<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8 - K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) AUGUST 30, 1996
------------------------------
THE MAXIM GROUP, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-22232 58-2060334
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
210 TOWNPARK DRIVE, KENNESAW, GEORGIA 30144
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (770) 590-9369
----------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGEED SINCE LAST REPORT)
<PAGE> 2
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired:
Image Industries, Inc.
Independent Auditors' Report
Balance Sheets as of July 1, 1995 and June 29, 1996
Statements of Earnings for the Years Ended July 2, 1994, July 1, 1995 and June
29, 1996
Statements of Cash Flows for the Years Ended July 2, 1994, July 1, 1995 and
June 29, 1996
Statements of Stockholders' Equity for the Years Ended July 2, 1994, July 1,
1995 and June 29, 1996
Notes to Financial Statements
(b) Pro Forma Financial Information
Pro Forma Combined Balance Sheet as of July 31, 1996
Notes to Pro Forma Combined Balance Sheet
Pro Forma Combined Statement of Earnings
for the Six Months Ended July 31, 1996
Pro Forma Combined Statement of Earnings
for the Ten Months Ended January 31, 1996
Pro Forma Combined Statement of Earnings
for the Year Ended March 31, 1995
Pro Forma Combined Statement of Earnings
for the Year Ended March 31, 1994
(c) Exhibits:
2.1 - Agreement and Plan of Reorganization, dated as of May 31, 1996, by and
among The Maxim Group, Inc., TMG-II Merger, Inc., and Image Industries, Inc.
(incorporated by reference from Form 8-K of Maxim dated May 31, 1996)
<PAGE> 3
[KPMG Peat Marwick LLP LETTERHEAD]
The Board of Directors and Stockholders
Image Industries, Inc.:
We have audited the accompanying balance sheets of Image Industries, Inc. as of
June 29, 1996 and July 1, 1995, and the related statements of operations,
stockholders' equity, and cash flow for each of the years in the three-year
period ended June 29, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Image Industries, Inc., as of
June 29, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
August 25, 1996
<PAGE> 4
<TABLE>
<CAPTION>
IMAGE INDUSTRIES, INC.
BALANCE SHEETS
(In thousands, except share data) July 1, June 29,
1995 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 186 $ 118
Trade accounts receivable, less allowance of $176 and $114 at
July 1,1995 and June 29, 1996, respectively (notes 4 and 7) 17,994 21,730
Other receivables 384 594
Inventories (notes 3 and 4) 31,549 30,195
Prepaid expenses and other current assets 134 706
Deferred income tax benefit (note 6) 760 1,738
- -------------------------------------------------------------------------------------------------------------
Total current assets 51,007 55,081
- -------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (notes 3,4 and 5) 74,591 76,728
- -------------------------------------------------------------------------------------------------------------
Other Assets:
Deferred income tax benefit (note 6) 5,474 4,746
Deferred loan costs, less accumulated amortization of $30 and $159
at July 1, 1995 and June 29, 1996 respectively (note 9) 271 142
Deposits 44 1,069
Goodwill, less accumulated amortization of $0 and $5 at July 1, 1995 96 100
and June 29, 1996 respectively
- -------------------------------------------------------------------------------------------------------------
Total other assets 5,885 6,057
- -------------------------------------------------------------------------------------------------------------
$131,483 $137,866
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long term debt and capital lease obligations (notes 4
and 5) $ 227 $ 195
Trade accounts payable 14,072 10,086
Accrued compensation and benefits 1,592 1,976
Accrued returns and allowances 1,073 719
Other accrued expenses 1,851 2,067
Income taxes payable (note 6) 105 -
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 18,920 15,043
- -------------------------------------------------------------------------------------------------------------
Long term debt and capital lease obligations, excluding current 53,822 61,128
installments (notes 4,5 and 9)
Deferred income tax liability (note 6) 7,585 8,716
- -------------------------------------------------------------------------------------------------------------
Total liabilities 80,327 84,887
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity (notes 8 and 11) :
Preferred stock, $.01par value per share, authorized 10,000 shares;
none issued or outstanding - -
Common stock, $.01par value per share, authorized 20,000 shares; issued
and outstanding 5,227 and 5,266 shares at July 1, 1995 and
June 29, 1996 respectively 52 53
Additional paid-in capital 39,773 39,781
Retained earnings 11,331 13,145
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 51,156 52,979
- -------------------------------------------------------------------------------------------------------------
$131,483 $137,866
=============================================================================================================
</TABLE>
See accompanying notes to financial statements
1
<PAGE> 5
<TABLE>
<CAPTION>
IMAGE INDUSTRIES, INC.
Statements of Operations
(In thousands, except per share data)
Year ended
------------------------------
July 2, July 1, June 29,
1994 1995 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net sales (note 7) $103,889 $135,182 $157,657
Cost of sales 78,403 102,448 129,540
- ---------------------------------------------------------------------------------------------------
Gross profit 25,486 32,734 28,117
Selling, general and administrative expenses 15,327 19,765 21,039
Special charge-replacement stock options (note 8) 10,388 - -
- ---------------------------------------------------------------------------------------------------
Operating income (loss) (229) 12,969 7,078
- ---------------------------------------------------------------------------------------------------
Other expense (income)
Interest expense - stockholders and related parties 507 - -
Interest expense - other 617 1,600 4,074
Other expense (income), net 79 (18) 223
- ---------------------------------------------------------------------------------------------------
1,203 1,582 4,297
- ---------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and extraordinary item (1,432) 11,387 2,781
Income tax provision (benefit) (note 6) (530) 4,195 967
- ---------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary item (902) 7,192 1,814
Extraordinary item, gain on extinguishment of debt, less related
income taxes of $117 (note 9) 190 - -
- ---------------------------------------------------------------------------------------------------
Net earnings (loss) $ (712) $ 7,192 $ 1,814
- ---------------------------------------------------------------------------------------------------
Pro forma earnings per share information:
Earnings (loss) before extraordinary item $ (0.16) $ 1.24 $ 0.29
Extraordinary item 0.03 - -
- ---------------------------------------------------------------------------------------------------
Net earnings (loss) $ (0.13) $ 1.24 $ 0.29
===================================================================================================
Weighted average number of common
and common equivalent shares outstanding 5,609 5,809 6,205
===================================================================================================
</TABLE>
See accompanying notes to financial statements
2
<PAGE> 6
<TABLE>
<CAPTION>
IMAGE INDUSTRIES, INC.
Statements of cash flows
(In thousands, except share data)
Year ended
-----------------------------
July 2, July 1, June 29,
1994 1995 1996
-----------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before extraordinary item $ (902) $ 7,192 $ 1,814
Extraordinary item, gain on extinguishment of debt 190 - -
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) (712) 7,192 1,814
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Extraordinary item, gain on extinguishment of debt (190) - -
Special charge-replacement stock options (note4) 10,388 - -
Deferred income taxes (2,731) 1,215 909
Depreciation and amortization 3,656 4,187 6,789
Amortization of deferred loan costs 27 23 129
Loss on disposal of equipment 137 8 215
Changes in operating assets and liabilities
Receivable (530) (5,525) (3,946)
Inventories (588) (15,262) 1,354
Prepaid expenses 893 78 (572)
Deposits and other (2) (118) (1,029)
Trade accounts payable 1,257 4,504 (3,986)
Accrued expenses 393 1,031 246
Income taxes payable 427 (322) (105)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 12,425 (2,989) 1,818
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (13,356) (18,407) (9,187)
Acquisition of net assets-Pharr Yarns of Georgia, Inc. - (11,298) -
Proceeds from sales of equipment 81 135 65
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,275) (29,570) (9,122)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under line of credit agreement 2,529 33,148 7,473
Proceeds from issuance of long term debt 32 26 -
Principal payments on long term debt and capital lease obligations (17,333) (218) (218)
</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
Proceeds from issuance of common stock 15,700 - 1
Deferred loan costs (79) (225) -
Cost of issuance and registration of shares - - (20)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 849 32,731 7,236
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1) 172 (68)
Cash at beginning of year 15 14 186
- -------------------------------------------------------------------------------------------------------------
Cash at end of year $ 14 $ 186 $ 118
=============================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid to stockholders and related parties $ 645 - -
=============================================================================================================
Interest paid to others $ 730 $ 2,029 $ 4,238
=============================================================================================================
Income taxes $ 1,672 $ 3,025 $ 565
=============================================================================================================
Supplemental disclosures of noncash investing and financing activities:
Incurrance of capital lease obligations for equipment $ $ 153 $ 19
=============================================================================================================
The Company purchased substantially all the operating assets of Pharr Yarns
of Georgia, Inc. in the year ended July 1, 1995. In conjunction with this
acquisition the company issued 400,000 shares in common stock as follows:
Fair value of assets acquired $ 15,698
Cash paid for assets acquired 11,298
- -------------------------------------------------------------------------------------------------------------
Common stock issued $ 4,400
=============================================================================================================
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 8
IMAGE INDUSTRIES, INC.
Statements of Stockholders' equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Total
------------ --------------- paid-in Retained stockholders'
Shares Amount Shares Amount capital earnings equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 3, 1993 2,866 29 - - 9,289 4,851 14,169
Issuance of common stock (note 11) 1,904 19 - - 15,681 - 15,700
Issuance of replacement stock options (note 11) - - - - 10,388 - 10,388
Net loss - - - - - (712) (712)
- -------------------------------------------------------------------------------------------------------------------------------
Balances at July 2, 1994 4,770 48 - - 35,358 4,139 39,545
Issuance of common stock (notes 11 and 12) 457 4 - - 4,396 - 4,400
Gain on exercise of replacement stock options (note 11) - - - - 19 - 19
Net earnings - - - - - 7,192 7,192
- -------------------------------------------------------------------------------------------------------------------------------
Balances at July 1, 1995 5,227 52 - - 39,773 11,331 51,156
Issuance of common stock 39 1 - - - - 1
Gain on exercise of replacement stock options (note 11) - - - - 28 - 28
Registration of shares to Pharr Yarns of Georgia. Inc. - - - - (20) - (20)
Net earnings - - - - - 1,814 1,814
- -------------------------------------------------------------------------------------------------------------------------------
Balances at June 29, 1996 5,266 $53 - - $39,781 $13,145 $52,979
===============================================================================================================================
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS
JULY 2, 1994, JULY 1, 1995 JUNE 29, 1996
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Image Industries, Inc. is a vertically integrated manufacturing company
involved in the manufacturing of residential carpet and plastics
recycling. Residential carpeting is sold domestically and overseas and
accounts for 78% of total sales. The carpet is made from polyester fiber,
which the Company produces internally. The plastics recycling products,
primarily PET (Polyethylene Terepthalate) flake, PET pellet, and
polyester fiber, are sold domestically and account for the remaining 22%
of sales. These plastics recycling products are the result of converting
PET post-consumer plastics, into flake, pellet, or polyester fiber. The
plastics recycling products are either used internally in the
manufacturing of carpet or sold externally to various customers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Sales are recognized at the time related goods are shipped. An
allowance for loss on doubtful receivables is provided based on
management's estimates of potential credit losses. Receivables are
written off against the allowance account when deemed to be
uncollectible.
(b) INVENTORIES
Inventories are stated at the lower of cost or market (net realizable
value). The cost of inventory is determined using standard cost
methods which approximate the first-in, first-out method (FIFO).
(c) PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment is recorded at cost and includes
interest on funds borrowed to finance construction. Depreciation is
provided over the estimated useful lives of the assets on the
straight-line basis (generally 12 years for equipment and 40 years
for buildings).
(d) DEFERRED LOAN COSTS
Deferred loan costs represent fees and expenses incurred to obtain
long-term debt. The deferred loan costs are being amortized over the
lives of the applicable loans.
(e) EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over net assets acquired ("goodwill") resulted
from the Pharr Yarns of Georgia, Inc. asset purchase (Note 12) which
occurred during 1995 and is being amortized to income on a
straight-line basis over 15 years.
(f) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(g) FISCAL YEAR
The Company's 52- or 53-week fiscal year ends on the Saturday closest
to the end of June. The results of operations for fiscal years
1994,1995 and 1996 reflect 52-week periods.
(h) COMMON STOCK AND EARNINGS PER SHARE
All share and per share data have been adjusted to give retroactive
effect to the stock split described in note 11. Earnings per common
share is calculated based upon weighted average number of common
shares and their equivalents outstanding in the respective periods.
Because of the significant effect of the issuance of the fully vested
Replacement Stock Options for 1,133,856 shares, pro forma earnings
per share data are presented for the year ended July 2, 1994. Pro
forma weighted average common and common equivalent shares include
the dilutive effect of the 1,133,856 Replacement Stock Options.
Earnings per share data for year ended July 1, 1995 and June 29, 1996
are presented on a historical basis.
(i) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(j) RECLASSIFICATIONS
Certain reclassifications were made to the 1994 and 1995 amounts in
order to conform to the 1996 classifications.
6
<PAGE> 10
(3) INVENTORIES AND PROPERTY, PLANT AND EQUIPMENT
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 13,761 $12,516
Work in process 1,890 5,124
Finished goods 15,898 12,555
------------------------------------------------------------------------------------------------------------------
$ 31,549 $30,195
==================================================================================================================
</TABLE>
Property, plant and equipment consisted of (in thousands):
<TABLE>
<CAPTION>
1995 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 2,149 $ 2,149
Buildings 20,867 22,868
Machinery and equipment 69,402 74,358
Furniture and fixtures 375 384
Vehicles 481 482
Construction in progress 2,567 4,400
-----------------------------------------------------------------------------------------------------------------
95,841 104,641
Less accumulated depreciation and amortization 21,250 27,913
-----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $74,591 $76,728
=================================================================================================================
</TABLE>
(4) LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to bank under revolving credit agreement $53,049 $60,523
Equipment notes at 6.5% to 10.6%, due in monthly
Installments, including interest, through December, 1996 40 16
------------------------------------------------------------------------------------------------------------------
53,089 60,539
Less current installments 23 13
-----------------------------------------------------------------------------------------------------------------
Total long-term debt, excluding current installments $53,066 $60,526
=================================================================================================================
</TABLE>
The note payable to bank at July 1, 1995 was under a revolving line of
credit agreement, expiring June 30, 1999, bearing interest payable
quarterly at the prime interest rate or Eurodollar rate plus
1.00%. Effective on November 6, 1995, the Company renegotiated its credit
agreement with its primary lender and two other financial institutions.
The restated credit facility allows the Company to borrow up to $70
million with interest payable quarterly at prime rate (on June 29, 1996,
prime rate was 8.25%) or Eurodollar rate (approximately 5.26% at June 29,
1996) plus 1.00%. The borrowings under the agreement are secured by a
first priority lien on all assets. The facility contains numerous
covenants including, but not limited to, restrictions on the assumption
of certain types of indebtedness, minimum earnings levels, interest
coverage, and tangible net worth. On June 29, 1996, the Company was in
compliance with all such covenants. The maximum amounts borrowed during
the fiscal years 1994, 1995 and 1996 were $19,901,000 $53,049,000 and
$60,523,000 respectively. At June 29 1996, availability under the
Company's credit facility was approximately $9,477,000.
The aggregate maturities of long-term debt as of June 29, 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997 13
1998 3
1999 60,523
----------------------------------------------------------------------------------------------
Total 60,539
==============================================================================================
</TABLE>
(5) Commitments and Contingencies
The Company is obligated under various capital leases for buildings and
certain machinery and equipment that expire at various dates during the
next seven years. At July 1, 1995, and June 29, 1996, the gross amount of
buildings and equipment and related accumulated amortization recorded
under capital leases were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buildings $1,080 1,080
Machinery and equipment 435 454
----------------------------------------------------------------------------------------------------------------
1,515 1,534
less accumulated depreciation 467 424
----------------------------------------------------------------------------------------------------------------
Net assets under capital leases $1,048 $1,110
================================================================================================================
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
7
<PAGE> 11
Future minimum lease payments under noncancellable operating leases and
the present value of future minimum capital lease payments as of June 29,
1996 are approximately (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year leases leases
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 230 1,897
1998 181 494
1999 172 84
2000 156 28
2001 116 -
Later years 64 -
-------------------------------------------------------------------------------------------------------
Total minimum lease payments 919 2.503
=====
Less amounts representing interest ( at approximate
rates ranging from 6% to 14%) 135
--------------------------------------------------------------------------------------------
Present value of minimum capital lease payments 784
Less current installments of obligations under capital leases 182
-
--------------------------------------------------------------------------------------------
Obligations under capital leases, excluding current obligations 602
============================================================================================
</TABLE>
Rent expense under operating leases was approximately $580,000, $736,000
and $1,316,000 for fiscal years 1994, 1995 and 1996 respectively.
Effective August 10, 1993, the Company entered into three-year employment
agreements with four of its executive officers. The contracts obligate
the Company for compensation, severance, bonus, and other employment
related matters. These agreements provide for aggregate base compensation
levels totaling $843,000 per year. On that date, the Company also entered
into agreements indemnifying certain officers and key employees against
personal liability for actions taken in the course of their employment
and obligating the Company for costs to defend those officers and
employees.
6) INCOME TAXES
The components of the income tax provision (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
Current Deferred Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended July 2, 1994:
Federal $1,946 $(2,420) $ (474)
State 255 (311) (56)
------------------------------------------------------------------------------------------------------------
Total $2,201 $(2,731) $ (530)
============================================================================================================
Year ended July 1, 1995:
Federal $2,771 $ 1,116 $3,887
State 209 99 308
------------------------------------------------------------------------------------------------------------
Total $2,980 $ 1,215 $4,195
============================================================================================================
YEAR ENDED JUNE 29, 1996:
FEDERAL $ 54 $ 835 $ 889
STATE 4 74 78
------------------------------------------------------------------------------------------------------------
TOTAL $ 58 $ 909 $ 967
============================================================================================================
</TABLE>
The income tax provision (benefit) differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% for the year ended July
2,1994, 35% for the year ended and July 2, 1995 and 34% in the year ended
June 29, 1996 to earnings (loss) before income taxes as a result of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax provision (benefit) $(487) $3,985 $ 946
Increase (reduction) in income taxes resulting from:
State income taxes, net of Federal income
tax effect (37) 200 51
Increase in value of stock options exercised - - (28)
Other, net (6) 10 (2)
--------------------------------------------------------------------------------------------------------
Actual income tax provision (benefit) $(530) $4,195 $ 967
========================================================================================================
</TABLE>
The significant components of deferred income tax expense (benefit) for
the year ended July 1, 1995 and June 29, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilization of and tax benefit of stock options $ 397 $ 177
Utilization of net operating loss carryovers and tax credits 682 (400)
Inventory adjustments (417) (61)
Depreciation 293 1,184
Changes in other tax assets and liabilities 260 9
--------------------------------------------------------------------------------------------------------------------
Total $1,215 $ 909
====================================================================================================================
</TABLE>
8
<PAGE> 12
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at July 1, 1995 and
June 29, 1996 are (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts and
accrued returns and allowances $ 480 $ 308
Inventories, principally due to additional costs inventoried for tax purposes 827 871
Compensated absences and employee benefits, principally due to accrual for
financial reporting purposes 178 294
Special charge-replacement stock options 3,420 3,268
Net operating loss carryforwards 1,315 1,315
AMT Credit - 400
Other 14 -
-------------------------------------------------------------------------------------------------------------
Total gross deferred income tax assets 6,234 6,456
Valuation allowance - -
-------------------------------------------------------------------------------------------------------------
Net deferred tax assets 6.234 6,456
-------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation 7,299 8,447
Other 286 269
-------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 7,585 8,716
-------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $1,351 $2,260
=============================================================================================================
</TABLE>
No valuation allowance was recorded against deferred tax assets at July
1, 1995 or June 29, 1996. The Company's management believes the existing
net deductible temporary differences comprising total deferred tax assets
will reverse during periods in which the Company generates sufficient net
taxable income. Utilization of net operating loss carryforwards may be
limited by the alternative minimum tax provisions.
(7) BUSINESS AND CREDIT CONCENTRATION
In fiscal years 1994, 1995 and 1996, export sales accounted for
approximately 25%, 17% and 12%, respectively, of the Company's net sales.
Export sales are principally to customers in the Middle East, Europe and
Canada. Sales to Middle Eastern customers totaled 21%, 13% and 9% of net
sales in fiscal years 1994, 1995 and 1996.
In 1994, 1995 and 1996, one customer accounted for approximately 21%, 13%
and 6% of the Company's net sales, respectively.
(8) STOCK OPTION PLANS
Effective August 10, 1993, the Company adopted a Plan and Agreement
of Conversion in which all previously outstanding vested and unvested
stock options and unvested stock appreciation units were canceled and a
like number of fully vested replacement stock options were issued. These
options have an exercise price of $.01 per share and expire March 30,
2006. In connection with the grant of the replacement stock options, the
Company recognized a noncash, nonrecurring charge of approximately
$10,388,000 (pre-tax) in the fiscal year ending July 2, 1994. In
connection with the Plan, the Company has granted the option holders
certain protections against possible tax consequences associated with the
grant of the options. At June 29, 1996 approximately 934,000 replacement
stock options were outstanding.
The Company also adopted a stock option plan which provides for the grant
of stock options to selected participants, including officers and key
employees of the Company. A total of 350,000 shares of common stock has
been reserved for issuance under the stock option plan which is
administered by the compensation committee of the Board of Directors. The
compensation committee selects the participants and determines the terms
of all options. On August 10, 1993, the Company granted 41,318 fully
vested incentive options to the Company's chief executive officer at
$10.00 per share, exercisable over a three-year period. On May 9, 1995,
the Company granted an additional 3,294 fully vested incentive options
to other Company employees at $12.38 per share.
(9) GAIN ON EXTINGUISHMENT OF DEBT
During the fiscal year ended July 2, 1994, the Company recognized an
extraordinary gain of approximately $764,000 on the extinguishment of
long-term debt owed to two shareholders, which was partially offset by
the write-off of approximately $457,000 of deferred loan costs on debt
prepaid with the proceeds of the Initial Public Offering.
9
<PAGE> 13
(10) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------
(In thousands, except
per share data)
<S> <C> <C> <C> <C>
Year ended July 1, 1995:
Net Sales $30,513 $34,615 $34,489 $35,565
Gross Profit 7,389 8,806 7,817 8,722
Net Earnings 1,702 2,154 1,661 1,675
Net Earnings per share 0.29 0.37 0.29 0.29
Year ended June 29, 1996:
Net Sales $37,337 $42,563 $37,573 $40,184
Gross Profit 6,965 7,349 6,029 7,774
Net Earnings 656 660 108 390
Net Earnings per share 0.11 0.11 0.02 0.05
</TABLE>
(11) STOCKHOLDERS' EQUITY
On August 18, 1993, 2,500,000 shares of the Company's common stock were
sold to the public, of which 1,800,000 were sold by the Company at $10.00
per share in the Company's initial public offering. On August 26, 1993,
an overallotment option for an additional 375,000 shares was exercised by
the underwriters on behalf of the selling stockholders. In connection
with the offering, the options and stock appreciation units (see note 8)
then outstanding were converted into an equal number of fully vested
replacement stock options having an exercise price of $.01 per share. As
a result of this exchange, the Company recognized a noncash, nonrecurring
charge of approximately $10,388,000. The number of authorized common
shares was increased to 20,000,000 shares, the Class A and Class B common
stock was converted on a one-to-one basis to ordinary common stock, and
the common shares plus all options, warrants, and stock appreciation
units were split on the basis of approximately 3.294 to 1. The Company
also authorized 10,000,000 shares of preferred stock, of which no shares
were outstanding as of June 29, 1996.
(12) ACQUISITIONS
Effective April 5, 1995, the Company entered into an asset purchase
agreement with Pharr Yarns of Georgia, Inc. and Stowe-Pharr Mills, Inc.
to purchase substantially all of the operating assets of Pharr Yarns of
Georgia, Inc., including the property, plant and equipment as well as
certain inventory items and supplies. The transaction was consummated on
June 30, 1995. The purchase price payable by Image at the transaction's
closing was 400,000 shares of stock, valued at $4,400,000, and cash of
approximately $11,298,000.
The above acquisition was accounted for as a purchase, and accordingly,
the purchase price has been allocated to the assets acquired based on the
estimated fair values as of the acquisition date. The net excess of the
cost over the estimated fair value of the acquired assets as a result of
this acquisition has been allocated to goodwill in the approximate amount
of $96,000 and will be amortized over fifteen years. Since the
acquisition occurred on the day before the Company's year end, the
acquisition had no effect on operating results for fiscal 1995.
The following unaudited pro forma data summarizes the results of
operations for the period indicated as if the transaction had taken
place at the beginning of the period presented and do not purport to be
indicative of what would have occurred had the acquisition been made as
of those dates or of results which may occur in the future (in thousands
except per share data).
<TABLE>
<CAPTION>
Year ended
July 1, 1995
- ---------------------------------------------------------------------
<S> <C>
Net sales $135,182
=====================================================================
Earnings before extraordinary items $ 8,511
=====================================================================
Pro forma earnings per share before extraordinary items $ 1.37
=====================================================================
</TABLE>
(13) SEGMENT REPORTING
The Company's operations consist of two functional areas, carpet
manufacturing and plastics recycling. Income from operations by segment
is total sales to unaffiliated customers less expenses which are deemed
to be related to the operation of that functional area. The information
included in "other" is not directly allocable to either segment.
Financial information for these identified segments is summarized in the
following table for the year ended June 29, 1996 (in thousands):
<TABLE>
<CAPTION>
Carpet Recycling Other
-------- --------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers $121,389 $33,733 $ 2,535
Operating income 6,173 5,886 (4,981)
Identifiable assets:
Trade receivables 15,587 5,554 589
Inventory 18,083 12,112 -
Property, plant and equipment 56,559 47,793 289
Accumulated depreciation 18,452 9,284 177
Capital expenditures 3,739 5,467 -
</TABLE>
10
<PAGE> 14
(14) CHANGE IN ACCOUNTING ESTIMATE
Due to improved computer systems, new production lines and improved
production and financial reporting information being available, effective
March 31, 1996, the Company changed its method of computing its inventory
variances and its inventory standard to actual cost adjustment. The
Company tracks raw material purchase price, labor, overhead and material
usage variances from standard costs and utilizes these variances to
adjust inventory from standard cost to actual cost on a periodic basis.
The Company made the following changes in estimates and assumptions in
tracking its inventory variances:
Prior to March 30, 1996, the Company did not separately track purchase
price variances and usage variances. The impact of this change and new
information being available resulted in an additional unfavorable
variance of $822,265. The Company also began tracking material usage
variances based on yield losses for finished carpet which resulted in
an unfavorable variance of $594,642. In addition the Company began
tracking a usage variance based on rolling forward inventories by
production department which resulted in an unfavorable material usage
variance of $173,613.
(15) SUBSEQUENT EVENTS
On August 30, 1996 the Company merged with The Maxim Group, Inc. in a one
for one exchange of common stock. The acquisition has been accounted for
as a pooling-of-interest. The Maxim Group, Inc. through its 60
company-owned retail stores and approximately 545 franchise stores,
operates one of the largest retail floor covering networks in North
America. Maxim operates two distinct floor covering concepts; the
CARPETMAX division's full-service format and the Georgia Carpet Outlet
("GCO") division's cash and carry discount format.
The following unaudited pro forma data summarizes the results of
operations for the period indicated as if the transaction had taken
place at the beginning of the period presented and do not purport to be
indicative of what would have occurred had the acquisition been made as
of those dates or of results which may occur in the future (in thousands
except per share data).
<TABLE>
Year ended
June 29, 1996
-----------------------------------------------------------------------------------------
<S> <C>
Net sales: Maxim $129,247,000
: Image 157,657,000
-----------------------------------------------------------------------------------------
Combined total $286,904,000
=========================================================================================
Earnings (loss) before extraordinary items : Maxim $ (7,247,000)
: Image 1,814,000
-----------------------------------------------------------------------------------------
Combined loss $ (5,433,000)
=========================================================================================
</TABLE>
In connection with the merger Maxim Group, Inc. completed a credit
facility totaling $125 million. Proceeds were used to refinance the
existing debt of the Companies and provide the Companies with working
capital.
11
<PAGE> 15
The following unaudited pro forma condensed financial data gives effect
to The Maxim Group, Inc. ("Maxim") merger ("Merger") with Image Industries, Inc.
("Image") on August 30, 1996. The pro forma combined balance sheet information
gives effect to the Merger with Image as if such Merger occurred on July 31,
1996. The Merger has been reflected under the pooling-of-interests basis of
accounting. All of the outstanding shares of Image common stock were exchanged
for 5,266,285 shares of Maxim common stock. The unaudited pro forma combined
statements of earnings give effect to the Merger as if such transaction occurred
on April 1, 1993. It is expected that Maxim and Image will incur approximately
$4,450,000 in one-time costs related to the Merger (primarily legal, accounting,
investment advisory fees and merger-related restructuring charges) during the
third quarter ending October 31, 1996. These payments will be recorded as a
charge to the combined statement of earnings of Maxim and Image, but they have
not been included in the pro forma statements of earnings data. The pro forma
combined statements of earnings for the ten months ended January 31, 1996 and
each of the years ended March 31, 1995 and 1994 combine the operations of Maxim
with those of Image for the corresponding periods.
The pro forma condensed financial information should be read in
conjunction with the consolidated financial statements included in Maxim's
Transition Report on Form 10-K for the ten month period ended January 31, 1996,
Maxim's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996 and
the financial statements of Image included elsewhere herein. The pro forma
condensed financial data is not necessarily indicative of actual or future
operating results or financial position that would have occurred or will occur
upon consummation of any of the above transactions.
<PAGE> 16
PRO FORMA COMBINED BALANCE SHEET
JULY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
--------------------------------- ---------------- ----------------
Historical
--------------------------------- Pro Forma Pro Forma
Maxim Image Adjustments Combined
--------------------------------- ---------------- ----------------
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,258 206 3,464
Receivables 19,075 22,424 41,499
Inventories 15,819 28,149 43,968
Refundable income taxes 1,377 0 1,377
Deferred income taxes 439 1,738 2,177
Prepaid expenses and other assets 2,219 955 3,174
----------- ------------ ------------- --------------
Total current assets 42,187 53,472 95,659
Property, plant and equipment, net 17,963 77,963 95,926
Receivables 1,626 0 1,626
Intangible assets 8,670 100 8,770
Deferred income taxes 1,759 0 (1,759)(a) 0
Other assets 873 1,092 1,965
----------- ------------ ------------ --------------
$ 73,078 132,627 (1,759) 203,946
=========== ============ ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,032 12 1044
Current portion of capital lease obligations 367 164 531
Rebates payable to franchisees 3,291 0 3,291
Accounts payable 7,220 10,190 17,410
Accrued expenses 5,494 4,840 10,334
Deferred revenue 1,768 0 1,768
Deposits 3,115 0 3,115
----------- ------------ ------------ --------------
Total current liabilities 22,287 15,206 37,493
Long-term debt 27,914 60,402 88,316
Capital lease obligations 1,744 0 1,744
Deferred income taxes 0 4,340 (1,759)(a) 2,581
----------- ------------ ------------ --------------
Total liabilities 51,945 79,948 (1,759) 130,134
----------- ------------ ------------ --------------
Stockholders' Equity:
Common stock, $.001 par value; authorized 15,000
shares; issued and outstanding 7,234 shares at
July 31, 1996 (12,500 shares on a
pro forma basis) 7 53 (48)(b) 12
Additional paid-in-capital 21,485 39,781 48 (b) 61,314
Treasury stock (336) 0 (336)
Retained earnings (23) 12,845 12,822
----------- ------------ ------------- --------------
Total stockholders' equity 21,133 52,679 0 73,812
----------- ------------ ------------- --------------
$ 73,078 132,627 (1,759) 203,946
=========== ============ ============= ==============
</TABLE>
<PAGE> 17
NOTES TO PRO FORMA COMBINED BALANCE SHEET
(a) Adjustment has been made to reflect the net deferred tax liability.
(b) Adjustment has been made to reflect the issuance of 5,266,285 of common
stock of Maxim in exchange for shares of Image common stock.
<PAGE> 18
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JULY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
---------------------------------- -----------------
Historical
--------------------------------- Pro Forma
Maxim Image Combined
--------------- --------------- --------------
<S> <C> <C> <C>
Net sales $ 70,092 79,231 149,323
Cost of sales 43,129 65,501 108,630
-------------- -------------- -------------
Gross profit 26,963 13,730 40,693
Selling, general, and administrative expenses 24,876 11,383 36,259
-------------- -------------- -------------
Operating income 2,087 2,347 4,434
-------------- -------------- -------------
Other income (expense):
Interest income 311 0 311
Interest expense (1,248) (1,965) (3,213)
Other income (expense), net 374 (114) 260
-------------- -------------- -------------
(563) (2,079) (2,642)
-------------- -------------- -------------
Earnings before income taxes 1,524 268 1,792
Income tax expense 610 107 717
-------------- -------------- -------------
Net earnings $ 914 161 1,075
============== ============== =============
Earnings per common and common equivalent share $ .12 .03 .08
============== ============== =============
Weighted average number of common
and common equivalent shares outstanding 7,477 5,870 13,347
============== ============== =============
</TABLE>
<PAGE> 19
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE TEN MONTHS ENDED JANUARY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
----------------------------------- ------------------
Historical
---------------------------------- Pro Forma
Maxim Image Combined
------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 99,290 128,260 227,550
Cost of sales 58,808 102,915 161,723
------------- -------------- --------------
Gross profit 40,482 25,345 65,827
Selling, general, and administrative expenses 41,967 17,229 59,196
Goodwill impairment charge (6,569) 0 (6,569)
------------- -------------- --------------
Operating (loss) income (8,054) 8,116 62
------------- -------------- --------------
Other income (expense):
Interest income 415 0 415
Interest expense (1,589) (3,106) (4,695)
Other income (expense), net 194 (117) 77
------------- -------------- --------------
(980) (3,223) (4,203)
------------- -------------- --------------
(Loss) earnings before income taxes (9,034) 4,893 (4,141)
Income tax (benefit) expense (1,760) 1,864 104
------------- -------------- --------------
Net (loss) earnings $ (7,274) 3,029 (4,245)
============= ============== ==============
(Loss) earnings per common and common equivalent
share $ (1.02) .49 (.32)
============= ============== ==============
Weighted average number of common
and common equivalent shares outstanding 7,102 6,199 13,301
============= ============== ==============
</TABLE>
<PAGE> 20
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
----------------------------- ---------------
Historical
----------------------------- Pro Forma
Maxim Image Combined
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 76,091 127,250 203,341
Cost of sales 43,109 96,413 139,522
------------ ------------ ------------
Gross profit 32,982 30,837 63,819
Selling, general, and administrative expenses 28,906 18,464 47,370
------------ ------------ ------------
Operating income 4,076 12,373 16,449
------------- ------------- ------------
Other income (expense):
Interest income 397 0 397
Interest expense (707) (1,131) (1,838)
Other 364 57 421
------------ ------------ ------------
54 (1,074) (1,020)
------------ ------------ ------------
Earnings before income taxes 4,130 11,299 15,429
Income taxes 1,745 4,042 5,787
------------ ------------ ------------
Net earnings $ 2,385 7,257 9,642
============ ============ ============
Earnings per common and common equivalent share $ .34 1.17 .72
============ ============ ============
Weighted average number of common
and common equivalent shares outstanding 7,092 6,209 13,301
============ ============ ============
</TABLE>
<PAGE> 21
PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED MARCH 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
------------------------------- ------------------
Historical
------------------------------ Pro Forma
Maxim Image Combined
------------ ------------- ------------
<S> <C> <C> <C>
Net sales $ 19,334 103,257 122,591
Cost of sales 7,282 78,565 85,847
------------ ------------- ------------
Gross profit 12,052 24,692 36,744
Selling, general, and administrative expenses 8,396 25,661 34,057
------------ ------------- ------------
Operating income (loss) 3,656 (969) 2,687
------------ ------------- ------------
Other income (expense):
Interest income 306 0 306
Interest expense (71) (1,815) (1,886)
Other 0 (263) (263)
------------ ------------- ------------
235 (2,078) (1,843)
------------ ------------- ------------
Earnings (loss) before income taxes 3,891 (3,047) 844
Income tax (benefit) expense 1,426 (1,051) 375
------------ ------------- ------------
Net earnings (loss) before extraordinary income 2,465 (1,996) 469
Extraordinary income 0 190 190
------------ ------------- ------------
Net earnings (loss) $ 2,465 (1,806) 659
============ ============= ============
Earnings (loss) per common and common equivalent share $ .50 (.29) .06
============ ============= ============
Weighted average number of common
and common equivalent shares outstanding 4,958 6,203 11,161
============ ============= ============
</TABLE>
<PAGE> 22
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 hereunto duly authorized.
THE MAXIM GROUP, INC.
Date: November 15, 1996 By: /s/ Gene Harper
--------------------- -----------------------
Gene Harper
Chief Financial Officer
