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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q/A Amendment No. 1
 (Mark one)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Thirteen Weeks Ended December 27, 2003 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to Commission File Number 1-9647 MAYORS JEWELERS, INC.  Delaware
    
    59-2290953(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 14051 N.W. 14th Street
Sunrise, Florida 33323
(Address of Principal Executive Offices) (Zip Code) (954) 846-8000
(Registrants Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x o
 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) o x
 Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date. 36,961,307 SHARES ($.0001 PAR VALUE)
AS OF FEBRUARY 6, 2004




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Explanatory Note This Amendment No. 1 on Form 10-Q/A (this Amendment) amends the
Companys Quarterly Report on Form 10-Q for the thirteen weeks ended December
27, 2003, originally filed with the Securities and Exchange Commission on
February 10, 2004 (the Original Filing). This Amendment is being filed in
order to reflect restatements of the following (unaudited) financial
statements: consolidated statements of operations, stockholders equity, and
cash flows for the thirteen and thirty-nine weeks ended December 27, 2003, and
consolidated balance sheet as of December 27, 2003. The restatement reflects
changes to the accounting treatment of certain warrants granted by the Company.
This Amendment also reflect a restatement of the loss per share
amounts as presented in the consolidated condensed statement of operations for
the forty weeks ended January 4, 2003 due to changes to the
accounting for the convertible preferred and common stock warrants
issued by the Company. For a description of the restatements,
see Restatements in Note B to the accompanying unaudited consolidated
condensed financial statements in this Amendment. This Form 10-Q/A also amends
Item 2 with respect to the related warrant non-cash compensation expense
(credit) discussion. Except as described above, this Amendment continues to speak as of the
date of the Original Filing.




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MAYORS JEWELERS, INC. FORM 10-Q/A FOR THE THIRTEEN WEEKS ENDED DECEMBER 27, 2003 TABLE OF CONTENTS Page No.PART I: FINANCIAL INFORMATIONItem 1.
    
    Consolidated Condensed Financial Statements  UnauditedConsolidated Condensed Balance Sheets as of December 27, 2003 (as Restated) and
March 29, 2003 - Unaudited
    
    
    3Consolidated Condensed Statements of Operations for the thirteen weeks ended
December 27, 2003 (as Restated) and January 4, 2003 - Unaudited
    
    
    4Consolidated Condensed Statements of Operations for the thirty-nine weeks ended
December 27, 2003 (as Restated) and the forty weeks ended January 4, 2003 (as Restated)-
Unaudited
    
    
    5Consolidated Condensed Statements of Cash Flows for the thirty-nine weeks ended
December 27, 2003 (as Restated) and the forty weeks ended January 4, 2003 - Unaudited
    
    
    6Notes to Consolidated Condensed Financial Statements  Unaudited (as Restated)
    
    
    7-14Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations (as Restated)
    
    
    14-19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risks
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II: OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    19Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    19-20Signatures
    
    
    
    
    21Sec 302 Chief Executive Officer CertificationSec 302 Chief Financial Officer CertificationSec 906 Chief Executive Officer CertificationSec 906 Chief Financial Officer Certification
  2




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PART I: FINANCIAL INFORMATION 
 Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MAYORS JEWELERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED CONDENSED BALANCE SHEETS  UNAUDITED
 (Amounts shown in thousands except share and per share data)
 December 27,
    
    March 29,2003
    
    2003(as Restated,see Note B)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    3,872
    
    
    $
    1,058Accounts receivable (net of allowance for doubtful accounts of $1,179
and $1,263, respectively)
    
    
    8,985
    
    
    
    5,777Inventories
    
    
    83,143
    
    
    
    76,753Other current assets
    
    
    1,481
    
    
    
    2,987Total current assets
    
    
    97,481
    
    
    
    86,575Property and equipment, net
    
    
    14,154
    
    
    
    15,872Other assets
    
    
    739
    
    
    
    736Total non-current assets
    
    
    14,893
    
    
    
    16,608Total assets
    
    $
    112,374
    
    
    $
    103,183LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    21,716
    
    
    $
    13,798Accrued expenses
    
    
    10,649
    
    
    
    7,434Liabilities of discontinued operations
    
    
    
    
    
    
    527Credit facility
    
    
    28,204
    
    
    
    23,283Total current liabilities
    
    
    60,569
    
    
    
    45,042Term loan
    
    
    10,668
    
    
    
    12,668Other long term liabilities
    
    
    2,879
    
    
    
    3,046Total long term liabilities
    
    
    13,547
    
    
    
    15,714Stockholders Equity:Series A convertible preferred stock, $.0001 par value, 15,050 shares
authorized, issued and outstanding; liquidation value of $15,050,000
    
    
    
    
    
    
    Common stock, $.0001 par value, 50,000,000 shares authorized,
46,945,261 and 29,592,264 shares issued, respectively
    
    
    5
    
    
    
    3Additional paid-in capital
    
    
    208,830
    
    
    
    208,102Accumulated deficit
    
    
    (141,177
    )
    
    
    (136,278
    )Less: 9,983,954 shares of treasury stock, at cost
    
    
    (29,400
    )
    
    
    (29,400
    )Total stockholders equity
    
    
    38,258
    
    
    
    42,427Total liabilities and stockholders equity
    
    $
    112,374
    
    
    $
    103,183
 See notes to unaudited consolidated condensed financial statements. 3




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MAYORS JEWELERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS  UNAUDITED
 (Amounts shown in thousands except share and per share data)
 Thirteen
    
    ThirteenWeeks Ended
    
    Weeks EndedDecember 27, 2003
    
    January 4, 2003(as Restated,see
Note B)Net sales
    
    $
    50,318
    
    
    $
    43,610Cost of sales
    
    
    29,070
    
    
    
    26,011Gross profit
    
    
    21,248
    
    
    
    17,599Selling, general and administrative expenses
    
    
    15,234
    
    
    
    13,935Non-cash compensation credit
    
    
    (45
    )
    
    
    Other charges
    
    
    
    
    
    
    (1,057
    )Depreciation and amortization
    
    
    813
    
    
    
    94316,002
    
    
    
    13,821Operating income
    
    
    5,246
    
    
    
    3,778Interest and other income
    
    
    2
    
    
    
    Interest and other financial costs
    
    
    (1,183
    )
    
    
    (934
    )Income before income taxes and discontinued operations
    
    
    4,065
    
    
    
    2,844Income taxes
    
    
    
    
    
    
    (54
    )Income from continuing operations
    
    
    4,065
    
    
    
    2,898Loss from discontinued operations
    
    
    
    
    
    
    (43
    )Net income
    
    
    4,065
    
    
    
    2,855Preferred stock cumulative dividend
    
    
    (357
    )
    
    
    (357
    )Net income attributable to common stockholders
    
    $
    3,708
    
    
    $
    2,498Weighted average shares outstandingBasic
    
    
    29,333,616
    
    
    
    19,571,548Diluted
    
    
    88,077,141
    
    
    
    82,469,489Income per share, basic:Continuing operations
    
    $
    0.13
    
    
    $
    0.13Discontinued operations
    
    
    
    
    
    
    $
    0.13
    
    
    $
    0.13Income per share, diluted:Continuing operations
    
    $
    0.04
    
    
    $
    0.03Discontinued operations
    
    
    
    
    
    
    $
    0.04
    
    
    $
    0.03
 See notes to unaudited consolidated condensed financial statements. 4




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MAYORS JEWELERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS  UNAUDITED
 (Amounts shown in thousands except share and per share data)
 Thirty-nine
    
    FortyWeeks Ended
    
    Weeks EndedDecember 27, 2003
    
    January 4, 2003(as Restated,see
Note B)
    
    (as Restated,see
Note B)Net sales
    
    $
    98,657
    
    
    $
    98,430Cost of sales
    
    
    58,003
    
    
    
    64,375Gross profit
    
    
    40,654
    
    
    
    34,055Selling, general and administrative expenses
    
    
    38,907
    
    
    
    43,833Non-cash compensation expense
    
    
    730
    
    
    
    Other charges
    
    
    
    
    
    
    1,765Depreciation and amortization
    
    
    2,525
    
    
    
    3,73942,162
    
    
    
    49,337Operating loss
    
    
    (1,508
    )
    
    
    (15,282
    )Interest and other income
    
    
    65
    
    
    
    1,276Interest and other financial costs
    
    
    (3,456
    )
    
    
    (5,872
    )Loss before income taxes and discontinued operations
    
    
    (4,899
    )
    
    
    (19,878
    )Income taxes
    
    
    
    
    
    
    416Loss from continuing operations
    
    
    (4,899
    )
    
    
    (20,294
    )Loss from discontinued operations
    
    
    
    
    
    
    (292
    )Net loss
    
    
    (4,899
    )
    
    
    (20,586
    )Preferred stock cumulative dividend
    
    
    (1,072
    )
    
    
    (4,273
    )Net loss attributable to common stockholders
    
    $
    (5,971
    )
    
    $
    (24,859
    )Weighted average shares outstanding, basic and diluted
    
    
    22,850,079
    
    
    
    19,555,914Loss per share, basic and diluted:Continuing operations
    
    $
    (0.26
    )
    
    $
    (1.25
    )Discontinued operations
    
    
    
    
    
    
    (0.02
    )$
    (0.26
    )
    
    $
    (1.27
    )
 See notes to unaudited consolidated condensed financial statements. 5




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MAYORS JEWELERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  UNAUDITED
 (Amounts shown in thousands)
 Thirty-nine
    
    FortyWeeks Ended
    
    Weeks EndedDecember 27, 2003
    
    January 4, 2003(as Restated,see Note B)Cash flows from operating activities:Net loss
    
    $
    (4,899
    )
    
    $
    (20,586
    )Deduct loss from discontinued operations
    
    
    
    
    
    
    292Loss from continuing operations
    
    
    (4,899
    )
    
    
    (20,294
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    2,525
    
    
    
    3,739Amortization of debt costs
    
    
    297
    
    
    
    393Provision for doubtful accounts
    
    
    244
    
    
    
    2,279Write-off of deferred financing costs
    
    
    
    
    
    
    2,055Non-cash compensation expense related to warrants
    
    
    730
    
    
    
    (Increase) decrease in assets:Accounts receivable
    
    
    (3,452
    )
    
    
    2,733Inventories
    
    
    (6,390
    )
    
    
    282Other assets
    
    
    1,488
    
    
    
    1,458Increase (decrease) in liabilities:Accounts payable
    
    
    7,918
    
    
    
    9,538Accrued expenses and other long term liabilities
    
    
    3,047
    
    
    
    1,943Accrued restructuring
    
    
    
    
    
    
    (6,932
    )Net cash provided by (used in) continuing operations
    
    
    1,508
    
    
    
    (2,806
    )Net cash used in discontinued operations
    
    
    (527
    )
    
    
    (292
    )Net cash provided by (used in) operating activities
    
    
    981
    
    
    
    (3,098
    )Cash flows from investing activities:Capital expenditures
    
    
    (842
    )
    
    
    (1,365
    )Proceeds from sale of fixed assets
    
    
    35
    
    
    
    4,601Net cash (used in) provided by investing activities
    
    
    (807
    )
    
    
    3,236Cash flows from financing activities:Proceeds from issuance of preferred convertible stock and warrants, net
    
    
    
    
    
    
    13,553Proceeds from sale of private label credit card receivable, net
    
    
    
    
    
    
    12,147Proceeds from stock issuance from employee stock plans
    
    
    
    
    
    
    13Borrowings under term loan and line of credit
    
    
    102,804
    
    
    
    123,923Term loan and line of credit repayments
    
    
    (99,883
    )
    
    
    (149,228
    )Payment of commitment fee related to line of credit
    
    
    (281
    )
    
    
    (2,170
    )Net cash provided by (used in) financing activities
    
    
    2,640
    
    
    
    (1,762
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,814
    
    
    
    (1,624
    )Cash and cash equivalents at beginning of period
    
    
    1,058
    
    
    
    2,762Cash and cash equivalents at end of period
    
    $
    3,872
    
    
    $
    1,138Supplemental cash flow information:Interest paid
    
    $
    3,412
    
    
    $
    5,872Non-cash investing and financing activities:Property acquired with debt
    
    $
    130
    
    
    $
    Common stock issued pursuant to cashless exercise of warrants
    
    $
    2
    
    
    $
    
 See notes to unaudited consolidated condensed financial statements. 6




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MAYORS JEWELERS, INC. AND SUBSIDIARIES 
 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 A. Nature of Business Mayors Jewelers, Inc. and its subsidiaries (the Company or Mayors)
consolidated condensed financial statements as of December 27, 2003 and March
29, 2003, and for the thirteen and thirty-nine week periods ended December 27,
2003 and thirteen and forty week periods ended January 4, 2003 have not been
audited by a Registered Public Accounting Firm, but in the opinion of the management
of the Company reflect all adjustments (which include only normal recurring
accruals) necessary to present fairly the financial position, results of
operations and cash flows for those periods. In accordance with the rules of
the Securities and Exchange Commission, these consolidated condensed financial
statements do not contain all disclosures required by accounting principles
generally accepted in the United States of America. Results of the thirteen and
thirty-nine week periods ended December 27, 2003 and thirteen and forty week
periods ended January 4, 2003 are not necessarily indicative of annual results
because of the seasonality of the Companys business. The information included
in this Form 10-Q should be read in conjunction with the financial statements
and notes thereto, together with Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in the Companys Annual
Report on Form 10-K for the year ended March 29, 2003. Certain
reclassifications were made to the prior periods consolidated condensed
balance sheet. The Company is primarily engaged in the sale of fine jewelry, timepieces
and giftware. The Company operates 28 locations in South and Central Florida
and metropolitan Atlanta, Georgia. Management believes that barring a significant external event that
materially adversely affects the Companys current business or the current
industry trends as a whole, the Companys borrowing capacity under the credit
facility, projected cash flows from operations and other short term borrowings
will be sufficient to support the Companys working capital needs, capital
expenditures, any dividend payments on its preferred stock and debt service for
at least the next twelve months. B. Restatements The accompanying consolidated financial statements for the thirteen and
thirty-nine weeks ended December 27, 2003 have been restated to
properly account for the following:  
    
    As more fully discussed in Note I, Henry Birks & Sons
Inc. (Birks), the Companys majority stockholder,
granted rights to receive warrants to purchase the Companys common stock to
certain current or former employees of Birks or its affiliates, who
were, or later became employees of or provided services to the
Company. The rights to receive these warrants are contingent upon
fulfillment of certain time based employment vesting requirements.
The granted warrants are subject to variable accounting rules due to
their cashless exercise feature which requires compensation expense
(credit) calculated as the increase or decrease in intrinsic value of
the vested warrants, based on the change in market value of the
underlying stock. Non-cash compensation (credit) for the thirteen and
thirty-nine weeks ended December 27, 2003 related to these
warrants was approximately ($45,000) and $730,000, respectively.
Previous to this restatement, the Company had not properly identified the granting
of these rights to receive warrants by Birks as a transaction
effecting the Companys consolidated financial statements and accordingly had not recognized
compensation expense for these warrants.
    
    The Company corrected
the fair value of common stock warrants issued to approximately
$3.8 million from $1.0 million and recognized a beneficial
conversion feature for the Series A Preferred Stock as a result
of the valuation of the warrants. The beneficial conversion resulted
in a non-cash dividend to Birks at the time of the investment since
the Series A Preferred Stock were convertible immediately. The
dividend has a neutral effect on the Companys
Stockholders Equity, however it increases the net loss
attributed to common stockholders for the forty weeks ended
January 4, 2003.
    
    The Company restated
its proforma information to reflect the expense of the previously
mentioned warrants as calculated using the fair value method as
prescribed in SFAS No. 123. See Note D. The following information presents the impact of
the non-cash compensation expense (credit) discussed above on the Companys financial information as originally
reported as of and for the thirteen and thirty-nine weeks ended
December 27, 2003: Thirteen Weeks EndedDecember 27, 2003(as Previously Reported)
    
    (as Restated)Non-cash
compensation (credit)
    
    
    
    
    
    
    (45
    )Operating income
    
    
    5,201
    
    
    
    5,246Interest and other income
    
    
    2
    
    
    
    2Interest and other financial costs
    
    
    (1,183
    )
    
    
    (1,183
    )Income before income taxes
    
    
    4,020
    
    
    
    4,065Income taxes
    
    
    
    
    
    
    Income from continuing operations
    
    
    4,020
    
    
    
    4,065Income from discontinued operations
    
    
    
    
    
    
    Net income
    
    
    4,020
    
    
    
    4,065Preferred stock cumulative dividend
    
    
    (357
    )
    
    
    (357
    )Net income attributable to common stockholders
    
    $
    3,663
    
    
    $
    3,708Income per share, basic:Continuing operations
    
    $
    0.12
    
    
    $
    0.13Discontinued operations
    
    
    0.00
    
    
    
    0.00
 7




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Thirteen Weeks EndedDecember 27, 2003(as Previously Reported)
    
    (as Restated)$
    0.12
    
    
    $
    0.13Income per share, diluted:Continuing operations
    
    $
    0.04
    
    
    $
    0.04Discontinued operations
    
    
    0.00
    
    
    
    0.00$
    0.04
    
    
    $
    0.04
 Thirty-nine Weeks EndedDecember 27, 2003(as Previously Reported)
    
    (as Restated)Non-cash compensation expense
    
    
    
    
    
    
    730Operating loss
    
    
    (778
    )
    
    
    (1,508
    )Interest and other income
    
    
    65
    
    
    
    65Interest and other financial costs
    
    
    (3,456
    )
    
    
    (3,456
    )Loss before income taxes
    
    
    (4,169
    )
    
    
    (4,899
    )Income taxes
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (4,169
    )
    
    
    (4,899
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    
    (4,169
    )
    
    
    (4,899
    )Preferred stock cumulative dividend
    
    
    (1,072
    )
    
    
    (1,072
    )Net loss attributable to common stockholders
    
    $
    (5,241
    )
    
    $
    (5,971
    )Loss per share, basic and diluted:Continuing operations
    
    $
    (0.23
    )
    
    $
    (0.26
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.00
    )$
    (0.23
    )
    
    $
    (0.26
    )
 As of December 27, 2003(as Previously Reported)
    
    (as Restated)Additional paid-in capital
    
    $
    208,100
    
    
    $
    208,830Accumulated deficit
    
    
    (140,447
    )
    
    
    (141,177
    )
 The following information presents the impact of the
adjustments on the Companys financial information as originally
reported for the forty weeks ended January 4, 2003 as a result
of the dividend created by the beneficial conversion discussed above: Forty Weeks EndedJanuary 4, 2003(as Previously Reported)
    
    (as Restated)Net loss
    
    $
    (20,586
    )
    
    $
    (20,586
    )Preferred stock cumulative dividend
    
    
    (476
    )
    
    
    (4,273
    )Net loss
attributable to common stockholders
    
    $
    (21,062
    )
    
    $
    (24,859
    )Loss per share, basic and diluted:Continuing operations
    
    $
    (1.06
    )
    
    $
    (1.25
    )Discontinued operations
    
    
    (0.02
    )
    
    
    (0.02
    )$
    (1.08
    )
    
    $
    (1.27
    )
 8




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C. Newly Issued Accounting Standards In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 145, Rescission of
FASB Statement Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical
Corrections, which amends certain existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. Additionally, SFAS No. 145 provides
that gains and losses from debt extinguishment are not automatically shown as
an extraordinary item on a companys statement of operations. The provisions of
SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. The
adoption of SFAS No. 145 did not have a material impact on the Companys
financial position or results of operations. In March 2003, the FASBs Emerging Issues Task Force (EITF) finalized
Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor. EITF 02-16 addresses the accounting
treatment for vendor allowances and provides that cash consideration received
from a vendor should be presumed to be a reduction of the prices of the
vendors product and should therefore be shown as a reduction in the purchase
price of the merchandise. Further, these allowances should be recognized as a
reduction in cost of sales when the related product is sold. To the extent that
the cash consideration represents a reimbursement of a specific, incremental
and identifiable cost, then those vendor allowances should be used to offset
such costs. The adoption of EITF 02-16 did not have a material impact on the
Companys financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Generally, SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of SFAS No. 149 did not have a
material impact on the Companys financial position or results of operations. D. Accounting for
Stock-Based Compensation (as Restated, see Note B) The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock-based compensation plans. No stock-based compensation
cost has been recognized for such plans in the accompanying consolidated
condensed statements of operations as all options granted had an exercise price
equal to the market value of the underlying common stock on the grant date. As
required by SFAS No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based
Compensation, the following table estimates the pro forma effect on net income
(loss) and income (loss) per share had the Company applied the fair value
recognition provision of SFAS No. 123 to stock-based employee compensation: Thirteen
    
    ThirteenWeeks Ended
    
    Weeks EndedDecember 27, 2003
    
    January 4, 2003(as Restated)
    
    (as Restated)(In thousands, except per share amounts)Continuing operations
    
    $
    3,708
    
    
    $
    2,541Discontinued operations
    
    
    
    
    
    
    (43
    )Net income attributable to common stockholders as reported
    
    
    3,708
    
    
    
    2,498Deduct non-cash compensation (credit) for warrants
recorded pursuant to APB 25
    
    
    (45
    )
    
    
    Adjusted net income

    
    
    3,663
    
    
    
    2,498Stock-based employee compensation expense determined
under fair-value-based method for all awards, net of tax
    
    
    (372
    )
    
    
    (496
    )Proforma net income
    
    $
    3,291
    
    
    $
    2,002Income per shareAs reported basic:Continuing operations
    
    $
    0.13
    
    
    $
    0.13
 9




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##### Table of Contents



Thirteen
    
    ThirteenWeeks Ended
    
    Weeks EndedDecember 27, 2003
    
    January 4, 2003(as Restated)
    
    (as Restated)(In thousands, except per share amounts)Discontinued operations
    
    
    0.00
    
    
    
    0.00$
    0.13
    
    
    $
    0.13Income per shareAs reported diluted:Continuing operations
    
    $
    0.04
    
    
    $
    0.03Discontinued operations
    
    
    0.00
    
    
    
    0.00$
    0.04
    
    
    $
    0.03Proforma basic:Continuing operations
    
    $
    0.11
    
    
    $
    0.11Discontinued operations
    
    
    0.00
    
    
    
    (0.01
    )$
    0.11
    
    
    $
    0.10Proforma diluted:Continuing operations
    
    $
    0.04
    
    
    $
    0.03Discontinued operations
    
    
    0.00
    
    
    
    (0.01
    )$
    0.04
    
    
    $
    0.02
 Thirty-nine
    
    FortyWeeks Ended
    
    Weeks EndedDecember 27, 2003
    
    January 4, 2003(as Restated)
    
    (as Restated)(In thousands, except per share amounts)Continuing operations
    
    $
    (5,971
    )
    
    $
    (24,567
    )Discontinued operations
    
    
    
    
    
    
    (292
    )Net loss attributable to common stockholders as reported
    
    
    (5,971
    )
    
    
    (24,859
    )Add back non-cash compensation expense for warrants
recorded pursuant to APB 25
    
    
    730
    
    
    
    Adjusted net loss
    
    
    (5,241
    )
    
    
    (24,859
    )Stock-based employee compensation expense determined
under fair-value-based method for all awards, net of tax
    
    
    (1,150
    )
    
    
    (1,387
    )Proforma net loss
    
    $
    (6,391
    )
    
    $
    (26,246
    )Loss per shareAs reported basic and diluted:Continuing operations
    
    $
    (0.26
    )
    
    $
    (1.25
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.02
    )$
    (0.26
    )
    
    $
    (1.27
    )Proforma basic and diluted:Continuing operations
    
    $
    (0.28
    )
    
    $
    (1.32
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.02
    )$
    (0.28
    )
    
    $
    (1.34
    )
 The fair value of each option grant was estimated as of the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants during the thirteen and thirty-nine weeks
4, 2003: expected volatility of 96% and 81%, respectively, risk-free interest
rate o| 3.15% and 2.80%, respectively, expected lives of approximately five
years and a dividend yield of zero for the periods presented. There were 50,000
and 90,000 options granted during the thirteen and thirty-nine weeks ended
December 27, 2003, respectively and 125,000 and 2,355,000 options granted
during the thirteen and forty weeks ended January 4, 2003, respectively. The
fair value of each warrant grant was estimated as of the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants: expected volatility of 49.2%, risk-free interest
rate of 4.48%, expected lives of approximately twenty years and a dividend
yield of zero. The weighted average fair values of warrants granted during
Fiscal 2002 were $0.26. E. Term Loan and Credit Facility As of December 27, 2003, the Company had a $58 million working capital
credit facility with Fleet Retail Finance and GMAC and a $10.7 million junior
secured term loan with Back Bay Capital. Both of the debt facilities have a
maturity date of August 20, 2005 and are collateralized by substantially all of
the Companys assets. 10




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##### Table of Contents



Availability under the working capital facility is determined based upon a
percentage formula applied to certain inventory and has certain restrictions
regarding borrowing availability. The interest rate under the working capital
facility as of December 27, 2003 was 5.25% (prime plus 1.25%). The working
capital facility currently contains certain financial covenants that limit
capital expenditures. The interest rate for the credit facility was adjusted in
November 2003 to reduce the rate from prime plus 1.5% to prime plus 1.25%,
based on the excess borrowing capacity of the Companys availability as allowed
in the borrowing agreement. The junior secured term loan currently bears an
effective interest rate of 14% and is subject to similar restrictions and
covenants as the working capital facility as well as certain prepayment
penalties. On November 21, 2003, the junior secured term loan with Back Bay
Capital was amended to include the reduction of the effective interest rate
from 18.25% to 14% and allowed a prepayment of principal of $2 million. The
current terms of the banking facilities may be amended pending the proposed
dividend payment discussed in Note I herein. As of December 27, 2003, after accounting for the foregoing borrowing
restrictions, the Company had approximately $62.5 million of borrowing capacity
under its facility and term loan and, after netting the outstanding borrowings
of $38.9 million and letter of credit commitments of $600,000, the Company had
excess borrowing capacity of approximately $23.0 million. F. Discontinued Operations The Company closed its store at Tysons Galleria in McLean, Virginia in
March 2003 in order to concentrate its merchandising and marketing efforts in
its core Florida and Georgia marketplace. In accordance with SFAS No. 144, the
closing of the store is classified as a discontinued operation and as a result,
the Consolidated Condensed Statements of Operations for the thirteen and forty
week periods ended January 4, 2003 have been reclassified to reflect the store
as a discontinued operation. Sales related to this store for the thirteen and
forty week periods ended January 4, 2003 were $478,000 and $1,404,000,
respectively. The net loss related to this store for the thirteen and forty
week periods ended January 4, 2003 was $43,000 and $292,000, respectively. G. Other Charges Other charges for the thirteen and forty weeks ended January 4, 2003
consist of one time charges for professional fees related to the liquidation of
inventory in under-performing and unprofitable stores that were being closed as
part of a restructuring plan, charges related to the sale of certain of the
Companys accounts receivable portfolio and severance costs related to the
departure of a former Chief Executive Officer net of a reversal to income of
reserves related to the exit of leases for closed stores, which was recorded in
the thirteen weeks ended January 4, 2003. H. Inventories Inventories are summarized as follows: (amounts shown in thousands)December 27,
    
    March 29,2003
    
    2003Raw materials
    
    $
    2,018
    
    
    $
    1,138Finished
goods
    
    
    81,125
    
    
    
    75,615$
    83,143
    
    
    $
    76,753
 In addition, the Company held
inventory on consignment at December 27, 2003 and
March 29, 2003 with a cost of approximately $13,331,000 and
$6,172,000, respectively. I. Related Party
Transactions (as Restated, see Note B) 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 has been netted against the proceeds in stockholders equity. As
consideration for the investment, Birks received 15,050 shares of Series A
Convertible Preferred Stock (Series A Preferred), a newly formed class of
stock that was originally convertible into 50,166,667 shares of common stock.
The conversion ratio of the Series A Convertible Preferred Stock to common
stock is subject to certain anti-dilution provisions which increased the number
of common shares that Birks would receive if the preferred shares were fully
converted to 11




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##### Table of Contents



51,401,065 as of December 27, 2003. 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, 12,424,595 shares of
common stock at $0.40 per share. The warrants also contain anti-dilution
provisions which upon the
occurrence of certain events can increase the number of warrants and
decrease the exercise price. Upon conversion of the preferred
shares, Birks will own approximately 77.8% of the outstanding capital stock in
Mayors. Of
the proceeds raised of $15.05 million, a fair value of $3.8 million
has been allocated to the warrants, with the residual of $11.25 million
attributed to the Series A Preferred. 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 $3.8 million beneficial conversion feature for
the Series A Preferred, as a result of the valuation above, and results in a
non-cash dividend to Birks at the time of the investment since the Series A
Preferred are convertible immediately. The dividend has a neutral effect on the
Companys total stockholders equity, however it increases the net loss attributed to
common stockholders for the forty weeks ended January 4, 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 granted warrants was $0.29 per share,
after certain anti-dilution adjustments. The granted warrants are subject to
variable accounting rules due to their cashless exercise feature which requires
compensation expense (credit) which is calculated as the increase or decrease
in intrinsic value of the vested warrants, based on the change in market value
of the underlying stock. Non-cash compensation (credit) expense for the
thirteen and thirty-nine weeks ended December 27, 2003 related to these
warrants was approximately ($45,000) and $730,000, respectively. As of December
27, 2003, the number of warrants increased to 4,767,767, of which 3,852,618
were vested, and the exercise price was $0.29 as a result of the anti-dilution
provisions in the warrants agreements. 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.
Following the exercise of the warrants, Birks had 287,965, 305,732 and 305,732
warrants exercisable at $0.29, $0.34 and $0.39, respectively, including
adjustments for the anti-dilution provisions through December 27, 2003. Mayors Chief Executive Officer, Chief Financial Officer, Group
VP-Finance, Group VP-Marketing, Group VP-Supply Chain Operations, Group
VP-Strategy and Business Integration, Group Creative Director and other members
of Mayors senior 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, 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 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 by the Corporate Governance Committee of the Board of Directors.
The terms of these agreements are one year and automatically renew. The Company can sell merchandise
and provide management services to Birks under terms similar to those in the
agreements. During the thirteen and thirty-nine weeks ended December 27, 2003, Mayors
incurred approximately $25,000 and $83,000, respectively, of costs from Birks
related to advisory, management and corporate services pursuant to the
Management Expense Reimbursement Agreement which was net of expenses charged to
Birks from Mayors for similar services. Also, during the thirteen and
thirty-nine weeks ended December 27, 2003, Mayors purchased approximately
$214,000 and $472,000, respectively, of merchandise from Birks pursuant to a
Manufacturing and Sale Agreement. As of December 27, 2003, the Company owed
Birks $403,000 related to purchases of inventory, advisory, management and
corporate services and for expenses paid by Birks on behalf of 12




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##### Table of Contents



Mayors. Included in General and Administrative Expenses are $390,000 of
amounts paid to Birks during the forty weeks ended January 4, 2003 for
merchandising and other consulting services prior to the equity investment
transaction. Mayors also purchased $27,000 and $32,000, respectively, of
merchandise from Cristalleries Royales de Champagne, a company controlled by
the majority owners of Birks, during the thirteen and thirty-nine weeks ended
December 27, 2003. The Companys Certificate of Designation (the Certificate) for the
Series A Preferred provides that the holders of the preferred stock shall be
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 calls for the
dividends to remain unpaid until January 15, 2005 for dividends cumulated
through October 14, 2004; thereafter, all dividends, including cumulative but
unpaid, are 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. As of December 27, 2003 there was $1.9 million of
dividends accumulated (of which $357,000 and $1,072,000 is for the thirteen and
thirty-nine weeks ended December 27, 2003, respectively); however, no dividends
have been declared by the Board of Directors. The declaration of any current
or future dividends is subject to certain provisions of the Companys banking
facility. The Certificate further provides that the Series A Convertible
Preferred Stock has a liquidation value of $1,000 per share. The Certificate also provides Birks with 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 if Birks had converted all of
the Series A Convertible Preferred Stock 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, the controlling shareholder of Mayors, asked the
Company to consider paying in February 2004, the cumulative dividends earned by
Birks on the Series A Convertible Preferred Stock, which approximate $2.1
million as of February 10, 2004. As an inducement to pay the dividends early,
Birks has proposed that it absorb certain incremental costs related to the
early dividend payment, including, payment of the lender commitment fees and a
reduction in the amount of any future dividend payments to Birks by the amount
of interest incurred by the Company as a result of any amounts the Company will
have to borrow to fund the payment. In addition, Birks has also proposed that
the dividend rate on the Series A Convertible Preferred Stock be lowered for
all future dividend payments from $95 per share to $80 per share per annum,
resulting in a savings in cumulative dividends of approximately $225,750
annually. In order to effectuate the payment of an early dividend, the Company
is considering issuing a new series of preferred stock to Birks in exchange for
its shares of Series A Convertible Preferred Stock on substantially identical
terms to the Series A Convertible Preferred Stock, with the exceptions of
certain changes primarily to the provisions regarding the payment of dividends
and future dividend rates. The Company has been asked by Birks to consider the payment of these
dividends in order to assist Birks in the renewal of its current bank facility,
which is due for renewal in July 2004, and for other general financing needs.
Birks has informed Mayors that it is currently in the process of developing
the final terms for its bank facility and the controlling shareholder group has
informed Mayors that it is highly confident that it will satisfactorily
conclude them in the near future. The Companys banks have proposed 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
create a material adverse effect on the Companys liquidity. In addition, in
conjunction with the renewal of the Birks facility, it has been proposed to
increase the Companys facility up to $3 million and to provide for the
inclusion of the accounts receivable in the borrowing base. The Company has formed a committee of independent directors of its Board
to evaluate Birks request and has retained an investment banking firm to
perform an analysis of the structure of the proposed transaction. The Committee
of Independent Directors is expected to finish its consideration of Birks
request during the month of February 2004. The payment of dividends would not affect the statement of operations or
earnings (loss) per share as it would be recorded directly as a reduction of
stockholders equity. The earnings (loss) per share amounts attributable to
common stockholders are adjusted for the dividends as they are earned rather
than when declared or paid. 13




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##### Table of Contents



J. Legal Proceedings The Company is from time to time involved in litigation incident to the
conduct of its business. In these pending matters, the Company believes that
the resolution of these matters should not materially affect the Companys
financial position; however, there can be no assurance as to the final result
of these legal matters. 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(as Restated, See Explanatory Note on
page 1) RESULTS OF OPERATIONS The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
Companys actual results could differ materially from those anticipated in any
forward-looking statements as a result of certain factors set forth below and
elsewhere in this report and in the Companys Annual Report on Form 10-K for
the year ended March 29, 2003 and other reports filed with the Securities and
Exchange Commission. Overview Mayors currently operates 28 luxury jewelry stores in Florida and
Georgia. During the forty week period ended January 4, 2003, the Company
operated between 29 and 40 stores located in its core market of Florida and
Georgia as well as stores in non-core areas of California, Texas, Michigan,
Illinois, Virginia and Arizona. The reduction in the number of stores was a
result of the execution of the restructuring plan during the last fiscal year
that included closing under-performing stores outside of the Companys core
market of Florida and Georgia. The retail jewelry market is particularly subject to the level of consumer
discretionary income and the subsequent impact on the type and value of goods
purchased. With the consolidation of the retail industry, the Company believes
that competition and consolidation both within the luxury goods retail industry
and with other competing general and specialty retailers and discounters will
continue to increase. The luxury watch brands business comprise a significant
portion of the Companys business, which management believes is a result of the
Companys ability to effectively market high-end watches. If, for any reason,
the Company is unable to sell certain watches, it could have a material adverse
effect on the Companys business, financial condition and operating results.
Please refer to Item 2 Forward Looking Statements. 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 loss of mall anchor tenants
in the regional malls where the Mayors stores are located, the opening of
competing regional malls or stores and other economic downturns affecting
customer mall traffic could have an adverse effect on the Companys net sales
and profitability. The Companys strategy is to continue to attempt to increase gross profit
and gross margin over the next several years. The Companys strategy for gross
profit and gross margin improvement includes continuing to execute strategies
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. In addition, by
leveraging the relationship with Henry Birks & Sons, Inc. (Birks), the
Company expects to refine the allocation and management of inventory in its
stores, and as a result, other direct costs such as the cost of financing
inventory and inventory markdowns are expected to decrease. However, there can
be no assurance that the Companys strategy to increase 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 as well as
producing savings as a result of integrating mutual efforts with Birks. 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 27, 2003 for the current fiscal year and the thirteen weeks
ended January 4, 2003 in the prior fiscal year. 14




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##### Table of Contents



Thirteen and thirty-nine weeks ended December 27, 2003 compared to the thirteen
and forty weeks ended January 4, 2003 The Companys net sales for the thirteen and thirty-nine weeks ended
December 27, 2003 were $50.3 million and $98.7 million, respectively, compared
to $43.6 million and $98.4 million, respectively, for the thirteen and forty
weeks ended January 4, 2003. The increase in revenues for the thirteen weeks
ended December 27, 2003 is primarily due to an effective branding and marketing
initiative that included a mix of exclusive new merchandise in all stores, a
redesigned Mayors holiday catalog and a new prestige catalog, emphasis on new
and longtime clients, store events and launching Mayors new television
advertising campaign. For the thirty-nine weeks ended December 27, 2003, the
increase in sales compared to the prior year was the result of an effective mix
of merchandising, due in part to the improved financial position of the
Company, and marketing offset by there being less stores in operations during
the current year as well as one less week of sales included in the current year
as compared to the prior year. Comparable store sales (sales in stores open in both thirteen and
thirty-nine week periods), increased 14.2% and 12.4%, respectively, over the
similar thirteen and thirty-nine week periods in the prior fiscal year. Gross margin (gross profit as a percentage of sales) was 42.2% and 41.2%
for the thirteen and thirty-nine weeks ended December 27, 2003, respectively,
compared to 40.4% and 34.6% for the thirteen and forty weeks ended January 4,
2003, respectively. The increase in gross margin for the thirteen weeks ended
December 27, 2003 primarily resulted from the ability of Mayors to increase
its offering and sales of higher margin exclusive products and substantially
reduced promotional activity as compared to last year. For the thirty-nine
weeks ended December 27, 2003 versus the forty weeks ended January 4, 2003, the
gross margin increased due to the factors previously mentioned for the current
third fiscal quarter as well as the negative impact on the prior year gross
margin that discounting had in connection with the liquidation of inventory in
the closing of stores. Selling, general and administrative expenses were $15.2 million or 30.3%
of net sales and $38.9 million or 39.4% of net sales for the thirteen and
thirty-nine weeks ended December 27, 2003, respectively, compared to $13.9
million or 32.0% of net sales and $43.8 million or 44.5% of net sales for the
thirteen and forty weeks ended January 4, 2003, respectively. The increase in
selling, general and administrative expenses for the thirteen weeks ended
December 27, 2003 is primarily a result of the increase in marketing and
variable expenses due to the sales increase. The decrease in selling, general
and administrative expenses for the thirty-nine weeks ended December 27, 2003
is primarily a result of the operation of 12 less stores in those fiscal
periods as compared to the prior year fiscal periods, reduction of controllable
expenses, as well as one less week during the first quarter of this year. 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
which were able to better absorb the fixed costs compared to the prior year
fiscal periods. Non-cash compensation (credit) expense was ($45,000) and $730,000 for the
thirteen and thirty-nine weeks ended December 27, 2003, respectively. Non-cash
compensation (credit) expense resulted from the increase and decrease,
respectively, 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. Other charges for the thirteen and forty weeks ended January 4, 2003 were
income of $1.1 million and expense of $1.8 million, respectively. The income
recorded in the thirteen weeks ended January 4, 2003 resulted from the reversal
of reserves relating to the termination of leases as part of a restructuring
plan for under-performing and unprofitable stores, which were negotiated at
more favorable terms than expected. The restructuring plan was adopted in
Fiscal 2001 due to capital constraints caused by merchandising and marketing
issues and the poor economic climate, which in part, led to an unsuccessful
capital intensive expansion strategy. The net charges for the forty week period
ended January 4, 2003, consist of one time charges for professional fees
related to the liquidation of inventory in stores that were being closed as
part of a restructuring plan, charges related to the sale of certain of the
Companys accounts receivable, severance costs related to the departure of a
former Chief Executive Officer and the reversal of reserves relating to the
termination of leases for closed stores as previously noted above. 15




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##### Table of Contents



Depreciation and amortization expenses were $0.8 million and $2.5 million
for the thirteen and thirty-nine weeks ended December 27, 2003, respectively,
compared to $0.9 million and $3.7 million for the thirteen and forty weeks
ended January 4, 2003, respectively. The decrease in depreciation and
amortization expenses for the thirteen and thirty-nine weeks ended December 27,
2003 was primarily due to the lack of depreciation in those fiscal periods
related to the disposal of fixed assets in the stores that were closed in the
previous year and the corporate headquarters, which was sold in July 2002,
slightly offset by the addition of fixed assets for the Companys two new
stores and other fixed asset additions since the prior year fiscal period. Interest and other income was $2,000 and $65,000 for the thirteen and
thirty-nine weeks ended December 27, 2003, respectively, compared to $1.3
million for the forty weeks ended January 4, 2003, which included a release of
funds held in escrow resulting in a gain of $1.4 million in connection with a
settlement with former Mayors stockholders. Interest and other financial costs
were $1.2 million and $3.5 million for the thirteen and thirty-nine weeks ended
December 27, 2003, respectively, and $0.9 million and $5.9 million for the
thirteen and forty weeks ended January 4, 2003, respectively. The interest and
other financial costs for the forty weeks ended January 4, 2003, includes
approximately $2.1 million related to the write-off of deferred financing costs
as a result of the Company entering into new bank loans. The Company received an income tax benefit of $54,000 for the thirteen
weeks ended January 4, 2003 due to a tax refund and incurred an income tax
expense of $416,000 for the forty weeks ended January 4, 2003, due primarily
to the write-off of an income tax receivable for an inactive Israeli
subsidiary. FINANCIAL CONDITION Liquidity and Capital Resources As of December 27, 2003, the Company had a $58 million working capital
credit facility with Fleet Retail Finance and GMAC and a $10.7 million junior
secured term loan with Back Bay Capital. Both of the debt facilities have a
maturity date of August 20, 2005 and are collateralized by substantially all of
the Companys assets. Borrowing availability under the working capital
facility is determined based upon a percentage formula applied to certain
inventory. The interest rate under the working capital facility as of December
27, 2003, was 5.25% (prime plus 1.25%). The working capital facility currently
contains certain financial covenants that limit the Companys capital
expenditures. The interest rate for the credit facility was adjusted in
November 2003 from prime plus 1.5% to prime plus 1.25%, based on the excess
borrowing capacity of the Companys availability as allowed in the borrowing
agreement. The junior secured term loan currently bears an effective interest
rate of 14% and is subject to similar restrictions and covenants as the working
capital facility as well as certain prepayment penalties. On November 21, 2003,
the junior secured term loan with Back Bay Capital was amended to include the
reduction of the effective interest rate from 18.25% to 14% and allowed a
prepayment of principal of $2 million. As of December 27, 2003, after accounting for the foregoing borrowing
restrictions, the Company had approximately $62.5 million of borrowing capacity
under its facility and term loan and, after netting the outstanding borrowings
of $38.9 million and letter of credit commitments of $600,000, the Company had
excess borrowing capacity of approximately $23.0 million. In January 2004, Birks, the controlling stockholder of Mayors, asked the
Company to consider paying in February 2004, the cumulative dividends earned by
Birks on the Series A Convertible Preferred Stock, which approximate $2.1
million as of February 10, 2004. These dividends are on the 15,050 shares of
the Companys Series A Convertible Preferred Stock issued to Birks as part of
its investment in 2002 and were originally anticipated to be paid in January
2005 (see Note I to the Unaudited Condensed Consolidated Financial Statements).
As an inducement to pay the dividends early, Birks has proposed that it
absorb certain incremental costs related to the early dividend payment,
including, payment of the lender commitment fees and a reduction in the amount
of future dividend payments to Birks by the amount of interest incurred by the
Company as a result of any amounts the Company will have to borrow to fund the
payment. In addition, Birks has proposed that the dividend rate on the Series
A Convertible Preferred Stock be lowered for all future dividend payments from
$95 per share to $80 per share per annum, resulting in a savings in cumulative
dividends of approximately $225,750 annually. The payment of dividends would
not affect the statement of operations or earnings (loss) per share as it would
be recorded directly as 16




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a reduction of stockholders equity. The earnings (loss) per share
amounts attributable to common stockholders are adjusted for the dividends as
they are earned rather than when declared or paid. The Company has been asked by Birks to consider the payment of these
dividends in order to assist Birks in the renewal of its current bank facility,
which is due for renewal in July 2004, and for other general financing needs.
Birks has informed Mayors that it is currently in the process of developing
the final terms for its bank facility and the controlling shareholder group has
informed Mayors that it is highly confident that it will satisfactorily
conclude them in the near future. The Companys banks have proposed 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
create a material adverse effect on the Companys liquidity. In addition, in
conjunction with the renewal of the Birks facility, it has been proposed to
increase the Companys facility up to $3 million and to provide for the
inclusion of the accounts receivable in the borrowing base. Mayors has various relationships with Birks and the two companies have
the same controlling shareholder group (See Note I to the Unaudited
Consolidated Condensed Financial Statements). 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 and Sale
Agreement, the relationship with Birks has brought synergies to both companies
in a number of ways such as the integration of efforts in the production of
holiday catalogs, television campaigns and other marketing efforts; the
attainment of favorable terms on its banking facilities; and the ability to
strengthen supplier relationships and improve 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 could potentially
negatively impact each company for a period of time. The Company has formed a committee of independent directors of its Board
to evaluate Birks request of the dividend payment and has retained an
investment banking firm to perform an analysis of the structure of the proposed
transaction. The Committee of Independent Directors is expected to finish its
consideration of Birks request during the month of February 2004. During the thirty-nine weeks ended December 27, 2003, cash flows from
continuing operating activities provided $1.5 million in cash. Cash flows from
discontinued operations used $0.5 million in cash to settle final obligations
related to the closing of a store. The cash provided by operating activities
was primarily the result of cash generated from the holiday season in the third
fiscal quarter due to the large volume of sales, the increase in accounts
payable, directly related to the increase in inventories, and accrued expenses
offset by the Companys net loss, and an increase in inventories and accounts
receivable. During the forty weeks ended January 4, 2003, cash flows from
continuing operating activities used $2.8 million in cash, as a result of the
net loss for the period and the use of cash to satisfy restructuring
liabilities reduced by the effect of non-cash expenses and the decrease in
assets as stores were closed. Net cash used in investing activities was $0.8 million during the
thirty-nine weeks ended December 27, 2003, and was primarily related to capital
expenditures for leasehold improvements for the corporate headquarters and
information systems. Net cash provided by investing activities was $3.2 million
during the forty weeks ended January 4, 2003, due to the sale of the Companys
corporate headquarters, and offset by capital expenditures for leasehold
improvements for the two new stores. Net cash provided by financing activities was $2.6 million during the
thirty-nine weeks ended December 27, 2003, and was primarily related to net
borrowings under the credit facility. Net cash used in financing activities
was $1.8 million during the forty weeks ended January 4, 2003, primarily due to
repayments on the line of credit and commitment fees paid for a line of credit
offset by proceeds from the issuance of preferred convertible stock, and
warrants and proceeds from the sale of the Companys private label credit card
receivable. 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 17




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working capital needs, capital expenditures, any dividend payments on its
preferred stock and debt service for at least the next twelve months. FORWARD-LOOKING STATEMENTS This report and other written reports and releases and oral statements
made from time to time by the Company contain forward-looking statements which
can be identified by their use of words like plans, expects, believes,
will, anticipates, intends, projects, estimates, could, would,
may, planned, goal, and other words of similar meaning. All statements
that address expectations, possibilities or projections about the future,
including without limitation statements about the Companys strategies for
growth, expansion plans, sources or adequacy of capital, expenditures and
financial results are forward-looking statements. 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 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,
especially on Forms 10-K, 10-Q and 8-K. Particular review is to be made of
Items 1, 2, 3 and 7 of the Form 10-K and Part I, Item 2 of the Forms 10-Q
where the Company discusses in more detail various important risks and
uncertainties that could cause actual results to differ from expected or
historical results. The Company notes these factors for investors as permitted
by the Private Securities Litigation Act of 1995. Since it is not possible to
predict or identify all such factors, the identified items are not a complete
statement of all risks or uncertainties. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements and related disclosures 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. Estimates are
used in accounting for among other things, inventory reserves, depreciation,
allowance for doubtful accounts and contingencies. Estimates and assumptions
are reviewed periodically and the effects of revisions are reflected in the
consolidated financial statements in the period in which they are determined to
be necessary. These estimates and assumptions are evaluated on an on-going
basis and are based on historical experience and on various factors that are
believed to be reasonable. The Company has identified certain critical accounting policies as noted
below. Reserve for inventory shrink and slow moving inventory.The reserve for
inventory shrink is estimated for the period from the last 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 unmarketable 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. 18




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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 generally at the
lower of the carrying amount or fair value less cost to sell. 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Interest Rate Risks The Companys credit facility accrues interest at floating rates,
currently based upon prime plus 1.25%. The Company manages its borrowings under
this credit facility each day in order to minimize interest expense. The impact
on the Companys earnings per share of a one-percentage point interest rate
change on the outstanding balance as of December 27, 2003 would increase or
decrease earnings per share by approximately $282,000 or $.01 per share per
annum. The Company extends credit to its customers under its own revolving charge
plan with up to three-year payment terms. Finance charges, when applicable, are
generally currently assessed on customers balances at a rate of 1.5% per
month. Since the interest rate is fixed at the time of sale, market interest
rate changes would not impact the Companys finance charge income. 
 Item 4. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. As of the last day of the period
covered by this report, the Company carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and Chief Financial Officer of
the Company, of the effectiveness of the design and operation of the Companys disclosure controls
and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that its disclosure controls and procedures were effective as of the date of their
evaluation in timely alerting them to material information relating to the Company (including the
Companys consolidated subsidiaries) required to be included in reports the Company files or
submits under the Securities Exchange Act of 1934. (b) Changes in Internal Controls.On November 9, 2004 and December 1, 2004, the Company
released its preliminary conclusions regarding an expected restatement of its financial statements
for the fiscal quarters ended November 2, 2002, September 27, 2003, December 27, 2003, and June 26,
2004, the fiscal years ended March 29, 2003 and March 27, 2004, and the selected quarterly
financial data for the fiscal quarter ended March 27, 2004. During the financial reporting process associated with the Companys third quarter of fiscal
2004 financial results, the Company determined that certain errors had occurred in the Companys
accounting treatment of certain warrants that were issued by the Company to Henry Birks & Sons Inc.
(Birks), the Companys majority stockholder, in connection with Birks August 20, 2002 equity
investment of $15.05 million in the Company, and later assigned in part to certain individuals
affiliated with Birks, and the Company also determined that it should reconsider certain
conclusions regarding the allocation of the fair value of the equity investment between the Series
A Convertible Preferred Stock (the Preferred Stock) and the warrants issued to Birks in
connection with the transaction. The Company has determined that as a result of the assignment of the warrants to those
recipients, the Company should have reflected a non-cash compensation adjustment relating to the
increase or decrease in the intrinsic value of the warrants that could be attributed to the
services provided by the recipients to the Company based on the vesting schedule of the warrants.
The increase or decrease in value of these warrants is required to be reflected in the Companys
financial statements as calculated at the end of each reporting period. The Company also concluded
that a fair value of approximately $3.8 million should have been allocated to the warrants rather
than the original allocation of approximately $1 million, and the
Company recognized a beneficial conversion feature for the Preferred
Stock as a result of the valuation of the warrants. After becoming
aware of the accounting issues, the Audit Committee of the Board of
Directors initiated a review with the assistance of
independent legal counsel of the circumstances surrounding the
assignment of the warrants. The Companys senior management team (Management) conducted a thorough review of the
accounting treatment of the warrants and the allocation of the fair value of the equity investment
by Birks. As a result of this review, the Audit Committee has recommended to Management that the
following corrective actions be taken:  
    Establish a formal review procedure for all contracts, legal agreements and significant
transactions;
    Establish a procedure to confirm that all of the appropriate documents and information
have been properly considered in connection with the preparation, completeness and accuracy
of the Companys consolidated financial statements;
    Develop a procedure through which an appropriate person in the Companys Accounting and
Reporting Division is apprised on a timely basis of all significant capital transactions,
compensation transactions, and significant related party transactions, of the Company and
Birks, so that they can make decisions and determinations regarding the accounting and
disclosure requirements for the Company, if any, that surround such transactions; and
    Require that an appropriate person in the Companys Accounting and Reporting Division
issue a formal report each quarter to the Companys Audit Committee on the accounting and
reporting matters surrounding all major transactions or legal agreements that the Company
entered into since the previous Audit Committee meeting. Additionally, as previously announced, on December 16, 2004, the Board of Directors of the
Company appointed Lawrence R. Litowitz to serve as Interim Chief Financial Officer and the
Principal Accounting Officer of the Company, and reassigned the current officer performing such
duties. The appointment of Mr. Litowitz is considered interim until a permanent Chief Financial
Officer is selected. The Company is also undertaking a thorough review of its internal controls as a part of the
Companys preparation for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002. Section 404 requires the Companys management to report on, and the auditors to attest to,
the effectiveness of the Companys internal control structure and procedures for financial
reporting. Other than the changes identified above, there have been no changes to the Companys
internal control over financial reporting that occurred since the beginning of the Companys third
fiscal 2004 quarter that have materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting. 
 PART II: OTHER INFORMATION 
 Item 1. Legal Proceedings The Company is from time to time involved in litigation incident to the
conduct of its business. There are no pending legal proceedings at this time
reportable pursuant to this Item 1. Although certain litigation of the Company
is routine and incidental, and such litigation can result in large monetary
awards for compensatory or punitive damages, the Company believes that no
litigation that is currently pending involving the Company will have a material
adverse effect on the Companys financial condition. 
 Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits: 3.1
    
    Certificate of Incorporation. Incorporated by reference from Exhibit
3(i) of Mayors Form 8-K filed on July 14, 2000.3.2
    
    Bylaws. Incorporated by reference from Exhibit 3.2 of Mayors Form
10-K filed on May 15, 1995.
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3.3
    
    Second Amendment to Revolving Credit, Tranche B Loan and Security
Agreement dated November 21, 2003. Incorporated by reference from
Exhibit 3.3 of Mayors Form 10-Q filed on February 2, 2004.31.1
    
    Certification Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification Interim Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 (b) Reports on Form 8-K: On October 31, 2003, the Company filed a Report on Form 8-K reporting 1)
financial results for the second fiscal quarter and twenty-six week period
ended September 27, 2003; and 2) that its controlling shareholder, Henry Birks
and Sons Inc. had informed the Company of its intent to exercise warrants to
purchase up to 32,523,787 shares of the Companys common stock which were
granted as part of Birks investment in 2002. On November 13, 2003 and December 2, 2003, the Company filed a Report on
Form 8-K and a Report on Form 8-K/A reporting 1) the dismissal of Deloitte &
Touche LLP as its principal accountant on November 6, 2003, and 2) effective
November 6, 2003, the Company engaged KPMG LLP as its principal accountant. 20




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. MAYORS JEWELERS, INC.(Registrant)By:
    
    /s/ Thomas A. AndruskevichChairman of the Board, President and Chief
Executive Officer
 Date: January 7, 2005 21