<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998
COMMISSION FILE NUMBER 1-13099
THE MAXIM GROUP, INC.
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(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 Identification No.)
incorporation or organization)
210 TownPark Drive, Kennesaw, Georgia 30144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (678) 355-4000
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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 No X
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Common Stock, $.001 par value 19,038,347
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<S> <C>
Class Outstanding at October 1, 1999
</TABLE>
Explanatory Note:
During the course of the fiscal 1999 year-end financial audit process, The Maxim
Group, Inc. ("Maxim" or the "Company") recorded certain adjustments to its
previously reported interim results. The most significant of the adjustments
affecting the quarterly period ended April 30, 1998 related to certain vendor
support funds and the gain on the sale of equipment recognized in the Company's
operating results during the quarter. It was determined that certain revenue
related to vendor support funds was incorrectly recorded and that the gain
on the sale of certain equipment should be recognized in the quarter ended July
31, 1998.
As a result of the adjustments recorded by the Company, the Company has revised
its reported results of operations downward for the quarter ended April 30,
1998. This Form 10-Q/A reflects the effects of these adjustments.
The following Items are amended hereby:
PART I -- FINANCIAL INFORMATION:
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
April 30,
1998
(As Restated January 31,
Assets See Note 2) 1998
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<S> <C> <C>
(Unaudited)
Current assets:
Cash and cash equivalents, including restricted cash of
$17,960 at April 30, 1998 and $22,786 at January 31, 1998 $ 21,248 $ 28,880
Current portion of franchise license fees receivable, net of
allowance for doubtful accounts of $430 at April 30, 1998
and $528 at January 31, 1998 2,365 3,107
Trade accounts receivable, net of allowance for doubtful
accounts of $2,341 at April 30, 1998 and $1,917 at
January 31, 1998 61,896 56,432
Accounts receivable from officers and employees 1,651 1,593
Current portion of notes receivable from franchisees and
related parties, net of allowance for doubtful accounts of
$252 at April 30, 1998 and $261 at January 31, 1998 1,276 1,165
Inventories 58,958 54,693
Refundable income taxes 1,986 2,558
Deferred income taxes 4,731 5,714
Prepaid expenses 5,903 3,406
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Total current assets 160,014 157,548
Property and equipment, net of accumulated depreciation and
amortization of $51,291 at April 30, 1998 and $48,039 at
January 31, 1998 148,127 137,207
Franchise license fees receivable, less current portion, net of
allowance for doubtful accounts of $210 at April 30, 1998
and January 31, 1998 3,808 2,718
Notes receivable from franchisees, less current portion 3,753 3,506
Intangible assets, net of accumulated amortization of $1,764 at
April 30, 1998 and $1,626 at January 31, 1998 13,520 13,640
Other assets 8,888 6,875
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$338,110 $321,494
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Liabilities And Stockholders' Equity
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Current liabilities:
Current portion of long-term debt $ 154 $ 384
Current portion of capital lease obligations 512 501
Rebates payable to franchisees 2,921 3,975
Accounts payable 22,056 23,376
Accrued expenses 13,609 14,333
Deferred revenue 3,072 1,750
Deposits 3,686 2,897
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Total current liabilities 46,010 47,216
Long-term debt, less current portion 146,693 129,349
Capital lease obligations, less current portion 1,289 1,429
Deferred taxes 9,437 9,725
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Total liabilities 203,429 187,719
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 1,000 shares authorized, no
shares issued or outstanding -- --
Common stock, $.001 par value; 25,000 shares authorized,
17,526 shares issued at April 30, 1998 and 17,352 shares
issued at January 31, 1998 18 17
Additional paid-in capital 120,611 119,264
Retained earnings 30,706 29,388
Treasury stock, 1,319 shares at April 30, 1998 and 1,221
shares at January 31, 1998 (16,654) (14,894)
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Total stockholders' equity 134,681 133,775
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$ 338,110 $ 321,494
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
April 30,
1998
(As Restated April 30,
See Note 2) 1997
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<S> <C> <C>
Revenues:
Sales of floor covering products $ 80,661 $ 71,490
Fiber and PET sales 6,965 5,772
Fees from franchise services 6,857 7,281
Other 2,149 1,682
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Total revenues 96,632 86,225
Cost of sales 69,564 59,155
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Gross profit 27,068 27,070
Selling, general, and administrative expenses 22,390 20,438
Interest income (386) (94)
Interest expense 2,459 1,401
Other 52 (35)
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Earnings before income taxes 2,553 5,360
Income tax expense 1,235 2,109
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Net earnings $ 1,318 $ 3,251
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Earnings per common share:
Basic $ 0.08 $ 0.20
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Diluted $ 0.08 $ 0.20
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Weighted average number of common shares outstanding:
Basic 16,424 16,110
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Diluted 17,247 16,630
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
April 30,
1998
(As Restated April 30,
See Note 2) 1997
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,318 $ 3,251
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Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 3,372 2,729
Deferred income taxes 695 1,401
Changes in assets and liabilities:
Increase in receivables (6,229) (7,125)
Increase in inventories (4,264) (1,853)
Decrease in refundable income taxes 572 49
Increase in prepaid expenses and other assets (4,510) (1,292)
Decrease in rebates and accounts payable, accrued expenses,
deferred revenue, and deposits (987) (470)
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Total adjustments (11,351) (6,561)
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Net cash used in operating activities (10,033) (3,310)
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Cash flows from investing activities:
Capital expenditures (14,172) (3,878)
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Cash flows from financing activities:
Proceeds from issuance of common stock, net -- 47,248
Proceeds from exercise of options, net 1,348 463
Purchase of treasury stock (1,760) (8,944)
Borrowings under revolving credit agreement 17,114 --
Repayment of revolving credit agreement -- (33,428)
Principal payments on capital lease obligations (129) (190)
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Net cash provided by financing activities 16,573 5,149
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Net decrease in cash (7,632) (2,039)
Cash, beginning of period 28,880 6,439
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Cash, end of period $ 21,248 $ 4,400
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,711 $ 1,332
========= =========
Income taxes $ 54 $ 1,122
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Information)
(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 1998 Annual Report on Form 10-K as
filed with the Securities and Exchange Commission.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
2. Restatement
During the course of the fiscal 1999 year-end financial audit process,
the Company recorded certain adjustments to its previously reported
interim results. The most significant of the adjustments affecting the
quarterly period ended April 30, 1998 related to certain vendor support
funds and the gain on the sale of equipment recognized in the Company's
operating results during the quarter. It was determined that certain
revenue related to vendor support funds was incorrectly recorded and
that the gain on the sale of certain equipment should be recognized in
the quarter ended July 31, 1998.
As a result of the adjustments recorded by the Company, the Company
has revised its reported results of operations downward for the quarter
ended April 30, 1998. This Form 10-Q/A reflects the effects of these
adjustments.
<TABLE>
<CAPTION>
Three Months Ended April 30, 1998
---------------------------------
As
Previously
Reported Restated
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<S> <C> <C>
Sales of floor covering products $81,136 $80,661
Fees from franchise services 9,287 6,857
Total revenues 99,537 96,632
Cost of sales 69,775 69,564
Gross profit 29,762 27,068
Selling, general, and administrative expenses 22,202 22,390
Interest expense 2,364 2,459
Other (income) expense (187) 52
Earnings before income tax expense 5,769 2,553
Income tax expense 2,225 1,235
Net earnings 3,544 1,318
Earnings per common share:
Basic $ 0.22 $ 0.08
Diluted $ 0.21 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
April 30, 1998
--------------------------
As
Previously
Reported Restated
---------- ----------
<S> <C> <C>
Trade accounts receivable, net $ 64,326 $ 61,896
Property and equipment, net 148,913 148,127
Deferred taxes, long-term liability 10,427 9,437
Retained earnings 32,932 30,706
</TABLE>
<PAGE> 6
3. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
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<S> <C> <C>
Raw materials $16,338 $14,809
Work in process 4,139 3,363
Finished goods 38,481 36,521
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$58,958 $54,693
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</TABLE>
4. Senior Subordinated Notes
On October 16, 1997, the Company completed the sale of $100,000 of
9-1/4% Senior Subordinated Notes ("Notes") due 2007, to institutional
buyers in a private offering under Rule 144A promulgated under the
Securities Act of 1933. The net proceeds to the Company from the
offering of the Notes were approximately $96,000, net of an issue
discount and fees and related costs. The Company used the net proceeds
from the offering of the Notes to repay all borrowings outstanding
under its revolving credit agreements of approximately $82,700 and for
general corporate purposes, including capital expenditures.
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Each of the Company's operating subsidiaries has fully and
unconditionally guaranteed the Notes on a joint and several basis. The
guarantor subsidiaries comprise all of the direct and indirect
subsidiaries of the Company. The Company has not presented separate
financial statements and other disclosures concerning the guarantor
subsidiaries because management has determined that such information is
not material to investors. There are no significant restrictions on the
ability of the guarantor subsidiaries to make distributions to the
Company.
5. Subsequent Events
Subsequent to April 30, 1998, the Company has amended its senior credit
facility, consummated significant acquisitions and dispositions,
defaulted a certain restricted payment covenant contained in the
indenture which references the Company's $100 million Senior
Subordinated Notes due October 2007 and other debt instruments
including its senior credit facility and certain leases, and has been
named as a party to legal and regulatory proceedings. Accordingly, the
financial statements in this Quarterly Report on Form 10-Q/A should be
read in conjunction with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 as filed with the Securities and
Exchange Commission.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total Revenues. Total revenues increased 12.1% to $96.6 million for the
three months ended April 30, 1998 from $86.2 million for the three months
ended April 30, 1997. The components of total revenues are discussed
below:
Sales of Floor Covering Products. Sales of floor covering products
increased 12.8% to $80.7 million for the three months ended April
30, 1998 from $71.5 million for the three months ended April 30,
1997. Sales of floor covering products in Company-owned stores
increased 18.4% to $36.1 million for the three months ended April
30, 1998 from $30.5 million for the three months ended April 30,
1997. The growth in retail sales of floor covering products was
primarily due to internal growth. Sales of manufactured carpet
increased 6.1% to $40.2 million for the three months ended April 30,
1998 from $37.9 million for the three months ended April 30, 1997.
Unit sales of manufactured carpet were constant at 6.9 million
square yards for the three months ended April 30, 1998 and April 30,
1997. Sales from the Company's two distribution centers amounted to
$4.4 million for the three months ended April 30, 1998 and $3.1
million for the three months ended April 30, 1997, largely
representing sales to the Company's franchisees.
Fees From Franchise Services. Fees from franchise services, which
include franchise license fees and royalties, brokering of floor
covering products, and advertising, decreased 5.8% to $6.9 million
for the three months ended April 30, 1998 from $7.3 million for the
three months ended April 30, 1997.
Fiber and PET Sales. Sales of fiber and polyethylene terephthalate
("PET") increased 20.7% to $7 million for the three months ended
April 30, 1998 from $5.8 million for the three months ended April
30, 1997. Unit sales increased 5.8% to 16.3 million pounds for the
three months ended April 30, 1998 from 15.4 million pounds for the
three months ended April 30, 1997. The increase in dollar and unit
sales was the result of continued demand for PET fiber and flake
products. The Company has continued to expand the customer base for
such products.
Gross Profit. Gross profit remained the same at $27.1 million for the
three months ended April 30, 1998 and $27.1 million for the three months
ended April 30, 1997. As a percentage of revenues, gross profit was 28.0%
for the three months ended April 30, 1998 compared to 31.4% for the three
months ended April 30, 1997. The decrease in gross profit
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<PAGE> 9
as a percentage of revenues is primarily a result of the recognition of
higher raw material costs associated with manufacturing operations.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased 9.6% to $22.4 million for the three
months ended April 30, 1998 from $20.4 million for the three months ended
April 30, 1997. Increases in operating expenses on an absolute basis
reflect an overall growth in the size of the Company's operations required
to serve the growing retail base as well as increased selling costs at
Image related to newly created territories. As a percentage of revenues,
selling, general, and administrative expenses decreased to 23.2% for the
three months ended April 30, 1998 from 23.7% for the three months ended
April 30, 1997.
Interest Expense. Interest expense increased 75.5% to $2.5 million for the
three months ended April 30, 1998 from $1.4 million for the three months
ended April 30, 1997 due principally to the Company having a larger debt
balance and a higher interest rate during the three months ended April 30,
1998 as compared to the prior year period. In October 1997, the Company
sold $100 million of 9-1/4% senior subordinated notes.
Income Tax Expense. The Company recorded income tax expense of $1.2
million for the three months ended April 30, 1998 compared to $2.1 million
for the three months ended April 30, 1997. The effective tax rate for the
three months ended April 30, 1998 was 48.4%.
Net Earnings. As a result of the foregoing factors, the Company recorded
net earnings of $1.3 million for the three months ended April 30, 1998
compared to net earnings of $3.3 million for the three months ended April
30, 1997.
Liquidity and Capital Resources
General. The Company's primary capital requirements are for new store
openings, investments in the manufacturing operations, working capital,
and acquisitions. The Company historically has met its capital
requirements through a combination of cash flows from operations, net
proceeds from the sale of equity and debt securities, bank lines of
credit, and standard payment terms from suppliers.
In March 1997, the Board of Directors of the Company authorized
management to repurchase up to 1 million shares of common stock of the
Company. In October 1997, the Board of Directors of the Company authorized
management to repurchase up to an additional 1 million shares of the
common stock of the Company. As of June 8, 1998, the Company had
repurchased 1,359,000 shares of its common stock in the open market for a
total of $17.3 million. These purchases were, and any future purchases
will be, financed from borrowings under the Company's revolving credit
facility.
Credit Facility. On August 26, 1997 and as amended on September 24, 1997,
the Company established a credit facility providing for aggregate
commitments of $110 million (the "Credit Facility"). The Credit Facility
consists of (i) a $50 million revolving credit facility, of which $22
million was available for borrowings on June 8, 1998 and which matures in
August 2000, (ii) a $29 million term loan which has been repaid, and (iii)
a special-purpose letter of credit in the amount of up to $31 million for
use as credit support for the
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<PAGE> 10
Summerville Loan to be used to finance the expansion of Image's fiber
extrusion capabilities at its plant in Summerville, Georgia, that matures
in September 2017. As of June 8, 1998, the Company had $28 million
outstanding under the revolving credit facility and no borrowings
outstanding under the term loan. No amounts have been drawn on the letter
of credit. Amounts outstanding under the Credit Facility bear interest at
a variable rate based on LIBOR or the prime rate, at the Company's option.
The Credit Facility contains customary covenants. As of the date hereof,
the Company was in compliance with, or obtained waivers of all violations
of, all covenants under the Credit Facility.
Summerville Loan. Effective September 1, 1997, the Development Authority
of the City of Summerville, Georgia (the "Authority"), issued Exempt
Facility Revenue Bonds in an aggregate principal amount of $30 million
(the "Facility Revenue Bonds"). On September 17, 1997, the Authority
loaned (the "Summerville Loan") the proceeds from the sale of the Facility
Revenue Bonds to Image to finance, in whole or in part, the expansion of
Image's fiber extrusion capabilities at its plant in Summerville, Georgia.
The Facility Revenue Bonds and the interest thereon are special, limited
obligations of the Authority, payable solely from the revenues and income
derived from a loan agreement between Image and the Authority, which
revenues and income have been pledged and assigned by Image to secure
payment thereof and funds which may be drawn under the special-purpose
letter of credit described above. The Facility Revenue Bonds and the
Summerville Loan will mature on September 1, 2017, and the interest rate
of the Facility Revenue Bonds is to be determined from time to time based
on the minimum rate of interest that would be necessary to sell the
Facility Revenue Bonds in a secondary market at the principal amount
thereof. The interest rate on the Summerville Loan equals the interest
rate on the Facility Revenue Bonds.
Senior Notes. On October 16, 1997, the Company completed the sale of $100
million of 9-1/4% senior subordinated notes ("Senior Notes") due 2007.
Each of the Company's operating subsidiaries has fully and
unconditionally guaranteed the Senior Notes on a joint and several basis.
The guarantor subsidiaries comprise all of the direct and indirect
subsidiaries of the Company. The Company has not presented separate
financial statements and other disclosures concerning the guarantor
subsidiaries because management has determined that such information is
not material to investors. There are no significant restrictions on the
ability of the guarantor subsidiaries to make distributions to the
Company.
Synthetic Lease Financing. On April 9, 1998, the Company and its
subsidiaries established a $13 million short-term end-loaded lease
facility (the "Bridge Facility"), also referred to as a synthetic lease
facility. Under the Bridge Facility, the Company has the ability to direct
its lenders to make loans to the owner-trustee, principally for
acquisition or expansion of CarpetMAX store locations, which financed
locations are then leased by the owner trustee to the Company or a
designated subsidiary.
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<PAGE> 11
Cash Flows. During the three months ended April 30, 1998, operating
activities used $10.0 million compared to $3.3 million for the three
months ended April 30, 1997. The increase in cash used in operating
activities resulted primarily from an increase in receivables and
inventories. The increase in receivables and inventories was due to higher
sales of floor covering products to franchisees and other carpet
retailers.
During the three months ended April 30, 1998, investing activities
used $14.2 million compared to $3.9 million for the three months ended
April 30, 1997. The increase is primarily due to an increase in capital
expenditures related to manufacturing operations and the purchase of real
estate for the expansion of retail stores.
During the three months ended April 30, 1998, financing activities
provided cash of $16.6 million compared to $5.1 million in the prior year
period. This increase is primarily due to the proceeds received from
borrowings under the Company's revolving credit agreement.
Capital Expenditures. The Company anticipates that it will require
approximately $15 million for the remainder of fiscal 1999 to (i) open
approximately 32 new Gallery stores (assuming approximately 50% of such
stores will be located on Company-owned property and the remainder on
leased property), (ii) reconfigure three existing CarpetMAX stores, and
(iii) upgrade its management information systems. The actual costs that
the Company will incur in opening new Gallery stores cannot be predicted
with precision because the opening costs will vary based upon geographic
location, the size of the store, the amount of supplier contributions, and
the extent of the buildout required at the selected site. The Company
anticipates that it will require approximately $24 million during the
remainder of fiscal 1999 for capital expenditures at Image, including the
expansion of Image's polyester fiber production capacity.
The Company believes that the net proceeds from the Notes Offering,
borrowings under the Credit Facility, the Summerville Loan, and cash flows
from the operating activities will be adequate to meet the Company's
working capital needs, planned capital expenditures, and debt service
obligations through fiscal 1999. As the Company's debt matures, the
Company may need to refinance such debt. There can be no assurance that
such debt can be refinanced or, if so, whether it can be refinanced on
terms acceptable to the Company. If the Company is unable to service its
indebtedness, it will be required to adopt alternative strategies, which
may include actions such as reducing or delaying capital expenditures,
selling assets, restructuring, or refinancing its indebtedness or seeking
additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all.
Recent Accounting Pronouncements. Effective with the three months ended
April 30, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS
130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. SFAS 130 did not have
an impact on the Company's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an
Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. SFAS 131 establishes reporting
standards for public companies concerning operating segments and related
disclosures about products and services, geographic areas and major
customers. SFAS 131 will be adopted with the Company's Annual Report for
the fiscal year ending January 31, 1999.
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 98-1 ("SOP 98-1"),
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 requires capitalization of certain costs of
internal-use software. Maxim adopted this statement in the first quarter
of fiscal 2000, and has determined that it will have no material impact on
the financial statements.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities", which is effective for fiscal years beginning after
June 15, 2000. Early adoption is encouraged. SFAS 133 establishes
accounting and reporting standards for derivative instruments and
transactions involving hedge accounting. The Company does not anticipate
this statement will have an impact on its financial statements.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on
the Costs of Start-Up Activities", which is effective for fiscal years
beginning after December 15, 1998. SOP 98-5 requires entities to expense
certain start-up costs and organization costs as they are incurred. The
Company does not anticipate that this statement will have an impact on its
financial statements.
Subsequent Events. Subsequent to April 30, 1998, the Company has amended
its senior credit facility, consummated significant acquisitions and
dispositions, defaulted a certain restricted payment covenant contained in
the indenture which references the Company's $100 million Senior
Subordinated Notes due October 2007 and other debt instruments including
its senior credit facility and certain leases, and has been named as a
party to legal and regulatory proceedings. Accordingly, this Quarterly
Report on Form 10-Q/A should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1999 as
filed with the Securities and Exchange Commission.
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<PAGE> 12
Year 2000. Maxim has conducted an assessment of its computer systems to
identify the systems that could be affected by the "Year 2000" issue, which
results from computer programs being written using two digits rather than four
to define the applicable year.
Maxim's Year 2000 readiness efforts are being undertaken on a project team
basis with centralized oversight from an external project management firm. Each
project team has developed and is implementing a plan to minimize the risk of a
significant negative impact on its operations. The teams are performing an
inventory of Year 2000 components (software, hardware and other equipment),
assessing which components may expose Maxim to business interruptions,
reprogramming or replacing components as necessary, testing each component, and
returning each component to production. Maxim is utilizing predominantly
internal resources to reprogram, replace, or test Maxim's software for Year
2000 compliance. Maxim believes the readiness effort related to critical
systems will be completed by the end of the third fiscal quarter ending
November 6, 1999, which is prior to any anticipated impact on its operating
systems. Maxim believes its other systems will be Year 2000 compliant by
December 31, 1999.
Maxim has initiated formal communications with all of its significant
suppliers to determine the extent to which Maxim's operations and systems are
vulnerable to third parties' failure. Key Vendor Initiative documentation has
been received from vendors addressing all Year 2000 compliance issues. No
significant business disruptions are expected. Maxim presently believes that
with the planned conversion to new software and hardware and the planned
modifications to existing software and hardware, the effects of the Year 2000
issue will be timely resolved. All other equipment, machinery and systems have
been identified, replaced or upgraded as needed.
Maxim's contingency plans at the retail store level include the temporary
use of manual processes, which Maxim occasionally utilizes during system
maintenance. The manual processes have been documented and tested with no
significant revenue loss anticipated.
Maxim currently believes the costs to remediate Year 2000 issues are
approximately $2.8 million, of which $189,000 had been expensed as of January
31, 1999, and approximately $1.6 million remains to be spent as of October 1,
1999. All costs associated with analyzing the Year 2000 issue or making
conversions to existing software are being expensed as incurred. The costs to
Maxim of Year 2000 compliance and the date on which Maxim believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. A Business Contingency Plan has been developed utilizing
five professional project managers to implement the plan. A Business Systems
Implementation schedule lists all issues related to the Year 2000. The issues
include identification of changes needed, costs, completion dates and staffing.
The plan is in the final stages of completion and will result in minimal Year
2000 effect on the Company's operations.
Risks include the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant hardware, software, computer
codes and similar uncertainties. Such risks could result in a system failure of
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Also, there is the risk that the systems
of other companies upon which Maxim's operations and systems rely will not be
converted timely and will have an adverse effect on Maxim's results of
operations.
Forward-Looking Statements. This Report contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Those
statements appear in a number of places in this Report and include statements
regarding the intent, belief or current expectations of the Company, its
directors or its officers with respect to, among other things: (i) the timing,
magnitude and costs of the roll-out of the Gallery Stores; (ii) potential
acquisitions by the Company; (iii) the Company's financing plans; (iv) trends
affecting the Company's financial condition or results of operations; (v) the
Company's business and growth strategies; and (vi) the declaration and payment
of dividends. Any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ
materially from those projected in the forward-looking statements as a result of
various factors. The accompanying information contained in this Report,
including without limitation the information set forth under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," identifies important factors that could cause such differences.
-11-
<PAGE> 13
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
-12-
<PAGE> 14
PART II--OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
11 Statements Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule for three month period
ended April 30, 1998 (for SEC use only)
27.2 Restated Financial Data Schedule for three month period ended
April 30, 1997 (for SEC use only)*
_____________
* Previously filed
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April 30, 1998.
-13-
<PAGE> 15
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: October 18, 1999 By: /s/ A. J. Nassar
---------------------------------------------------
A. J. Nassar, President and Chief Executive Officer
Dated: October 18, 1999 By: /s/ Stephen P. Coburn
---------------------------------------------------
Stephen P. Coburn, Principal Accounting Officer
-14-
<PAGE> 1
EXHIBIT NO. 11
THE MAXIM GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(In Thousands, Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 30,
1998
(As Restated April 30,
See Note 2) 1997
============ =========
<S> <C> <C>
Basic:
Net earnings $ 1,318 $ 3,251
========= =========
Weighted average number of common shares outstanding 16,424 16,110
========= =========
Basic earnings per common share $ 0.08 $ 0.20
========= =========
Diluted:
Net earnings $ 1,318 $ 3,251
========= =========
Shares:
Weighted average number of common shares outstanding 16,424 16,110
Shares issuable from assumed exercise of outstanding
stock options 823 520
--------- ---------
Weighted average number of common and common
equivalent shares (a) 17,247 16,630
========= =========
Diluted earnings per common share $ 0.08 $ 0.20
========= =========
</TABLE>
(a) Common equivalent shares represent stock options
granted to key employees and directors.
<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, 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR
THE QUARTERS ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 21,248
<SECURITIES> 0
<RECEIVABLES> 77,982
<ALLOWANCES> 3,233
<INVENTORY> 58,958
<CURRENT-ASSETS> 160,014
<PP&E> 199,418
<DEPRECIATION> 51,291
<TOTAL-ASSETS> 338,110
<CURRENT-LIABILITIES> 46,010
<BONDS> 146,693
0
0
<COMMON> 18
<OTHER-SE> 134,663
<TOTAL-LIABILITY-AND-EQUITY> 338,110
<SALES> 96,632
<TOTAL-REVENUES> 96,632
<CGS> 69,564
<TOTAL-COSTS> 22,390
<OTHER-EXPENSES> 52
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 2,459
<INCOME-PRETAX> 2,553
<INCOME-TAX> 1,235
<INCOME-CONTINUING> 1,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,318
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
