<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:
October 31, 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
---------------------------
N/A
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(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 12,510,210
- ------------------------------- -------------------------------
Class Outstanding at December 9, 1996
<PAGE> 2
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
Assets 1996 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents, including restricted cash of
$180,557 at October 31, 1996 and $1,027,607 at
January 31, 1996, respectively $ 5,145,334 $ 4,206,833
Current portion of franchise license fees receivable, net
of allowance for doubtful accounts of $337,559 at
October 31, 1996 and $175,041 at January 31, 1996 1,984,660 1,893,949
Trade accounts receivable, net of allowance for doubtful
accounts of $1,273,131 at October 31, 1996 and
$1,605,458 at January 31, 1996 43,551,352 33,037,147
Accounts receivable from officers and employees 817,327 614,230
Current portion of notes receivable from franchisees and
related parties 1,314,110 1,008,455
Inventories 38,954,990 49,170,427
Refundable income taxes 1,754,130 2,176,348
Deferred income taxes 1,294,398 2,079,963
Prepaid expenses 2,470,837 2,090,773
------------ ------------
Total current assets 97,287,138 96,278,125
Property and equipment, net 98,199,960 93,879,092
Franchise license fees receivable, less current portion,
net of allowance for doubtful accounts of $210,000
at October 31, 1996 and $210,000 at January 31, 1996 1,863,542 2,091,361
Notes receivable from franchisees, less current portion 661,966 0
Deferred license fee, net of accumulated amortization 0 340,553
Intangible assets, net of accumulated amortization of
$1,026,388 at October 31, 1996 and $702,867
at January 31, 1996 9,752,513 8,960,442
Other assets 2,378,564 535,035
------------ ------------
$210,143,683 $202,084,608
============ ============
</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>
October 31, January 31,
Liabilities and Stockholders' Equity 1996 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 533,956 $ 919,279
Current portion of capital lease obligations 528,532 556,449
Rebates payable to franchisees 2,985,631 3,672,783
Accounts payable 20,504,498 17,165,602
Accrued expenses 14,281,384 9,146,373
Deferred revenue 1,189,070 1,284,254
Deposits 2,847,065 2,075,988
------------ ------------
Total current liabilities 42,870,136 34,820,728
Long-term debt, less current portion 90,446,568 90,147,278
Capital lease obligations, less current portion 2,211,174 2,562,877
Deferred taxes 1,812,976 2,402,928
------------ ------------
Total liabilities 137,340,854 129,933,811
------------ ------------
Stockholders' equity:
Preferred stock - $.001 par value. Authorized 1,000,000
shares; no shares issued or outstanding - -
Common stock - $.001 par value. Authorized 25,000,000
shares; issued and outstanding 12,510,180 at
October 31, 1996 and 12,396,180 at January 31, 1996 12,510 12,396
Additional paid-in capital 60,996,142 60,392,029
Retained earnings 11,794,177 11,746,372
------------ ------------
Total stockholders' equity 72,802,829 72,150,797
Commitments and contingencies (note 5)
------------ ------------
$210,143,683 $202,084,608
============ ============
</TABLE>
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<PAGE> 4
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31, September 30,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Sales of floorcovering products $ 68,107,816 $ 57,087,075
Fiber and PET sales 6,829,074 6,999,187
Franchise license fees and royalties 1,370,361 1,670,414
Fees from brokering floorcovering products 2,365,362 1,349,321
Advertising fees, net of direct costs 2,886,593 1,517,192
Other 580,107 562,682
------------ -------------
Total revenues 82,139,313 69,185,871
Cost of sales 58,303,461 48,540,366
------------ -------------
Gross profit 23,835,852 20,645,505
Selling, general, and administrative expenses 17,844,985 16,300,313
Interest income 141,044 64,014
Interest expense (1,826,805) (1,410,946)
Acqusition costs - Image pooling (4,700,000) 0
Other 166,553 50,760
------------ -------------
(Loss) earnings before income taxes (228,341) 3,049,020
Income tax expense 883,761 1,181,880
------------ -------------
Net (loss) earnings $ (1,112,102) $ 1,867,140
============ =============
(Loss) earnings per common and common equivalent share $ (.08) $ .14
============ =============
Weighted average number of common and common
equivalent shares outstanding 13,425,995 13,527,381
============ =============
</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 Earnings
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
October 31, September 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Sales of floorcovering products $185,734,812 $161,732,814
Fiber and PET sales 24,504,054 16,734,366
Franchise license fees and royalties 4,174,040 4,809,116
Fees from brokering floorcovering products 7,325,241 4,111,182
Advertising fees, net of direct costs 8,184,820 3,225,946
Other 1,539,090 1,401,948
------------ ------------
Total revenues 231,462,057 192,015,372
Cost of sales 166,933,672 132,351,749
------------ ------------
Gross profit 64,528,385 59,663,623
Selling, general, and administrative expenses 54,103,599 47,052,880
Interest income 451,646 274,304
Interest expense (5,039,628) (3,300,420)
Acquisition costs - Image pooling (4,700,000) 0
Other 424,974 417,964
------------ ------------
Earnings before income taxes 1,561,778 10,002,591
Income tax expense 1,513,973 3,656,310
------------ ------------
Net earnings $ 47,805 $ 6,346,281
============ ============
Earnings per common and common equivalent share $ .00 $ .47
============ ============
Weighted average number of common and common
equivalent shares outstanding 13,790,509 13,545,761
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31, September 30,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 47,805 $ 6,346,281
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,973,668 4,904,238
Bad debt provision 375,000 250,000
Deferred income taxes 195,613 1,290,690
Changes in assets and liabilities:
Increase in receivables (11,058,004) (10,779,044)
Decrease (increase ) in inventories 10,737,192 (18,682,355)
Decrease (increase) in refundable income taxes 422,218 (177,933)
(Increase) decrease in prepaid expenses and
other assets (2,223,243) 523,628
Increase in rebates and accounts payable,
accrued expenses, deferred revenue, and deposits 6,755,775 3,161,760
------------- -------------
Net cash provided by (used in) operating activities 13,226,024 (13,162,735)
------------- -------------
Cash flows from investing activities:
Capital expenditures (11,461,392) (28,333,964)
Acquisitions, net of cash acquired (946,107) (4,354,423)
------------- -------------
Net cash used in investing activities (12,407,499) (32,688,387)
------------- -------------
Cash flows from financing activities:
Proceeds from exercise of options, net 921,629 181,582
Purchase of underwriter's warrants - (1,503,200)
Purchase of treasury stock (336,000) -
Net (payments) proceeds from additional long-term debt (86,033) 44,562,628
Principal payments on capital lease obligations (379,620) (272,120)
------------- -------------
Net cash provided by financing activities 119,976 42,968,890
------------- -------------
Net increase (decrease) in cash 938,501 (2,882,232)
Cash, beginning of period 4,206,833 3,002,531
------------- -------------
Cash, end of period $ 5,145,334 $ 120,299
============= =============
</TABLE>
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<PAGE> 7
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31, September 30,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $5,093,540 $3,277,645
========== ==========
Income taxes $ 219,000 $2,335,300
========== ==========
Supplemental disclosures of noncash investing and
financing activities:
Common stock issued in connection with
acquisitions $ -0- $5,520,108
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 7 -
<PAGE> 8
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 Image Industries, Inc. ("Image") on August
30, 1996 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 (September 30, 1995) has not been restated to conform to the
new quarter-end (October 31, 1996).
(2) Inventories
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
October 31 January 31,
1996 1996
---- ----
<S> <C> <C>
Raw materials $ 6,074 $13,815
Work in Process 5,392 6,137
Finished goods 27,489 29,218
------- -------
$38,955 $49,170
------- -------
</TABLE>
- 8 -
<PAGE> 9
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(3) Related Party Transactions
Certain of the stockholders also own franchisees which utilize the services
of the Company. Trade accounts receivable at October 31, 1996 and January
31, 1996 include amounts due from these affiliated companies of $112,440
and $85,344, respectively. In addition, rebates payable to franchisees at
October 31, 1996 and January 31,1996 include amounts due to director-owned
franchisees of $85,827 and $25,975, respectively.
Included in fees from brokering floorcovering products for the three month
periods ended October 31, 1996 and September 30, 1995 is $69,019 and
$22,534, respectively, and $96,085 and $57,541 for the nine month period
ended October 31, 1996 and September 30, 1995, respectively, earned from
services provided to these affiliated franchisees. Included in advertising
revenue for the three month periods ended October 31, 1996 and September
30, 1995 is $0 and $65,529, respectively, and $74,904 and $171,314 for the
nine month periods ended October 31, 1996 and September 30, 1995,
respectively, earned from services purchased by affiliated franchisees.
Sales of floorcovering products to affiliated franchisees for the three
month periods ended October 31, 1996 and September 30, 1995 were $98,088
and 89,146, respectively, and $122,517 and $239,254 for the nine month
periods ended October 31, 1996 and September 30, 1995, respectively.
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 accrued interest at the
prime rate. 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 is a Company-owned store, which has entered
into a five-year lease agreement with Kevodrew providing for annual lease
payments of $89,155.
As of October 31, 1996 Mr. Nassar had a demand note with the Company for
$732,174, at an interest rate of prime.
- 9 -
<PAGE> 10
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(4) Acquisitions
On August 30,1996 the Company merged with Image Industries, Inc. in a one
for one exchange of common stock of the Company for the issued and
outstanding common stock of Image. Image is a recycler of PET
(polyethylene terephthalate) post consumer plastics which it converts into
PET flake, Pet pellet, and polyester fiber, substantially all of which is
consumed internally to produce carpet for the residential market. The
acquisition of Image has been accounted for under the pooling-of-interest
method of accounting and, accordingly, the Company's historical
consolidated financial statements have been restated to include the
accounts and operating results of Image. The Company has recorded a
nonrecurring charge of $4,700,000, representing expenses related to the
merger with Image, which was recorded during the three months ended
October 31, 1996. The Company will not receive an income tax benefit for
some of these one time charges.
The results of operations previously reported by the separate companies and the
combined amounts are presented below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, 1996 September 30, 1995 October 31, 1996 September 30, 1995
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Revenues:
Maxim $ 38,110 $31,849 $108,203 $ 84,625
Image 44,029 37,337 123,259 107,390
-------- ------- -------- --------
Combined $ 82,139 $69,186 $231,462 $192,015
======== ======= ======== ========
Net (Loss) Earnings:
Maxim $ (2,171) $ 1,212 $ (1,257) $ 2,355
Image 1,059 655 1,305 3,991
-------- ------- -------- --------
Combined $ (1,112) $ 1,867 $ 48 $ 6,346
========= ======= ======== ========
</TABLE>
On August 30, 1996 the Company closed on a commitment from First Union
National Bank for credit facilities totaling $125 million. The facility
was executed in conjunction with the merger of the Company and Image.
Borrowings under this credit facility were used to refinance the existing
debt of the Company and Image and will provide the Company with working
capital.
- 10 -
<PAGE> 11
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(4) Acquisitions (continued)
Effective October 1, 1996, the Company acquired certain assets of Classic
Tile & Ceramics and Flint's Carpet Center. Both companies, which were under
common ownership, operate out of two locations in Albuquerque, New Mexico.
Annual revenues for the combined operation are approximately $8 million. The
acquisitions have been reflected on the purchase basis of accounting at a
price of $665,000, consisting of a cash payment of $440,000, issuance of a
$160,000 note payable over five years and an additional $65,000 in
acquisition costs. The purchase price has been allocated to the assets
acquired and liabilities assumed based upon estimates of fair values at the
date of acquisition, resulting in goodwill and other intangibles of $420,000
which will be amortized over a 20 year period. The allocation has been
based on preliminary estimates and studies which may be revised at a later
date.
Effective October 1, 1996, the Company also acquired certain assets of
Sexton Floor Covering, Inc., which is engaged in the sale and installation
of floorcoverings and related items in Knoxville Tennessee. The acquisition
has been reflected on a purchase basis of acounting at a price of
$1,049,000, consisting of a cash payment of $350,000, issuance of 43,333
shares of the Company's common stock valued for purposes of the acquisition
at $671,662 and an additional $27,338 in acquisition costs. The purchase
price has been allocated to the assets acquired and liabities assumed based
estimates of fair values at the date of acquisition, resulting in goodwill
of $717,000 which will be amortized over a 20 year period. The allocation
has been based on preliminary estimates and studies which may be revised
at a later date.
(5) Subsequent Events
On November 22, 1996, the Company acquired Bailey & Roberts Flooring, Inc.,
which is engaged in the specified contract segment of the floorcovering
industry. Bailey & Roberts, headquartered in Knoxville, Tennessee,
generates annual sales of approximately $14 million. The acquisition will
be accounted under the pooling-of-interests method of accounting.
- 11 -
<PAGE> 12
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
On August 30, 1996 the Company merged with Image Industries, Inc. ("Image"), in
a one for one exchange of the common stock of the Company for the issued and
outstanding common stock of Image. Image operates as a wholly owned
subsidiary of the Company and continues to operate as a carpet manufacturer and
PET recycler. The acquisition of Image has been accounted for under the
pooling-of-interests method of accounting and, accordingly, the Company's
historical consolidated financial statements have been restated to include the
accounts and results of operations of Image.
Results of Operations
Total Revenues
The following table sets forth data with respect to total revenues for the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
<S> <C> <C>
September 30, 1995 $69,186 $192,015
October 31, 1996 82,139 231,462
------- --------
Change $12,953 $ 39,447
======= ========
Percentage change 18.7% 20.5%
</TABLE>
Total revenues for the three month and nine months ended October 31, 1996
increased 18.7% and 20.5%, respectively, over the prior year periods. The
components of the increases are discussed below.
Retail Sales of Floorcovering Products
The following table sets forth data with respect to sales of floorcovering
products for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
<S> <C> <C>
September 30, 1995 $57,087 $161,733
October 31, 1996 68,108 185,735
------- --------
Change $11,021 $ 24,002
======= ========
Percentage change 19.3% 14.8%
</TABLE>
The growth in revenues from sales of floorcovering products during the three
and nine month periods ended October 31, 1996 largely reflects the impact of
the acquisitions of floorcovering retailers during the ten months ended January
31, 1996 ("fiscal 1996") and their associated sales of products. The results
of these acquired retailers is not fully reflected in the prior year periods,
as such acquisitions were made at various times during the year.
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<PAGE> 13
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Results of Operations (Continued)
Fiber and PET Sales
The following table sets forth data with respect to fiber and PET sales for the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
<S> <C> <C>
September 30, 1995 $6,999 $16,734
October 31, 1996 6,829 24,504
------ -------
Change $ (170) $ 7,770
====== =======
Percentage change (2.4)% 46.4%
</TABLE>
Fiber and PET sales for the three months ended October 31, 1996 decreased due a
reduction in the sales price for fiber and PET. Revenues from fiber and PET
sales increased 46.4% during the nine months ended October 31, 1996 from the
prior year period. This increase was due to an increase in the overall sales
volume for fiber and PET for the nine months ended October 31, 1996, partially
offset by a reduction in the sales price in the third quarter.
Franchise License Fees and Royalties
The following table sets forth data with respect to franchise license fees and
royalties for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
<S> <C> <C>
September 30, 1995 $1,670 $4,809
October 31, 1996 1,370 4,174
------ ------
Change $ (300) $ (635)
====== ======
Percentage change (18.0)% (13.2)%
</TABLE>
Franchise license fees decreased due to fewer CARPETMAX(TM) franchise licenses
being sold in the three and nine month periods ended October 31, 1996, slightly
offset by an increase in royalties collected on the revenues of GCO franchisees.
- 13 -
<PAGE> 14
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Fees from Franchise Services
The following table sets forth data with respect to fees from franchise
services for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
<S> <C> <C>
September 30, 1995 $2,867 $ 7,337
October 31, 1996 5,252 15,510
------ -------
Change $2,385 $ 8,173
====== =======
Percentage change 83.2% 111.4%
</TABLE>
The increase in fees from franchise services, which includes brokering of
floorcovering products and advertising is attributable to increases in buying
activity generated from new CARPETMAX(TM) franchisees, growth in product
demand from existing CARPETMAX(TM) franchisees, greater utilization of
advertising services by franchisees and an expansion of services offered by the
advertising division.
- 14 -
<PAGE> 15
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Results of Operations (Continued)
Gross Profit
Gross profit margins were 29.0% for the three months ended October 31, 1996
compared to 29.8% for the three months ended September 30, 1995. Gross profit
margins were 27.9% for the nine months ended October 31, 1996 compared to
31.1 % for the nine months ended September 30, 1995. The compression in gross
margins is primarily a result of the continuing change in the business mix of
the Company (which relied primarily on brokering, license, and royalty fees) to
a revenue base consisting principally of the net sales of floorcovering
products through Company-owned stores.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended October
31, 1996 increased 9.5% compared to the three months ended September 30, 1995.
For the nine months ended October 31, 1996, selling, general and
administrative expenses increased 15.0% compared to the nine months ended
September 30, 1995. Increases in operating expenses reflects an overall growth
in the size of the operations required to serve the growing retail base as
well as expenses associated with the opening of new Company-owned stores.
During the three months ended October 31, 1996, the Company reduced certain note
receivable reserves totaling $350,000 based upon management's assessment of
the collection of such receivables. This adjustment favorably affected net
income by approximately $210,000 for the quarter.
Other Income (Expense)
The increase in interest expense in the three and nine months ending October
31, 1996 over the comparable periods ended September 30, 1995 was due primarily
to debt incurred to fund acquisitions and increased working capital.
Income Taxes
The Company reported income tax expense for the three months ended October 31,
1996 of $883,761 compared to an expense of $1,181,880 for the three months ended
September 30, 1995. The Company recorded tax expense of $1,513,973 for the nine
months ended October 31, 1996 compared to an expense of $3,656,310 for the nine
months ended September 30, 1995. The Company's effective tax expense rate for
the nine months ended October 31, 1996 and September 30, 1995 was 96.9% and
36.6%, respectively. The effective rate for the nine months ended October 31,
1996 reflects the impact of nondeductible expenses associated with the merger
of Image, combined with lower earnings.
- 15 -
<PAGE> 16
THE MAXIM GROUP, INC. AND SUBSIDIARIES
Results of Operations (Continued)
Net (Loss) Earnings
The Company recorded a net loss and loss per share of $(1,112,102) and $(.08),
respectively, for the three months ended October 31, 1996 compared to net
earnings and earnings per share of $1,867,140 and $.14, respectively, for the
three months ended September 30, 1995. The Company's loss for the quarter was
due to costs of $4,700,000 incurred with the merger with Image. The charge
includes both transaction costs, as well as severance costs and the elimination
of redundant systems. The net earnings and earnings per share for the nine
months ended October 31, 1996 was $47,805 and $.00, respectively, compared to
net earnings and earnings per share of $6,346,281 and $.47, respectively, for
the nine months ended September 30, 1995.
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 credit facility with First Union National Bank
allowing for borrowings up to $125 million. The facility was established in
conjunction with the merger of Maxim and Image, in August 1996. Proceeds were
used to refinance the existing debt of both Maxim and Image and to provide the
Company with additional working capital. As of December 11, 1996, $89 million
was outstanding under this credit facility at an average interest rate of 8.5%.
As of December 11, 1996 the Company also has approximately $1,981,000 in
principal outstanding under various term loans at interest rates ranging from
5.9% to 10.5%.
Cash Flows
During the nine months ended October 31, 1996, operating activities provided
$13,226,024 compared to a use of $13,162,735 for the nine months ended
September 30, 1995. The increase in cash provided by operating activities
resulted primarily from a decrease in inventories, an increase in depreciation
and amortization, and an increase in current liabilities which was offset by an
increase in accounts receivable, prepaid and other current assets. The
decrease in inventory was due to higher sales of floorcovering products to
franchisees and other carpet retailers.
During the nine months ended October 31, 1996, investing activities used
$12,407,499 compared to $32,688,387 for the nine months ended September 30,
1995. The decrease is primarily due to a decrease in acquisitions during fiscal
1997 and the completion of a new main office/distribution facility in fiscal
1996.
During the nine months ended October 31, 1996, financing activities provided
cash of $119,976 compared to cash provided of $42,968,890 in the prior year
period. This decrease is primarily due to a decrease in borrowings from the
credit facility during the fiscal 1997 period.
- 16 -
<PAGE> 17
PART II. OTHER INFORMATION
Item 4. Submission Of Matters To A Vote Of Security Holders
On August 29,1996 the Company held its 1996 Annual Meeting of
Shareholders. At the meeting the Company's shareholders approved the Agreement
and Plan of Reorganization dated as of May 31, 1996 to merge Image Industries,
Inc. and the Company, with Image thereby becoming a wholly-owned subsidiary of
Maxim, and in which each issued and outstanding share of Image Common Stock was
converted into the right to receive one share of Maxim Common Stock. The
number of votes cast in favor of the merger was 3,962,536 shares and the number
of votes cast against the plan was 2,500. There were 1,350 abstentions.
The Company's shareholders approved an amendment to the Certificate of
Incorporation of Maxim to increase the number of authorized shares of Common
Stock from 15,000,000 shares to 25,000,000 shares. The number of votes cast in
favor of the amendment was 5,926,297 shares and the number of votes cast
against the amendment was 12,625. There were 4,450 abstentions.
In addition, the Company's shareholders approved an amendment to the
Certificate of Incorporation of Maxim to provide for the election and removal
of Directors; to provide for the classification of the Board into three
classes, as nearly equal in number as possible, each class of which, after the
election to initial terms of one, two and three years, with one class being
elected each year; to prohibit actions by written consent of shareholders
without a meeting and to authorize the Board of Directors to amend By-laws
without action by the shareholders of the Company. The number of votes cast
in favor of the amendment was 3,655,769 shares and the number of votes cast
against the amendment was 306,167. There were 4,450 abstentions.
The following persons were elected to serve on the Company's Board of
Directors:
Nominees for Terms Expiring in 1997:
Dick McAdams
Herb Wolk
Michael Nixon
Nominees for Terms Expiring in 1998
James Inglis
Ronald McSwain
Nominees for Terms Expiring in 1999
Richard Kaplan
A.J. Nassar
M.B. Seretean
The number of votes cast for the election of each of the directors was
3,822,476. No votes were cast against the election of the nominees. There
were 83,900 abstentions.
Also, the Company's shareholders approved an amendment to the 1993 Stock
Option Plan of Maxim to increase the number of shares available for grant
thereunder from 1,000,000 shares to 2,000,000 shares. The number of votes cast
in favor of the amendment was 3,822,476 and the number of votes cast against
the amendment was 137,160. There were 6,750 abstentions.
- 17 -
<PAGE> 18
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. The following report on Form 8-K was filed
during the quarter ended October 31, 1996: Current Report on Form
8-K dated August 30, 1996 (reporting merger with Image Industries,
Inc.)
- 18 -
<PAGE> 19
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: December 12, 1996 By: /s/ A.J. Nassar
---------------------------------------
A.J. Nassar, President and Chief Executive
Officer
Dated: December 12, 1996 By: /s/ Gene Harper
--------------------------------------
Gene Harper, Chief Financial Officer
- 19 -
<PAGE> 1
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
October 31, September 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Primary
- -------
Net (loss) earnings applicable to common
and common equivalent shares
$ (1,112,102) $ 1,867,140
------------ -----------
Shares:
Weighted average number of common
shares outstanding 13,425,995 13,246,435
Shares issuable from assumed exercise
of options and warrants - 280,946
------------ -----------
Weighted average number of common shares and
common share equivalents assuming average
market price for period 13,425,995 13,527,381
------------ -----------
Primary (loss) earnings per common and common
equivalent share $ (.08) $ .14
============ ===========
Fully Diluted
- -------------
Net (loss) earnings applicable to common
and common equivalent shares $ (1,112,102) $ 1,867,140
------------ -----------
Shares:
Weighted average number of common
shares outstanding 13,425,995 13,246,435
Shares issuable from assumed exercise
of options and warrants - 280,946
------------ -----------
Weighted average number of common shares and
common share equivalents at higher of ending
or average market price for period 13,425,995 13,527,381
------------ -----------
Fully diluted (loss) earnings per common and common
equivalent share $ (.08) $ .14
============ ===========
</TABLE>
1. Common equivalent shares represent stock options granted to key employees
and directors,and redeemable common stock purchase warrants.
<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>
Nine Months Ended
October 31, September 30,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Primary
- -------
Net earnings applicable to common
and common equivalent shares
$ 47,805 $ 6,346,281
------------ ------------
Shares:
Weighted average number of common
shares outstanding 13,364,169 13,247,314
Shares issuable from assumed exercise
of options and warrants 426,340 298,447
------------ ------------
Weighted average number of common shares and
common share equivalents assuming average
market price for period 13,790,509 13,545,761
------------ ------------
Primary earnings per common and common
equivalent share $ .00 $ .47
============ ============
Fully Diluted
- -------------
Net earnings applicable to common
and common equivalent shares $ 47,805 $ 6,346,281
------------ ------------
Shares:
Weighted average number of common
shares outstanding 13,364,169 13,247,314
Shares issuable from assumed exercise
of options and warrants 426,340 298,447
------------ ------------
Weighted average number of common shares and
common share equivalents at higher of ending
or average market price for period 13,790,509 13,545,761
------------ ------------
Fully diluted earnings per common and common
equivalent share $ .00 $ .47
============ ============
</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 JULY
31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR
THE QUARTER ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 5,145,334
<SECURITIES> 0
<RECEIVABLES> 49,278,139
<ALLOWANCES> 1,610,690
<INVENTORY> 38,954,990
<CURRENT-ASSETS> 97,287,138
<PP&E> 133,656,225
<DEPRECIATION> 35,456,265
<TOTAL-ASSETS> 210,143,683
<CURRENT-LIABILITIES> 42,870,136
<BONDS> 90,446,568
0
0
<COMMON> 12,510
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 210,143,683
<SALES> 231,462,057
<TOTAL-REVENUES> 231,462,057
<CGS> 166,933,672
<TOTAL-COSTS> 54,103,599
<OTHER-EXPENSES> 424,974
<LOSS-PROVISION> 375,000
<INTEREST-EXPENSE> 5,039,628
<INCOME-PRETAX> 1,513,973
<INCOME-TAX> 0
<INCOME-CONTINUING> 47,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,805
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
