<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
April 30, 1996 0-22232
THE MAXIM GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2060334
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 TownPark Drive, Kennesaw, Georgia 30144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 590-9369
-----------------------------
In January, 1996, the Company changed its year-end to January 31 from March 31.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 last 90 days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Common Stock, $.001 par value 7,130,095
----------------------------- ---------------------------
Class Outstanding at June 7, 1996
<PAGE> 2
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
April 30, January 31,
Assets 1996 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents, including restricted cash of
$424,519 at April 30, 1996 and $1,027,607 at
January 31, 1996, respectively $ 2,414,240 4,161,866
Current portion of franchise license fees receivable, net
of allowance for doubtful accounts of $172,792 at
April 30, 1996 and $175,041 at January 31, 1996 2,235,072 1,893,949
Trade accounts receivable, net of allowance for doubtful
accounts of $1,292,752 at April 30, 1996 and
$1,475,432 at January 31, 1996 (note 2) 13,694,938 12,801,523
Accounts receivable from officers and employees 522,211 614,230
Current portion of notes receivable from franchisees and
related parties 1,215,349 1,008,455
Inventories 14,464,854 14,862,142
Refundable income taxes 1,324,780 2,176,348
Deferred income taxes 1,342,301 1,319,963
Prepaid expenses 952,942 1,039,317
------------- -----------
Total current assets 38,166,687 39,877,793
Property and equipment, net 17,376,072 17,858,534
Franchise license fees receivable, less current portion,
net of allowance for doubtful accounts of $210,000
at April 30, 1996 and $210,000 at January 31, 1996 1,847,662 2,091,361
Notes receivable from franchisees, less current portion 73,632 0
Deferred license fee, net of accumulated amortization 130,553 340,553
Intangible assets, net of accumulated amortization of
$775,990 at April 30, 1996 and $698,694
at January 31, 1996 8,782,315 8,859,611
Deferred income taxes 611,973 611,973
Other assets 451,914 331,413
------------- -----------
$ 67,440,808 69,971,238
============= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 3
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
(unaudited)
<TABLE>
<CAPTION>
April 30, January 31,
Liabilities and Stockholders' Equity 1996 1996
---- ----
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 812,281 903,382
Current portion of capital lease obligations 357,888 356,876
Rebates payable to franchisees (note 2) 2,414,268 3,672,783
Accounts payable 6,444,077 6,919,836
Accrued expenses 3,771,683 5,029,277
Deferred revenue 1,577,972 1,284,254
Deposits 2,428,216 2,075,988
------------ -----------
Total current liabilities 17,806,385 20,242,396
Long-term debt, less current portion 27,477,488 28,159,336
Capital lease obligations, less current portion 1,824,206 1,908,843
------------ -----------
Total liabilities 47,108,079 50,310,575
------------ -----------
Stockholders' equity:
Preferred stock - $.001 par value. Authorized 1,000,000
shares; no shares issued or outstanding - -
Common stock - $.001 par value. Authorized 15,000,000
shares; issued 7,130,095 at April 30,1996
and 7,129,895 at January 31, 1996 7,130 7,130
Additional paid-in capital 20,592,891 20,591,591
Treasury stock, at cost; 28,000 shares (336,000) -
Retained earnings (accumulated deficit) 68,708 (938,058)
------------ -----------
Total stockholders' equity 20,332,729 19,660,663
Commitments and contingencies (note 4)
------------ -----------
$ 67,440,808 69,971,238
============ ===========
</TABLE>
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<PAGE> 4
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30, March 31,
1996 1995
----------- ----------
<S> <C> <C>
Revenues:
Sales of floorcovering products $27,129,116 20,811,855
Franchise license fees and royalties 1,451,499 1,689,249
Fees from brokering floorcovering products 1,972,203 1,291,106
Advertising fees, net of direct costs 2,487,957 647,260
Other 614,083 346,812
----------- ----------
Total revenues 33,654,858 24,786,282
Cost of sales 20,011,406 14,281,454
----------- ----------
Gross profit 13,643,452 10,504,828
Selling, general, and administrative expenses 11,691,257 10,123,080
----------- ----------
Operating income 1,952,195 381,748
----------- ----------
Other income (expense):
Interest income 132,836 108,489
Interest expense (588,101) (457,134)
Other 181,013 224,697
----------- ----------
(274,252) (123,948)
----------- ----------
Earnings before income taxes 1,677,943 257,800
Income taxes 671,177 34,106
------------ ----------
Net earnings $ 1,006,766 223,694
=========== ==========
Earnings per common and common equivalent share $ .14 $ .03
=========== ==========
Weighted average number of common and common
equivalent shares outstanding 7,406,445 7,370,633
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30, March 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,006,766 223,694
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 830,826 217,072
Bad debt provision (150,000) 150,000
Deferred income taxes (benefit) (22,338) 1,198,002
Changes in assets and liabilities:
Increase in receivables (1,029,346) (1,645,201)
Decrease (increase) in inventories 397,288 (715,782)
Decrease (increase) in refundable income taxes 851,568 (1,058,614)
(Increase) decrease in prepaid expenses and
other assets (34,126) 861,407
Decrease in accounts payable, rebates payable,
accrued expenses, and deposits ( 2,345,922) (1,148,037)
------------ ------------
Net cash used in operating activities (495,284) (1,917,459)
------------ ------------
Cash flows from investing activities:
Capital expenditures (61,068) (1,817,432)
Acquisitions, net of cash acquired - (2,923,439)
------------ ------------
Net cash used in investing activities (61,068) (4,740,871)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of warrants and options, net 1,300 126,714
Purchase of underwriter's warrants - (1,503,200)
Purchase of treasury stock (336,000) -
Net (payments) proceeds from additional long-term debt (772,949) 7,566,409
Principal payments on capital lease obligations (83,625) (136,027)
------------ ------------
Net cash (used in) provided by financing activities (1,191,274) 6,053,896
------------ ------------
Net decrease in cash (1,747,626) (604,434)
Cash, beginning of period 4,161,866 2,842,920
------------ ------------
Cash, end of period $ 2,414,240 2,238,486
============ ============
</TABLE>
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<PAGE> 6
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30, March 31,
1996 1995
-------- -------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $537,042 552,497
======== =======
Income taxes $ 50,000 525,000
======== =======
Supplemental disclosures of noncash investing and
financing activities:
Common stock issued in connection with
acquisitions $ - 670,110
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1996
Transition Report on Form 10-K as filed with the Securities and Exchange
Commission, which includes consolidated financial statements for the ten
month period ended January 31, 1996.
The condensed consolidated financial statements give retroactive effect
to the merger of the Company and GCO, Inc. on September 28, 1994, which was
accounted for as a pooling-of-interests.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
The Company changed its year-end to January 31 from March 31. The prior
year quarter (March 31, 1995) has not been restated to conform to the new
quarter-end (April 30, 1996).
(2) Related Party Transactions
Certain of the stockholders also own franchisees which utilize the
services of the Company. Trade accounts receivable at April 30, 1996 and
January 31, 1996 include amounts due from these affiliated companies of
$77,326 and $85,344, respectively. In addition, rebates payable to
franchisees at April 30, 1996 and January 31,1996 include amounts due to
director-owned franchisees of $84,869 and $25,975, respectively.
Included in fees from brokering floor covering products for the three
month periods ended April 30, 1996 and March 31, 1995 is $14,362 and
$16,958, respectively, earned from services provided to these affiliated
franchisees. Included in advertising revenue for the three month periods
ended April 30, 1996 and March 31, 1995 is $9,784 and $55,158, respectively,
earned from services purchased by affiliated franchisees. Sales to
affiliated franchisees of floorcovering products for the three month periods
ended April 30, 1996 and March 31,1995 was $16,345 and $86,051,
respectively.
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<PAGE> 8
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(2) Related Party Transactions (Continued)
In August 1995, the Company loaned $820,987 to Kevodrew Realty, Inc.
("Kevodrew") a company controlled by A.J. Nassar, the President and Chief
Executive Officer of the Company, which loan bears interest at an annual
rate of prime. These funds were loaned to Kevodrew to provide interim
financing for the purchase by Kevodrew of a retail shopping center in
Louisville, Kentucky. This loan was repaid on May 22, 1996. A primary
tenant in the shopping center will be a Company-owned store, which has
entered into a five-year lease agreement with Kevodrew providing for annual
lease payments of $89,155.
On May 17, 1996 the Company loaned $300,000 to A.J. Nassar, which loan
bears interest at an annual interest rate of prime. As of June 7, 1996
Mr. Nassar owed the Company a total of $563,415.
(3) Acquisitions
On April 2, 1996 the Company issued a nonbinding letter of intent to
acquire the four store operations of Manasota Carpet, Inc. based in
Bradenton, Florida, for a purchase price of $3 million to be allocated
between cash and the Company's common stock.
(4) Subsequent Events
On May 31, 1996 the Company announced the execution of a definitive
agreement to merge with Image Industries, Inc. Upon consummation of the
merger, Image will become a wholly owned subsidiary of the Company and
continue to operate as a carpet manufacturer and PET recycler. The
transaction will be consummated in a one for one exchange of the common
stock of the Company for the issued and outstanding common stock of Image.
The transaction is subject to approval by the shareholders of the Company
and Image, appropriate regulatory approvals and the satisfaction of certain
other conditions in the merger agreement. The merger will be accounted for
under the pooling-of-interests method of accounting.
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<PAGE> 9
THE MAXIM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
On May 31, 1996 the Company announced the execution of a definitive
agreement to merge with Image Industries, Inc. Upon consummation of the
merger, Image will become a wholly owned subsidiary of the Company and continue
to operate as a carpet manufacturer and PET recycler. The transaction will be
consummated in a one for one exchange of the common stock of the Company for
the issued and outstanding common stock of Image. The transaction is subject
to approval by the shareholders of the Company and Image, appropriate
regulatory approvals and the satisfaction of certain other conditions in the
merger agreement.
RESULTS OF OPERATIONS
TOTAL REVENUES. Total revenues for the quarter ended April 30, 1996 (the
first quarter of fiscal 1997) increased 36% to $33,654,858, from $24,786,282
reported for the quarter ended March 31, 1995. The growth in revenues largely
reflects the impact of the acquisitions of floorcovering retailers during
fiscal 1996, and their associated direct sales of floorcovering products.
Revenues from the direct sale of floorcovering products, through Company-owned
stores and to franchisees, increased 30% to $27,129,116 for the first quarter
of fiscal 1997 from $20,811,855 for the quarter ended March 31, 1995.
Franchise license fees and royalties for the first quarter of fiscal 1997
decreased 14% to $1,451,499 from $1,689,249 for the quarter ended March 31,
1995. The dollar decrease for the three month period includes a $504,069
decrease attributable to the CARPETMAX franchise license fees and a decrease of
$30,250 in GCO franchise license fees, which was offset by a $296,569 increase
in royalties collected on the revenues of GCO franchisees.
Fees from franchise services, which includes brokering of floorcovering
products and advertising, increased 130% to $4,460,160 for the first quarter
of fiscal 1997 from $1,938,366 in the quarter ended March 31, 1995. The
increase for the three month period is attributable to increases in buying
activity generated from new CARPETMAX franchisees, growth in product demand
from existing CARPETMAX franchisees, greater utilization of advertising
services by CARPETMAX franchisees and an expansion of services offered by the
advertising division.
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<PAGE> 10
THE MAXIM GROUP, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS (Continued)
GROSS PROFIT. Gross profit for the first quarter of fiscal 1997
increased 30% to $13,643,452 from $10,504,828 in the quarter ended March 31,
1995. Gross profit as a percentage of revenue decreased to 41% in the first
quarter of fiscal of 1997 from 42% in the quarter ended March 31, 1995. The
compression in gross margins is primarily a result of the continuing change in
the business mix of the Company, to a revenue base consisting principally of
the net sales of Company-owned stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first quarter of fiscal 1997 increased 15% to
$11,691,257 compared to $10,123,080 for the quarter ended March 31, 1995.
Increases in operating expenses on an absolute basis reflects an overall growth
in the size of the Company's operations required to serve the growing retail
base as well as expenses associated with the opening of new Company-owned
stores. During the quarter the Company reduced certain trade and note
receivable reserves totaling $400,000 reflecting the settlement of such
receivables and certain other reserves totaling $225,000 for the resolution of
certain claims. These adjustments favorably affected selling, general, and
administrative expenses by approximately $625,000 for the quarter ended April
30, 1996 and the first quarter's net income by approximately $375,000.
OTHER INCOME (EXPENSE), NET. Interest expense for the first quarter of
fiscal 1997 increased to $588,101 from $457,134 for the quarter ended March
31,1995 due to increased borrowings under the Company's revolving credit
facility, principally to fund acquisitions and working capital.
INCOME TAX. The Company's income tax expense for the first quarter of
fiscal 1997 increased to $671,177 from $34,106 for the quarter ended March 31,
1995 due a increase in earnings as well as the March 31, 1995 quarter recording
a deduction for the donation of certain inventory to a not-for-profit
organization.
NET EARNINGS. Net earnings and earnings per share for the first quarter
of fiscal 1997 increased to $1,006,766 and $.14, respectively, from $223,694
and $.03, respectively, for the quarter ended March 31, 1995.
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<PAGE> 11
THE MAXIM GROUP, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for acquisitions, working
capital, new store openings and other capital expenditures. The Company
historically has met its capital requirements through a combination of equity
transactions, cash flow from operations, bank lines of credit and credit terms
from suppliers.
CREDIT FACILITIES. The Company has a variable rate revolving credit
facility with First Union National Bank allowing for borrowings up to
$23,000,000. As of June 7, 1996, $21,240,000 was outstanding under the
revolving credit facility at an average interest of 7.56%. In August 1995 the
Company utilized its revolving credit facility to loan approximately $821,000
to a company controlled by its President, A. J. Nassar, on a short-term basis
to provide interim financing for the purchase of a retail shopping center in
which a primary tenant will be a Company-owned store. This loan was repaid by
Mr. Nassar on May 22, 1996.
As of June 7, 1996 the Company also has approximately $7.0 million in
principal outstanding under various term loans at interest rates ranging from
5.90% to 10.5%.
CASH FLOWS.
During the first three months of fiscal 1997, operating activities used
$495,284 compared to $1,917,459 in the quarter ended March 31, 1995. The
decrease in cash used in operating activities resulted primarily from an
increase in net earnings and an increase in noncash depreciation and
amortization charges.
During the first three months of fiscal 1997, investing activities used
$61,068 compared to $4,740,871 in the quarter ended March 31, 1995. The
decrease is primarily due to a decrease in acquisitions during fiscal 1997.
During the first three months of fiscal 1997, financing activities used
cash of $1,191,274 compared to cash provided of $6,053,896 in the prior year
period. This decrease is primarily due to a decrease in proceeds from the line
of credit during the fiscal 1997 period.
The Company is in discussions with First Union National Bank to provide
additional long-term debt, although no assurance can be given that additional
borrowings will be granted. If the additional long-term debt cannot be
provided, the Company will seek other external financing sources to enable it
to meet its expected cash needs, including planned capital expenditures, over
the next 12 months.
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<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statements Regarding Computation of Per Share Earnings.
27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended April 30, 1996.
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<PAGE> 13
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.
THE MAXIM GROUP, INC.
Dated: June 14, 1996 By: /s/ A.J. Nassar
-------------------------------------------
A.J. Nassar, President and Chief Executive
Officer
Dated: June 14, 1996 By: /s/ Gene Harper
-------------------------------------------
Gene Harper, Chief Financial Officer
- 13 -
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page No.
- ------- ---------------------- ----------
<S> <C> <C>
11 Statement Regarding Computation of
Per Share Earnings
27 Financial Data Schedule (for SEC use only).
</TABLE>
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<PAGE> 1
EXHIBIT 11
- 3 -
<PAGE> 2
EXHIBIT No. 11
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Computation of Primary and Fully Diluted Earnings Per
Common and Common Equivalent Share
<TABLE>
<CAPTION>
Three Months Ended
April 30, March 31,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Primary
Net earnings applicable to common
and common equivalent shares
$1,006,766 223,694
---------- ---------
Shares:
Weighted average number of common
shares outstanding 7,125,506 7,050,883
Shares issuable from assumed exercise
of options and warrants 280,939 319,750
---------- ---------
Weighted average number of common shares and
common share equivalents assuming average
market price for period 7,406,445 7,370,633
---------- ---------
Primary earnings per common and common
equivalent share $ .14 $ .03
========== =========
Fully Diluted
Net earnings applicable to common
and common equivalent shares $1,006,766 223,694
---------- ---------
Shares:
Weighted average number of common
shares outstanding 7,125,506 7,050,883
---------- ---------
Shares issuable from assumed exercise
of options and warrants 293,761 319,750
---------- ---------
Weighted average number of common shares and
common share equivalents at higher of ending
or average market price for period 7,419,267 7,370,633
---------- ---------
Fully diluted earnings per common and
common equivalent share $ .14 $ .03
========== =========
</TABLE>
Common equivalent shares represent stock options granted to key employees and
directors, and redeemable common stock purchase warrants.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF THE MAXIM GROUP, INC. AND SUBSIDIARIES AS OF
APRIL 30, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS
FOR THE QUARTER ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 2,414,240
<SECURITIES> 0
<RECEIVABLES> 19,133,114
<ALLOWANCES> 1,465,544
<INVENTORY> 14,464,854
<CURRENT-ASSETS> 38,166,687
<PP&E> 21,350,084
<DEPRECIATION> 3,974,012
<TOTAL-ASSETS> 67,440,808
<CURRENT-LIABILITIES> 17,806,385
<BONDS> 27,477,488
0
0
<COMMON> 7,130
<OTHER-SE> 20,325,599
<TOTAL-LIABILITY-AND-EQUITY> 67,440,808
<SALES> 33,654,858
<TOTAL-REVENUES> 33,654,858
<CGS> 20,011,406
<TOTAL-COSTS> 11,691,257
<OTHER-EXPENSES> 181,013
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 455,265
<INCOME-PRETAX> 1,677,943
<INCOME-TAX> 671,177
<INCOME-CONTINUING> 13,643,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,006,766
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
