manufacturers, diamond cutters, and other suppliers worldwide, enabling Mayor’s to sell fine quality merchandise often not available from other jewelers in its markets. Mayor’s and Birks’ gemstone acquisition teams, product sourcing teams and category managers specialize in sourcing merchandise in categories such as diamonds, precious gemstones, pearls, watches, gold jewelry, and giftware. Retail and merchandising personnel frequently visit both Mayor’s and competitors’ stores to compare value, selection, and service, as well as to observe client reaction to merchandise selection and determine future needs and trends.

Watches

Mayor’s purchases watches from a number of leading manufacturers and suppliers. During Fiscal 2004, merchandise supplied by Rolex, the Company’s largest supplier, accounted for approximately 38% of Mayor’s total net sales. Certain brand name watch manufacturers, including Rolex, have distribution agreements with the Company that provide, among other things, for specific sales locations, yearly renewal terms, and early termination provisions at the manufacturer’s discretion.

Diamond, Gemstone, Pearl and Precious Metal Jewelry

During Fiscal 2004, revenues from sales of diamond, gemstone and precious metal jewelry represented approximately 40% of Mayor’s total net sales. Whenever possible, Mayor’s, directly and through the Birks’ gemstone acquisition team, purchases unset diamonds, gemstones and precious metal jewelry directly from cutters in international markets, such as Antwerp, Bangkok and Tel Aviv, gold jewelry from Italy, and pearls from suppliers in Japan and Canada. These diamonds and other gemstones are frequently furnished to Mayor’s and Birks’ in-house jewelry studios, as well as independent jewelers and goldsmiths for setting, polishing and finishing pursuant to Company instructions in order to deliver a distinctive high quality finished product at the best possible value.

Other Products

In Fiscal 2004, Mayor’s also purchased estate timepieces and giftware and offered jewelry and watch repair services which comprised approximately 7% of net sales.

Availability of Products

Although purchases of several critical raw materials, notably gold and gemstones, are made from a relatively limited number of sources, the Company believes that there are numerous alternative sources for all raw materials used in the manufacture of its finished jewelry, and that the failure of any principal supplier would not have a material adverse effect on operations. Any material changes in foreign or domestic laws and policies affecting international trade may have a material adverse effect on the availability of the diamonds, other gemstones, precious metals and non-jewelry products purchased by the Company.

The Company competes with other jewelry retailers for access to vendors that will provide it with the quality and quantity of merchandise necessary to operate its business. The Company’s relationships with its primary suppliers, including its relationship with Rolex, are generally not pursuant to long-term agreements. Although the Company believes that alternative sources of supply are available, the abrupt loss of any of its vendors, especially Rolex, or a decline in the quality or quantity of merchandise supplied by its vendors could cause significant disruption in its business. If Rolex terminated its distribution agreement with the Company, it would have a material adverse effect on the Company’s business, financial condition and operating results. Management believes that its relationships with its vendors are good.

4

Table of Contents

Changing Prices and Availability

Changes in foreign or domestic laws and policies affecting international trade may also have an adverse effect on the price of diamonds, gemstones and precious metals required by the Company. Because substantially all of the Company’s purchase transactions are denominated in U.S. dollars, the Company currently does not engage in any hedging activities in foreign currencies. The Company does not speculate in gems or precious metals or engage in any hedging activity with respect to possible fluctuations in the prices of these items, since historically the Company has been able to make compensatory adjustments in its retail prices as material fluctuations in the price of supplies have occurred. If such fluctuations should be unusually large, rapid or prolonged, there is no assurance that the necessary adjustments could be made quickly enough to prevent the Company from being adversely affected and the Company may choose to hedge its purchase requirements to minimize the potential impact. Please refer to Item 7 regarding “Forward-Looking Statements.”

Seasonality

The Company’s jewelry business is highly seasonal, with the third fiscal quarter (which includes the holiday shopping season) historically contributing significantly higher sales than any other quarter during the year. Approximately 40% of the Company’s Fiscal 2004 net sales were made during the third fiscal quarter.

Manufacturing and Repair

In addition to Mayor’s purchasing finished jewelry and the subcontracting of certain fabrication activities to others, Mayor’s also has a jewelry design studio and manufacturing and repair facility located in its corporate head office facility. In keeping with Mayor’s identity as a full-service premier luxury jeweler, this studio and workshop offers custom designed jewelry in response to clients’ special requests and manufactures jewelry for retail sale when it is economical to do so. Mayor’s also provides jewelry and watch refurbishment and repair services, which are performed in many of the Company’s stores or at the Mayor’s centralized repair facility at its corporate head office. In addition to repair work, jewelers will perform other work, including ring sizing on new purchases and repairs covered under warranty.

Retail Operations, Merchandising and Marketing

General

The Company distinguishes itself from most of its competitors by offering an important selection of distinctive higher quality merchandise at a wide range of price points. Mayor’s keeps the majority of its inventory on display in its stores rather than at its distribution facility. Although each store stocks a representative array of jewelry, watches, giftware and other accessories, certain inventory is tailored to meet local tastes and historical merchandise sales patterns of the individual store.

The Company believes that the elegant ambiance of its stores and distinctive high quality merchandise displays play an important role in providing an atmosphere for encouraging sales. The Company pays careful attention to detail in the design and layout of each of its stores, particularly lighting, colors, choice of materials and placement of display cases. The Company also places substantial emphasis on its window displays as a means of attracting walk-in traffic and reinforcing its distinctive image. The Company’s Visual Display department designs and creates window and store merchandise case displays for all of its stores. Window displays are frequently changed to provide variety and to reflect seasonal events such as Christmas, Valentine’s Day and Mother’s Day.

Personnel and Training

Mayor’s places substantial emphasis on the professionalism of its sales force to maintain its position as a leading luxury jeweler. Mayor’s strives to hire only highly motivated, professional and client-oriented individuals. All new sales professionals attend a course where they are trained in technical areas of the jewelry business, specific service techniques and Mayor’s commitment to client service. In general, Mayor’s trains its sales associates to establish a personal rapport and relationship with each client, to identify client preferences with respect to both product and price range, and to successfully establish a relationship and ultimately conclude a sale and acquire a client for life. Management believes that attentive personal service and knowledgeable sales professionals are key components to Mayor’s success.

5

Table of Contents

As part of Mayor’s commitment to training, the Company established “Mayor’s University,” a formalized system of in-house training with a primary focus on client service that involves extensive classroom training, the use of detailed operational manuals, in-store mentorship programs and product knowledge testing. In order to retain their employment with the Company, all attendees must perform satisfactorily on written tests and quizzes that are administered during the training program and perform to a high level of standards. In addition, the Company conducts in-house training seminars on a periodic basis and administers training modules with audits to (i) enhance the quality and professionalism of all sales professionals, (ii) measure the level of knowledge of each sales professional, and (iii) identify needs for additional training. The Company also provides store management with more extensive management and client service training that emphasizes leadership skills, general management skills, “on-the-job” coaching and training instruction techniques.

Advertising and Promotion

The intent of Mayor’s marketing department is to build upon its well-established reputation in its core markets and strengthen its position in areas that it entered more recently. In an effort to be recognized as the leading luxury jewelry brand in the Southeastern United States, all communication positions Mayor’s as a premier luxury jeweler offering high quality merchandise in an elegant, sophisticated environment conducive to the purchase of luxury items. Mayor’s stresses its role as a fashion leader that aims to deliver a total shopping experience that is as memorable as its merchandise. Mayor’s marketing efforts, which consist of advertising, direct mailings, special events, media relations/public relations, community relations, distinctive store design and elegant displays, are shaped in large part by Mayor’s brand positioning strategy as well as demographic and consumer trends affecting the jewelry industry, luxury retailing and the Company itself.

Mayor’s advertisements are designed to communicate the Company’s image as a full-service premier luxury jewelry brand, including its unique and exclusive product design and product selection, its excellence in client service and the total Mayor’s brand experience. In addition, advertisements frequently associate Mayor’s with internationally recognized brand names such as Rolex, Cartier and Patek Philippe. Advertising and promotions for all stores are developed by the Company’s personnel at its headquarters in conjunction with outside creative resources.

Credit Operations

Sales under the Mayor’s proprietary credit card administered by Wells Fargo, which are made without recourse to the Company, and the private label credit card administered internally, both accounted for approximately 27% of the Company’s net sales during Fiscal 2004. Mayor’s credit programs are intended to complement its overall merchandising and sales strategy by encouraging larger and more frequent sales to a loyal client base.

Under both plans, Wells Fargo and Mayor’s extend credit solely to qualified Mayor’s clients. Qualified clients currently may select from four financing plans: the 10 Month Interest Free Plan, the 5 Month Interest Free Plan, a 30 month plan with a reduced interest rate and a revolving plan with interest. Finance charges, which are subject to a rate ceiling imposed by state law, are currently assessed on the average daily balance method at a rate of 1.5% per month, unless otherwise controlled by state law.

Mayor’s private label credit card is administered internally at the Company’s corporate office. The credit staff makes all credit decisions; sales personnel or store managers are not authorized to grant credit. Mayor’s has developed a detailed creditworthiness analysis on which it bases its credit decisions. Mayor’s custom-designed, computerized accounts receivable systems provide credit personnel with on-line decision making information, including new account processing, credit authorizations and client inquiries.

Mayor’s has an Accounts Receivable Management Department, which manages collections from current accounts and also manages delinquent accounts. Representatives are trained on advanced account management techniques and programs, which have been developed in-house by the credit organization. Early stage delinquencies are handled with an approach to client goodwill. If an account continues to progress in delinquency, more assertive action is taken. Ultimately, if a delinquent account cannot be collected in-house, outside legal action is undertaken.

All clients may also take advantage of Mayor’s layaway plan, which allows them to set aside and pay for items over a limited period of time with no interest charges.

6

Table of Contents

Financial Information

Mayor’s business is not divided into operating segments and Mayor’s does not have any significant revenues derived from operations outside of the United States or any significant assets located outside the United States. For detailed financial information relating to Mayor’s financial condition and operations, please refer to Item 7 regarding “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes, contained in Item 8 in this Annual Report on Form 10-K.

Distribution

The Company’s retail locations receive the majority of their merchandise directly from the Company’s distribution warehouse located in Sunrise, Florida. Merchandise is shipped from the distribution warehouse utilizing various air and ground carriers. Presently, a small portion of merchandise is delivered directly to the retail locations from suppliers. The Company transfers merchandise between retail locations to balance inventory levels and to fulfill client requests.

Competition

The retailing industry is highly competitive and particularly subject to the level of discretionary consumer income and the subsequent impact on the type and value of goods purchased. The Company’s competitors include foreign and domestic guild and premier luxury jewelers, specialty stores, national and regional jewelry chains, department stores and, to a lesser extent, catalog showrooms, discounters, direct mail suppliers, televised home shopping networks, and jewelry retailers who make sales through Internet sites, some of whom have greater financial resources than the Company. The Company believes that competition in its markets is based primarily on trust, quality craftsmanship, product design and exclusivity, product selection, service excellence, including after sales service, and, to a certain extent, price. With the consolidation of the retail industry that is occurring, the Company believes that competition with other general and specialty retailers and discounters will continue to increase. The success of the Company will depend on various factors, including general economic and business conditions affecting consumer spending, the performance of the Company’s retail operations, the acceptance by consumers of the Company’s merchandising and marketing programs, store locations and the ability of the Company to properly staff and manage its stores. Please refer to Item 7 regarding “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion.

Regulation

The Company generally utilizes the services of independent customs agents to comply with U.S. customs laws in connection with its purchases of gold, diamond and other jewelry merchandise from foreign sources.

The Company’s operations are affected by numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. In addition to the Company’s proprietary private label credit cards, credit to the Company’s clients is primarily through bank cards such as American Express®, Visa®, MasterCard® and Discover®, without recourse to the Company based upon a client’s failure to pay. Any change in the regulation of credit that would materially limit the availability of credit to the Company’s traditional client base could adversely affect the Company’s results of operations and financial condition. Please refer to Item 7 regarding “Forward-Looking Statements.”

Trademarks

The designations Mayors^™ and the Mayor’s logo ^™ are the principal trademarks of the Company. The Company maintains a program to protect its trademarks and will institute legal action where necessary to prevent others either from registering or using marks, which are considered to create a likelihood of confusion with the Company.

Employees

As of May 13, 2005, the Company employed 384 persons on a full-time basis, including 266 in the sales function, primarily in the Mayor’s stores, 16 in inventory and distribution and 102 in administrative and support functions. None of its employees are governed by a collective bargaining agreement. The Company believes that its relations with its employees are good, and the Company intends to continue to place an emphasis on employee communication and involvement.

7

Table of Contents

Available Information

Mayor’s Internet website address is www.mayors.com. The Company’s annual reports on Form 10-K/A, quarterly reports on Form 10-Q and Form 10-Q/A, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. In addition, the Company’s website contains a link to all Company related Section 16 filings. The reference to the Company’s website address does not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.

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 increase 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 years ended March 26, 2005, March 27, 2004 and March 29, 2003 related to these warrants was approximately ($32,000), $867,000 and $0, 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 for $150,000, the estimated fair value.

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

8

Table of Contents

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, which is included in selling, general and administrative expense in the Fiscal 2004 Consolidated Condensed Statement of Operations. 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, which is included in selling, general and administrative expense in the Fiscal 2003 Consolidated Statement of Operations.

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

9

Table of Contents

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.

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.

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, Interim Chief Financial 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. 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.

In Fiscal 2004, Fiscal 2003 and Fiscal 2002, Mayor’s (charged) incurred approximately ($204,000), $82,000 and $234,000, respectively, of net costs (to) from Birks related to advisory, management and corporate services pursuant to the Management Expense Reimbursement Agreement. Included in selling, general and administrative expenses in Fiscal 2002 is $390,000 of amounts paid to Birks for merchandising and other consulting services prior to the equity investment transaction. Also, during Fiscal 2004, Fiscal 2003 and Fiscal 2002, Mayor’s purchased approximately $8,966,000, $599,000 and $407,000, respectively, of merchandise from Birks and Birks purchased approximately

10

Table of Contents

$9,000, $56,000 and $109,000, respectively, of merchandise from Mayor’s pursuant to the Manufacturing & Sale Agreement. As of March 26, 2005, the Company owed Birks $389,000 related to purchases of inventory, advisory, management and corporate services and for expenses paid by Birks on behalf of Mayor’s. Mayor’s also purchased $28,000 and $108,000, respectively, of merchandise from Cristalleries Royales de Champagne, a company controlled by the majority owners of Birks until June 18, 2004, during Fiscal 2003 and Fiscal 2002, respectively.

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. During Fiscal 2004, the Company incurred $528,000 of costs 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. Two of the Company’s directors, Filippo Recami and 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 Securities and Exchange Commission and the listing of Birks’ Class A voting shares on the AMEX. The Merger is expected to close in the third calendar quarter of 2005. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by the provisions of the Merger Agreement, which has previously been filed with the Commission by the Company on Form 8-K.

ITEM 2. PROPERTIES

The Company’s corporate headquarters is currently leased through July 31, 2005, and is located in Sunrise, Florida. The Company entered into a fifteen year lease agreement for a new corporate headquarters located in Tamarac, Florida to commence on the later of the completion date or August 1, 2005.

As of May 13, 2005, Mayor’s had a total of 28 leased stores, with rent being a fixed minimum base plus, for a majority of the stores, a percentage of the store’s sales volume (subject to certain adjustments) over a specified threshold. Mayor’s lease terms are generally ten years from inception. Lease rental payments are also subject to annual increases for tax and maintenance. The following table summarizes all operating store leases:

11

Table of Contents

ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company did not submit any matters to a vote of stockholders in the fourth quarter of the fiscal year ended March 26, 2005.

12

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock has been listed on the American Stock Exchange since the Company’s initial public offering in August 1987 and is listed under the symbol “MYR”. The following table sets forth for the periods indicated, the range of sales prices per share on the American Stock Exchange Composite Tape as furnished by the National Quotation Bureau, Inc.

The last reported sales price of the common stock on the American Stock Exchange Composite Tape on June 3, 2005 was $0.57. On June 3, 2005, the Company had 658 stockholders of record.

The Company has never paid a cash dividend on its Common Stock. The Company currently anticipates that any earnings will be retained for use in the operation and stabilization of its business and does not intend to pay any cash dividends on its Common Stock in the foreseeable future. Any future determination as to cash dividends on its Common Stock will depend upon the earnings, capital requirements and financial condition of the Company at that time, applicable legal restrictions and such other factors as the Board of Directors may deem appropriate. Currently, the Company’s working capital facility allows dividend payments under certain conditions.

The Company did not repurchase any of its shares during the fiscal year ended March 26, 2005.

13

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the Consolidated Financial Statements and Related Notes thereto appearing elsewhere in this Form 10-K and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

14

Table of Contents

Restructuring, asset impairments and other charges for the fifty-two weeks ended March 29, 2003 consist of one time charges primarily for professional fees related to the execution of the Restructuring Plan, reserves related to sales tax liabilities, severance costs related to the departure of the former Chief Executive Officer and charges related to the sale of certain of the Company’s accounts receivable, net of a reversal to income of reserves related to the exit of leases for closed stores.

Restructuring, asset impairments and other charges for the fifty-two weeks ended February 2, 2002 include amounts for the write-down of the fixed assets for the stores that were scheduled to be closed, a reserve for early termination of the leases for the stores that were scheduled to be closed, a write-down of the corporate headquarters building which the Company placed on the market for sale, consulting fees related to a strategic cost reduction project, and non-recurring legal fees associated with stockholder-related matters.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement discussed in Note B to the consolidated financial statements.

General

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 other reports filed with the Securities and Exchange Commission (“SEC”).

The years ended March 26, 2005, March 27, 2004 and March 29, 2003 are referred to herein as Fiscal 2004, Fiscal 2003 and Fiscal 2002, respectively.

Overview

As of March 26, 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 (“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. During Fiscal 2004, watch sales constituted approximately 53% of the Company’s total net sales with Rolex sales alone comprising 38% of total Company net sales in Fiscal 2004. 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.

15

Table of Contents

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 earnings generated during the third fiscal quarter holiday selling season, which encompassed the thirteen weeks ended December 25, 2004 for the current fiscal year and the thirteen weeks ended December 27, 2003 in the prior fiscal year.

The following table sets forth, for the periods indicated, the amount and the percentage of net sales for certain items in the Company’s Consolidated Statements of Operations, as it relates to continuing operations, and other information:

Results of Operations

Sales

The Company’s net sales for Fiscal 2004 were $142.7 million compared to $125.5 million and $118.4 million for Fiscal 2003 and Fiscal 2002, respectively. Comparable store net sales for Fiscal 2004, which includes stores that were open in the same periods in both the current and prior year, increased 11.9% compared to Fiscal 2003 due in part to a 12.7% increase in average transaction dollars. 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 13^th 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.

16

Table of Contents

The increase in net sales for Fiscal 2004 compared to Fiscal 2003 was primarily due to the result of an effective mix of merchandising and an increase of the units of inventory available for sale in stores, due in part to the improved financial position of the Company, enhanced marketing and customer events, and the continued increase in consumer spending for luxury items compared to the same period last year as well as a concentrated effort to dispose of certain slow moving inventory merchandise. Comparable store net sales for Fiscal 2003 increased 15.6% compared to Fiscal 2002. The increase in net sales for Fiscal 2003 compared to Fiscal 2002 was primarily the result of an effective mix of merchandising and increase of inventory unit offerings in stores, due in part to the improved financial position of the Company and enhanced marketing and customer events, despite the operation of fewer stores compared to Fiscal 2002. In addition, the improvement in the U.S. economy is credited with increased consumer confidence and spending during the latter part of Fiscal 2003.

Cost of Sales and Gross Profit

Gross profit increased 17% in Fiscal 2004 compared to Fiscal 2003 driven by the Company’s ability to increase sales and the increase in the higher margins realized on sales. Gross profit as a percentage of net sales (“gross margin”) in Fiscal 2004 was 42.7% compared to 41.5% and 33.5% in Fiscal 2003 and Fiscal 2002, respectively. The Company believes the increase in gross margin for Fiscal 2004 was 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 0.9% and the continued success of the previously discussed merchandising strategies which included sales of higher margin products. The increase in gross margin for Fiscal 2003 primarily resulted from the ability of Mayor’s to increase its offering achieve sales of higher margins on its products, including those exclusive to Mayor’s, through substantially reduced promotional activity as compared to Fiscal 2002, resulting in the increase of gross margin by approximately 3.2 percentage points, as well as the negative impact on the Fiscal 2002 gross margin that markdowns had in connection with the liquidation of inventory in the closing of stores, which negatively affected the Fiscal 2002 gross margin by approximately 4.1 percentage points. Cost of sales includes direct inbound freight, direct labor related to repair services, design, creative and the jewelry studio, inventory shrink, inventory thefts, and jewelry, watch and giftware boxes. Indirect freight including inter-store transfers, receiving costs, distribution costs, warehousing costs and quality control costs are included in selling, general and administrative expenses. The amounts of these indirect costs included in selling, general and administrative expenses are approximately $1.3 million, $1.4 million, and $1.5 million in Fiscal 2004, 2003 and 2002, respectively. Mayor’s classification of these costs are not necessarily the same as other companies in our industry, therefore our gross margin results may not be comparable to other companies’ gross margin results in our industry.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $53.7 million for Fiscal 2004 compared to $52.3 million and $53.7 million for Fiscal 2003 and Fiscal 2002, respectively. Selling, general and administrative expenses for Fiscal 2004 increased from Fiscal 2003. The key fluctuations included the increase in variable expense of $0.6 million related to the increase in sales in Fiscal 2004 versus Fiscal 2003, expanded marketing efforts which increased costs $0.7 million, $0.7 million of expenses incurred related to the restatement of certain reports previously filed with the Securities and Exchange Commission and approximately $0.8 million of expenses incurred related to the potential business combination with Birks offset by $0.6 million related to the reduction of actuarial based health care accruals as a result of lower than expected health care claims and a net reduction of all other selling, general and administrative expenses of $0.8 million. Non-cash compensation expense was $103,000 for Fiscal 2004. Non-cash compensation expense resulted from 1) 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 in the amount of approximately ($32,000); 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. The decrease in selling, general and administrative expenses as a percentage of sales for Fiscal 2004 to 37.6% from 41.6% in Fiscal 2003 was due to the positive impact of leveraging the incremental sales against that portion of the operating expenses which are fixed. The decrease in selling, general and administrative expenses for Fiscal 2003 compared to Fiscal 2002 is primarily a result of the reduction of controllable expenses by $2.2 million, primarily in salaries, bad debt expense and consulting, which offset an increase in marketing costs after a significant reduction in Fiscal 2002 due to cash constraints, as well as costs incurred in Fiscal 2002 of $5.0 million related to the stores closed as part of the Restructuring Plan not incurred in Fiscal 2003, offset by an increase in variable expenses related to the increase in sales in Fiscal 2003 versus Fiscal 2002 of $4.1 million. The decrease in selling, general and administrative expenses as a percentage of sales is due to the positive impact of the increase in comparable stores sales

17

Table of Contents

which were able to better absorb fixed costs as compared to Fiscal 2002 along with cost reductions. Non-cash compensation expense was $1.067 million for Fiscal 2003. 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 $867,000; and 2) $200,000 related to the sale of the Company’s stock owned by Birks in a private placement sale to the spouse of one of the Company’s Directors at less than market value.

Restructuring, Asset Impairments and Other Charges

Restructuring, asset impairments and other charges for Fiscal 2004 include approximately ($1.2) 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.

Restructuring, asset impairments and other charges recorded in Fiscal 2002 consist of charges primarily for professional fees related to the execution of the previously mentioned Restructuring Plan of approximately $1.9 million, reserves related to sales tax liabilities of approximately $1.9 million, severance costs related to the departure of the former Chief Executive Officer of approximately $0.5 million and charges related to the sale of certain of the Company’s accounts receivable of approximately $0.4 million. Additionally, approximately $1.9 million of reserves recorded in Fiscal 2002 related to the exit of leases for closed stores were reversed to income due to the fact that the leases were terminated at costs more favorable than originally estimated.

Depreciation and Amortization

Depreciation and amortization expenses were $3.3 million for Fiscal 2004, compared to $3.4 million and $4.2 million for Fiscal 2003 and Fiscal 2002, respectively. The decrease in depreciation and amortization expenses for Fiscal 2004 and 2003 as compared to Fiscal 2002 was due to fewer additions of fixed asset in Fiscal 2003 and 2004 resulting in less incremental depreciation and assets fully depreciated or written off due to the Restructuring Plan by the end of Fiscal 2002.

Goodwill Impairment Writedown

The goodwill impairment income of $0.6 million for Fiscal 2002 relates to the reversal of excess tax reserves due to a settlement with the Internal Revenue Service for less than the amount reserved. The tax matters existed prior to the acquisition of Mayor’s Jewelers, Inc. in 1998 and would have been reversed against goodwill; however, due to the fact that the goodwill was written off in Fiscal 2001 the reversal is classified in the same line item as the impairment.

Interest and Other Income and Interest and Other Financial Costs

Interest and other income was $184,000 in Fiscal 2003 and $1.4 million in Fiscal 2002. Other income for Fiscal 2002 was due to $1.4 million received in connection with a settlement with former Mayor’s stockholders.

Interest and other financial costs were $4.5 million for Fiscal 2004, compared to $4.4 million and $6.8 million for Fiscal 2003 and Fiscal 2002, respectively. The increase in interest and other financial costs for Fiscal 2002 was greater than Fiscal 2004 and 2003 primarily due to the write-off of financing costs for the former working capital facilities when the new credit facility and term loan were executed.

Income Taxes

The benefit in income taxes for Fiscal 2002 of $547,000 is primarily a result of a refund claim to recover previously paid alternative minimum tax as a result of a change in tax law offset by a provision recorded for a settlement related to one of the Company’s subsidiaries.

Loss from Discontinued Operations

The loss from discontinued operations for Fiscal 2002 is made up of an approximate $0.4 million loss from operations and a $1.2 million loss related to the closing of a store that was outside of Mayor’s core marketplace, and as such was classified as a discontinued operation.

18

Table of Contents

Liquidity and Capital Resources

As of March 26, 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 a $12.7 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. 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 Fleet Retail Group LLC-GMAC portion of the credit facility, the elimination of two financial covenants and the increase in the capital expenditures allowed pursuant to the sole remaining financial covenant to $4.5 million which is measured annually. Availability under the working capital facility is determined based upon a percentage formula applied to certain inventory and accounts receivable as allowed by an amendment on February 20, 2004, and has certain restrictions regarding borrowing availability. The interest rate under the working capital facility as of March 26, 2005 was 6.25% (prime plus 0.5%). On March 4, 2005, the capital expenditure limit was further increased to $5,000,000 per fiscal year. The Company was in compliance with the capital expenditure covenant for Fiscal 2004. On May 3, 2005, the banking facilities were further amended to allow for the interest rate of the Company’s revolving credit facility to be based on either a prime rate plus a specified margin dependent on the level of excess borrowing availability, or a LIBOR based rate (“Eurodollar”) plus a specified margin, based on the level of borrowing availability, at the Company’s election. The junior secured term loan currently bears an effective interest rate of 12.75% and is subject to similar restrictions and covenants, including the capital expenditure covenant, as the working capital facility as well as certain prepayment penalties.

Based on this, after taking into consideration the foregoing borrowing restrictions, the Company had approximately $47.4 million of borrowing capacity under its working capital facility and term loan at March 26, 2005 and, after netting the outstanding borrowings of $33.5 million and letter of credit commitments of $550,000, the Company had excess borrowing capacity of approximately $13.3 million. The Company relies on its short-term borrowings under the credit facility to finance its operations on a day-to-day basis.

Information concerning the Company’s short-term borrowings follows. All borrowings under the working capital facility are considered short term, due to the fact that the borrowing availability is based on certain inventory and accounts receivable balances, which are short-term in nature.

Mayor’s has various relationships with Birks and the two companies have the same controlling shareholder group (See Related Party Transactions in Item 1 – Business, herein). The relationship with Birks has brought synergies to both companies in several areas, including 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. If the relationship between Birks and Mayor’s were to cease, it would negatively impact the Company.

During Fiscal 2004, cash flows from continuing operating activities provided $1.4 million in cash. The cash provided by operating activities was primarily the result of ongoing operations and a decrease in working capital, the decrease of inventories and other assets offset by the decrease in accrued expenses and accounts payable and increase in inventories. During Fiscal 2003, cash flows from continuing operating activities used $4.2 million in cash. Cash flows for discontinued operations used $0.5 million in cash. The use of cash for operating activities was primarily the result of the net loss for the year, adjusted for non-cash expense items, the increase of accounts receivable and inventories offset by the decrease in other assets and the increase in accrued expenses.

19

Table of Contents

Net cash used in investing activities was $1.8 million in Fiscal 2004, primarily related to the capital expenditures for leasehold improvements for store renovations and information systems. Net cash used in investing activities was $2.1 million in Fiscal 2003, primarily related to the capital expenditures for leasehold improvements for the corporate headquarters, one new store and information systems.

Net cash provided by financing activities of $0.2 million in Fiscal 2004 is primarily as a result of net borrowings under the credit facility and payment of banking commitment fees. Net cash provided by financing activities was $7.2 million in Fiscal 2003 and was primarily related to net borrowings under the credit facility of $9.7 million offset by the dividend of $2.2 million paid to Birks.

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.

Effects of Inflation

Gold prices are affected by political, industrial and economic factors and by changing perceptions of the value of gold relative to currencies. Investors commonly purchase gold and other precious metals perceived to be rising in value as a hedge against a perceived increase in inflation and political or economic instability, thereby bidding up the price of such metals. The Company’s sales volume and net operations are potentially affected by the fluctuations in prices of gold, diamonds and other precious or semi-precious gemstones as well as watches and other accessories. The Company does not currently hedge its gold purchases or inventories. Hedging is not available with respect to possible fluctuations in the price of precious and semi-precious gemstones, watches or other accessories.

The Company’s cost of sales, selling, general and administrative expenses are directly affected by inflation resulting in an increased cost of doing business. Although inflation has not had, and the Company does not expect it to have, a material effect on operating results, there is no assurance that the Company’s business will not be materially affected by inflation in the future.

Interest Rate Risk

The Company’s credit facility accrues interest at floating rates, currently based upon prime plus 0.5%. 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 March 26, 2005 would increase or decrease earnings per share by approximately $335,000 or approximately $.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 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. Pursuant to such provision, the Corporate Governance Committee of the Company approved adjustments in the management fee of an additional aggregate of $2,618 for Fiscal 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 in the future. Based on the scale used for the Fiscal 2004 adjustments, for each 10% increase in the exchange rate above $1.3U.S./1 Euro or 10% decrease in the exchange rate below $1U.S./1 Euro, the management fee would be adjusted by approximately $4,200.

20

Table of Contents

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’s accounting policies are more fully discussed in Note C to the consolidated financial statements contained in Item 8 herein. The Company has identified certain critical accounting policies as noted below.

Reserve for inventory shrink and slow moving 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 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.

Contractual Commitments

The following summarizes the Company’s contractual obligations at March 26, 2005:

21

Table of Contents

Leases

Lessor incentive amounts on operating leases are deferred and amortized as a reduction of rent expense over the term of the lease. Rent expense is recorded on a straight-line basis, which takes into effect any rent escalations, rent holidays and fixturing periods. Lease terms are from the inception of the fixturing period until the end of the initial term and exclude renewal periods.

Leasehold improvements are capitalized and typically include fixturing and store renovations. Amortization of leasehold improvements is based on the date the asset was placed in service over the lesser of the economic life of the leasehold improvement and the initial lease term.

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 issues 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.

22

Table of Contents

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.

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. No forward-looking statement is guaranteed and actual results may vary materially. Such statements are made as of the date provided, and the Company assumes no obligation to update any forward-looking statements to reflect future developments or circumstances.

One should carefully evaluate such statements by referring to the factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), 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 and 7a of the Form 10-K, 10-K/A and Item 2 of the Forms 10-Q and 10-Q/A where the Company discusses in more detail various important risks and uncertainties that could cause actual results to differ from expected or historical results. 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.

Risk Factors

In addition to other information provided in this Annual Report on Form 10-K, the Company is subject to the following risk factors among others.

A single stockholder controls the Company.

Birks, in connection with its investment in the Company, was issued 15,050 shares of Series A Convertible Preferred Stock, which were exchanged for Series A-1 Convertible Preferred Stock (“Series A-1 Preferred”). Upon conversion of all of the shares of Series A-1 Preferred into Common Stock Birks would own approximately a 75.8% of the Company. Birks is entitled to vote all of its shares of Series A-1 Preferred on an as converted basis along with the 15,602,997 shares of Common Stock it owns. Additionally, Birks, as the sole owner of such Series A-1 Preferred, has 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 the holders on the record date of such election on an as converted basis. Currently, Birks has the right to elect seven of the nine members of the Board of Directors. Birks was also issued, in connection with its investment in the Company, warrants to acquire additional shares of Common Stock, a portion of which were exercised on a cashless basis on November 6, 2003, resulting in the issuance of 17,352,997 shares of Common Stock. Subsequently, on March 22, 2004 and June 15, 2004 Birks sold 1,000,000 and 750,000, respectively, of these shares in private placement sales. Accordingly, Birks can control the outcome of certain stockholder votes, including votes concerning the approval of certain third party mergers and other significant third party corporate transactions. Birks, however, will not control the outcome of the proposed merger with Birks. This level of concentrated ownership by one entity may have the effect of delaying or preventing a change in the management or voting control of the Company. 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 contained in the warrants as of March 26, 2005.

The Company’s operations could be adversely affected if its relationship with Birks were to cease.

Mayor’s has various relationships with Birks and the two companies have the same controlling shareholder group (See Note L to the Consolidated Financial Statements in Item 8 herein). In addition to the sharing of the services of certain officers and other members of senior management pursuant to the Management Expense Reimbursement Agreement and from the ability to purchase exclusive merchandise from Birks pursuant to the Manufacturing & Sale Agreement, 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 certain insurance policies; and the ability to

23

Table of Contents

strengthen and/or consolidate supplier relationships with improved terms as a result of leveraging the credibility and stronger purchasing power of the combined companies. If the relationship between Birks and Mayor’s were to cease, it would negatively impact the Company.

The Company’s stock price could be adversely affected if a large number of shares of the Company’s Common Stock were to be registered and sold.

In connection with Birks’ investment in the Company, the Company has granted certain registration rights to Birks, which entitles Birks to cause the Company to affect an unlimited number of registrations under the Securities Act of 1933 of sales of up to an aggregate of 76,300,202 shares of the Company’s Common Stock. By exercising these registration rights Birks could cause a large number of shares to be registered and become freely tradable without restrictions under the Securities Act (except for those purchased in the offering by the Company’s affiliates) immediately upon the effectiveness of such registration. Such sales may have an adverse effect on the market price of the Common Stock and could impair the Company’s ability to raise additional capital.

The Company’s business could be adversely affected if its relationships with any of its primary vendors are terminated.

The Company’s merchandising strategy depends upon its ability to maintain good relations with a few key vendors. Certain brand name watch manufacturers, including Rolex, have distribution agreements with the Company that, among other matters, provide for specific sales locations, yearly renewal terms, and early termination provisions at the manufacturer’s discretion. The Company competes with other jewelry retailers for access to vendors that will provide it with the quality and quantity of merchandise necessary to operate its business. In Fiscal 2004, merchandise supplied by Rolex, the Company’s largest supplier, accounted for approximately 38% of the Company’s total net sales. The Company’s relationships with its primary suppliers are generally not pursuant to long-term agreements, including its relationship with Rolex. Although the Company believes that alternative sources of supply are available, the abrupt loss of any of its vendors, especially Rolex, or a decline in the quality or quantity of merchandise supplied by its vendors could cause significant disruption in its business. If Rolex terminated its distribution agreement with the Company, it would have a material adverse effect on the Company’s business, financial condition and operating results.

Fluctuations in the availability and prices of the Company’s merchandise may affect its results of operations.

The Company offers a large selection of distinctive high quality merchandise, including diamonds, gemstone and precious metal jewelry, rings, wedding bands, earrings, bracelets, necklaces, charms, and its own private label jewelry. Accordingly, significant changes in prices of diamonds, gemstones, and precious metals required by the Company could adversely affect the Company’s earnings. Further, both the supply and price of diamonds are significantly influenced by a single entity, Diamond Trading Corporation. The Company does not maintain long-term inventories or otherwise currently hedge against fluctuations in the cost of these materials. A significant increase in the price of these materials could adversely affect the Company’s sales and gross margins, should the Company not be able to effectively pass the increase in costs to its customers.

A substantial portion of the merchandise the Company sells is carried on a consignment basis prior to sale or is otherwise financed by vendors, thereby reducing the Company’s direct capital investment in inventory. The willingness of vendors to enter into such arrangements may vary substantially from time to time based on a number of factors, including the merchandise involved, the financial resources of vendors, interest rates, availability of financing, fluctuations in gem and gold prices, inflation, the Company’s financial condition and number of economic or competitive conditions in the jewelry business or the economy. Any significant change in these relationships could have a material adverse effect on the Company’s results of operations or financial condition.

The Company’s industry is highly competitive.

The retail jewelry business is mature and highly competitive. The Company’s jewelry business competes with foreign and domestic guild and premier luxury jewelers, specialty stores, national and regional jewelry chains, department stores, and to a lesser extent, catalog showrooms, discounters, direct mail suppliers, television home shopping networks and jewelry retailers who make sales through internet sites. The Company’s credit operations compete with credit card companies and other providers of consumer credit. The Company believes that

24

Table of Contents

competition in its markets is based primarily on trust, quality craftsmanship, product design and exclusivity, product selection, service excellence, and to a certain extent, price. Many competitors are substantially larger than the Company is and have greater financial resources than the Company. The Company may not be able to compete successfully with such competitors. Competition could cause the Company to lose customers, increase expenditures or reduce pricing, any of which could have a material adverse effect on the Company’s earnings and stock price.

The Company’s quarterly operating results will fluctuate due to seasonality and other factors, and variation in quarterly results could cause the price of the Company’s Common Stock to decline.

The Company’s business is highly seasonal, with a significant portion of the Company’s sales generated during the third fiscal quarter, which includes the holiday shopping season. Sales in the third quarter of Fiscal 2004 accounted for 40% of annual net sales for such fiscal year. The Company has historically experienced lower net sales and net losses in the other fiscal quarters, and the Company expects this trend to continue for the foreseeable future. A significant shortfall in results for the third quarter of any fiscal year could have a material adverse effect on the Company’s annual results of operations. The Company’s quarterly results of operations also may fluctuate significantly as a result of a variety of factors, including the timing of new store openings, net sales contributed by new stores, increases or decreases in comparable store sales, timing of certain holidays, changes in merchandise, general economic conditions, industry and weather conditions that affect consumer spending, and actions of competitors.

The Company’s business is particularly susceptible to adverse economic conditions.

Jewelry purchases are discretionary for consumers and may be particularly and disproportionately affected by adverse trends in the general economy. The success of the Company’s operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions (and perceptions of such conditions) affecting disposable consumer income such as employment wages and salaries, the performance of the stock market, business conditions, interest rates, availability, and cost of credit and taxation, for the economy as a whole and in regional and local markets where the Company operates. In addition, the Company is dependent upon tourism in the markets it operates (which is concentrated in the Florida and Georgia markets), the continued popularity of malls as a shopping destination and the ability of malls or tenants and other attractions to generate customer traffic for the Company’s stores. There can be no assurance that consumer spending will not be adversely affected by general economic conditions, a decrease in tourism or a decrease in mall traffic, thereby negatively impacting the Company’s results of operations or financial condition.

A majority of the Company’s customers use credit (either from the Company’s proprietary credit cards or another consumer credit source) to purchase jewelry from the Company. When there are adverse trends in the general economy or increases in interest rates, fewer people use credit. General economic trends also affect the Company’s credit operations. The downturn in the general economy and the economic conditions in the markets in which the Company operates could affect the Company’s ability to collect outstanding credit accounts receivable, which could have a material adverse affect on the Company’s financial condition.

The Company’s current levels of debt could impact its operations in the future

The Company’s debt as of March 26, 2005, was approximately $46.2 million. The Company’s debt levels fluctuate from time to time based on seasonal working capital needs.

The degree to which the Company is leveraged could impair the Company’s ability to obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes. In addition, the Company’s credit facility includes negative covenants and a capital expenditure covenant, which could restrict or limit its operations.

A substantial portion of the Company’s indebtedness bears interest at fluctuating rates, and changes in interest rates could adversely affect the Company’s results of operations or financial condition.

25

Table of Contents

The Company’s credit business may be adversely affected by changes in laws and regulations governing its business.

The operation of the Company’s credit business subjects it to substantial regulation relating to disclosure and other requirements upon origination, servicing, and debt collection and particularly upon the amount of finance charges it can impose. Any adverse change in the regulation of consumer credit could adversely affect the Company’s earnings. For example, new laws or regulations could limit the amount of interest or fees the Company could charge on consumer loan accounts, or restrict the Company’s ability to collect on account balances, which could have a material adverse effect on the Company’s earnings.

Compliance with existing and future laws or regulations could require material expenditures or otherwise adversely affect the Company’s business or financial results. Failure to comply with these laws or regulations, even if inadvertent, could result in negative publicity and fines, either of which could have a material adverse effect on the Company’s results of operations.

The trading price of the Company’s Common Stock may be volatile.

The stock market, including the American Stock Exchange on which the shares of the Company’s Common Stock are listed, has from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. In addition, the market price of the Company’s Common Stock, like the stock prices of many publicly traded companies in the retail industry, has been and may continue to be highly volatile.

The Company’s business is subject to many operational risks for which the Company may not be adequately insured.

The Company’s business is subject to the risks of operating retail stores such as floods, power failures, robbery, fires, severe weather, environmental issues or any other event, that could result in a temporary of prolonged shutdown of operations. For example, Mayor’s stores were robbed on six occasions during Fiscal 2004, and the losses related to such robberies were not fully reimbursed by insurance coverage. A shutdown at any Mayor’s store could materially adversely affect the Company’s business, financial condition, results of operations and cash flows. Although the Company maintains insurance, including business interruption insurance, it may incur losses beyond the limits of, or outside the coverage of, such insurance. In addition, the Company may be unable to maintain existing coverage at commercially acceptable terms, which could expose the Company to additional risks of loss or cause it to curtail its operations.

Hurricanes could cause a disruption in the Company’s operations which could have an adverse impact on the results of operations.

The Company’s operations are located in South and Central Florida and metropolitan Atlanta, Georgia, regions which are susceptible to hurricanes. In the fiscal quarter ended September 25, 2004, hurricanes Charley, Frances and Jeanne forced the closure of 24 stores at various dates, resulting in a reduction in net sales during such period. The Company maintains hurricane insurance, but some risks may not be adequately insured. Additionally, hurricanes may result in reduced tourism and customer traffic. Future hurricanes could significantly disrupt the Company’s operations and could have a material adverse effect on its overall results of operations.

Terrorist acts upon the United States could have a material adverse effect on the Company.

Additional terrorist acts against the United States like those carried out on September 11, 2001 or other acts of war or hostility could have an immediate disproportionate impact on discretionary spending on luxury goods upon which our operations are dependent. Such events could have a material adverse impact on our business and results of operations.

The Company’s business could be adversely affected if it is unable to successfully negotiate favorable lease terms.

All of the Company’s stores are leased. As of May 13, 2005, the Company had a total of 28 leased stores. The Company’s store leases are generally for a term of ten years, with rent being a fixed minimum base plus for a majority of the stores, a percentage of the store’s sale volume (subject to certain adjustments) over a specified threshold. The Company has generally been successful in negotiating leases for new stores and lease renewals as its current leases near expiration. However, the Company’s business, financial condition, and operating results could be adversely affected if the Company is unable to continue to negotiate favorable lease and renewal terms.

26

Table of Contents

The Company may be adversely affected if it cannot achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management will be required to perform an annual evaluation of its internal controls over financial reporting and disclose its assessment of the effectiveness of such controls, as well as a report by its independent registered public accountant addressing management’s assessment in its annual report filed with the SEC, beginning with the fiscal year ending March 24, 2007. The Company intends to perform a continuous review of its internal controls and make appropriate changes in order to become compliant with Section 404 of the Sarbanes-Oxley Act. The Company anticipates incurring significant expense associated with performing this review. The Company may be adversely affected if it cannot achieve and maintain effective internal controls under the appropriate deadlines.

During the financial reporting process associated with the Company’s financial results for the 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. Specifically, as of March 26, 2005, (i) 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, do not prevent the adjustment of certain aged inventory to below current book value without adequate documentation and support; (ii) 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; and (iii) 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, and the Company’s internal control policies and procedures did not properly provide for the proper accounting of related party transaction in accordance with generally accepted accounting principles. In connection with the same financial reporting process, the Company also identified one significant deficiency in the Company’s internal control over financial reporting. 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.

The Company also identified a material weakness in the Company’s internal control over financial reporting in the third fiscal quarter of the fiscal year ended March 26, 2005 related to the Company’s internal control policies and procedures over the review of affiliate agreements and contracts for applicability and effect on the Company’s consolidated financial statements which do not ensure that such agreements and contracts, where applicable, are properly disclosed and reflected in the consolidated financial statements.

While steps have been or will be taken to remedy these material weaknesses and the significant deficiency, other material weaknesses and significant deficiencies may also exist in the Company’s internal control over financial reporting. If the Company cannot identify and remedy all material weaknesses or significant deficiencies in its internal control over financial reporting, the Company’s operations, including its access to capital, could be adversely affected and the stock price could suffer. Additionally, identifying and remedying any material weaknesses or significant deficiencies in the Company’s internal control over financial reporting could result in substantial costs.

The Company is the subject of an informal SEC inquiry, which could have a material adverse effect on the Company.

On December 1, 2004, the Company was notified that the SEC is conducting an informal inquiry. The SEC requested documents primarily relating to the warrants that Mayor’s issued to Birks in connection with Birks’ equity investment in Mayor’s in August 2002. In January 2005, as a result of a review of the accounting treatment of warrants, 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

27

Table of Contents

the selected quarterly financial data for the fiscal quarter ended March 27, 2004. Subsequently, the SEC requested further documents related primarily to the restated financial statements and several miscellaneous issues. The Company intends to cooperate fully with the SEC in its inquiry. Responding to the informal inquiry may require significant attention and resources of management. If the SEC elects to pursue a formal investigation or an enforcement action, the additional resources to or defense of such an action 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 penalties that could have a material adverse effect on the Company and the stock price.

The Company may not be able to retain key personnel or replace them if they leave.

Our success is largely dependent on the personal efforts of Thomas Andruskevich, the Company’s Chairman of the Board, President and Chief Executive Officer, and certain other key members of the senior management team. Although the Company has entered into employment agreements with Mr. Andruskevich and certain other key members of the senior management team, the loss of any of their services could cause the Company’s business to suffer. The Company’s success is also dependent upon its ability to continue to hire and retain qualified operations, development and other personnel. Competition for qualified personnel in the retail industry is intense, and the Company cannot assure that we will be able to hire or retain the personnel necessary for its planned operations.

The Company does not have a permanent Chief Financial Officer, which could have a material adverse effect on the Company.

In December 2004, the Chief Financial Officer of the Company resigned. On December 16, 2004, the Board of Directors appointed Lawrence Litowitz to serve as Interim Chief Financial Officer and Principal Accounting Officer. The loss of Mr. Litowitz’s services, or the inability to retain a permanent Chief Financial Officer in the future, could create instability, and the Company’s operations, including access to capital, could be adversely affected and the stock price could decline.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As discussed in more detail in Item 7, 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 Company’s Management Agreement with Regaluxe. The Company does not use, nor has it historically used, derivative financial instruments to manage or reduce market risk.

28

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX

29

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Mayor’s Jewelers, Inc.

We have audited the accompanying consolidated balance sheets of Mayor’s Jewelers, Inc. and subsidiaries as of March 26, 2005 and March 27, 2004 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the fiscal years ended March 26, 2005 and March 27, 2004. In connection with our audits of the consolidated financial statements, we also have audited the March 26, 2005 and March 27, 2004 financial statement schedule as listed at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above presented fairly, in all material respects, the financial position of Mayor’s Jewelers, Inc. and subsidiaries as of March 26, 2005 and March 27, 2004, and the results of their operations and their cash flows for the fiscal years ended March 26, 2005 and March 27, 2004 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Miami, Florida

June 24, 2005

30

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Mayor’s Jewelers, Inc.

Sunrise, Florida

We have audited the accompanying consolidated statements of operations, stockholders’ equity, and cash flows for the fiscal year ended March 29, 2003 of Mayor’s Jewelers, Inc. (the “Company”). Our audits also included the financial statement schedule listed at Item 15(a)(2) as it relates to the fiscal year ended March 29, 2003. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of Mayor’s Jewelers, Inc. and Subsidiaries’ operations and their cash flows for the fiscal year ended March 29, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to such basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note B, the consolidated financial statements for the year ended March 29, 2003 have been restated.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

June 6, 2003, (June 22, 2005 as to the effects of Note B)

31

Table of Contents

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

See notes to consolidated financial statements.

32

Table of Contents

MAYOR’S JEWELERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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