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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Thirteen Weeks Ended September 24, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  Commission File Number 1-9647
 MAYORS JEWELERS, INC.
  Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
    
    59-2290953
(I.R.S. Employer
Identification No.)
 14051 N.W. 14th Street, Suite 200
Sunrise, Florida 33323
 (954) 846-8000
  x o
  o x
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MAYORS JEWELERS, INC.
 FORM 10-Q
 FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 24, 2005
 TABLE OF CONTENTS
 Page No.PART I: FINANCIAL INFORMATIONItem 1. Unaudited Condensed Consolidated Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of September 24, 2005 and March 26, 2005
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended September 24, 2005 and September 25, 2004
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 24, 2005 and September 25, 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6-10Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10-14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    14PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    16Item 6. Exhibits
    
    
    17Signatures
    
    
    18Amendment AgreementEmployment AgreementSection 302 Certification of CEOSection 302 Certification of CFOSection 906 Certification of CEOSection 906 Certification of CFO
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PART I: FINANCIAL INFORMATION
 
 Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MAYORS JEWELERS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands except share and per share amounts)
 September 24,
    
    
    March 26,2005
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,468
    
    
    $
    1,220Accounts receivable (net of allowance for doubtful accounts of
$773 and $962, at September 24, 2005 and March 26, 2005,
respectively)
    
    
    5,313
    
    
    
    6,936Inventories
    
    
    88,835
    
    
    
    80,439Other current assets
    
    
    863
    
    
    
    632Total current assets
    
    
    96,479
    
    
    
    89,227Property, net
    
    
    12,681
    
    
    
    13,143Other assets
    
    
    375
    
    
    
    416Total non-current assets
    
    
    13,056
    
    
    
    13,559Total assets
    
    $
    109,535
    
    
    $
    102,786LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    16,219
    
    
    $
    13,139Accrued expenses
    
    
    5,212
    
    
    
    6,786Credit facility
    
    
    43,182
    
    
    
    33,501Term loan
    
    
    11,668
    
    
    
    Total current liabilities
    
    
    76,281
    
    
    
    53,426Term loan
    
    
    
    
    
    
    12,668Other long-term liabilities
    
    
    2,338
    
    
    
    2,401Total long-term liabilities
    
    
    2,338
    
    
    
    15,069Stockholders Equity:Series A-1 convertible preferred stock, $.001 par value, 15,050
shares authorized, issued and outstanding at September 24,
2005 and March 26, 2005, liquidation value of $15,050,000
    
    
    
    
    
    
    Common stock, $.0001 par value, 50,000,000 shares authorized,
47,009,363 and 46,975,546 issued at September 24, 2005 and
March 26, 2005, respectively
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    206,213
    
    
    
    207,100Accumulated deficit
    
    
    (145,902
    )
    
    
    (143,414
    )Less: 9,983,954 shares of treasury stock, at cost
    
    
    (29,400
    )
    
    
    (29,400
    )Total stockholders equity
    
    
    30,916
    
    
    
    34,291Total liabilities and stockholders equity
    
    $
    109,535
    
    
    $
    102,786
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MAYORS JEWELERS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands except share and per share amounts)
 Three Months Ended
    
    
    Six Months EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    29,890
    
    
    $
    25,483
    
    
    $
    62,434
    
    
    $
    54,622Cost of sales
    
    
    17,083
    
    
    
    14,881
    
    
    
    35,214
    
    
    
    31,867Gross profit
    
    
    12,807
    
    
    
    10,602
    
    
    
    27,220
    
    
    
    22,755Selling, general and administrative expenses
    
    
    12,916
    
    
    
    11,717
    
    
    
    26,221
    
    
    
    24,397Other credits
    
    
    (210
    )
    
    
    (790
    )
    
    
    (288
    )
    
    
    (790
    )Depreciation and amortization
    
    
    812
    
    
    
    841
    
    
    
    1,596
    
    
    
    1,674Total operating expenses
    
    
    13,518
    
    
    
    11,768
    
    
    
    27,529
    
    
    
    25,281Operating loss
    
    
    (711
    )
    
    
    (1,166
    )
    
    
    (309
    )
    
    
    (2,526
    )Interest and other financial costs
    
    
    (1,088
    )
    
    
    (1,060
    )
    
    
    (2,179
    )
    
    
    (2,172
    )Loss before income taxes
    
    
    (1,799
    )
    
    
    (2,226
    )
    
    
    (2,488
    )
    
    
    (4,698
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (1,799
    )
    
    
    (2,226
    )
    
    
    (2,488
    )
    
    
    (4,698
    )Preferred stock dividend
    
    
    (301
    )
    
    
    
    
    
    
    (602
    )
    
    
    Net loss attributable to common stockholders
    
    $
    (2,100
    )
    
    $
    (2,226
    )
    
    $
    (3,090
    )
    
    $
    (4,698
    )Weighted-average shares outstanding, basic
and diluted
    
    
    37,023,551
    
    
    
    36,961,307
    
    
    
    37,007,571
    
    
    
    36,961,307Net loss per share, basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (0.13
    )
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MAYORS JEWELERS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts shown in thousands)
 Six Months EndedSeptember 24,
    
    
    September 25,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (2,488
    )
    
    $
    (4,698
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    1,596
    
    
    
    1,674Amortization of debt issuance costs
    
    
    220
    
    
    
    299Provision for doubtful accounts
    
    
    7
    
    
    
    163Non-cash compensation (credit) expense related to warrants
    
    
    (301
    )
    
    
    103Gain on sale of fixed assets
    
    
    
    
    
    
    (18
    )(Increase) decrease in assets:Accounts receivable
    
    
    1,616
    
    
    
    1,293Inventories
    
    
    (8,396
    )
    
    
    (2,007
    )Other assets
    
    
    (180
    )
    
    
    524Increase (decrease) in liabilities:Accounts payable
    
    
    3,080
    
    
    
    884Accrued expenses and other long-term liabilities
    
    
    (1,637
    )
    
    
    (2,657
    )Net cash used in operating activities
    
    
    (6,483
    )
    
    
    (4,440
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,134
    )
    
    
    (555
    )Proceeds from sales of fixed assets
    
    
    
    
    
    
    18Net cash used in investing activities
    
    
    (1,134
    )
    
    
    (537
    )Cash flows from financing activities:Borrowings under line of credit
    
    
    74,443
    
    
    
    61,421Line of credit repayments
    
    
    (64,762
    )
    
    
    (56,434
    )Principal payment on term loan
    
    
    (1,000
    )
    
    
    Payment of commitment fee
    
    
    (230
    )
    
    
    (358
    )Proceeds from sale of stock under employee purchase plan
    
    
    16
    
    
    
    Dividend payment
    
    
    (452
    )
    
    
    Buyback of warrants
    
    
    (150
    )
    
    
    Net cash provided by financing activities
    
    
    7,865
    
    
    
    4,629Net increase (decrease) in cash and cash equivalents
    
    
    248
    
    
    
    (348
    )Cash and cash equivalents at beginning of period
    
    
    1,220
    
    
    
    1,448Cash and cash equivalents at end of period
    
    $
    1,468
    
    
    $
    1,100Supplemental cash flow information:Interest paid
    
    $
    1,856
    
    
    $
    2,179Non-cash investing and financing activities:Property acquired with debt
    
    $
    329
    
    
    $
    231
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MAYORS JEWELERS, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation and Significant Accounting Policies
  2. Net Loss Per Common Share
  3. Stock-Based Compensation
   Three Months Ended
    
    
    Six Months EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,2005
    
    
    2004
    
    
    2005
    
    
    2004(Amounts shown in thousands, except per share data)Net loss attributable to
common stockholders, as
reported
    
    $
    (2,100
    )
    
    $
    (2,226
    )
    
    $
    (3,090
    )
    
    $
    (4,698
    )Stock-based compensation
credit included in reported
net loss, net of tax
    
    
    (75
    )
    
    
    (193
    )
    
    
    (301
    )
    
    
    103Stock-based employee
compensation expense
determined under the
fair-value-based method, net
of tax
    
    
    (61
    )
    
    
    (91
    )
    
    
    (87
    )
    
    
    (362
    )Net loss attributable to
common stockholders, pro-forma
    
    $
    (2,236
    )
    
    $
    (2,510
    )
    
    $
    (3,478
    )
    
    $
    (4,957
    )Loss per shareAs reported basic and diluted:
    
    $
    (0.06
    )
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (0.13
    )Pro-forma basic and diluted:
    
    $
    (0.06
    )
    
    $
    (0.07
    )
    
    $
    (0.09
    )
    
    $
    (0.13
    )
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4. Inventories
  September 24,
    
    
    March 26,2005
    
    
    2005(Amounts shown in thousands)Raw materials
    
    $
    1,155
    
    
    $
    893Finished goods
    
    
    87,680
    
    
    
    79,546$
    88,835
    
    
    $
    80,439
  5. Term Loan and Credit Facility
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6 New Accounting Pronouncements
   7. Related Party Transactions
    8




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9




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8. Legal Proceedings
  
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Overview
    10




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Critical Accounting Policies and Estimates
  Results of Operations
 Three and Six Months Ended September 24, 2005 compared to the Three and Six Months ended September
25, 2004
  11




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FINANCIAL CONDITION
 Liquidity and Capital Resources
   12




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FORWARD-LOOKING STATEMENTS
     13




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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risks
   Foreign Currency Risk
  
 Item 4. CONTROLS AND PROCEDURES .
 Disclosure Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Internal Control Over Financial Reporting
 Changes in Internal Controls.
  
    
    Adjustments to Inventory to the Lower of Cost or Market.The Companys
internal control policies and procedures over adjustments to inventory
to the lower of cost or market do not ensure that adjustments were
made in accordance with generally accepted accounting principles and
specifically, did not prevent the adjustment of certain aged inventory
to below current book value without adequate documentation and
support.
    
    Accrued Legal Expenses. The Companys internal control policies and
procedures over the proper accounting for accrued legal expenses do
not prevent the accrual of legal expenses (e.g., litigation costs,
judgments and settlements) without adequate documentation and support.
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
    
    Related Party Transactions.The Companys internal control over
policies and procedures over the proper accounting for related party
transactions fail to capture, control, process and record expenses
related to transactions with related parties prior to the closing of
the consolidated financial statements and issuance of a press release.
In addition, the Companys internal control policies and procedures
did not properly provide for the proper accounting of related party
transactions in accordance with generally accepted accounting
principles.
  
    
    Affiliate Agreements and Contracts Affecting the Company. The
Companys internal control over policies and procedures over the
review of affiliate agreements and contracts for applicability and
effect on the Companys consolidated financial statements do not
ensure that such agreements and contracts, where applicable, are
properly disclosed and reflected in the consolidated financial
statements.
  
    
    Allowance for Doubtful Accounts. The Companys internal control
policies and procedures over the estimation of the allowance for
doubtful accounts do not include an effective process to document
support for increases in the reserve for accounts aged less than 60
days delinquent.
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
    
    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.
   
 PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
   16




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Item 6. Exhibits
  2.1
    
    Agreement and Plan of Merger and Reorganization, dated April 18,
2005, among the Company, Birks and Merger Sub. Incorporated by
reference from Exhibit 10.01 of Mayors Form 8-K filed on April 19,
2005.2.2
    
    Amendment Agreement, dated July 27, 2005, among the Company, Birks
and Merger Sub.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, 1995.3.3
    
    Certificate of Designation of Series A-1 Convertible Preferred Stock
of the Company. Incorporated by reference from Exhibit 4.1 of
Mayors Form 8-K filed on March 4, 2004.10.1
    
    Employment Agreement by and between the Company and Michael
Rabinovitch, dated July 6, 2005.31.1
    
    Certification by Thomas A. Andruskevich, Chairman of the Board,
President and Chief Executive Officer, pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a).31.2
    
    Certification by Michael Rabinovitch, Chief Financial Officer,
pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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SIGNATURES
  MAYORS JEWELERS, INC.
(Registrant)By:
    /s/ Thomas A. AndruskevichDate: November 8, 2005
    
    Chairman of the Board, President andChief Executive OfficerBy:
    /s/ Michael RabinovitchDate: November 8, 2005
    
    Chief Financial Officer 18




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2.1
    
    Agreement and Plan of Merger and Reorganization, dated April 18,
2005, among the Company, Birks and Merger Sub. Incorporated by
reference from Exhibit 10.01 of Mayors Form 8-K filed on April 19,
2005.2.2
    
    Amendment Agreement, dated July 27, 2005, among the Company, Birks
and Merger Sub.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, 1995.3.3
    
    Certificate of Designation of Series A-1 Convertible Preferred Stock
of the Company. Incorporated by reference from Exhibit 4.1 of
Mayors Form 8-K filed on March 4, 2004.10.1
    
    Employment Agreement by and between the Company and Michael
Rabinovitch, dated July 6, 2005.31.1
    
    Certification by Thomas A. Andruskevich, Chairman of the Board,
President and Chief Executive Officer, pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a).31.2
    
    Certification by Michael Rabinovitch, Chief Financial Officer,
pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 19