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                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                               ---------------- 
                                   FORM 10-K      
                               ---------------- 
        Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                   For the Fiscal Year Ended January 31, 1997

                         ------------------------------

                          Commission File No. 0-22232

                             THE MAXIM GROUP, INC.

                             A Delaware Corporation
                  (IRS Employer Identification No. 58-2060334)
                               210 TownPark Drive
                            Kennesaw, Georgia 30144
                                 (770) 590-9369

                Securities Registered Pursuant to Section 12(b)
                    of the Securities Exchange Act of 1934:

                                      NONE            
                         ------------------------------

                Securities Registered Pursuant to Section 12(g)
                    of the Securities Exchange Act of 1934:

                         Common Stock, $.001 par value
                         ------------------------------

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 past 90 days.    Yes  X   No
                                                 ---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

The aggregate market value of the common stock of the registrant held by
nonaffiliates of the registrant (12,273,806 shares) on April 23, 1997 was
approximately $138,000,000 based on the closing price of the registrant's
common stock as reported on the Nasdaq National Market on April 23, 1997.  For
the purposes of this response, officers, directors and holders of 5% or more of
the registrant's common stock are considered the affiliates of the registrant
at that date.

The number of shares outstanding of the registrant's common stock, as of April
23, 1997: 16,133,644 shares of $.001 par value common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None.

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                                     PART I

ITEM 1.  BUSINESS.

GENERAL

         The Maxim Group, Inc. (the "Company") operates and franchises one of
the largest retail floorcovering networks in North America through two retail
floorcovering concepts: CarpetMAX, which operates full-service floorcovering
stores, and GCO, which operates cash-and-carry discount floorcovering stores.
As of April 1, 1997, the Company's retail network consisted of 50 Company-owned
CarpetMAX stores, including one Gallery Store, seven Company-owned GCO stores,
and 270 franchise dealers operating approximately 457 CarpetMAX stores and 102
GCO stores. In addition, the Company has recently begun to expand its
floorcovering distribution network to target large commercial projects for
institutional customers such as hospitals, hotels, governments, the military
and schools (the "specified contract" market) and smaller commercial and
residential construction and renovation projects managed by a general
contractor (the "builder" market).  Sales of floorcovering products in
Company-owned stores increased 31.4% to $106.2 million for the twelve months
ended January 31, 1997 from $80.8 million for the ten months ended January 31,
1996 and total revenues, including manufacturing revenues, increased 34.5% to
$251.0 million for the twelve months ended January 31, 1997 from $186.6 million
for the ten months ended January 31, 1996.

         In 1991, the Company commenced franchising the CarpetMAX brand name
and concept and, through fiscal 1994, had established 187 franchisees in 233
territories. In fiscal 1995, the Company began to establish its Company-owned
stores by acquiring existing CarpetMAX franchisees and additional independent
floorcovering retailers. In September 1994, the Company acquired GCO, Inc., a
franchisor and operator of cash-and-carry discount floorcovering stores with 11
owned and 56 franchised stores.

         In April 1995, the Company began opening Company-owned CarpetMAX
stores utilizing a consistent format to expand its floorcovering retail market
share and leverage its specialty retailing strategies and resources. The
initial prototype CarpetMAX store is typically in a "Class A" retail location
and ranges in size from 6,500 to 7,000 square feet of retail selling space.
Each store carries a broad range of floorcovering selections featuring every
major floorcovering category in separate in-store galleries. With the exception
of area rugs, the Company merchandises its hard surface and carpet lines using
product sample displays rather than in-stock inventories in order to minimize
store investment and inventory risks. These CarpetMAX stores leverage the
Company's strong supplier relationships, state-of- the-art advertising and
promotion production and media placement capabilities, advanced store personnel
training systems and programs and proprietary consumer credit program, thereby
maximizing store productivity and profitability. The Company opened 12 initial
prototype CarpetMAX stores from April 1995 through June 1996.

         In May 1996, the Company began expanding its retail management team
and initiated certain refinements to its CarpetMAX store concept. In November
1996, the Company opened its first Gallery Store. The Gallery Store prototype
has 6,500 square feet of retail selling space in a "Class A" retail location.
The Company believes the Gallery Store has one of the most extensive product
offerings in the industry, featuring approximately 8,000 SKUs of carpet, area
rugs, hardwood flooring, vinyl flooring, ceramic tile, laminates, stone and
resilient surfaces produced by the leading floorcovering manufacturers
worldwide. The Gallery Stores are designed to create a more comfortable,
enjoyable and productive shopping experience supported by a well-trained
professional staff. Each floorcovering category is featured in a separate
in-store gallery as well as in coordinated multi-category displays throughout
the store. The Company has introduced the Gallery Store prototype in
conjunction with a coordinated national advertising program to establish
CarpetMAX as the "first-in-mind" floorcovering brand with the consumer. The
Company plans to open 70 Gallery Stores during fiscal 1998 and 1999 in
existing, contiguous and targeted new markets as well as convert certain of its
12 initial prototype CarpetMAX stores to Gallery Stores.



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         To enhance its ability to offer high-quality and high-margin products
and services, in August 1996, the Company merged with Image Industries, Inc.
("Image"), a leading producer of polyester broadloom carpet. The Company
believes that Image's product line will provide the Company's retail and
commercial customers with a greater selection of high-quality carpet at a lower
cost than would otherwise be available. Due to the niche nature of polyester
carpet manufacturing, the Image merger has not adversely impacted the Company's
relationships with its other carpet suppliers.

         In addition to the Company's CarpetMAX and GCO franchise networks, the
Company in the first quarter of 1997 initiated two new franchise concepts:
Gallery, which offers to franchisees the Company's Gallery Store carpet; and
MAXCARE, which offers to franchisees a carpet and upholstery cleaning business
concept.

INDUSTRY OVERVIEW

         The floorcovering market is divided into three distinct segments:
residential replacement (including full- service and cash-and-carry), specified
contract and builder. The Company believes that the residential replacement
segment comprises approximately 50% of the total North American floorcovering
market with the specified contract and builder segments making up the remainder
of the floorcovering market. The Company estimates total retail floorcovering
sales approximated $20 billion in 1995.

         The domestic retail floorcovering industry is highly fragmented with
independent retail floorcovering dealers operating over 14,000 locations. Other
floorcovering vendors such as home centers, furniture stores, department stores
and mass merchants operate over 23,000 locations nationwide. The Company
believes that the industry is characterized by a large number of small local
and regional companies, none of which has a national brand name, and a small
number of national chains. The typical independent floorcovering retailer
operates one store with limited product selection and service. As a result, the
Company believes that most independent floorcovering retailers face distinct
competitive disadvantages and challenges, including limited purchasing power
for products and services, lack of product breadth and knowledge, and
ineffective asset management, merchandising, selling and store-management
techniques. The Company plans to capitalize on these competitive disadvantages
through its buying power and professional retailing operations. The Company
believes that the manufacturing component of the floorcovering industry has
substantially consolidated and that the retail component is in its initial
stages of consolidation. In addition, Shaw Industries, Inc. ("Shaw"), the
largest domestic carpet manufacturer, has entered the retail floorcovering
market principally through the acquisition of several independent floorcovering
dealers.

BUSINESS STRATEGY

         The Company's objective is to establish the largest and most
profitable residential and commercial floorcovering distribution network in
North America. The Company has built an integrated floorcovering distribution
network, consisting of both Company-owned and franchised retail stores,
supported by the Company's extensive specialty retailing capabilities in
product sourcing, store development, marketing and advertising, credit and
personnel training.

         The cornerstone of the Company's strategy is focused on CarpetMAX, a
full-service floorcovering retail concept that is designed to address the
competitive disadvantages of traditional floorcovering stores. After opening 12
initial prototype CarpetMAX stores through June 1996, the Company refined its
CarpetMAX retailing concept and opened the first Gallery Store in November
1996. The principal elements of the CarpetMAX strategy include:

         Offer Broad Selection of Products and Services.  CarpetMAX is a
one-stop, full-service floorcovering store for customers seeking a broad
selection of carpet and other floorcovering products. 



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Each store offers approximately 8,000 SKUs of floorcovering products, including
carpets, area rugs, hardwood flooring, ceramic tile, vinyl flooring, laminates,
and stone and resilient surfaces from leading floorcovering manufacturers
worldwide. CarpetMAX stores, in particular the Gallery Store format, carry a
much broader selection of floorcovering products and offer a more comprehensive
range of related services than those featured at traditional floorcovering
dealers.

         Locate Stores in Prime Retail Locations.  The Company's strategy is to
locate its new CarpetMAX stores in "Class A" retail locations, preferably as
freestanding stores in locations with high consumer visibility. The Company
intends to open multiple stores within a market to achieve management,
operating and advertising efficiencies and to create barriers to competitive
entry or expansion.

         Provide Customer Friendly Environment and Superior Service.  The
Company believes that a customer friendly shopping environment and high level
of customer service are important competitive advantages. The size and format
of the CarpetMAX prototype emphasize customer intimacy and are designed to
create a more comfortable, enjoyable and productive shopping experience
supported by a well-trained professional staff. In addition, the Company offers
customers added conveniences including a proprietary credit program, interior
design consulting, delivery and installation services and a 100% satisfaction
guarantee.

         Build Leading National Brand.  The Company intends to establish
CarpetMAX as the "first-in-mind" floorcovering brand by (i) increasing its
offering of proprietary, CarpetMAX branded products, (ii) utilizing both local
and national advertising campaigns reinforcing the CarpetMAX name, and (iii)
opening consistent CarpetMAX stores in highly visible locations.

         Leverage Product Sourcing Capabilities.  As a leading purchaser of
floorcoverings, the Company is able to obtain advantageous pricing, delivery
terms and merchandising programs. The Company has established close
relationships with its major suppliers across all floorcovering categories. By
capitalizing on these suppliers' production and delivery capabilities, the
Company is able to offer what it believes is one of the largest selections of
high-quality floorcovering products, generally on a private-label and
just-in-time basis, which minimizes inventory risk and maximizes retail
profitability. Furthermore, the Company merged with Image to ensure and enhance
its ability to provide a reliable, low-cost proprietary source of carpet to
support its expanding retail network.

         Leverage Retailing Resources and Capabilities.  In addition to its
product sourcing capabilities, the Company has invested in extensive retailing
resources to support the growth and operation of its floorcovering distribution
network. Specific resources include (i) highly-experienced retailing
management, (ii) in-house media studios to produce advertising and promotion
programs and point-of-sale merchandising materials, (iii) a media placement
staff servicing all major markets, (iv) a satellite communication system for
store-level training and product promotions, (v) proprietary training programs
to develop store personnel, and (vi) a proprietary consumer credit program. The
Company will continue to leverage these resources to support the opening of new
CarpetMAX stores and the expansion of its other distribution channels.

GROWTH STRATEGY

         While the Company intends to use the CarpetMAX concept, in particular
the Gallery Store prototype, as its primary growth vehicle, the Company will
continue to expand its floorcovering distribution network to more fully utilize
its distribution and retailing resources and capabilities. Specifically, the
Company intends to grant additional GCO franchises to further penetrate the
cash-and-carry market and to expand its presence in the specified contract and
builder markets through both internal growth and acquisitions. The principal
elements of the Company's growth strategy include:




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         Roll Out New Gallery Stores.  The Company intends to open 70 Gallery
Stores in existing, contiguous and targeted new markets during fiscal 1998 and
1999. The Company intends to target areas with significant new residential
building activity or older, more established communities where remodeling is
likely to occur. The Company plans to open multiple stores within each market
to achieve management, operating and advertising efficiencies and to create
barriers to competitive entry or expansion.

         Expand the GCO Franchise Network.  GCO stores principally target the
cash-and-carry residential replacement and builder segments. The Company
intends to continue to franchise GCO stores as opposed to opening Company-owned
GCO stores because of capital investment requirements. Currently, the Company
has GCO franchise dealers operating 102 stores in approximately 70 of the 259
areas of dominant influence ("ADI") in the United States. As a result, the
Company believes there exists opportunities to open GCO stores in contiguous
and targeted new markets and expects to grant approximately 25 new GCO
franchises in fiscal 1998.

         Expand Product Offerings and Services for Each Distribution Format.
The Company believes that by offering new products and services to its
customers, such as consumer credit programs, installation and post-sale
maintenance products and services, the Company will increase retail
productivity through more frequent and larger customer transactions. The
Company has developed its "Wall-to-Wall" credit program to provide attractive
financing arrangements for customers.

         Expand Specified Contract and Builder Distribution Capabilities.  The
Company has expanded its presence in the specified contract and builder markets
through recent acquisitions. The Company intends to build market share in these
segments primarily by leveraging its existing distribution network and
established floorcovering distribution and retail resources to target these
segments. The Company believes that the Company's existing infrastructure and
proprietary, low-cost carpet products will support the growth of the Company's
complementary specified contract and builder businesses.

         Strategic Acquisitions.  The Company intends to selectively pursue the
acquisition of floorcovering dealers in markets which offer the potential for
the Company to build substantial market share and provide a platform for new
store openings. The Company's acquisition prospects include both independent
retailers and existing CarpetMAX franchisees. The Company will also selectively
pursue the acquisition of complementary businesses and services.

RETAIL OPERATIONS

         CarpetMAX Stores.  CarpetMAX stores currently operate under a variety
of formats. All CarpetMAX stores carry a broad variety of CarpetMAX
private-label floorcoverings from leading manufacturers, including high-quality
polyester carpets manufactured by Image. In May 1994, the Company commenced a
store acquisition strategy and as of April 1, 1997, the Company had acquired 13
full-service floorcovering operations currently representing 36 stores
operating under the CarpetMAX brand name in 11 markets (the "Acquired CarpetMAX
Stores"). In April 1995, the Company began opening Company- owned CarpetMAX
stores and as of April 1, 1997, the Company had opened 12 initial prototype
CarpetMAX stores.

         CarpetMAX Flooring Idea Gallery Stores.  In November 1996, the Company
opened its first Gallery Store, offering an extensive merchandise mix,
including carpet, area rugs, hardwood flooring, ceramic tile, vinyl flooring,
laminates and stone and resilient surfaces, and a wide range of services,
including interior design consulting, measuring, delivery, installation and
satisfaction guarantees. The Company intends to use the Gallery Store as its
primary growth vehicle and plans to open 70 Gallery Stores during fiscal 1998
and 1999 in existing, contiguous and targeted new markets as well as convert
certain of its 12 initial prototype CarpetMAX stores into Gallery Stores.



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                 Store Format.  The Gallery Store provides customers with a
         "one-stop" shopping experience for all of their floorcovering needs,
         catering primarily to consumers seeking a wide selection of
         high-quality products.  The typical Gallery Store will be
         free-standing with 6,500 square feet of retail selling space located
         in a prime retail location. Gallery Stores feature a race-track design
         and are outfitted with innovative merchandising fixtures and displays,
         attractive in-store signage, a child-play area, and customer
         conference and work areas. Gallery Stores are designed to create a
         more comfortable, enjoyable and productive shopping experience
         supported by a well-trained professional staff. Each Gallery Store
         displays approximately 8,000 SKUs of floorcovering products, with
         departmentalized product displays dedicated to particular
         floorcovering products as well as cross-merchandise displays
         exhibiting a combination of floorcovering products. With a greater
         emphasis on hard surface floorcovering products than its initial
         prototype CarpetMAX store, the Company believes that the Gallery Store
         will meet increasing consumer demand for alternatives to traditional
         carpet products.

                 Site Selection and Targeted Markets.  In locating new store
         sites, the Company relies on its in-house store development department
         to identify markets and store sites with high sales potential. In
         evaluating potential markets, the Company considers the target
         market's economy, demographics, growth potential and customer base as
         well as potential competition. The Company also targets areas with
         significant new residential building activity or older, more
         established communities where remodeling is likely to occur. In
         addition to performing internal market analyses, the Company has used
         a nationally recognized market research group to validate internal
         forecasts and to conduct additional market studies based on specific
         criteria established by the store development department. Within each
         market, the Company seeks to locate stores in prime retail locations
         with high consumer visibility. The Company intends to open multiple
         stores within each market to achieve management, operating and
         advertising efficiencies and to create barriers to competitive entry
         or expansion.

                 The Company also intends to offer certain of its existing
         CarpetMAX franchisees the opportunity to upgrade their existing
         CarpetMAX stores to Gallery Stores. See "-- Franchise Operations --
         CarpetMAX Franchise Network."

                 Conversion of Company-Owned Stores.  The Company intends to
         convert certain of its 12 Company-opened initial prototype CarpetMAX
         stores into Gallery Stores. Also, where economically feasible, the
         Company intends to initiate a store remodeling program to upgrade
         certain of the remaining 36 Acquired CarpetMAX Stores to be consistent
         with the Gallery Store format. Where it is not economically feasible,
         the Company will utilize such stores as service centers to expand its
         builder business. The Company may also convert such stores, on a
         limited basis, into a factory direct cash-and-carry format.

         Georgia Carpet Outlet Stores.  GCO operates and franchises discount
floorcovering stores under the name "GCO Carpet Outlets" catering to the
cash-and-carry floorcovering market. As of April 1, 1997, GCO operated seven
Company- owned GCO stores and had 102 franchise stores. GCO stores have a
consistent format with approximately 10,000 square feet of retail selling
space. Unlike CarpetMAX or Gallery Stores, a GCO store maintains all of its
products in inventory.  Replacement inventory is provided through the Company's
distribution center in Kennesaw, Georgia. GCO stores derive more than 75% of
their revenues from the sale of carpet, with the balance consisting of pad,
hardwood and vinyl flooring sales. GCO caters primarily to consumers with a
higher degree of price sensitivity who do not require the higher levels of
customer service and broad selection of products provided by CarpetMAX stores.
Customers typically include "do-it- yourself" homeowners, home builders, rental
property owners and property managers. In contrast to the full service
operations of the CarpetMAX stores, GCO does not offer delivery or installation
services. Instead, customers requiring these services, principally
installation, are provided a list of recommended independent contractors.
Floorcovering products are sold on a limited warranty basis. The Company
intends to focus its 


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expansion of the GCO network through franchises. See "-- Franchise Operations
-- GCO Franchise Network."

SPECIFIED CONTRACT OPERATIONS

         To expand its market share in the specified contract segment of the
floorcovering industry, in November 1996 the Company acquired Bailey & Roberts
Flooring, Inc. ("Bailey & Roberts"), a Knoxville, Tennessee-based company with
a significant presence in the specified contract market and an excellent
reputation for attracting and maintaining specified contract business. The
specified contract business caters primarily to the floorcovering requirements
of larger commercial customers. As a result, it is possible to manage the
specified contract segment from relatively few regional offices. The Company
serves specified contract customers beginning at the project specification
stage and continuing through securing, delivering, installing and maintaining
the floorcovering product. The Company currently has approximately 25
salespeople whose primary responsibility is to develop specified contract
business and service specified contract customers and plans to add salespeople
in regional markets.

BUILDER OPERATIONS

         To expand its market share and enhance its management expertise in the
builder segment of the floorcovering industry, in November 1996 the Company
acquired Sexton Floor Covering, Inc. ("Sexton"), a Knoxville, Tennessee-based
company with an excellent reputation in the builder market. The Company
services the builder segment primarily in local markets where it has
established regional service centers and a base of CarpetMAX stores. Leveraging
the established infrastructure available in these local markets, the Company
utilizes its extensive merchandise mix, product displays, sales personnel and
customer service capabilities in catering to the builder customer's needs. The
Company currently has approximately 40 salespeople whose primary responsibility
is to service the builder customer.

FRANCHISE OPERATIONS

         CarpetMAX Franchise Network.  The Company generates revenues from
CarpetMAX franchisees through three primary sources: franchise fees, brokerage
fees from purchases of floorcovering products and additional services provided
on a fee basis. The current one-time franchise fee payable by a new CarpetMAX
franchisee is $35,000 for the operation of a CarpetMAX franchise in an
exclusive territory. The franchise agreement requires CarpetMAX franchisees to
purchase at least 50% of their floorcovering products through suppliers
designated by the Company on which the Company earns a brokerage fee paid by
the supplier. In addition to having better and lower-cost access to industry
floorcovering products, CarpetMAX franchisees also have access to CarpetMAX
private-label products and specials. Additional services, including customized
merchandising programs, advertising and promotion, credit and training programs
are offered on a fee-for-service basis.

         CarpetMAX franchisees have the exclusive right to use the CarpetMAX
business concept and service marks, logos, slogans and other identifying
features within a specific geographic area (the "Exclusive Area"). Provided
that the dealer is not in default, the Company may not grant more than one
franchise within an Exclusive Area, nor may the Company or any affiliate of the
Company operate a Company-owned store within an Exclusive Area without the
franchisee's consent. Major metropolitan market areas, however, may be divided
into a number of Exclusive Areas. In addition, because of the different nature
of their business, CarpetMAX and GCO franchises may be established in the same
territory. The Company is offering certain of its existing CarpetMAX
franchisees the opportunity to upgrade their existing CarpetMAX stores to
Gallery Stores in return for allowing the Company to open stores in
their exclusive territory.




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         As of April 1, 1997, the Company had 270 franchise dealers operating
approximately 457 CarpetMAX stores. The Company does not expect its CarpetMAX
franchise network to grow materially in the future, as its strategy is to open
Company-owned Gallery Stores to expand its retail network.

         Gallery Franchise Network.  To support its primary focus of growing
its Gallery Stores, the Company began to offer a franchise of the Gallery Store
concept to  existing CarpetMAX members in late February 1997.   Although the
site where a Gallery Store will be located is mutually agreed upon by the
Company and the franchisee,  because Gallery Store franchises are only offered
to existing CarpetMAX franchisees, all new Gallery Stores will be located
within the franchisee's existing exclusive area.  Should the Company reasonably
determine that other Gallery Stores should be opened within the franchisee's
exclusive area, and the franchisee refuses to do so, the Company will have a
right of first refusal to construct and operate such Gallery Stores in exchange
for the Company paying a yearly royalty to the franchisee based upon the
Company's gross sales at the store.

         While there is no franchise fee associated with a Gallery Store
franchise, the franchisee will be required to pay a monthly royalty fee in
accordance with the following percentage rates of gross sales corresponding to
the customer category:  (i) commercial - 2%; (ii) builder - 2%; (iii) consumer
- 6%; and (iv) all other products and services - 6%.  In addition, the
franchisee is required to pay 2% into a national advertising fund and spend
approximately 3% to 9% of its gross sales per quarter on local advertising.
Unlike CarpetMAX stores which may have varying trade dress and store design
among franchisees, each Gallery Store franchise must conform to a strict set of
specifications which includes only offering required or authorized products,
similar advertising, marketing and promotional programs and materials and a
consistent store layout, design, appearance, lighting, decor, fixtures,
leasehold improvements and trade dress.

         As of April 1, 1997, the Company had not sold any Gallery franchises.

         MAXCARE Franchise Network.  In February 1997, the Company began to
offer a franchise related to the business of carpet and upholstery cleaning
services under the MAXCARE Franchise System.  MAXCARE  franchises will offer
carpet and upholstery cleaning and related services to both individuals and
businesses.  These services will be provided using a proprietary MAXCARE carpet
cleaning machine which will be mounted in a van bearing the Company's
distinctive colors and signage.  Each MAXCARE franchisee will receive an
exclusive operating territory, which will typically be one or more counties
within a state, where they will be required to offer the products and services
specified by the Company.  The Company expects a significant number of MAXCARE
franchises will be operated by CarpetMAX franchisees or other entities who
currently operate retail businesses that are complimentary with the services
offered by MAXCARE franchises.  MAXCARE franchisees will be required to
purchase certain products from the Company and may purchase services from
several of the Company's divisions including Maxim Marketing and Humax.  Each
Franchisee must pay an initial franchise fee based upon the population in the
franchisee's operating territory, with a minimum initial franchise fee of
$12,500.

         In addition to the initial franchise fee, all franchisees must
purchase one or more MaxMaster Systems from the Company before they begin
operations.  The MaxMaster System includes (i) the MaxMaster carpet cleaning
machine, which will be mounted in a specially equipped Ford van and (ii) an
accessory packet which is installed in the van and which includes upholstery
wands, a maintenance kit, hoses, fresh water tank, chemical shelf, storage box
arranger and other accessories.  All franchisees must pay a royalty of between
4% to 6% of its gross sales, subject to a minimum monthly royalty payment of
$200 per month during the first year, which minimum monthly royalty increases
by $200 per month during each successive year,  up to a maximum of $1,000 per
month during the fifth year and thereafter.

         As of April 1, 1997, the Company had not sold any MAXCARE franchises.



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         GCO Franchise Network.  GCO generates revenues from franchise fees and
franchise royalty fees based on franchise store sales. The current one-time
franchise fee payable by each new GCO franchisee is $25,000. In addition, the
GCO franchisee pays the Company a royalty at the rate of 5% on the first
$500,000 of gross sales and 3% on gross sales over $500,000 during a year. GCO
franchisees have the exclusive right to use the GCO business concept and
service marks, logos, slogans and other identifying features within a specific
geographic area. The Company has continued to expand the scope of services
available to GCO franchisees. The Company now offers services relating to site
selection and merchandising, advertising and promotion, management and sales
training, credit, information systems and other store operations. Although the
Company markets GCO franchises to CarpetMAX franchisees, the Company does not
permit GCO's franchisees to use the CarpetMAX store format and services, the
Company's CarpetMAX proprietary marks or to sell CarpetMAX private-label
products. Currently there are four franchisees operating both GCO and CarpetMAX
franchises.

         As of April 1, 1997, the Company had 102 GCO franchise stores
operating in 70 of the 259 ADI markets in the United States.

RETAIL INFRASTRUCTURE

         Supplier Relationships.  The Company believes that the Company obtains
high-quality products at a lower cost than its competitors due to the
floorcovering purchasing volume of the Company's retail network and its
relationships with major floorcovering suppliers. The ability of the Company to
purchase and inventory private label products creates significant buying
opportunities and competitive advantages for the Company. In addition, the
Company's use of its vendors' efficient distribution networks permits it to
maintain low inventory levels, providing the Company with an important
competitive advantage. The Company believes that the Company is not dependent
upon any one vendor for product purchases and the loss of any single vendor
would not have a long-term material adverse effect on the Company's operating
results or financial position.

         The Company offers a full range of floorcovering products from leading
manufacturers, including Shaw, Mohawk Industries, Inc., Beaulieu of America,
Inc., Queen Carpet and World Carpet, together with its proprietary Image
products, for broadloom carpet, Monsanto, DuPont and AlliedSignal for carpet
fiber, Armstrong World Industries, Mannington and Congoleum for vinyl flooring,
Bruce Hardwood Floors (a division of Triangle Pacific Industries), and
Harris-Tarkett for hardwood flooring, American Marazzi, Dal-Tile and Florida
Tile (a division of PreMark International), for ceramic tile and Pergo and
Wilsonart (a division of PreMark International) for laminates. Each of these
suppliers is a leader in its respective floorcovering category. The Company's
suppliers also include niche carpet, vinyl, hardwood, laminates and ceramic
tile producers worldwide, as well as leading manufacturers and importers of
area rugs and other decorative floorcovering products.

         Advertising and Promotion.  The Company, through its in-house,
state-of-the-art production facilities, develops and offers to its CarpetMAX
retail distribution network high-quality, creative marketing and promotion
programs, including television, radio, print and direct mail campaigns, sales
literature and point-of-purchase programs. The Company maintains on-site
multi-track audio recording studios, a television production facility and
full-service media department, and has produced advertising campaigns
nationwide. The Company believes that it obtains economies of scale in
advertising production and media placement that are unavailable to smaller
retailers. Customized advertising packages are available to franchisees at
lower rates than those charged by most advertising or production companies.

         To further expand and develop the national brand awareness of
CarpetMAX floorcovering products and services, the Company has developed a
comprehensive national and regional marketing strategy that emphasizes
electronic and paper media, including television and newspaper circulars. The
Company has recently placed a greater emphasis on national media campaigns,
such as TV and 


                                      -8-
<PAGE>   10

magazines. In conjunction with the Gallery Store roll-out, the Company launched
nationwide CarpetMAX advertisements in national magazines such as Architectural
Digest, Women's Day, Ladies Home Journal, Better Homes and Gardens, and House
Beautiful featuring CarpetMAX product selection, quality, pricing and
satisfaction guarantee as well as the Company's commitment to superior customer
service.

         Retail Management and Sales Training.  The Company focuses on
enhancing retail productivity by applying proven techniques to train its store
managers and sales representatives. All Company-owned store management, sales
and operating personnel receive intensive training in a variety of areas
ranging from product knowledge to sales and service techniques at the Company's
"Carpet College." The Company offers a variety of training programs to its
franchisees on a fee basis. These programs range from daily classes to
intensive three-week programs. Also, all store personnel, whether at
Company-owned stores or franchise stores, receive a comprehensive training and
orientation program which emphasizes the Company's advertising and marketing
support, use of consumer credit, store operations, general business practices
and inter-company operations.

         To further enhance its training capabilities, the Company utilizes a
state-of-the-art interactive satellite communications system consisting of
digital video, audio and data compilation and analysis with 170 down-links. The
training system utilizes interactive communication capabilities to broadcast
training and merchandising programs to Company-owned store locations and
participating CarpetMAX franchise dealers. Broadcasts include information on
sales training, new technology, new products, merchandising, available specials
and design trends.

         Site Selection and Store Development and Design.  The Company has an
in-house store development department with responsibility for site selection,
lease negotiation and build-out of Company-owned stores to accelerate store
openings and minimize opening costs. In locating sites for its Gallery Stores,
the store development department evaluates the economic conditions,
demographics, growth and customer base of potential markets as well as possible
competition. In addition to performing internal market analysis, the Company
has used a nationally recognized market research group to validate internal
forecasts and to conduct additional market studies based on specific criteria
established by the store development department. Using its construction and
development expertise, the store development department will also coordinate
the redesign of certain of the Company-owned CarpetMAX stores into, or to be
consistent with, the Gallery Store prototype. See "-- Retail Operations --
CarpetMAX Flooring Idea Gallery Stores." The interior store design includes
pre-determined product mix merchandised principally through samples rather than
in stock inventory, fixtures and display systems, and point-of-sale
merchandising signage and promotional materials. Once a new store site is
identified, the Company will stage the products and merchandising systems for
the new store in its distribution center and headquarters. The Company intends
to own certain of its store sites.

         Management Information Systems.  Company-owned stores are currently
operating their businesses with the information systems which were in place at
the time of acquisition by the Company. However, the Company is currently
working with a nationally recognized information technology consulting firm to
develop a proprietary point-of-sale system for tracking consumer demographics
and purchasing patterns, and integrating store operations and financial data
into the Company's central information system. The Company believes that there
is also an opportunity to link franchisees, Company-owned stores and vendors
through the integration of EDI capabilities with the Company's information
systems. Using its current information system, the Company obtains information
on a weekly basis detailing each of its Company-owned store's sales, expenses,
close ratios and various other data relating to store operations that the
Company requires for the efficient management of its retail stores.


                                      -9-
<PAGE>   11

CUSTOMER SERVICE

         The Company seeks to differentiate itself from other independent and
large retailers through its service offerings. Accordingly, CarpetMAX stores
offer retail customers the following services:

         Interior Design and Product Selection.  CarpetMAX sales professionals
assist customers in all aspects of making a floorcovering selection, including
assessment of interior design preferences, coordination with other home
furnishings and decorating preferences, and product layout and measuring. To
confirm customer satisfaction with a selected floorcovering product, the
Company offers a full replacement guarantee for any reason, including if the
customer does not like their own choice of color or style once installed.
CarpetMAX sales professionals seek opportunities to visit a customer's home or
commercial location to verify proper installation and to identify additional
purchase opportunities.

         Delivery and Installation.  CarpetMAX stores rely on local contractors
for the installation of floorcovering products. Because installation is often
the Company's final contact with customers, the Company has recently developed
the "Ten Point Must System," a merit based training program for its
installation subcontractors, to guarantee consistent high-quality installation
service. Points are earned under the Ten Point Must System by satisfying
various requirements including (i) attending classes devoted to increasing the
subcontractors' knowledge of the Company's floorcovering products and services,
(ii) complying with a standardized dress code, and (iii) the absence of
customer complaints.

         Consumer Credit Program.  The Company, in affiliation with a national
provider of consumer financing, began offering consumer credit to its customers
in November 1996. The Company's consumer credit program is marketed as the
CarpetMAX "Wall-to-Wall" credit program and is exclusively for the use of the
Company's CarpetMAX stores and participating franchisees. The Company believes
these credit programs enhance closing ratios and lead to higher average ticket
purchases. The Company uses a pre-approved listing service which enables
CarpetMAX stores to solicit sales from 100% credit pre-approved potential
customers. With 60-day, 90-day, 6-month and 12-month interest-free programs,
plus open- and closed-end revolving credit packages, the Company offers a
variety of credit plans to its customers. The Company also offers longer term
(up to three years) consumer credit financing for its customers. The Company is
not contingently liable for the credit extended and receives a percentage of
interest attributable to accounts outstanding.

CARPET MANUFACTURING OPERATIONS

         On August 30, 1996, the Company merged with Image, a leading
manufacturer of polyester carpet, to establish a proprietary source of
private-label, high-quality polyester carpet lines for the Company's multiple
distribution channels. The ability of the Company to manufacture high-quality
polyester carpet enables the Company and its franchisees to offer lower prices
and obtain higher margins than they might otherwise be able to obtain.

         Carpet Manufacturing.  Image's carpet manufacturing operations include
yarn spinning, tufting, dyeing and finishing operations. In fiscal 1997, the
Company converted 57.6 million pounds of fiber into carpet. Because the
Company's current fiber conversion capacity is approximately 70 million pounds,
the Company intends to expand its production of high-quality polyester carpet.

         Image is vertically integrated from the manufacture of polyester fiber
from polyethylene terephthalate ("PET") bottles and other post-consumer and
post-industrial PET waste materials through the manufacturing of carpet
products.  The principal raw materials used in Image's carpet manufacturing
operations are polyester fiber, synthetic backing materials and various dyes
and chemicals. Image manufactures its polyester fiber from recycled PET
obtained from post- consumer plastics such as discarded soda bottles, and
obtains other raw materials from several supply sources.



                                     -10-
<PAGE>   12

         During fiscal 1997, Image purchased recycled PET from approximately
250 suppliers for conversion into clean PET resin. Image extrudes clean PET
resin into polyester fiber, which it spins into carpet face yarn. The yarn is
then tufted into undyed and unfinished carpet and later dyed and finished into
one of the Company's various carpet styles.  Image converts approximately 60%
of its clean PET resin into its carpet products. The balance is sold as PET
resin to producers of packaging and other materials or converted into polyester
fiber and sold to home furnishings producers.  During the twelve months ended
January 31, 1997, a total of 48 companies purchased approximately 56.8 million
pounds of fiber and PET produced by Image.

         Carpet Marketing and Sales.  Image designs, manufactures and markets
54 carpet styles and maintains approximately 1,550 SKUs consisting of a range
of colors, densities and textures. Image has positioned its products in the
medium price range for carpets sold domestically and emphasizes quality, style
and service. Image has historically marketed its carpets domestically and
internationally through a direct sales force of approximately 55 full-time
sales representatives and seven independent sales agents at April 1, 1997.
Image's carpets are sold through over 6,000 independent retailers and
distributors. Following its merger with the Company in August 1996, the Company
significantly expanded the marketing of Image's carpets by offering and selling
a greater amount of Image's carpets through its CarpetMAX network and GCO
stores. For the twelve months ended January 31, 1997, total sales of Image's
carpets through the Company's distribution networks amounted to approximately
$10.9 million, or 8.0% of Image's total carpet sales. In both the residential
and commercial markets, price competition and market coverage are particularly
important because of the relatively small differentiation perceived among most
competing product lines. Image's recent investment in polyester fiber extrusion
equipment, its modern carpet manufacturing equipment and its marketing strategy
contribute to its ability to compete on the basis of price, style, quality and
service. For the twelve months ended January 31, 1997, revenues generated from
the sale of Image's carpets was $132.1 million, comprising 42.7% of the
Company's total revenues.

COMPETITION

         Competition in the retail floorcovering market is intense due to the
significant number of retailers in operation. In December 1995, Shaw, the
world's largest carpet manufacturer, announced its decision to move into the
retail floorcovering sector. Pursuant to this strategy, Shaw has acquired
Carpetland USA, Inc. and New York Carpet World, Inc. Although Shaw is in the
early stages of developing its retail operations, there can be no assurance
that it will not become a major competitor in the future. In addition, large
retailers also provide significant competition, including The Home Depot, Inc.
and Sears, Roebuck & Co. The principal methods of competition within the retail
floorcovering industry include store location, product selection and
merchandising, customer service and price. The Company also competes with
businesses that market to retail floorcovering franchisors. The Company
believes that there are two primary competitors in its franchise business:
Carpet One and Abbey Rug, two buying cooperative associations.  The Company
distinguishes itself from its competition by directly offering a full range of
services to its members in addition to the traditional services of purchasing
and merchandising. Management believes that the Company's competitors
subcontract most services (except floorcovering purchasing) to outside vendors.

         The Company's carpet manufacturing business competes with other carpet
manufacturers and manufacturers of alternative floorcoverings such as wood or
tile. Certain of the Company's competitors in the carpet manufacturing business
have greater financial and other resources than the Company. The carpet
manufacturing industry currently has one dominant participant, Shaw, whose 1995
sales were estimated to represent approximately 30% of the total industry
sales. In addition, carpet sales by Mohawk Industries, Inc. in 1995 were
estimated to represent 15% of the total industry sales. Carpet manufacturers
also face competition from the hard surface floorcovering industry. The
principal methods of competition within the carpet manufacturing industry are
price, style, quality and service.


                                     -11-

<PAGE>   13

TRADEMARKS, SERVICE MARKS, TRADE NAMES AND COMMERCIAL SYMBOLS

         The Company has registered a number of marks with the U.S. Patent and
Trademark Office including CarpetMAX(R), CarpetMAX -- THE NATIONAL CARPET
EXCHANGE(R) and MAKING A WORLD OF DIFFERENCE(R). The Company has also applied
for registration of the mark CarpetMAX Flooring Idea Gallery(TM). GCO has
registered a number of marks with the U.S. Patent and Trademark Office,
including GCO(R) and GCO CARPET OUTLETS(R). GCO also uses a number of service
marks in association with its standard GCO franchise including a word mark
consisting of the words "GCO Carpet Outlets(TM)" and design and word marks
consisting of "GCO Carpet Outlets(TM)" or "Georgia Carpet Outlets(TM)." Image
uses several trademarks in the marketing of its polyester fiber and carpet,
including Duratron(R), Duratron Gold(TM), Image Resist-Gard(R), Resistron(R),
Ecolon(R), Permalon(TM), Enviro-Tech(R), Image(TM) and Classique(R). Image's
registered trademarks are of perpetual duration, subject to periodic renewal
and continued use.

         There are no infringing uses actually known to the Company which could
materially affect the Company's use of the service marks, logos or slogans in
any state in which the Company is, or is proposed to be, located. There are no
patents or copyrights relevant to the Company and the Company is not the owner
or licensee of any patent or copyrights relevant to the franchise.

EMPLOYEES

         As of April 14, 1997, the Company employed approximately 2,400
persons, including approximately 780 persons at its retail operations and
approximately 1,514 persons at its manufacturing operations. No employee is a
party to any collective bargaining agreement and the Company believes its
relationship with its employees is good.

GOVERNMENTAL REGULATION

         The Company is subject to Federal Trade Commission ("FTC") regulations
governing the offer and sale of franchises. The FTC's Trade Regulation Rule on
Franchising (the "FTC Rule") requires the Company to furnish to prospective
franchisees a franchise offering circular containing certain information
prescribed by the FTC Rule.

         State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship currently exist in a substantial number of
states. Such laws generally require registration of the franchise offering
circular with state authorities prior to the offer or sale of franchises and
regulate the franchise relationship by, for example, requiring the franchisor
to deal with its franchisees in good faith, prohibiting misrepresentations and
interference with the right of free association among franchisees, limiting the
imposition of standards of performance on a franchisee and regulating
discrimination against franchisees in charges, royalties or fees. Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination, an opportunity to cure a
default and a requirement to repurchase inventory or other compensation, these
provisions have not had a significant effect on the Company's franchise
operations.

         The Company is not aware of any pending franchise legislation which in
its view is likely to have a material adverse effect on the operations of the
Company. The Company is aware, however, that various legislative proposals have
been or are being debated at both the state and federal levels which could
result in new laws regulating the offer and sale of franchises and other
aspects of the franchisor-franchisee relationship. It is possible that such
legislation, if enacted, could adversely affect the Company's franchise
operations. The Company believes, however, that its operations comply in all
material respects with current federal and state franchise regulations.



                                     -12-

<PAGE>   14

         The Company is also subject to numerous existing and proposed state
and federal laws and regulations designed to protect the environment from
wastes and emissions of hazardous substances. Management believes it is either
in material compliance with all currently applicable laws and regulations or is
acting in accordance with the appropriate variances or similar arrangements.
The Company believes that compliance with current laws and regulations will not
require significant capital expenditures or have a material adverse effect on
its operations. However, the enactment of new or expanded environmental
regulations could adversely affect the Company's operations.

         Each Company-owned store and franchise location is subject to
licensing and regulation by a number of governmental authorities, which may
include health, sanitation, safety, fire, building and other agencies in the
state or municipality in which the business is located. Difficulties in
obtaining or failure to obtain the required licenses or approvals could delay
or prevent the procurement of new Company store sites or franchises in a
particular area.

ITEM 2.  PROPERTIES.

         In June 1995, to accommodate a growing distribution and retail
business, the Company relocated its entire corporate staff and distribution
center to a 150,000 square foot facility on a 13 acre site in Kennesaw,
Georgia. The Company stores inventory and distributes products to its retail
floorcovering network from this facility. The Company previously occupied a
62,000 square foot building in nearby Marietta, Georgia. The Marietta facility
is currently being leased to an unrelated third party.

         The Company also leases 57 facilities, through which it conducts its
retail operations.

         The executive offices of the Company's manufacturing subsidiary,
Image, are located in Armuchee, Georgia. In addition, plants are located in
Georgia, Alabama and South Carolina. The following is a summary of the plants
and other properties owned or leased by Image:

<TABLE>
<CAPTION>                                                                         
                                                                                                                   APPROXIMATE
                                                                                                                    ENCLOSED
                  IMAGE LOCATIONS                                PRIMARY USE                                    AREA (SQUARE FEET)
                  -----------------                              -----------                                    -----------------
                  <S>                                            <C>                                               <C>
                  Armuchee, Georgia(1)  . . . . . . . . . . .    Executive Office, Carpet Tufting,

                                                                   Finishing and Storage                           232,000

                  Calhoun, Georgia(2) . . . . . . . . . . . .    PET Storage                                        53,000

                                                                 PET Storage                                       116,000

                  Kensington, Georgia(2)  . . . . . . . . . .    PET Storage                                       136,000

                  Lylerly, Georgia(2) . . . . . . . . . . . .    PET Storage                                        54,000

                  Rome, Georgia(1)  . . . . . . . . . . . . .    Carpet Dyeing and Sample Processing               216,000

                  Rome, Georgia(2)  . . . . . . . . . . . . .    PET Storage                                       140,000

                                                                 PET Storage                                        41,000

                  Rome, Georgia(1)  . . . . . . . . . . . . .    Yarn Spinning                                     211,000

                  Shannon, Georgia(1) . . . . . . . . . . . .    Finished Carpet Storage and Distribution          308,000

                  Summerville, Georgia(1) . . . . . . . . . .    PET Sortation, Granulation, Washing,
                                                                    Fiber Extrusion and PET Pellet
                                                                    Extrusion, Storage and Shipping                366,000  

                                                                                                                            
                  Talladega, Alabama(1) . . . . . . . . . . .    Yarn Spinning                                      82,000

                  Melville, New York(2) . . . . . . . . . . .    PET Purchasing Office                                 425

                  Dillon, South Carolina(1) . . . . . . . . .    Yarn Spinning                                     102,000
</TABLE>

----------------


                                     -13-

<PAGE>   15

(1)      These plants are owned, with the exception that the plant in
         Summerville, Georgia is leased pursuant to a capital lease from the
         Development Authority of the City of Summerville. Image has the option
         to purchase the Summerville plant, which includes 14 acres, for $100
         upon expiration of the lease in 2003. These plants include owned
         approximate acreages as follows: 168 acres at Armuchee, Georgia; 20
         acres at Rome, Georgia (carpet dyeing); 48 acres at Rome (yarn
         spinning); 10 acres at Talladega, Alabama; 12 acres at Dillon, South
         Carolina; 8 acres at Summerville, Georgia; and 35 acres at Shannon,
         Georgia.

(2)      These facilities are leased under leases which expire within the next
         three years. Management believes that these leases can be renewed on
         substantially the same terms and conditions as the existing leases.

ITEM 3.          LEGAL PROCEEDINGS.

         There are no material pending legal proceedings to which the Company
is a party or of which any of its properties are subject; nor are there
material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the
Company in which any director, officer or affiliate or any principal security
holder of the Company, or any associate of any of the foregoing is a party or
has an interest adverse to the Company.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matter was submitted during the fourth quarter ended January 31,
1997 to a vote of security holders of the Company.


                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

         The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "MAXM."  The Common Stock began trading on the Nasdaq National
Market on October 1, 1993.  The following table sets forth for the periods
indicated the high and low sales prices of the Common Stock as reported by the
Nasdaq National Market.


<TABLE>
<CAPTION>
                                                                HIGH                  LOW
                                                                ----                  ---
    <S>                                                       <C>                  <C>
    Fiscal period ended January 31, 1996
         First Quarter                                        $13.50               $ 9.25
         Second Quarter                                        13.75                 9.75
         Third Quarter                                         15.25                11.75
         Fourth Quarter(1)                                     14.00                 9.00

    Fiscal year ended January 31, 1997
         First Quarter                                        $12.50               $ 9.38
         Second Quarter                                        15.50                11.25
         Third Quarter                                         17.00                12.00
         Fourth Quarter                                        17.50                14.00
</TABLE>


------------------



                                     -14-
<PAGE>   16

(1)      Includes only the month of January 1996 due to a change in the
         Company's fiscal year end from March 31 to January 31.

         As of April 23, 1997, there were approximately 235 holders of record
of the Common Stock.  Management of the Company believes that there are in
excess of 400 beneficial holders of its Common Stock.

         The Company has never declared or paid any dividends on its capital
stock.  The Company currently anticipates that all of its earnings will be
retained for development of the Company's business, and does not anticipate
paying any cash dividends in the foreseeable future.  Future cash dividends, if
any, will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's future earnings, operations,
capital requirements and surplus, general financial condition, contractual
restrictions, and such other factors as the Board of Directors may deem
relevant.  Currently, the Company is restricted in its ability to declare or
pay cash dividends under the terms of its credit facility.

         Recent Sales of Unregistered Securities.  On May 15, 1996, the Company
issued 50,000 shares of Common Stock at a price of $9.80 per share to James W.
Inglis in connection with his joining the Company as its new Chief Operating
Officer and Senior Executive Vice President.

         On November 22, 1996, the Company issued an aggregate of 242,288
shares of Common Stock to the shareholders of Bailey & Roberts in connection
with the acquisition of Bailey & Roberts by the Company.

         On November 26, 1996, the Company issued an aggregate of 43,333 shares
of Common Stock to the shareholders of Sexton in connection with the
acquisition of Sexton by the Company.

         All issuances of securities described above were made in reliance on
the exemption from registration provided by Section 4(2) and/or 3(b) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the offers and sales were made without any public solicitation and
the stock certificates bear restrictive legends. No underwriter was involved in
the transactions and no commissions were paid.

ITEM 6.   SELECTED FINANCIAL DATA.

         The following table sets forth selected consolidated financial data of
the Company for the periods indicated, which data has been derived from the
consolidated financial statements of the Company. The consolidated financial
statements of the Company as of January 31, 1997 and 1996, for the year ended
January 31, 1997 and for the ten month period ended January 31, 1996 have been
audited by Arthur Andersen LLP, independent public accountants.  The
consolidated financial statements of the Company as of March 31, 1995 and for
each of the years in the two-year period ended March 31, 1995 have been audited
by KPMG Peat Marwick LLP, independent auditors.  The selected financial data
for the year ended March 31, 1993 are derived from the unaudited consolidated
financial statements of the Company.  The unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the
consolidated financial condition and results of operations for this period.
The selected consolidated financial data should be read in conjunction with the
consolidated financial statements, related notes and other financial
information included herein.  Financial data gives retroactive effect to the
merger of the Company and GCO on September 28, 1994 and the merger of the
Company and Image on August 30, 1996, which transactions were accounted for as
a pooling-of-interests.



                                      -15-
<PAGE>   17

<TABLE>
<CAPTION>
                                                                                        TEN MONTHS
                                                      FISCAL YEAR ENDED  MARCH 31,        ENDED
                                                   ------------------------------       JANUARY 31  FISCAL YEAR ENDED
                                                    1993        1994         1995        1996(1)    JANUARY 31, 1997
                                                   -------     -------     ------       --------    -----------------
STATEMENT OF EARNINGS DATA:

Revenues:

<S>                                                <C>         <C>         <C>          <C>              <C>               
    Sales of floorcovering products ...........    $88,676     $106,237    $174,935     $186,568         $250,968          
                                                                                                                           
    Fees from franchise services ..............      5,113       9,688       13,876       13,432           26,336          
                                                                                                                           
    Fiber and PET sales .......................      4,583       5,297       12,886       24,072           28,853          
                                                                                                                           
    Other .....................................        479       1,369        1,644        3,479            3,564          
                                                   -------     -------     --------     --------         --------          
        Total revenues ........................     98,851     122,591      203,341      227,551          309,721          
                                                                                                                           
Cost of sales .................................     71,570      85,847      139,521      161,723          222,290          
                                                   -------     -------     --------     --------         --------          
        Gross profit ..........................     27,281      36,744       63,820       65,828           87,431          
                                                                                                                           
Selling, general, and administrative expenses .     17,417      23,669       46,870       59,197           72,366          
                                                                                                                           
Replacement stock option charge ...............       --        10,388(2)      --           --               --            
                                                                                                                           
Goodwill impairment charge ....................       --          --           --          6,569(3)          --            
                                                                                                                           
Merger-related costs ..........................       --          --            500(4)      --              4,900(5)       
                                                                                                                           
Interest expense, net .........................      3,824       1,579        1,442        4,280            6,393          
                                                                                                                           
Other expense (income) ........................         98         263         (421)         (78)            (302)         
                                                   -------     -------     --------     --------         --------          
                                                                                                                           
Earnings (loss) before income taxes                                                                                        
                                                                                                                           
    and extraordinary income ..................      5,942         845       15,429       (4,140)           4,074          
                                                                                                                           
Income tax expense ............................        947         376        5,787          105            1,929          
                                                   -------     -------     --------     --------         --------          
                                                                                                                           
Net earnings (loss) before                                                                                           
                                                                                                                           
    extraordinary income ......................      4,995         469        9,642       (4,245)           2,145                   
                                                                                                                           
Extraordinary income ..........................       --           190         --           --               --            
                                                   -------     -------     --------     --------         --------          
                                                                                                                           
Net earnings (loss) ...........................    $ 4,995     $   659     $  9,642     $ (4,245)        $  2,145          
                                                   =======     =======     ========     ========         ========          
Net earnings (loss) per common share(6) .......    $  0.56     $  0.06     $   0.72     $  (0.32)        $   0.15          
                                                   =======     =======     ========     ========         ========          
                                                                                                                           
Weighted average shares outstanding(6) ........      8,903      11,161       13,301       13,301           13,937          
                                                   =======     =======     ========     ========         ========          
SELECTED OPERATING DATA:                                                                                                   
                                                                                                                           
Revenues attributable to:                                                                                                  
                                                                                                                           
    CarpetMAX operations ......................    $ 3,766     $10,051     $ 63,933     $ 85,278         $125,585          
                                                                                                                           
    GCO operations ............................      5,605       9,283       12,158       14,012           21,455          
                                                                                                                           
    Image operations ..........................     89,480     103,257      127,250      128,261          162,681          
                                                                                                                           
End of period:                                                                                                             
                                                                                                                           
    Company-owned stores ......................          8           8           51           59               57          
                                                                                                                           
    Franchise territories .....................        148         233          325          357              368          
</TABLE>                                                      


<TABLE>
<CAPTION>
                                                        MARCH 31,                    JANUARY 31,     
                                            --------------------------------   ---------------------- 
                                              1993       1994         1995       1996(1)       1997
                                            ------      -----       --------   --------        ------
<S>                                         <C>         <C>         <C>        <C>           <C>     
BALANCE SHEET DATA:

Working capital ........................    $12,297     $26,489     $ 44,844   $ 61,456      $ 58,287

Total assets ...........................     63,809      95,281      162,473    202,085       219,673

Long-term debt and capital leases ......     29,908      21,083       56,035     92,710        93,220

Stockholders' equity ...................     30,960      50,053       71,424     72,150        76,154
</TABLE>

-----------




                                      -16-
<PAGE>   18


(1)      On January 31, 1996, the Company changed its fiscal year end from
         March 31 to January 31.
(2)      Image granted replacement stock options on August 10, 1993, in
         replacement of a like number of unvested stock appreciation units and
         vested and unvested stock options. As a result of this exchange, Image
         recognized a non- cash, non-recurring charge of $10.4 million in its
         fiscal year ending March 31, 1994. See Note 13 of "Notes to
         Consolidated Financial Statements."
(3)      Certain of the Company's acquired stores have not performed as
         anticipated at the time of purchase. The results from these operations
         through the end of fiscal 1996 led management to assess the
         realizability of the goodwill recorded in connection with these
         acquisitions, the result of which indicated a permanent impairment of
         goodwill necessitating a write-off totaling $6.6 million. See
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations -- Ten Month Period Ended January 31, 1996
         Compared to Year Ended March 31, 1995 -- Goodwill Impairment" and Note
         2 of "Notes to Consolidated Financial Statements."
(4)      Represents a non-recurring charge of $500,000 related to the merger
         with GCO, Inc.
(5)      Represents a non-recurring charge of $4.9 million related to the
         mergers with Image and Bailey & Roberts.
(6)      Earnings per share is computed on a fully diluted basis as described
         in Note 1 to the Consolidated Financial Statements of the Company.


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

        The following discussion should be read in conjunction with the
consolidated financial statements of the Company (including the notes thereto)
contained elsewhere in this Report. In January 1996, the Company changed its
fiscal year end from March 31 to January 31. The following discussion compares
results of operations for the twelve month period ended January 31, 1997 with
the ten month period ended January 31, 1996 and compares the ten month period
ended January 31, 1996 with the twelve month period ended March 31, 1995. Thus,
comparisons are not entirely comparable. On August 30, 1996 the Company merged
with Image, which transaction was accounted for as a pooling-of-interests.

GENERAL

        From fiscal 1991 through fiscal 1994, the Company's operations
consisted of selling floorcovering products, securing franchise dealers and
brokering the purchase of floorcovering products, principally carpet, from
major suppliers on behalf of its franchisees. During this period, the Company
derived the majority of its revenues and operating profits from sales of
floorcovering products, franchise fees and royalties, as well as fees from the
provision of various services to the franchisees. In May 1994, the Company
commenced a strategy of acquiring independent floorcovering retailers, with the
goal of building a network of Company-owned stores in addition to its franchise
network. This acquisition program included selected CarpetMAX franchisees,
other independent dealers and GCO (accounted for as a pooling-of-interests).
Acquisitions accounted for under the purchase method of accounting resulted in
the Company originally recording goodwill of $17.9 million, which was adjusted
for the goodwill impairment charge of $6.6 million recorded in fiscal 1996. See
" -- Results of Operations."

        In April 1995, the Company commenced opening additional Company-owned
stores to expand its market share.  Furthermore, in June 1995 the Company
opened its new distribution center and headquarters facility. Accordingly, the
Company's results of operations for the ten months ended January 31, 1996 and
for the year ended January 31, 1997 reflect the costs and expenses associated
with the new store openings and the new distribution center and headquarters.

        On December 12, 1995, the Company announced the execution of a letter
of intent for the merger of the Company into Shaw. On January 12, 1996, the
Company terminated its negotiations with Shaw resulting in non-recurring merger
transaction costs and material interruptions to advertising, brokerage and
franchise revenue in fiscal 1996.




                                      -17-
<PAGE>   19

        As of April 1, 1997, the Company's retail network consisted of 50
Company-owned CarpetMAX stores, including one Gallery Store, seven
Company-owned GCO stores and 372 franchise dealers operating approximately 457
CarpetMAX stores and 102 GCO stores.

RESULTS OF OPERATIONS

        The following table sets forth the Company's results of operations
expressed as a percentage of total revenues for the periods indicated:


<TABLE>
<CAPTION>
                                                      Fiscal Year Ended      Ten Months Ended            Fiscal Year Ended
                                                       March 31,1995         January 31, 1996(1)         January 31, 1997
                                                       -------------         ------------------          ----------------
               <S>                                      <C>                         <C>                        <C>         
                                                                                                                           
               STATEMENT OF EARNINGS DATA:                                                                                 
               Revenues:                                                                                                   
                 Sales of floorcovering products ...    86.0%                        82.0%                      81.0%      

                 Fees from franchise services ......     6.7                          5.9                        8.5       

                 Fiber and PET sales ...............     6.3                         10.6                        9.3       

                 Other .............................     1.0                          1.5                        1.2       
                                                       -----                        -----                      -----       
               Total revenues ......................   100.0                        100.0                      100.0       
                                                       =====                        =====                      =====       
               Cost of sales .......................    68.6                         71.1                       71.8       
                                                       -----                        -----                      -----       
                 Gross profit ......................    31.4                         28.9                       28.2       
               Selling, general, and administrative                                                                        
                 expenses ..........................    23.1                         26.0                       23.4       
              
                                                                                                 
               Goodwill impairment charge ..........    --                            2.9(2)                    --         
               Merger-related costs ................     0.2(3)                                                            
                                                                                     --                          1.6(4)    
                                                                                                                           
               Interest expense, net ...............     0.7                          1.9                        2.0       
               Other expense (income) ..............    (0.2)                        (0.1)                      (0.1)      
                                                       -----                        -----                      -----       
               Earnings (loss) before                                                                                      
                   income taxes ....................     7.6                         (1.8)                       1.3       
               Income tax expense ..................     2.9                          0.1                        0.6       
                                                       -----                        -----                      -----       
                   Net earnings (loss) .............     4.7%                        (1.9)%                      0.7%       
                                                       =====                        =====                      =====       
</TABLE>

------------------

(1)      On January 31, 1996, the Company changed its fiscal year end from
         March 31 to January 31.
(2)      Certain of the Company's acquired stores have not performed as
         anticipated at the time of purchase. The results from these operations
         through the end of fiscal 1996 led management to assess the
         realizability of the goodwill recorded for these acquisitions, the
         result of which indicated a permanent impairment of goodwill
         necessitating a write-off totaling $6.6 million. See "Management's
         Discussion and Analysis of Financial Condition and Results of
         Operations -- Ten Month Period Ended January 31, 1996 Compared to Year
         Ended March 31, 1995 -- Goodwill Impairment" and Note 2 of "Notes to
         Consolidated Financial Statements."
(3)      Represents a non-recurring charge of $500,000 related to the merger
         with GCO, Inc.
(4)      Represents a non-recurring charge of $4.9 million related to the
         mergers with Image and Bailey & Roberts.




                                      -18-
<PAGE>   20

 YEAR ENDED JANUARY 31, 1997 COMPARED TO TEN MONTH PERIOD ENDED JANUARY 31, 1996

        Total Revenues.  Total revenues increased 36.1% to $309.7 million for
the year ended January 31, 1997 ("fiscal 1997") from $227.6 million for the ten
month period ended January 31, 1996 ("fiscal 1996"). The components of total
revenues are discussed below.

                 Sales of Floorcovering Products.  Sales of floorcovering
        products increased 34.5% to $251.0 million for fiscal 1997 from
        $186.6 million for fiscal 1996. Sales of floorcovering products in
        Company-owned stores increased 44.5% to $106.2 million for fiscal 1997
        from $73.5 million for fiscal 1996. The growth in retail sales of
        floorcovering products was primarily due to the impact of the
        acquisitions of floorcovering retailers and, to a lesser extent, to
        internal growth. The results of these acquired retailers are not fully
        reflected in the prior year periods as such acquisitions were made at
        various times during the year. Sales of manufactured carpet increased
        29.5% to $132.1 million for fiscal 1997 from $102.0 million for fiscal
        1996. Unit sales of manufactured carpet increased 31.8% to 22.4 million
        square yards for fiscal 1997 from 17.0 million square yards for fiscal
        1996. Sales from the Company's two distribution centers amounted to 
        $12.2 million for fiscal 1997 and $11.1 million for fiscal 1996,
        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
        floorcovering products and advertising, increased 96.3% to $26.3
        million for fiscal 1997 from $13.4 million for fiscal 1996. This
        increase was attributable to increases in brokering activity generated
        from new CarpetMAX and GCO franchisees, growth in demand for franchise
        services from existing CarpetMAX and GCO franchisees, greater
        utilization of advertising and other services offered to franchisees
        and an expansion of advertising services offered by the Company.

                 Fiber and PET Sales.  Sales of fiber and PET increased 19.9%
        to $28.9 million for fiscal 1997 from $24.1 million for fiscal 1996.
        Unit sales increased 48.3% to 56.8 million pounds for fiscal 1997 from
        38.3 million pounds for fiscal 1996 as a result of increased fiber
        production capacity from the addition of a second polyester fiber
        extruder. The unit sales increase was partially offset by a 20.1%
        decline in the average selling price per pound of fiber and PET sales
        for fiscal 1997 compared to fiscal 1996.

        Gross Profit.  Gross profit increased 32.8% to $87.4 million for fiscal
1997 from $65.8 million for fiscal 1996.  As a percentage of sales, gross
profit was 28.2% for fiscal 1997 compared to 28.9% for fiscal 1996. The Company
recognized a non-recurring charge in the amount of $0.7 million in fiscal 1997
to increase reserves for discounts and warranties at its manufacturing
subsidiary, Image.  Also contributing to the decrease in gross profit as a
percentage of sales was the continuing change in the retail business mix of the
Company to a revenue base consisting principally of the net sales of
floorcovering products.

        Selling, General and Administrative Expenses.  Selling, general and
administrative expenses increased 22.3% to $72.4 million for fiscal 1997 from
$59.2 million for fiscal 1996. As a percentage of revenues, selling, general
and administrative expenses decreased to 23.4% for fiscal 1997 from 26.0% for
fiscal 1996 as a result of spreading fixed costs over a larger revenue base.
Additionally, the Company reduced certain note receivable reserves totaling
$350,000 which favorably affected net earnings by approximately $210,000.

        Merger-Related Costs.  The Company recorded merger-related costs of
$4.9 million for fiscal 1997 relating to the merger with Image and Bailey &
Roberts. The charge includes both transaction costs, as well as severance costs
and the elimination of redundant systems.



                                      -19-
<PAGE>   21
        
        Interest Expense, Net.  Interest expense increased 48.8% to $6.4
million for fiscal 1997 from $4.3 million for fiscal 1996 due principally to
financing associated with capital expenditures in the manufacturing operations
and increased working capital requirements.

        Income Tax Expense.  The Company recorded income tax expense of $1.9
million for fiscal 1997 compared to $0.1 million for fiscal 1996.  Income tax
expense for fiscal 1997 reflects the impact of non-deductible expenses
associated with the merger with Image and Bailey and Roberts. The effective tax
rate for fiscal 1997 was 47.3%.

        Net Earnings.  As a result of the foregoing factors, the Company
recorded net earnings of $2.1 million for fiscal 1997 compared to a net loss of
$4.2 million for fiscal 1996.

   TEN MONTH PERIOD ENDED JANUARY 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995

        Total Revenues.  Total revenues increased 12.0% to $227.6 million for
fiscal 1996 from $203.3 million for the year ended March 31, 1995 ("fiscal
1995"). The components of total revenues are discussed below.

                 Sales of Floorcovering Products.  Sales of floorcovering
        products increased 6.7% to $186.6 million for fiscal 1996 from $174.9
        million for fiscal 1995. Sales of floorcovering products in
        Company-owned stores increased 51.9% to $73.5 million for fiscal 1996
        from $48.4 million for fiscal 1995. The growth in retail revenues for
        fiscal 1996 largely reflected increases in direct sales resulting from
        acquired retailers in the prior fiscal year which were only included in
        the Company's sales for part of fiscal 1995. Sales of manufactured
        carpet decreased 10.4% to $102.0 million for fiscal 1996 from $113.8
        million from fiscal 1995. Units sales decreased 15.8% to 17.0 million
        square yards for fiscal 1996 from 20.2 million square yards for fiscal
        1995.  Expressed on a per week basis (total sales divided by number of
        weeks in the fiscal year), sales of manufactured carpet represented an
        increase of 5.9% resulting from an increase in average unit selling
        price for domestic markets. Expressed on a per week basis (total units
        divided by number of weeks in the fiscal year), unit sales decreased
        0.7%. Therefore, the increase in sales was attributable solely to
        increased average unit selling prices. Sales from the Company's two
        distribution centers amounted to $11.1 million during fiscal 1996
        and $12.7 million during fiscal 1995, largely representing sales to
        the Company's franchisees.

                 Fees from Franchise Services.  Fees from franchise services
        decreased 3.6% to $13.4 million for fiscal 1996 from $13.9 million for
        fiscal 1995. The overall decrease resulted from fewer CarpetMAX
        franchises granted in fiscal 1996.

                 Fiber and PET Sales.  Sales of fiber and PET increased 86.8%
        to $24.1 million for fiscal 1996 from $12.9 million for fiscal 1995.
        Unit sales increased 25.6% to 38.3 million pounds for fiscal 1996 from
        30.5 million pounds for fiscal 1995 as a result of increased fiber
        production capacity from the addition of a second polyester fiber
        extruder. The remainder of the total increase was due to increased
        average unit selling prices.

        Gross Profit.  Gross profit increased 3.1% to $65.8 million for fiscal
1996 from $63.8 million for fiscal 1995.  As a percentage of sales, gross
profit was 28.9% in fiscal 1996 compared to 31.4% for fiscal 1995. Gross profit
as a percentage of sales for manufacturing decreased to 19.8% for fiscal 1996
from 24.2% in fiscal 1995 as a result of increased costs of PET raw materials,
which were only partially offset by increased selling prices of fiber, PET and
polyester carpet.

        Selling, General and Administrative Expenses.  Selling, general and
administrative expenses increased 26.2% to $59.2 million for fiscal 1996 from
$46.9 million for fiscal 1995. As a percentage of revenues, selling, general
and administrative expenses increased to 26.0% for fiscal 1996 from 



                                     -20-

<PAGE>   22

23.1% for fiscal 1995. This increase was largely due to the Company's recording
additional reserves on accounts receivables, costs associated with the closing
of certain under- performing stores as well as additional inventory reserves
recorded in order to reflect lower inventory market prices, and costs
associated with the proposed merger with Shaw. In addition, the Company
incurred additional expenses resulting from the move to the Kennesaw facility
as well as additional expenses associated with the opening of new stores and
significant growth in personnel.

        Goodwill Impairment.  Certain of the Company's acquired stores have not
performed as anticipated at the time of purchase. The results from these
operations through the end of fiscal 1996 led management to a re- evaluation of
operations that indicated significant strategic and operational changes would
be necessary at certain stores, including changes in the customer mix, changes
of location, and changes in store design and merchandising. These factors
caused management to assess the realizability of the goodwill recorded for
these acquisitions, the result of which indicated a permanent impairment of
goodwill resulting in the Company recording a goodwill impairment charge of
$6.6 million.

        Merger-related Costs.  The Company recorded merger-related costs of
$0.5 million for fiscal 1995, relating to transaction costs associated with the
merger with GCO, Inc.

        Interest Expense, Net.  Interest expense increased 207.1% to $4.3
million for fiscal 1996 from $1.4 million for fiscal 1995 due principally to
increased borrowings related to the acquisition and operation of Company-owned
stores and Pharr Yarns of Georgia, Inc., the funding of operating losses in
certain Company-owned stores, increased borrowings resulting from the move to
the new facility in Kennesaw, Georgia, as well as additions of fixed assets and
leasehold improvements associated with new stores and plant facilities.

        Income Tax Expense.  The Company recorded income tax expense of
$0.1 million for fiscal 1996 compared to $5.8 million for fiscal 1995. Income
tax expense for fiscal 1996 reflects the impact of certain non-deductible
goodwill. The Company's effective tax rate for fiscal 1995 was 37.5%.

        Net (Loss) Earnings.   As a result of the foregoing factors, the
Company recorded a net loss of $4.2 million for fiscal 1996 compared to net
earnings of $9.6 million for fiscal 1995.

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 flow from operations, equity transactions, bank lines of
credit and credit terms from suppliers.

        In March 1997, the Board of Directors of the Company authorized
management to repurchase up to 1,000,000 shares of Common Stock of the Company.
As of April 23, 1997, the Company had repurchased 630,000 shares of its Common
Stock in the open market for a total of $7.6 million.  These purchases were,
and any future purchases will be, financed from borrowings under the Company's
revolving credit facility.

        Credit Facilities.  In connection with the Image merger, the Company
established three credit facilities aggregating $125 million, (the "Credit
Facility"). The Credit Facility consists of (i) a $65 million revolving
facility of which $4.1 million was available for borrowings on April 23, 1997,
and which matures in August 1999, (ii) a $30 million term facility that matures
in December 2001, and (iii) a $30 million term facility that matures in
September 2003. In February 1997, the Company completed a public offering of
common stock, the net proceeds of which ($47.9 million) were applied to the two
outstanding term loans.  As of April 23, 1997, the Company had a total of $43.7
million outstanding under the revolving facility and $12.0 million outstanding
under the term facilities. Amounts outstanding 



                                     -21-
<PAGE>   23

under the Credit Facility bear interest at a variable rate based on LIBOR or
the prime rate, at the Company's option. As of April 15, 1997, the weighted
average interest rate on amounts outstanding under the Credit Facility was
8.285%. The Credit Facility contains customary covenants. As of April 23, 1997,
the Company was in compliance with or obtained waivers of any violations of
such covenants under the Credit Facility. The Company intends to renegotiate
the terms of the Credit Facility.

        As of April 15, 1997, the Company also has approximately $0.6 million
of debt outstanding under various term loans at interest rates ranging from
6.0% to 13.0%.

        Cash Flows.  During fiscal 1997, operating activities provided $17.8
million compared to a use of $5.2 million for fiscal 1996. The increase in cash
provided by operating activities resulted primarily from a decrease in
inventories, which was principally attributable to substantially reduced raw
material unit costs and reduced raw material quantities and an increase in
depreciation and amortization. The decrease in inventory was also partially due
to higher sales of floorcovering products to franchisees and other carpet
retailers.  Also contributing was an increase in accounts payable and accrued
expenses relating to construction in progress.

        During fiscal 1997, investing activities used $18.7 million compared to
$29.4 million for fiscal 1996. The decrease is primarily due to a decrease in
acquisitions during fiscal 1997,  which was partially offset by a $1.9 million
increase in capital expenditures.

        During fiscal 1997, financing activities provided cash of $3.1 million
compared to cash provided of $36.5 million in fiscal 1996. This decrease is
primarily due to decreased borrowings during the fiscal 1997 period, in
connection with reduced uses for investing activities and improved cash flows
from operations.

        Capital Expenditures.  The Company anticipates that it will require
approximately $45.0 million in fiscal 1998 to open new Gallery Stores,
reconfigure existing CarpetMAX stores, expand its manufacturing capacity and
upgrade its management information systems. The Company expects to open
approximately 30 new Gallery Stores in fiscal 1998. The Company estimates that
capital expenditures to open a new Gallery Store will average approximately
$75,000 net of landlord allowances and supplier participations. Pre-opening
expenses will be approximately $50,000 per store. The actual costs that the
Company will incur in opening a new Gallery Store cannot be predicted with
precision because the Company has opened only one Gallery Store and opening
costs will vary based upon geographic location, the size of the store, the
amount of supplier contributions and the extent of the build-out required at
the selected site.  The Company anticipates that it will require approximately
$25 million in fiscal 1998 for capital expenditures at Image.  This includes
approximately $16.9 million for fiscal 1998 associated with the expansion of
Image's polyester fiber production capacity.  The total cost of this project is
expected to be approximately $25.4 million over fiscal 1998 and 1999.

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 that 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 




                                     -22-
<PAGE>   24

headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," identifies important factors that could
cause such differences.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The following financial statements are filed with this report:

        Report of Independent Public Accountants
        Independent Auditors' Report
        Consolidated Balance Sheets - January 31, 1997 and 1996
        Consolidated Statements of Operations - Year ended January 31, 1997,
          Ten Months ended January 31, 1996 and Year ended March 31, 1995
        Consolidated Statements of Stockholders' Equity - Year ended January
          31, 1997, Ten Months ended January 31, 1996 and Year ended March 31,
          1995
        Consolidated Statements of Cash Flows - Year ended January 31, 1997,
          Ten Months ended January 31, 1996 and Year ended March 31, 1995
        Notes to Consolidated Financial Statements




                                      -23-
<PAGE>   25

                  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To the Board of Directors and Stockholders of
The Maxim Group, Inc.:


We have audited the accompanying consolidated balance sheets of THE MAXIM
GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of January 31, 1997
and 1996 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year ended January 31, 1997 and the ten months
ended January 31, 1996.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Maxim Group, Inc. and
subsidiaries as of January 31, 1997 and 1996 and the results of their
operations and their cash flows for the year ended January 31, 1997 and the ten
months ended January 31, 1996 in conformity with generally accepted accounting
principles.



/s/ ARTHUR ANDERSEN LLP




Atlanta, Georgia
April 10, 1997



                                     -24-

<PAGE>   26
                         Independent Auditors' Report




The Board of Directors and Stockholders of
The Maxim Group, Inc.:

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of The Maxim Group, Inc. (a Delaware
corporation) and subsidiaries for the year ended March 31, 1995.  In connection
with our audit of the consolidated financial statements, we also have audited
the financial statement schedule as listed in Item 14(a)2.  These consolidated
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit 
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and their
cash flows of The Maxim Group, Inc. and subsidiaries for the year ended March
31, 1995, in conformity with generally accepted accounting principles.  Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.



                                              /s/ KPMG PEAT MARWICK LLP

Atlanta, Georgia
December 23, 1996




                                     -25-
<PAGE>   27


                            THE MAXIM GROUP, INC.

                              AND SUBSIDIARIES


                         CONSOLIDATED BALANCE SHEETS

                          JANUARY 31, 1997 AND 1996

                (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)




<TABLE>
<CAPTION>
                            ASSETS                                  1997        1996
-------------------------------------------------------------     --------    --------

<S>                                                               <C>         <C>
CURRENT ASSETS:
 Cash and cash equivalents, including restricted cash of $621
  and $1,028 at 1997 and 1996, respectively                       $  6,439    $  4,207
 Current portion of franchise license fees receivable, net of
  allowance for doubtful accounts of $328 and $175 at 1997 and
  1996, respectively                                                 2,070       1,894
 Trade accounts receivable, net of allowance for doubtful
  accounts of $1,380 and $1,605 at 1997 and 1996, respectively      43,487      33,037
 Accounts receivable from officers and employees (Note 6)            1,195         615
 Current portion of notes receivable from franchisees and
  related parties, net of allowance for doubtful accounts of
  $351 and $383 at 1997 and 1996, respectively (Note 7)              1,034       1,008
 Inventories (Note 5)                                               42,148      49,170
 Refundable income taxes                                             1,311       2,176
 Deferred income taxes (Note 11)                                     3,859       2,080
 Prepaid expenses                                                    2,526       2,091
                                                                  --------    --------
             Total current assets                                  104,069      96,278

PROPERTY, PLANT, AND EQUIPMENT, NET (NOTES 4 AND 10)               101,403      93,879

FRANCHISE LICENSE FEES RECEIVABLE, LESS CURRENT PORTION, NET
  OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $210 AT 1997 AND 1996        1,349       2,091

NOTES RECEIVABLE FROM FRANCHISEES, LESS CURRENT PORTION                477           0

DEFERRED LICENSE FEE, NET OF ACCUMULATED AMORTIZATION (NOTE 8)           0         341

INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $1,232
 AND $704 AT 1997 AND 1996, RESPECTIVELY (NOTES 2 AND 3)            10,204       8,960

OTHER ASSETS                                                         2,171         536
                                                                  --------    --------
                                                                  $219,673    $202,085
                                                                  ========    ========
</TABLE>



                                     -26-
<PAGE>   28



<TABLE>
<CAPTION>                                                      

          LIABILITIES AND STOCKHOLDERS' EQUITY                  1997          1996
-----------------------------------------------------------  --------     --------

<S>                                                          <C>          <C>
CURRENT LIABILITIES:
 Current portion of long-term debt (Note 9)                  $  2,532     $    919
 Current portion of capital lease obligations (Note 10)           537          556
 Rebates payable to franchisees                                 3,471        3,673
 Accounts payable                                              23,583       17,167
 Accrued expenses                                              12,232        9,147
 Deferred revenue                                                 967        1,284
 Deposits                                                       2,460        2,076
                                                             --------     --------
     Total current liabilities                                 45,782       34,822

LONG-TERM DEBT, LESS CURRENT PORTION (NOTE 9)                  91,100       90,147

CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION (NOTE 10)       2,120        2,563

DEFERRED INCOME TAXES (NOTE 11)                                 4,517        2,403
                                                             --------     --------
     Total liabilities                                        143,519      129,935
                                                             --------     --------
COMMITMENTS AND CONTINGENCIES (NOTES 10, 14, AND 16)

STOCKHOLDERS' EQUITY:
 Preferred stock, $.001 par value; 1,000 shares
  authorized, no shares issued or outstanding                       0            0
 Common stock, $.001 par value; 25,000 shares authorized,
  12,800 and 12,397 shares issued and outstanding at 1997
  and 1996, respectively                                           13           12
 Additional paid-in capital                                    62,124       60,392
 Retained earnings                                             14,017       11,746
                                                             --------     --------
     Total stockholders' equity                                76,154       72,150
                                                             --------     --------
                                                             $219,673     $202,085
                                                             ========     ========
</TABLE>

       The accompanying notes are an integral part of these consolidated balance
                                        sheets.



                                          -27-
<PAGE>   29


                            THE MAXIM GROUP, INC.

                               AND SUBSIDIARIES


                    CONSOLIDATED STATEMENTS OF OPERATIONS

                     FOR THE YEAR ENDED JANUARY 31, 1997,

                    THE TEN MONTHS ENDED JANUARY 31, 1996,

                      AND THE YEAR ENDED MARCH 31, 1995

                 (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)




<TABLE>
<CAPTION>
                                                                               1997          1996        1995
                                                                               ----          ----        ----
REVENUES:                                                                      
<S>                                                                          <C>          <C>         <C>
 Sales of floorcovering products (Note 12)                                   $250,968     $186,568    $174,935
 Fees from franchise services (Note 12)                                        26,336       13,432      13,876
 Fiber and PET sales                                                           28,853       24,072      12,886
 Other (Note 12)                                                                3,564        3,479       1,644
                                                                             --------     --------    --------
    Total revenues                                                            309,721      227,551     203,341
COST OF SALES                                                                 222,290      161,723     139,521
                                                                             --------     --------    --------
    Gross profit                                                               87,431       65,828      63,820

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES                                  72,366       59,197      46,870

GOODWILL IMPAIRMENT CHARGE (NOTE 2)                                                 0        6,569           0

MERGER--RELATED COSTS (NOTE 3)                                                  4,900            0         500

OTHER (INCOME) EXPENSE:
 Interest income                                                                 (613)        (415)       (397)
 Interest expense                                                               7,006        4,695       1,839
 Other                                                                           (302)         (78)       (421)
                                                                             --------     --------    --------
     Earnings (loss) before income taxes                                        4,074       (4,140)     15,429

INCOME TAX EXPENSE (NOTE 11)                                                    1,929          105       5,787
                                                                             --------     --------    --------
NET EARNINGS (LOSS)                                                          $  2,145     $ (4,245)   $  9,642
                                                                             ========     ========    ========
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE                       $   0.15     $  (0.32)   $   0.72
                                                                             ========     ========    ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT 
 SHARES OUTSTANDING                                                            13,937       13,301      13,301
                                                                             ========     ========    ========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.



                                     -28-



<PAGE>   30


                             THE MAXIM GROUP, INC.

                               AND SUBSIDIARIES


               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                     FOR THE YEAR ENDED JANUARY 31, 1997,

                    THE TEN MONTHS ENDED JANUARY 31, 1996,

                      AND THE YEAR ENDED MARCH 31, 1995

                   (IN THOUSANDS, EXCEPT SHARE INFORMATION)





<TABLE>
<CAPTION>

                                                           COMMON STOCK      ADDITIONAL                        
                                                           ------------       PAID-IN    RETAINED              
                                                          SHARES     AMOUNT   CAPITAL    EARNINGS   TOTAL      
                                                        ----------   ------   --------   --------  -------     
<S>                                                     <C>             <C>    <C>       <C>       <C>         
                                                                                                               
BALANCE, MARCH 31, 1994                                 10,507,486      $11    $43,693   $ 6,349   $50,053     
                                                                                                               
 Exercise of redeemable common stock purchase                                                                  
  warrants, net of $46 in redemption costs (Note 13)       880,517        1      6,124         0     6,125     
 Issuance of stock                                         520,654        0      7,010         0     7,010     
 Stock options exercised                                    18,500        0         97         0        97     
 Cancellation of underwriter's warrants (Note 13)                0        0     (1,503)        0    (1,503)    
 Net earnings                                                    0        0          0     9,642     9,642     
                                                        ----------      ---    -------   -------   -------
BALANCE, MARCH 31, 1995                                 11,927,157       12     55,421    15,991    71,424     
                                                                                                               
 Issuance of stock                                         442,857        0      4,825         0     4,825     
 Stock options exercised                                    27,266        0        146         0       146     
 Net loss                                                        0        0          0    (4,245)   (4,245)    
                                                        ----------      ---     ------    ------   -------
BALANCE, JANUARY 31, 1996                               12,397,280       12     60,392    11,746    72,150     
                                                          
 Acquisition and retirement of treasury shares             (28,000)       0       (336)        0      (336)    
 Issuance of stock                                          93,333        0      1,278         0     1,278     
 Stock options exercised                                    95,576        0        719         0       719     
 Pooling of Bailey and Roberts (Note 3)                    242,288        1         71       126       198     
 Net earnings                                                    0        0          0     2,145     2,145     
                                                        ----------      ---    -------   -------   -------   
BALANCE, JANUARY 31, 1997                               12,800,477      $13    $62,124   $14,017   $76,154     
                                                        ==========      ===    =======   =======   =======
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.



                                     -29-

<PAGE>   31


                            THE MAXIM GROUP, INC.

                               AND SUBSIDIARIES


                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                     FOR THE YEAR ENDED JANUARY 31, 1997,

                    THE TEN MONTHS ENDED JANUARY 31, 1996,

                      AND THE YEAR ENDED MARCH 31, 1995

                 (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)




<TABLE>
<CAPTION>
                                                                            
                                                                            1997       1996       1995
                                                                            ----       ----       ----

<S>                                                                      <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net earnings (loss)                                                      $ 2,145   $ (4,245)  $ 9,642
                                                                          -------   --------   -------
 Adjustments to reconcile net earnings (loss) to net cash provided by
  (used in) operating activities:
   Impairment write-down of goodwill                                            0      6,569         0
   Depreciation and amortization                                           10,518      8,008     5,225
   Deferred income taxes                                                      335     (2,370)    2,329
   Loss (gain) on sale of assets                                              367        124        (7)
   Changes in assets and liabilities:
     Increase in receivables                                              (10,254)    (2,652)   (9,962)
     Decrease (increase) in inventories                                     7,544    (10,098)  (10,801)
     Decrease (increase) in refundable income taxes                           866     (1,118)   (1,059)
     (Increase) decrease in prepaid expenses and other assets              (1,865)      (365)       24
     Increase in rebates payable, accounts payable, accrued expenses,
      deferred revenue, and deposits                                        8,164        955     6,708
                                                                          -------   --------   -------
          Total adjustments                                                15,675       (947)   (7,543)
                                                                          -------   --------   -------
          Net cash provided by (used in) operating activities              17,820     (5,192)    2,099
                                                                          -------   --------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                                     (17,444)   (15,580)  (25,941)
 Proceeds from sale of assets                                                  47         34       127
 Acquisitions, net of cash acquired                                        (1,284)   (13,875)  (12,635)
                                                                          -------   --------   -------
          Net cash used in investing activities                           (18,681)   (29,421)  (38,449)
                                                                          -------   --------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of common stock, net                                  606          0         2
 Proceeds from exercise of warrants and options, net                          719        146     6,222
 Purchase of underwriter's warrants                                             0          0    (1,503)
 Purchase of treasury stock                                                  (336)         0         0
 Net proceeds from issuance of debt                                        89,806     37,718    33,278
 Principal payments on long-term debt                                     (87,241)    (1,179)   (3,051)
 Principal payments on capital lease obligations                             (461)      (230)     (348)
                                                                          -------   --------   -------
          Net cash provided by financing activities                         3,093     36,455    34,600
                                                                          -------   --------   -------
NET INCREASE (DECREASE) IN CASH                                             2,232      1,842    (1,750)

CASH, BEGINNING OF PERIOD                                                   4,207      2,365     4,115
                                                                          -------   --------   -------
CASH, END OF PERIOD                                                       $ 6,439   $  4,207   $ 2,365
                                                                          =======   ========   =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the period for:
  Interest                                                                $ 7,123   $  4,073   $ 2,386
                                                                          =======   ========   =======
  Income taxes                                                            $   293   $  3,189   $ 5,130
                                                                          =======   ========   =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING 
 ACTIVITIES:
  Common stock issued in connection with acquisitions                     $   672   $  4,825   $ 7,010
                                                                          =======   ========   =======
</TABLE>


 The accompanying notes are an integral part of these consolidated statements.



                                     -30-
<PAGE>   32


                            THE MAXIM GROUP, INC.


                               AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                 JANUARY 31, 1997 AND 1996 AND MARCH 31, 1995


                   (IN THOUSANDS, EXCEPT SHARE INFORMATION)

 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

    DESCRIPTION OF BUSINESS

    The Maxim Group, Inc. and subsidiaries (the "Company" or "Maxim") are
    engaged in retail and commercial sales of floorcovering products.  The
    Company is also engaged in the sale of franchises for the retail
    floorcovering industry and other related products and services to its
    franchisees.  At January 31, 1997, the Company had 368 franchisees under
    contract.  Image Industries, Inc. ("Image"), a wholly owned subsidiary of
    Maxim, is engaged in the manufacturing of residential carpet and plastics
    recycling.  The carpet is made from polyester fiber which Image produces.
    Plastics recycling products are the result of converting postconsumer
    plastics into polyethylene terephthalate ("PET") flake, pellet, or
    polyester fiber.  The recycled plastics products are either used internally
    in the manufacturing of carpet or are sold externally to various customers.
    Management does not believe that the Company is dependent upon any one
    vendor for product purchases and that the loss of any single vendor would
    not have a significant adverse effect.

    BASIS OF PRESENTATION

    The consolidated financial statements include the accounts of The Maxim
    Group, Inc. and all wholly owned subsidiaries.  Upon consolidation, all
    intercompany accounts, transactions, and profits are eliminated.  The
    financial statements give retroactive effect to the mergers of the Company
    and GCO, Inc. ("GCO") on September 28, 1994 and the Company and Image on
    August 30, 1996, both of which were accounted for as poolings of interests,
    as described in Note 3 to the financial statements.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the amounts reported in the financial statements
    and accompanying notes.  Actual results could differ from those estimates
    depending upon certain risks and uncertainties.  Potential risks and
    uncertainties include such factors as the financial strength of the retail
    industry, the level of consumer spending for floorcovering products, the
    amount of sales of the Company's floorcovering products, the competitive
    pricing environment, and the success of planned advertising, marketing, and
    promotional campaigns.


                                    -31-
<PAGE>   33


    FISCAL YEAR

    The Company changed its year-end from March 31 to January 31 in fiscal year
    1996.  As a result, the fiscal year ended January 31, 1996 contains ten
    months.  The fiscal years ended March 31, 1995 and January 31, 1997 contain
    12 months.

    CASH AND CASH EQUIVALENTS

    Cash balances include short-term interest-bearing deposits with original
    maturities of 90 days or less.  Short-term investments are stated at cost,
    which approximates fair value.

    ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION

    Revenue from retail and commercial sales is recognized upon completion of
    the installation of floorcoverings or at the time of delivery for
    floorcoverings not installed by the Company or its authorized installers.
    Sales from the manufacturing operations are recognized at the time related
    goods are shipped.

    The Company recognizes franchise license fees as income on the date the
    related franchise agreement is signed, at which time the Company has
    performed substantially all of its obligations under the franchise
    agreement.  Some franchise agreements contain provisions which, under
    defined circumstances, would require the Company to refund a portion or all
    of the franchise license fee.  Franchise revenues associated with these
    contracts, which are not material at January 31, 1997 or 1996, have been
    deferred until these obligations are fulfilled.

    The Company finances a portion of the sale of franchises over a term of
    four years, generally at 10% interest.  An allowance for doubtful accounts
    is provided based on the Company's collection experience and periodic
    reviews of the accounts.

    FEES FROM FRANCHISE SERVICES

    The Company negotiates volume rebates with various floorcovering
    manufacturers on behalf of its franchisees.  In exchange for this service,
    the Company earns a portion of the rebates as the shipments are made to its
    franchisees.  The rebates are paid directly to the Company by the
    manufacturers throughout the year.  The franchisees typically receive their
    portions of the rebates semiannually in February and July.  Accordingly,
    the Company has recorded revenue, restricted cash owed to franchisees,
    receivables from manufacturers, and rebates payable to franchisees related
    to these rebates.

    The Company develops and offers its franchisees marketing and promotional
    programs, including television, radio, print, and direct mail campaigns and
    sales literature.  Advertising production fees, excluding direct mail, are
    considered earned once the ad is produced, and the related media commission
    fees, if applicable, are considered earned once the commercial is aired.
    Direct mail commissions are earned on the date of the franchisee's
    promotion or sale.



                                    -32-
<PAGE>   34


    INVENTORIES

    Inventories, consisting of goods held for resale, are recorded at the lower
    of cost or market.  Cost is determined on a specific identification basis
    for retail sales, and Image applies the standard cost method, both of which
    approximate the first-in, first-out method.  The Company's inventories
    consist of the following:

<TABLE>
<CAPTION>
                            
                            1997     1996          
                           -------  -------        
           <S>             <C>      <C>            
           Retail          $15,500  $14,862        
           Image            26,648   34,308        
                           -------  -------        
                           $42,148  $49,170        
                           =======  =======        
</TABLE>

    PROPERTY, PLANT, AND EQUIPMENT

    Property, plant, and equipment are recorded at cost, which includes
    interest on funds borrowed to finance construction.  When retired or
    otherwise disposed of, the related cost and accumulated depreciation are
    removed from the respective accounts and the net difference, less any
    amount realized, is reflected in the statements of operations.

    The Company's buildings, furniture, fixtures, and equipment are depreciated
    using the straight-line method over the estimated useful lives of the
    assets.  Improvements to leased premises are amortized on the straight-line
    method over the life of the lease or the useful life of the improvement,
    whichever is shorter.  The Company's property and equipment are depreciated
    using the following estimated useful lives:

<TABLE>
                          <S>                       <C>                
                          Buildings                 10 to 40 years     
                          Leasehold improvements    3 to 20 years      
                          Machinery and equipment   5 to 7 years       
                          Furniture and fixtures    5 to 7 years       
                          Transportation equipment  5 to 12 years      
</TABLE>

    DEFERRED LICENSE FEE

    A deferred license fee is being amortized over the three-year contract
    period using the straight-line method.

    INTANGIBLE ASSETS

    Intangible assets consist primarily of goodwill.  Goodwill arises in
    connection with business combinations accounted for as purchases.  Goodwill
    is amortized on a straight-line basis over 15 to 20 years.  Amortization of
    approximately $564 and $668 was charged to earnings in 1997 and 1996,
    respectively.

    Organizational costs have been deferred and are being amortized over 60
    months using the straight-line method.



                                    -33-
<PAGE>   35


    REALIZATION OF LONG-LIVED ASSETS

    The Company periodically evaluates the carrying value of its long-lived
    assets, including goodwill, in relation to their operating performance and
    future undiscounted cash flows of the underlying businesses.  The Company
    adjusts the carrying amount of the assets or goodwill if the unamortized
    balance exceeds the estimate of future cash flows (Note 2).

    DEFERRED LOAN COSTS

    Deferred loan costs, which are included in other assets, represent fees and
    expenses incurred to obtain long-term debt.  The costs are amortized to
    expense over the life of the related financing agreement.

    INCOME TAXES

    Deferred tax assets and liabilities are recognized for the future tax
    consequences attributable to differences between the financial statement
    carrying amounts of existing assets and liabilities and their respective
    tax bases.  Deferred tax assets and liabilities are measured using enacted
    tax rates expected to apply to taxable income in the years in which those
    temporary differences are expected to be recovered or settled.

    EARNINGS PER SHARE

    All share and per share data have been adjusted to give retroactive effect
    to the merger of the Company with GCO and Image.  Earnings per common share
    are computed on the basis of the weighted average shares of common stock
    outstanding plus common stock equivalents, if dilutive, arising from the
    effect of common shares contingently issuable, primarily from stock options
    and warrants.  Weighted average common and common equivalent shares include
    the dilutive effect of the 1,133,856 replacement stock options for all
    years presented through January 31, 1996 and 932,615 for the year ended
    January 31, 1997 (Note 13).

    STOCK-BASED COMPENSATION PLANS

    The Company accounts for its stock-based compensation plans under
    Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
    Issued to Employees."  Effective in fiscal year 1997, the Company adopted
    the disclosure option of Statement of Financial Accounting Standards
    ("SFAS") No. 123, "Accounting for Stock-Based Compensation."  SFAS No. 123
    requires that companies which do not choose to account for stock-based
    compensation as prescribed by the statement shall disclose the pro forma
    effects on earnings and earnings per share as if SFAS No. 123 had been
    adopted.  Additionally, certain other disclosures are required with respect
    to stock compensation and the assumptions used to determine the pro forma
    effects of SFAS No. 123.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company's financial instruments consist primarily of cash, accounts
    receivable, accounts payable, and long-term debt.  The carrying amounts of
    cash, accounts receivable, and accounts payable approximate their fair
    values because of the short-term maturity of 



                                    -34-
<PAGE>   36


    such instruments.  The carrying amount of long-term debt approximates
    its fair value, because interest rates on debt are periodically adjusted
    and approximate current market rates.

    RECLASSIFICATIONS

    Certain prior year financial statement balances have been reclassified to
    conform with the current year presentation.

2.  GOODWILL IMPAIRMENT

    Certain of the Company's acquisitions did not perform as anticipated at the
    time of purchase.  Several acquired stores were closed, management was
    replaced, and a loss of revenues was experienced from building contracts in
    certain locations.  The poor financial results of these stores through the
    end of fiscal 1996 led management to reevaluate operations.  This analysis
    indicated significant strategic and operational changes would be necessary
    at some stores, including changes in the customer mix, location, store
    design, and merchandising.  These factors also caused management to assess
    the realizability of the goodwill recorded for these units.

    The determination of impairment was made by comparing the unamortized
    goodwill balance for each acquisition to the estimate of the related
    entity's undiscounted future cash flows.  There were no significant
    long-lived assets acquired with these acquisitions.  The assumptions used
    reflected the earnings, market, and industry conditions, as well as current
    operating plans.  The assessment indicated a permanent impairment of
    goodwill related to certain of the Company's acquisitions and resulted in a
    write-off totaling $6,569 recorded during fiscal 1996.

3.  ACQUISITIONS

    On August 30, 1996, the Company acquired all of the common stock of Image
    in exchange for 5,266,285 shares of the Company's common stock.  The
    acquisition of Image has been accounted for under the pooling-of-interests
    method of accounting, and accordingly, the Company's historical financial
    statements have been restated to include the accounts and results of
    operations of Image.  The Company incurred approximately $4,700 in one-time
    costs related to the merger (primarily legal, accounting, investment
    advisory fees, and merger-related restructuring charges). In addition, the
    Company incurred an additional $200 in merger-related costs related to the
    merger with Bailey & Roberts Flooring, Inc. (Bailey & Roberts). These
    amounts have been presented separately in the accompanying statements of
    operations as merger-related costs.

    The results of operations previously reported by the separate companies
    above and the combined amounts for the years ended March 31, 1995 and the
    ten months ended January 31, 1996 are presented below:



                                    -35-
<PAGE>   37


<TABLE>
<CAPTION>
                         Ten Months Ended  
                         January 31, 1996      Year Ended
                         -----------------  March 31, 1995
                                    Income  ----------------
                         Revenues   (Loss)  Revenues  Income
                         --------  -------  --------  ------
<S>                      <C>       <C>      <C>       <C>
The Maxim Group, Inc.    $ 99,290  $(7,274) $ 76,091  $2,385
Image Industries, Inc.    128,261    3,029   127,250   7,257
                         --------  -------  --------  ------
     Total               $227,551  $(4,245) $203,341  $9,642
                         ========  =======  ========  ======
</TABLE>

    In May 1994, the Company commenced a strategy of acquiring independent
    floorcovering retailers, with the goal of building a company-owned chain of
    stores in addition to the franchise network.  This acquisition program
    included selected franchisees and other independent dealers.  Through
    January 31, 1997, the Company has acquired 14 retail floorcovering
    companies currently representing 57 stores.  The Company issued $8.1
    million of common stock (606,844 shares) and paid cash of approximately
    $14.2 million to consummate those acquisitions accounted for under the
    purchase method.  As a result of these acquisitions, the Company has
    recorded goodwill of $11.3 million (net of goodwill impairment charge of
    $6.6 million), which is being amortized over 20 years.  The GCO and Bailey
    & Roberts acquisitions, in which the Company issued 790,603 and 242,288
    shares, respectively, were accounted for as a pooling of interests.

    The consolidated financial statements of the Company were not restated for
    the Bailey & Roberts merger for the periods prior to the merger, November
    1, 1996, as the effect of the restatement would not have been material
    to such periods.

    Effective April 5, 1995, Image entered into an asset purchase agreement
    with Pharr Yarns of Georgia, Inc. and Stowe-Pharr Mills, Inc. to purchase
    substantially all of the operating assets of Pharr Yarns of Georgia, Inc.,
    including the property, plant, and equipment as well as certain inventory
    items and supplies.  The transaction was consummated on June 30, 1995.  The
    purchase price payable by the Company at the transaction's closing was
    400,000 shares of stock, valued at $4,400, and cash of approximately
    $11,298.  The acquisition was accounted for as a purchase, and accordingly,
    the purchase price has been allocated to the assets acquired based on the
    estimated fair values as of the acquisition date.  The net excess of the
    cost over the estimated fair value of the acquired assets as a result of
    this acquisition has been allocated to goodwill in the approximate amount
    of $96 and will be amortized over 15 years.



                                    -36-
<PAGE>   38


 4. PROPERTY, PLANT, AND EQUIPMENT

    Property, plant, and equipment at January 31, 1997 and 1996 are summarized
    as follows:

<TABLE>
<CAPTION>
                                                     1997        1996
                                                     ----        ----

<S>                                               <C>         <C>
Land and improvements                             $  4,331    $  3,596
Buildings and leasehold improvements                40,882      34,503
Machinery and equipment                             83,886      77,691
Furniture and fixtures                               3,344       2,024
Transportation equipment                             3,207       2,323
Construction in progress                             3,267       1,930
                                                  --------    --------
                                                   138,917     122,067
Less accumulated depreciation 
 and amortization                                   37,514      28,188
                                                  --------    --------
                                                  $101,403    $ 93,879
                                                  ========    ========
</TABLE>


                                    -37-

<PAGE>   39


 5. INVENTORIES

    Inventories at January 31, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
                               1997     1996          
                               ----     ----          
           
           <S>               <C>      <C>             
           Raw materials     $ 9,097  $16,381         
           Work in process     3,271    2,665         
           Finished goods     29,780   30,124         
                             -------  -------         
           Total             $42,148  $49,170         
                             =======  =======         
</TABLE>

 6. ACCOUNTS RECEIVABLE FROM OFFICERS AND EMPLOYEES

    The Company has made loans to certain officers and employees with terms of
    one to two years and with interest rates tied to the prime rate.

 7. NOTES RECEIVABLE FROM FRANCHISEES AND RELATED PARTIES

    The Company has made loans to certain franchisees totaling $1,479 and $926
    at January 31, 1997 and 1996, respectively, with principal payments due in
    monthly installments beginning October 1, 1995 through October 1, 2000 and
    interest payable monthly at the prime rate on the outstanding balance,
    secured by the franchisees' accounts receivable and/or inventory and
    equipment and personal guarantees.

    In addition, the Company has made unsecured loans to franchisees and
    outside directors at an interest rate of 7%, totaling $32 and $82 at
    January 31, 1997 and 1996, respectively (Note 12).

 8. DEFERRED LICENSE FEE

    In March 1994, the Company entered into an agreement with a manufacturer
    which provides the Company's franchisees with the opportunity to become
    licensed dealers of certain brand name products.  The agreement is
    effective for a three-year period beginning April 1, 1994.  The Company
    paid an initial fee of $1,035, which is being amortized over the life of
    the agreement.  Accumulated amortization totaled $1,035 and $694 as of
    January 31, 1997 and 1996, respectively.



                                    -38-
<PAGE>   40


 9. LONG-TERM DEBT

    Long-term debt at January 31, 1997 and 1996 is summarized as follows:

<TABLE>
<CAPTION>
                                                              1997        1996
                                                            -------      -------

<S>                                                         <C>          <C>
Credit facility                                             $93,000      $     0

Revolving line-of-credit agreement                                0       22,185

Note payable to bank under revolving credit 
agreement                                                         0       61,980

Other debt with interest ranging from approximately 6% to
13%; a portion secured by land, building, transportation
equipment, and other property and maturing at various
dates through 2004                                              632        6,901
                                                            -------      -------
                                                             93,632       91,066
Less current portion                                          2,532          919
                                                            -------      -------
Long-term debt, less current portion                        $91,100      $90,147
                                                            =======      =======
</TABLE>

    The aggregate annual maturities of long-term debt subsequent to January 31,
    1997 are as follows:

<TABLE>
<S>                       <C>
Year ending January 31:
1998                      $ 2,532
1999                        8,344
2000                       41,314
2001                        8,254
2002                        9,563
2003 and thereafter        23,625
                          -------
                          $93,632
                          =======
</TABLE>

    On August 30, 1996, the Company entered into an agreement with a bank that
    provided three credit facilities aggregating $125 million (the "Credit
    Facility").  The Credit Facility was executed in conjunction with the
    merger of the Company and Image.  Borrowings under the Credit Facility were
    used to refinance the existing debt.  The Credit Facility consists of (i) a
    $65 million revolving facility of which $3.3 million was available for
    borrowings on January 31, 1997 and which matures August 1999, (ii) a $30
    million term facility that matures in December 2001, and (iii) a $30
    million term facility that matures in September 2003.  As of January 31,
    1997, the Company had fully borrowed amounts available under both term
    facilities and had $33 million outstanding under the revolving facility.
    Amounts borrowed under the revolving facility are limited to the sum of 80%
    of eligible accounts receivable and 40% of eligible inventory.  A fee of
    .5% per annum is charged on the unused revolving facility.  Amounts
    outstanding under the Credit Facility bear interest at a variable rate
    based on LIBOR or the prime rate at the Company's option.  As of January
    31, 




                                     -39-
<PAGE>   41

    1997, the weighted average interest rate on amounts outstanding under
    the Credit Facility was 8.26%.  The Credit Facility requires the Company to
    meet certain financial ratios and covenants, including debt to equity,
    minimum tangible net worth, interest coverage, and fixed charge coverage,
    each as defined.  The revolving credit agreement contains other covenants
    which establish limitations on dividends, acquisitions, additional
    indebtedness, and limit annual capital expenditures to $18 million through
    the fiscal year ended January 31, 1998.  As of January 31, 
    1997, the Company was not in compliance with one of its debt coverage
    financial covenants under the Credit Facility.  However, the bank granted a
    waiver for such noncompliance through April 30,1997.

    Maxim's prior revolving line of credit agreement (the "Agreement") was
    amended during fiscal 1996 to provide borrowings of up to $23 million.  The
    interest rate charged varied from LIBOR plus 1.125% to LIBOR plus 2.125%
    based on the financial leverage of the Company as measured by the
    ratio of adjusted funded debt to total capitalization, as defined by the
    Agreement.  Interest-only payments were due monthly for the first three
    years.  The weighted average interest rate for the ten months ended January
    31, 1996 was 7.72%.  The agreement was repaid August 30, 1996 from the
    Credit Facility's proceeds.

    Image's prior note payable to bank was under a revolving line of credit
    agreement (the "Facility"), expiring June 30, 2001, bearing interest
    payable quarterly at the prime interest rate or Eurodollar rate plus 1%.
    Effective November 6, 1995, the Company renegotiated its Facility with the
    lender and two other financial institutions.  The restated Facility allowed
    the Company to borrow up to $70 million, with interest payable quarterly at
    the prime rate (8.5% on January 31, 1996) or Eurodollar rate (approximately
    5.26% at January 31, 1996) plus 1%.  The borrowings under the agreement
    were secured by a first priority lien on all assets.  The Facility was
    repaid August 30, 1996 from the Credit Facility's proceeds.

10. LEASES

    The Company is a party to noncancelable lease agreements involving property
    and equipment, which extend for varying periods up to 20 years.  Certain of
    these leases have options to renew at varying terms.

    Rental expense for operating leases amounted to $5,225, $4,026, and $2,970
    for the year ended January 31, 1997, the ten months ended January 31, 1996,
    and the year ended March 31, 1995, respectively, including $328 in 1997,
    $334 in 1996, and $462 in 1995 paid to related parties.



                                     -40-
<PAGE>   42


    Included in property and equipment are the following assets held under
    capital leases:

<TABLE>
<CAPTION>
                                   RELATED-
                                    PARTY    OTHER   TOTAL
                                   -------  ------  ------

<S>                                 <C>     <C>     <C>
January 31, 1997:
  Buildings and improvements        $2,760  $1,080  $3,840
  Machinery and equipment               75     626     701
                                    ------  ------  ------
     Assets under capital leases     2,835   1,706   4,541
  Less accumulated amortization      1,033     567   1,600
                                    ------  ------  ------
Assets under capital leases, net    $1,802  $1,139  $2,941
                                    ======  ======  ======
January 31, 1996:
  Buildings and improvements        $2,760  $1,080  $3,840
  Machinery and equipment                0     571     571
                                    ------  ------  ------
     Assets under capital leases     2,760   1,651   4,411
  Less accumulated amortization        629     417   1,046
                                    ------  ------  ------
Assets under capital leases, net    $2,131  $1,234  $3,365
                                    ======  ======  ======
</TABLE>


    Minimum future lease obligations on long-term noncancelable leases in
    effect at January 31, 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                          CAPITAL LEASES
                                      ----------------------
                                       RELATED-                 OPERATING
                                        PARTY  OTHER   TOTAL     LEASES
                                      -------- -----   -----    ---------

<S>                                   <C>      <C>    <C>       <C>
Year ending January 31:
 1998                                 $  473   $238   $  711    $ 4,777
 1999                                    471    214      685      3,842
 2000                                    467    200      667      3,071
 2001                                    335    149      484      1,742
 2002                                    263    111      374      1,355
 2003 and thereafter                     234      0      234      2,274
                                      ------   ----   ------    -------
     Total minimum lease payments      2,243    912    3,155    $17,061
Less amounts representing interest       367    131      498    =======
Less current portion                     350    187      537
                                      ------   ----   ------
                                      $1,526   $594   $2,120
                                      ======   ====   ======
</TABLE>



                                     -41-
<PAGE>   43


11. INCOME TAXES

    Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>

                                     CURRENT  DEFERRED  TOTAL
                                     -------  --------  ------
<S>                                  <C>      <C>       <C>

Year ended January 31, 1997:
 U.S. federal                        $  953   $   824   $1,777
 State and local                        146         6      152
                                     ------   -------   ------
                                     $1,099   $   830   $1,929
                                     ======   =======   ======
Ten months ended January 31, 1996:
 U.S. federal                        $1,051   $  (858)  $  193
 State and local                        119      (207)     (88)
                                     ------   -------   ------
                                     $1,170   $(1,065)  $  105
                                     ======   =======   ======
Year ended March 31, 1995:
 U.S. federal                        $3,001   $ 2,208   $5,209
 State and local                        298       280      578
                                     ------   -------   ------
                                     $3,299   $ 2,488   $5,787
                                     ======   =======   ======
</TABLE>



    Income tax expense (benefit) differed from the amounts computed by applying
    the U.S. federal income tax rate of 34% to pretax earnings (loss) as a
    result of the following:

<TABLE>
<CAPTION>
                                                  Year      Ten Months     Year
                                                  Ended        Ended       Ended
                                               January 31,  January 31,  March 31,
                                                  1997         1996        1995
                                               ----------   ----------   --------
<S>                                              <C>         <C>         <C>
Computed "expected" tax expense (benefit)        $1,385      $(1,408)    $5,246
Increase in income taxes resulting from:
 Goodwill impairment charge                           0        1,110          0
 Nondeductible merger costs                         430            0          0
 Nondeductible expenses                             243          199        178
 State and local income taxes, net of
  federal income tax benefit                        100          (60)       378
 Other, net                                        (229)         264        (15)
                                                 ------      -------     ------
                                                 $1,929      $   105     $5,787
                                                 ======      =======     ======
</TABLE>



                                     -42-
<PAGE>   44


    The tax effects of temporary differences that give rise to significant
    portions of the deferred tax assets (liabilities) at January 31, 1997 and
    1996 are presented below:

<TABLE>
<CAPTION>
                                                               1997       1996
                                                             --------   -------

<S>                                                          <C>        <C>
Deferred tax assets:
 Deductible goodwill                                         $  1,114   $ 1,244
 Accounts receivable, principally due to allowance for
  doubtful accounts                                               869       976
 Inventories, principally due to additional costs
  inventoried for tax purposes                                  1,161     1,353
 Accrued expenses                                               1,941       874
 Special charge--replacement stock options                      3,126     3,249
 Net operating loss and credit carryforwards                      769     1,315
 Other, net                                                     1,161        23
                                                             --------   -------
     Total deferred tax assets                                 10,141     9,034
Deferred tax liabilities:
 Plant and equipment, principally due to difference in
  depreciation                                                 (9,605)   (7,870)
  Deferred franchise and other revenue                           (538)   (1,111)
  Other, net                                                     (656)     (376)
                                                             --------   -------
     Total deferred tax liabilities                          $(10,799)   (9,357)
                                                             --------   -------
Net deferred tax liabilities                                 $   (658)  $  (323)
                                                             ========   =======
</TABLE>

    No valuation allowance was recorded against deferred tax assets at January
    31, 1997 or 1996.  The Company's management believes the existing net
    temporary differences comprising total deferred tax assets will reverse
    during periods in which the Company will generate net taxable income.  The
    Company's net operating loss carryforwards expire in 2009.  Utilization of
    net operating loss carryforwards may be limited by the alternative minimum
    tax provisions.

12. RELATED-PARTY TRANSACTIONS

    Certain of the directors also own franchises which utilize the services of
    the Company.  Trade accounts receivable at January 31, 1997 and 1996
    include amounts due from these affiliated companies of $21 and $85,
    respectively.  In addition, rebates payable to franchisees at January 31,
    1997 and 1996 include amounts due to stockholder-owned franchises of $81
    and $26, respectively.

    Included in fees from brokering floorcovering products for the year ended
    January 31, 1997, the ten months ended January 31, 1996, and the year ended
    March 31, 1995 are $157, $76, and $105, respectively, earned from services
    provided to affiliated franchises.  Included in franchise services for the
    year ended January 31, 1997, the ten months ended January 31, 1996, and the
    year ended March 31, 1995 are $95, $106, and $318, respectively, from
    services purchased by affiliated franchises.



                                     -43-
<PAGE>   45


    Included in sales of floorcovering products for the year ended January 31,
    1997, the ten months ended January 31, 1996, and the year ended March 31,
    1995 are $110, $216, and $176, respectively, for carpet purchased by
    affiliated franchises.

    Included in other revenues for the year ended January 31, 1997, the ten
    months ended January 31, 1996, and the year ended March 31, 1995 are $39,
    $9, and $18, respectively, for purchases by affiliated franchises.

    Included in interest expense for the year ended January 31, 1997, the ten
    months ended January 31, 1996, and the year ended  March 31, 1995 are
    approximately $10, $0, and $0, respectively, of interest on notes payable
    to stockholders.

    In August 1995, the Company loaned $821 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.

    As of January 31, 1997, Mr. Nassar had a demand note payable to the Company
    for $809, accruing interest at the prime rate.

13. STOCKHOLDERS' EQUITY

    The Company completed an initial public offering ("IPO") for 1,822,600
    shares of common stock and 911,300 redeemable common stock purchase
    warrants ("warrants") under Regulation S-B of the Securities and Exchange
    Commission in October 1993.  The warrants were subject to redemption by the
    Company at $.05 per warrant on 30 days' prior written notice with either
    (1) the prior written consent of Thomas James Associates, Inc. ("Thomas
    James") (the IPO underwriter) or (2) provided that the average of the
    closing bid price of the common stock for a period of 20 consecutive
    trading days, ending within 15 days prior to the notice of redemption,
    exceeds $13.125 per share.  On July 27, 1994, the board of directors of the
    Company called for the redemption of all the issued and outstanding
    warrants.  The warrants were exercisable at a price of $7 per share until
    September 1, 1994.  In total, warrants for 907,415 shares of stock were
    exercised and the Company received $6,359.

    Effective January 4, 1995, the Company reached an agreement with Thomas
    James, the underwriter of the Company's IPO in 1993, to cancel and
    surrender the remaining underwriter's warrants issued by the Company to
    Thomas James in connection with the IPO.  In consideration of the
    cancellation and surrender of the underwriter's warrants, which entitled
    Thomas James to purchase up to 240,000 shares of the Company's common
    stock, the Company paid $1,503, consisting of $5 in legal costs and $1,498,
    or the equivalent of $14 per common share, to Thomas James.

    The Company adopted a stock option plan in fiscal 1994 which provides for
    the granting of incentive and nonqualified stock options for up to
    2,000,000 shares of common stock to 



                                     -44-
<PAGE>   46


    key employees and directors at an exercise price of at least 100% of
    fair market value at the date of grant. Information relating to stock
    options is summarized as of January 31, 1997 and 1996 as follows:

<TABLE>
<CAPTION>
                                                         1997          1996
                                                     ------------  ------------

<S>                                                  <C>           <C>
Options outstanding at beginning of fiscal year           821,308       634,210
 Options granted                                          771,000       395,400
 Options canceled                                         (41,224)     (181,036)
 Options exercised                                        (95,576)      (27,266)
                                                     ------------  ------------
Options outstanding at end of fiscal year               1,455,508       821,308
                                                     ============  ============
Option prices per share (excluding replacement
 stock options):
  Options granted during the fiscal year             $9.75-$15.50  $9.00-$11.75
  Options canceled                                   $5.25-$13.50  $5.25-$15.50
  Options exercised                                  $5.25-$11.75  $5.25-$10.50
  Options outstanding at end of fiscal year          $5.25-$15.50  $5.25-$14.50
</TABLE>

    The majority of the employee options become exercisable in increments
    ranging from 20% to 33 1/3% per year beginning on September 30, 1994 and
    ending on November 27, 2001.  In addition, the Company has granted options
    to purchase 250,000 shares of common stock to one of its outside directors
    at an exercise price of $5.25 to $10.25 per share, of which 250,000 are
    currently exercisable.

    Effective August 10, 1993, Image adopted a Plan and Agreement of Conversion
    (the "Conversion"), in which all previously outstanding vested and unvested
    stock options and unvested stock appreciation units were canceled and a
    like number of fully vested replacement stock options were issued.  These
    options have an exercise price of $.01 per share and expire March 30, 2006.
    In connection with the grant of the replacement stock options, Image
    recognized a noncash, nonrecurring charge of approximately $10,388 (pretax)
    in the fiscal year ending March 31, 1994.  In connection with the
    Conversion, Image has granted the option holders certain protections
    against possible tax consequences associated with the grant of the options.
    At January 31, 1997, 932,615 replacement stock options were outstanding.

    Image also adopted a stock option plan (the "Stock Option Plan") which
    provides for the grant of stock options to selected participants, including
    officers and key employees of Image.  On August 10, 1993, Image granted
    41,318 fully vested incentive options to Image's chief executive officer at
    $10 per share, exercisable over a three-year period.  On May 9, 1995, the
    Company granted an additional 3,294 fully vested incentive options to other
    Image employees at $12.38 per share.

    In connection with the merger between the Company and Image, all
    outstanding options under the Image Conversion and the Stock Option Plan
    were converted into like options to purchase shares in the combined entity.

    During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
    "Accounting for Stock-Based Compensation," which defines a fair value-based
    method of accounting for 




                                     -45-
<PAGE>   47


    employee stock options or similar equity instruments.  However, it also
    allows an entity to continue to measure compensation cost for those plans
    using the method of accounting prescribed by APB Opinion No. 25,
    "Accounting for Stock Issued to Employees."  Entities electing to remain
    with the accounting in APB No. 25 must make pro forma disclosures of net
    earnings and earnings per share as if the fair value-based method of
    accounting defined in the statement had been applied.

    The Company has elected to account for its stock-based compensation plan
    under APB No. 25; however, the Company has computed for pro forma
    disclosure purposes the value of all options granted during fiscal 1997 and
    1996 using the Black-Scholes option pricing model as prescribed by SFAS No.
    123 using the following weighted average assumptions used for grants in
    fiscal 1997 and 1996:

<TABLE>
                             <S>                      <C>             
                             Risk-free interest rate  5.5%-6.8%       
                             Expected dividend yield  0%              
                             Expected lives           7.5 years       
                             Expected volatility      50%             
</TABLE>

    The total value of the options granted during the year ended January 31,
    1997 and the ten months ended January 31, 1996 was computed as
    approximately $4,779 and $2,100, respectively, which would be amortized
    over the vesting period of the options.  Options vest equally over five
    years.  If the Company had accounted for these plans in accordance with
    SFAS No. 123, the Company's reported pro forma net earnings and pro forma
    net earnings per share for the year ended January 31, 1997 and the ten
    months ended January 31, 1996 would have decreased to the following pro
    forma amounts:

<TABLE>
<CAPTION>
                                                                  1997     1996
                                                                  ----     ----

<S>                                                             <C>     <C>
Pro forma net earnings (loss):
 As reported in the financial statements                        $2,145  $(4,245)
 Pro forma in accordance with SFAS No. 123                       1,560   (4,309)
Pro forma net earnings (loss) per common and common
 equivalent share:
   As reported in the financial statements                      $  .15  $  (.32)
   Pro forma in accordance with SFAS No. 123                    $  .11  $  (.32)
</TABLE>

14. EMPLOYMENT AGREEMENTS

    The Company has entered into separate three-year employment agreements with
    certain key officers.  These contracts provide for aggregate base salaries
    of approximately $1,000, certain severance provisions, and additional
    bonuses at the discretion of the board of directors.

    Effective August 10, 1993, Image entered into three-year employment
    agreements with two of its executive officers.  The contracts obligate the
    Company for compensation, severance, bonus, and other employment-related
    matters.  These agreements provide for aggregate base compensation
    levels totaling $535 per year.  In connection with the merger, these two
    agreements were extended to August 1998.



                                     -46-
<PAGE>   48


15. EMPLOYEE BENEFIT PLAN

    Effective April 1, 1994, the Company instituted a 401(k) retirement savings
    plan (the "Plan"), which is open to all Maxim employees who have completed
    one year of service.  The Company's matching contribution is 25% of the
    first 6% of contributions made by the employees.  The Company's matching
    contribution vests to the employees over six years.  Employee and employer
    contributions to the Plan were $850 and $169, respectively, for the year
    ended January 31, 1997 and $822 and $128, respectively, for the ten months
    ended January 31, 1996.

    Effective October 1, 1994, a defined contribution plan (the "Image Plan")
    covering all employees of Image was created.  The Image Plan is open to all
    employees who are 21 or older and who have completed six months of service.
    Participants may defer a portion of their pretax earnings up to the annual
    limit per the Internal Revenue Service.  The Company has not made any
    contributions to the Image Plan for the year ended January 31, 1997 or the
    ten months ended January 31, 1996.

16. CONTINGENCIES

    The Company is involved in various claims and legal actions arising in the
    ordinary course of business.  In the opinion of management, the ultimate
    disposition of these matters will not have a material adverse effect on the
    Company's consolidated financial position or results of operations.

17. BUSINESS AND CREDIT CONCENTRATION

    In fiscal years 1997, 1996, and 1995, export sales accounted for
    approximately 6%, 8%, and 11%, respectively, of the Company's net sales.
    Export sales are principally to customers in the Middle East, Europe, and
    Canada.  Sales to Middle Eastern customers totaled 4%, 5%, and 8% of net
    sales in fiscal years 1997, 1996, and 1995, respectively.

    In 1997, 1996, and 1995, one customer accounted for approximately 2%, 4%,
    and 8%, respectively, of the Company's net sales.



                                     -47-
<PAGE>   49


18.  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                       FIRST       SECOND      THIRD      FOURTH
                                      QUARTER     QUARTER     QUARTER     QUARTER
                                      -------     -------     -------     -------
                                        (In thousands, except per share data)

<S>                                    <C>         <C>        <C>         <C>

Year ended January 31, 1997:
 Net sales                             $73,242     $76,081    $82,139     $78,259
 Gross profit                           20,284      20,408     23,836      22,903
 Net earnings (loss)                     1,152           8     (1,112)      2,097
 Net earnings (loss) per share         $   .08     $   .00    $  (.08)    $   .15

Ten months ended January 31, 1996:
 Net sales                             $63,554     $69,186    $73,742     $21,069
 Gross profit                           20,696      20,646     20,531       3,955
 Net earnings (loss)                     2,595       1,867      1,079      (9,786)
 Net earnings (loss) per share         $   .19     $   .14    $   .08     $  (.73)
</TABLE>

19. SUBSEQUENT EVENT

    On February 18, 1997, the Company sold 3,175,773 shares of its common stock
    to the public.  The Company received approximately $47.9 million of
    proceeds from the offering and such proceeds were utilized to reduce
    amounts outstanding under the Company's Credit Facility.



                                     -48-
<PAGE>   50




                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To the Board of Directors and Stockholders of
The Maxim Group, Inc.:

We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of THE MAXIM GROUP, INC. AND SUBSIDIARIES as
of January 31, 1997 and 1996 and the year and ten months then ended,
respectively, included in the Company's Annual Report on Form 10-K for the
period ended January 31, 1997 and have issued our report thereon dated April
10, 1997.  Our audit was made for the purpose of forming an opinion on those
statements taken as a whole.  The schedule listed in the index is the
responsibility of the Company's management, is presented for purposes of
complying with the Securities and Exchange Commission's rules, and is not part
of the basic financial statements.  This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole for the year and ten months ended January 31, 1997 and 1996,
respectively.



/s/ ARTHUR ANDERSEN LLP


Atlanta, Georgia
April 10, 1997




                                     -49-
<PAGE>   51

                                                                     SCHEDULE II





                    THE MAXIM GROUP, INC. AND SUBSIDIARIES


                      VALUATION AND QUALIFYING ACCOUNTS

                     FOR THE YEAR ENDED JANUARY 31, 1997,

                    THE TEN MONTHS ENDED JANUARY 31, 1996,

                      AND THE YEAR ENDED MARCH 31, 1995

                                (IN THOUSANDS)




<TABLE>
<CAPTION>
                                                          ADDITIONS
                                                    --------------------
                                         BALANCE     CHARGED   CHARGE TO                                  
                                            AT      TO COSTS     OTHER                BALANCE AT           
                                        BEGINNING      AND      ACCOUNTS                 END OF            
                                         OF YEAR     EXPENSE      (B)     DEDUCTIONS     YEAR              
                                        ---------   --------    --------  ----------  ----------           
<S>                                      <C>         <C>          <C>     <C>           <C>                
YEAR ENDED MARCH 31, 1995                                                                                  
 Allowance for doubtful accounts (a)     $  654      $  749       $432    $  (855)      $  980             
                                         ======      ======       ====    =======       ======             
TEN MONTHS ENDED JANUARY 31, 1996                                                                          
 Allowance for doubtful accounts (a)     $  980      $1,386       $ 40    $  (801)      $1,605             
                                         ======      ======       ====    =======       ======             
YEAR ENDED JANUARY 31, 1997                                                                                
 Allowance for doubtful accounts (a)     $1,605      $  839       $223    $(1,287)      $1,380             
                                         ======      ======       ====    =======       ======             
</TABLE>

                 (a)  The Company's other valuation and qualifying accounts 
                      are not significant and are omitted in accordance with 
                      Rule 4-02.

                 (b)  These amounts include reserves of acquired operations.

                 The accompanying notes are an integral part of the 
                 consolidated schedule.





                                     -50-



<PAGE>   52

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

        There has been no occurrence requiring a response to this Item.


                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

   The following table sets forth certain information regarding the executive
officers and directors of the Company:

<TABLE>
<CAPTION>
 NAME                            AGE    POSITION WITH THE COMPANY
 ----                            ---    -------------------------
 <S>                             <C>    <C>
 M.B. Seretean . . . . . . . .   72     Chairman of the Board
 A.J. Nassar . . . . . . . . .   40     President, Chief Executive Officer and Director
 James W. Inglis . . . . . . .   53     Chief Operating Officer, Senior Executive Vice President and Director
 Larry M. Miller . . . . . . .   56     Senior Executive Vice President and Director
 H. Stanley Padgett  . . . . .   49     Senior Executive Vice President and Director; President of Image
 Herb Biggers .  . . . . .  . .  46     President of CarpetMAX Retail
 Thomas P. Leahey  . . . . . .   35     Executive Vice President, Finance and Treasurer
 Sandra Fowler . . . . . . . .   34     Executive Vice President, Administration
 H. Gene Harper  . . . . . . .   36     Chief Financial Officer and Secretary
 Richard A. Kaplan . . . . . .   51     Chairman Emeritus and Director
 Dicky W. McAdams  . . . . . .   62     Director
 Ronald H. McSwain . . . . . .   54     Director
 J. Michael Nixon  . . . . . .   52     Director
 Herb Wolk . . . . . . . . . .   65     Director
</TABLE>

DIRECTORS AND EXECUTIVE OFFICERS

         The following persons serve as the directors and executive officers of
the Company:

         M.B. Seretean has served as a Director of the Company since September
1993 and as its Chairman of the Board since February 1995. Mr. Seretean was a
founder of Coronet Industries, Inc., a carpet manufacturer, in 1956 and served
as its President and Chairman of the Board until his retirement in 1987. Mr.
Seretean serves as a director of Trend Laboratories, Inc., a cosmetics company.
He is a former director of RCA Corporation, Turner Broadcasting Corporation,
the Atlanta Hawks and the Atlanta Braves.

         A.J. Nassar has served as President, Chief Executive Officer and a
Director of the Company since December 1990.  From 1986 to 1990, Mr. Nassar
served as Vice President and Chief Operating Officer of Kenny Carpet and
Linoleum, Inc., a multistore retail carpet chain in western New York. He was
previously employed in the carpet manufacturing industry by Trend Carpet Mills
and Queen Carpet Mills, where he was responsible for sales of floorcovering
products to floorcovering retailers.

         James W. Inglis has served as Chief Operating Officer, Senior
Executive Vice President and as a Director of the Company since May 1996. From
1983 to 1996, Mr. Inglis served in various capacities with The Home Depot,
Inc., a home improvement retailer, including most recently as its Executive
Vice President of Strategic Development and as a member of its board of
directors.



                                      -51-
<PAGE>   53

         Larry M. Miller has served as a Senior Executive Vice President and
Director of the Company since August 1996. Mr. Miller was the co-founder of
Image, has served as a Director of Image since its inception in 1976 and
currently serves as Chairman of the Board, Secretary and President, Image
Carpets division. Mr. Miller was the initial President of Image and has served
as an executive officer every year thereafter. Mr. Miller was elected to the
Board of Directors of the Company in August 1996 in accordance with the terms
of the merger agreement with Image.

         H. Stanley Padgett has served as a Senior Executive Vice President and
Director of the Company since August 1996. Since joining Image in 1976, Mr.
Padgett has served as Vice President of Manufacturing and Vice President of
Operations of Image prior to becoming its President and Chief Executive Officer
in July 1990. Mr. Padgett has been a member of the Board of Directors of Image
since September 1990.  Mr. Padgett was elected to the Board of Directors of the
Company in August 1996 in accordance with the terms of the merger agreement
with Image.

         Herb Biggers has served as President of CarpetMAX Retail since April
1997.  From July 1996 to April 1997, Mr.  Biggers served as the Company's
Senior Vice President of Retail Operations.  Mr. Biggers was a General Manager
in the Expo division of The Home Depot, Inc. from January 1994 to October 1995,
and the President and Chief Executive Officer of Hancock Park Associates from
1988 to 1994. Mr. Biggers' retail experience includes positions of Chief
Operating Officer of Seattle Lighting Corporation, the President and Chief
Executive Officer of Forecast Lighting, Inc., and President and Chief Executive
Officer of Homestead Fan Company.

         Thomas P. Leahey has served as Executive Vice President, Finance of
the Company since August 1993 and as Treasurer since July 1994. Mr. Leahey was
employed by the Wachovia Bank of Georgia, N.A. from September 1991 to August
1993 as a Vice President in the Corporate Banking Division. Mr. Leahey's
banking career began in January 1984 and included service with Barnett Bank of
Central Florida, N.A. and, from March 1987 to July 1991, with Fleet/Norstar
Financial Group.

         Sandra Fowler has served as Executive Vice President, Administration
of the Company since September 1993. From 1982 to September 1993, Ms. Fowler
served in various capacities with Shaw, the nation's largest carpet
manufacturer, including Manager of Corporate Accounts, where she acted as the
liaison between that company and its corporate customers in all areas, ranging
from sales to administration.

         H. Gene Harper has served as Chief Financial Officer and Secretary of
the Company since September 1994. Mr.  Harper was employed by KPMG Peat Marwick
LLP from 1983 to September 1994 as a senior manager in the audit department.

         Richard A. Kaplan has served as Chairman Emeritus of the Company since
February 1995 and served as Chairman of the Board of the Company from 1989 to
February 1994. Mr. Kaplan founded the Company in 1989. Mr. Kaplan has also
served as Chairman of the Board of Worksmart International, Inc., a personnel
consulting company, since 1995.  Mr. Kaplan served as Chairman of the Board of
Richland Industries Corp., a retail floorcovering chain based in Rochester, New
York, from 1972 to 1995.

         Dicky W. McAdams has served as a Director of the Company since October
1994. Mr. McAdams has been Chairman of the Board of Directors of GCO since it
was incorporated in April 1988 and served as its President from April 1988 to
October 1995. He has also been Chairman of the Board and CEO of McAdams
Commercial Flooring and Furnishings, Inc., a full service residential and
commercial floorcovering business, and its predecessor McAdams Carpets, Inc.,
since 1958.  Mr. McAdams served as Chairman of the Retail Floorcovering
Institute (now the American Floorcovering Association) from 1987 to 1988 and as
its President from 1986 to 1987. From 1990 to 1991 he was Chairman of the Board
of Directors of the Floorcovering Consumer Credit Association.




                                      -52-
<PAGE>   54

         Ronald H. McSwain has served as a Director of the Company since 1991.
Since 1968, Mr. McSwain has served as the President and owner of McSwain's
Carpets, a retail floorcovering business with 17 stores in the Cincinnati,
Dayton, Columbus and Toledo, Ohio areas. Mr. McSwain serves as a director of
Johnson Investment Mutual Fund Trust, an investment company.

         J. Michael Nixon has served as a Director of the Company since
February 1996. Mr. Nixon has served as the President and co-owner of Q.I.
Corporation, a building materials contractor, since 1967.

         Herb Wolk has served as a Director of the Company since 1991. Mr. Wolk
is the owner and President of Cadillac Carpet Distributors and has served in
various capacities with that Company since 1976. Mr. Wolk is the Chairman-elect
of the American Floorcovering Association.

KEY EMPLOYEES

         Each of the following persons is a key employee, but not an executive
officer of the Company.

         Ben S. Wu, age 45, has served as Senior Vice President of Real Estate
Operations since July 1996. Prior to joining the Company, Mr. Wu served the
McDonald's Corporation from 1990 to 1996, most recently as Senior Real Estate
Manager responsible for the Southern California market. Mr. Wu also served as
the Director of Real Estate and Licensing for McDonald's China Development
Company in Hong Kong.

         Cristina L. Smith, age 32, has served as Vice President of Marketing
since November 1996. Prior to joining the Company, Ms. Smith was a Marketing
and Advertising Manager for the Expo division of The Home Depot, Inc. from
March 1995 to November 1996. She began her retail marketing career with
Mercantile Corporation in 1987 as a Computer Graphic Designer and left as
Director of Newspaper Advertising and Catalogs to join Pet Stuff in 1993, where
she served as the Creative Director until March 1995.

BOARD OF DIRECTORS

         The Board of Directors of the Company currently consists of ten
persons. The Company's Certificate of Incorporation provides that the Board of
Directors shall consist of not less than three nor more than 15 members, the
precise number to be determined from time to time by the Board of Directors. At
the Company's 1996 Annual Meeting of Shareholders held in August 1996, the
Board of Directors was classified into three classes, as nearly equal in number
as possible, each of which, after initial terms of one, two and three years,
will serve for three years, with one class being elected each year.  Directors
may be removed only for cause and only upon the affirmative vote of the holders
of not less than 75% of the total number of votes entitled to be cast by
shareholders of the Company.  The executive officers of the Company are
appointed by the Board of Directors and hold office at the pleasure of the
Board.

         The Company's Board of Directors has four standing committees -- the
Audit Committee, the Compensation Committee, the Stock Option Committee and the
Directors' Nominating Committee. The Audit Committee, which is comprised of
Messrs. McSwain and Seretean, has been assigned the principal functions of: (i)
recommending the independent auditors; (ii) reviewing and approving the annual
report of the independent auditors; (iii) approving the annual financial
statements; and (iv) reviewing and approving summary reports of the auditor's
findings and recommendations.  The Compensation Committee, which is comprised
of Messrs. Kaplan, Nixon, Seretean and Wolk, has been assigned the functions of
approving and monitoring the remuneration arrangements for senior management.
The Stock Option Committee, which is comprised of Messrs. Kaplan, McSwain and
Wolk, has been assigned the functions of administering the Company's 1993 Stock
Option Plan and granting options 



                                     -53-

<PAGE>   55

thereunder. The Directors' Nominating Committee, which is comprised of Messrs.
Kapaln, Nassar and Wolk, has been assigned the functions of making
recommendations to the full Board for the selection of director nominees.

         There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of
the outstanding Common Stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons.  Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation.  To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and
representations that no other reports were required, during the year ended
January 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% shareholders were complied with.

         Although it is not the Company's obligation to make filings pursuant
to Section 16 of the Securities Exchange Act of 1934, the Company has adopted a
policy requiring all Section 16 reporting persons to report monthly to the
Chief Financial Officer of the Company as to whether any transactions in the
Company's Common Stock occurred during the previous month.

ITEM 11.   EXECUTIVE COMPENSATION.

         The following table provides certain summary information for the
fiscal year ended January 31, 1997, for the ten month transition period ended
January 31, 1996 and for fiscal year ended March 31, 1995 concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and the other executive officers of the Company whose
total annual salary and bonus exceeded $100,000 during the fiscal year ended
January 31, 1997 (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                            SUMMARY COMPENSATION  TABLE
                                                                             LONG TERM
                                               ANNUAL COMPENSATION          COMPENSATION
                               ------------------------------------------   ------------

                                                                OTHER        NUMBER OF
           NAME AND                                             ANNUAL       OPTIONS     OTHER
      PRINCIPAL POSITION       YEAR       SALARY     BONUS   COMPENSATION(1) AWARDED   COMPENSATION
      ------------------       ----       ------     -----   ------------    -------   ------------
 <S>                           <C>       <C>        <C>       <C>         <C>        <C>

 A.J. Nassar ...............   1997      $254,479   $  --     $  2,295      200,000       --
   President and Chief .....   1996(2)    165,456    25,000      6,618      142,400(3)    --
   Executive Officer .......   1995       205,750      --        1,653      110,000(4)

 James W. Inglis ...........   1997(5)   $175,176   $  --     $   --        200,000   $116,250(6)
   Chief Operating Officer

 H. Stanley Padgett ........   1997(7)   $170,200   $  --     $   --           --         --
   Senior Executive ........   1996(8)    284,200      --         --           --         --
   Vice President ..........   1995(9)    262,500    20,000       --           --         --

 Larry M. Miller ...........   1997(7)   $138,500   $  --     $   --           --         --
   Senior Executive ........   1996(8)    231,900      --
   Vice President ..........   1995(9)    212,500    20,000       --           --         --
</TABLE>




                                     -54-
<PAGE>   56

-------------------------------------

(1)      Represents the Company's matching contribution under its 401(k) plan.
(2)      Represents compensation for the ten-month period ended January 31,
         1996, which period was the result of a change in the fiscal year end
         of the Company from March 31 to January 31.
(3)      Includes options to purchase 40,000 shares of common stock which were
         subsequently cancelled.
(4)      Includes options to purchase 62,400 shares of common stock which were
         subsequently cancelled.
(5)      Mr. Inglis joined the Company in May 1996.
(6)      Represents the discount to fair market value in connection with the
         purchase by Mr. Inglis of 50,000 shares of Common Stock from the
         Company in May 1996.
(7)      Amounts indicated include compensation paid to Messrs. Miller and
         Padgett by (i) the Company and Image subsequent to the acquisition of
         Image by the Company on August 30, 1996 and (ii) Image for the period
         from June 30, 1996 to August 30, 1996.
(8)      Represents compensation paid to Messrs. Miller and Padgett by Image
         for its fiscal year ended June 29, 1996.
(9)      Represents compensation paid to Messrs. Miller and Padgett by Image
         for its fiscal year ended July 1, 1995.


EMPLOYMENT AGREEMENTS

         On August 30, 1996, H. Stanley Padgett entered into an amendment to
his employment agreement with Image.  Under the amended agreement, which will
expire on July 30, 1998, Mr. Padgett serves as a Senior Executive Vice
President of the Company and as the President and Chief Executive Officer of
Image.  Mr. Padgett will be entitled to receive an annual base salary of
$295,000 which is subject to increase at the discretion of the Compensation
Committee, plus certain specified benefits and other benefits generally
available to other senior executive officers of Image.  The employment
agreement provides that the Compensation Committee may also grant an annual
bonus to Mr. Padgett.  In the event that Mr. Padgett's employment is terminated
without "cause," as defined under the agreement, he is entitled to a severance
payment equal to the salary which would be owed to him through the remainder of
the term of the agreement, but in no event less than one year's then-current
salary, as well as a bonus equal to the average of the two prior years' annual
bonuses.  In addition, certain benefits shall be continued for a period of six
months, and all unvested options held by Mr. Padgett which would vest in the
year of termination shall vest in full.  In the event of termination of Mr.
Padgett's employment for any reason other than cause within twelve months after
a change in control, the Company shall pay Mr. Padgett an amount equal to his
annual base salary as then in effect, in lieu of any other severance payment,
and shall continue certain benefits, including a company automobile and
medical, life and disability insurance, for a period of six months.  A change
in control is defined in the employment agreement as (i) a sale of all or
substantially all of the assets of Image or the Company, (ii) the acquisition
by any person of more than 50% of the voting stock of Image or the Company,
(iii) a change in a majority of the Board of Directors of Image or the Company
in any two-year period unless the existing Board of Directors nominated the new
directors, (iv) a merger or other business combination unless at least 50% of
Image's or the Company's voting stock remains outstanding immediately
thereafter, or (v) liquidation of substantially all of Image's or the Company's
assets.  A public offering of Image's or the Company's shares does not
constitute a change in control.  If Mr. Padgett's employment is terminated for
cause, or if he voluntarily terminates his employment with Image, he shall not
be entitled to a severance payment or bonus and shall be subject to a one-year
noncompetition covenant.  Termination of employment includes death, disability,
voluntary termination by the employee or involuntary termination by Image with
or without cause, which would include a material change in position or
responsibility.

         On August 30, 1996, Larry M. Miller entered into an amendment to his
employment agreement with Image which contains substantially the same terms as
described above for Mr. Padgett, except that: (i) Mr. Miller's annual base
salary is $240,000; and (ii) Mr. Miller is entitled to receive an additional
severance payment of $175,000 if his employment is voluntarily or involuntarily
terminated for any 



                                     -55-
<PAGE>   57


reason, with or without cause, or upon the death or disability of Mr. Miller at
any time during the term of his employment agreement.

         The Company is presently negotiating a new employment agreement with
A. J. Nassar, its President and Chief Executive Officer.

COMPENSATION OF DIRECTORS

         Directors of the Company who are compensated as officers of the
Company serve without compensation for their services as directors. All
directors of the Company are reimbursed by the Company for all out-of-pocket
expenses reasonably incurred by them in the discharge of their duties as
directors, including out-of-pocket expenses incurred in attending meetings of
the Board of Directors and of any committees of the Board of Directors.  In
addition, from time to time, certain of the Company's outside directors assist
in conducting workshops and orientation sessions for the Company's franchisees,
for which they customarily have been paid consulting fees of $10,000 annually.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The following persons served as members of the Compensation Committee
of the Board of Directors during the fiscal year ended January 31, 1997.
Ronald McSwain and M.B. Seretean.  None of the members of the Compensation
Committee has been an officer or employee of the Company or any of its
subsidiaries.  Except as set forth under "Item 13.  Certain Relationships and
Related Transactions," there were no material transactions between the Company
and any of the members of the Compensation Committee during the fiscal year
ended January 31, 1997.

STOCK OPTION PLAN

         The Company has adopted a 1993 Stock Option Plan (the "Plan") for
employees who are contributing significantly to the management or operation of
the business of the Company or its subsidiaries as determined by the Company's
Board of Directors or the committee administering the Plan.  The Plan provides
for the grant of options to purchase up to 2,000,000 shares of Common Stock at
the discretion of the Board of Directors of the Company or a committee
designated by the Board of Directors to administer the Plan.  The option
exercise price must be at least 100% (110% in the case incentive stock options
granted to a holder of 10% or more of the Common Stock) of the fair market
value of the Common Stock on the date the option is granted and the options are
exercisable by the holder thereof in full at any time prior to their expiration
in accordance with the terms of the Plan.  Stock options granted pursuant to
the Plan will expire on or before (1) the date which is the tenth anniversary
of the date the option is granted, or (2) the date which is the fifth
anniversary of the date an incentive stock option is granted in the event that
the option is granted to a key employee who owns more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
of the Company.





                                      -56-
<PAGE>   58

        The following table provides certain information concerning individual
grants of stock options under the Plan made during the fiscal year ended
January 31, 1997 to the Named Executive Officers:


<TABLE>
<CAPTION>
                                       OPTION GRANTS IN LAST FISCAL YEAR
                                               INDIVIDUAL GRANTS                     
                                       ---------------------------------                
                                                                                            POTENTIAL REALIZABLE        
                                               % OF TOTAL                                    VALUE AT ASSUMED       
                                                 OPTIONS                                    ANNUAL RATES OF STOCK    
                                                 GRANTED TO    EXERCISE OR                  PRICE APPRECIATION FOR       
                                 OPTIONS       EMPLOYEES IN      BASE PRICE                      OPTION TERM (1)          
                                 GRANTED          FISCAL          ($ PER      EXPIRATION     ------------------------
            NAME                   (#)             YEAR           SHARE)          DATE            5%          10%
            ----                ---------       ----------        ------       ----------    ----------   ----------
 <S>                            <C>               <C>            <C>            <C>          <C>          <C>
 A.J. Nassar . . . . . . .      200,000(2)         26%           $11.25         4/26/06      $1,415,000   $3,586,000

 James W. Inglis . . . . .      200,000(3)         26%           $11.25         4/26/06      $1,415,000   $3,586,000

 H. Stanley Padgett  . . .         --               --            --              --             --           --

 Larry M. Miller . . . . .         --               --            --              --             --           --
</TABLE>

---------------------------------------------

(1)      The dollar amounts under these columns represent the potential
         realizable value of each grant of option assuming that the market
         price of the Company's Common Stock appreciates in value from the date
         of grant at the 5% and 10% annual rates prescribed by the SEC and
         therefore are not intended to forecast possible future appreciation,
         if any, of the price of the Company's Common Stock.
(2)      Options are immediately exercisable.
(3)      Options to purchase 100,000 shares of Common Stock are immediately
         exercisable.  Options to purchase 100,000 shares of Common Stock are
         exercisable in increments of 20% per year commencing on April 26,
         1997.

      The following table provides certain information concerning the value of
unexercised options held by the Named Executive Officers as of January 31,
1997.  No stock options were exercised during fiscal 1997 by the Named
Executive Officers.


<TABLE>
<CAPTION>
                                                 NUMBER OF UNEXERCISED           VALUE OF UNEXERCISED IN-
                                                 OPTIONS AT FISCAL YEAR            THE-MONEY OPTIONS AT
                                                          END                       FISCAL YEAR-END(A)       
                                              ----------------------------   --------------------------------
                    NAME                          EXER-         UNEXER-           EXER-           UNEXER-
                    ----                         CISABLE        CISABLE          CISABLE          CISABLE           
                                                 -------        -------          -------          ------- 
 <S>                                            <C>             <C>           <C>              <C>
 A.J. Nassar . . . . . . . . . . . . . . .       321,440         28,560       $1,912,248 8     $  141,372
                                                                                           
 James W. Inglis . . . . . . . . . . . . .       100,000        100,000       $  525,000 0     $  525,000
                                                                                           
 H. Stanley Padgett  . . . . . . . . . . .       441,320            --        $6,864,600 0     $      --
                                                                                           
 Larry M. Miller . . . . . . . . . . . . .       155,020            --        $2,556,280 0     $      --   
---------------------------                                                                           
</TABLE>

(a) Dollar values were calculated by determining the difference between the
    fair market value of the underlying securities at January 31, 1997 ($16.50
    per share) and the exercise price of the options.



                                      -57-
<PAGE>   59

    EMPLOYEE RETIREMENT SAVINGS PLAN

    The Company has established a savings and profit-sharing plan that
qualifies as a tax-deferred savings plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for its salaried employees who are at least 21
years old and who have completed one year of service with the Company.  Under
the 401(k) Plan, eligible employees may contribute up to 20% of their gross
salary to the 401(k) Plan or $9,500, whichever is less.  Each participating
employee is fully vested in contributions made by such employee.  The Company
presently matches 25% of the amount contributed by an employee up to 6% of the
employee's salary, but the Company's policy regarding matching contributions
may be changed annually in the discretion of the Board of Directors.  All
amounts contributed under the 401(k) Plan are invested in one or more
investment accounts administered by an independent plan administrator.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The following table sets forth information regarding the beneficial
ownership of the Common Stock as of April 1, 1997, with respect to (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Executive Officers, and (iv) all directors and executive officers as a
group.  Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned.

<TABLE>
<CAPTION>
 NAME AND ADDRESS                                    NUMBER OF SHARES                           PERCENTAGE OF
 OF BENEFICIAL OWNER                               BENEFICIALLY OWNED(1)                           TOTAL     
 -------------------                               ------------------                           ------------- 
 <S>                                                     <C>                                        <C>
 Richard A. Kaplan . . . . . . . . . . . . .               915,000                                   5.7%
   7 Far View Hill
   Rochester, New York 14620
 A.J. Nassar(2)  . . . . . . . . . . . . . .               826,440                                   5.0
   210 TownPark Drive
   Kennesaw, Georgia 30144
 M.B. Seretean(3)  . . . . . . . . . . . . .               502,000                                   3.1
 H. Stanley Padgett(4) . . . . . . . . . . .               454,497                                   2.7
 Larry M. Miller(5)  . . . . . . . . . . . .               445,178                                   2.7
 Ronald McSwain(6) . . . . . . . . . . . . .               346,500                                   2.1
 Herb Wolk . . . . . . . . . . . . . . . . .               200,000                                   1.2
 Dicky W. McAdams(7) . . . . . . . . . . . .                30,503                                     *
 James W. Inglis(8)  . . . . . . . . . . . .               150,000                                     *
 J. Michael Nixon(9) . . . . . . . . . . . .                85,000                                     *
 The Kaufmann Fund, Inc.(10) . . . . . . . .             1,250,000                                   7.7
   140 E. 45th Street, 43rd Floor
   New York, New York 10017
 All directors and executive
   officers as a group
   (13 persons)  . . . . . . . . . . . . . .             4,059,582                                  23.1
</TABLE>

    *Less than one percent

-----------------------

(1)      "Beneficial Ownership" includes shares for which an individual,
         directly or indirectly, has or shares voting or investment power or
         both and also includes options which are exercisable 




                                     -58-
<PAGE>   60

         within sixty days of the date hereof. Beneficial ownership as reported
         in the above table has been determined in accordance with Rule 13d-3
         of the Securities Exchange Act of 1934. The percentages are based upon
         16,133,644 shares outstanding as of April 15, 1997, except for certain
         parties who hold presently exercisable options to purchase shares. The
         percentages for those parties who hold presently exercisable options
         are based upon the sum of 16,133,644 shares plus the number of shares
         subject to presently exercisable options held by them, as indicated in
         the following notes.

(2)      Includes 321,440 shares of Common Stock subject to presently
         exercisable stock options.

(3)      Includes 250,000 shares of Common Stock subject to presently
         exercisable stock options.
(4)      Includes 441,320 shares of Common Stock subject to presently

         exercisable stock options.

(5)      Includes 155,020 shares of Common Stock subject to presently
         exercisable stock options.

(6)      Includes 30,500 shares owned by a foundation and a trust with respect
         to which Mr. McSwain serves as trustee.
(7)      Includes 10,000 shares of Common Stock subject to presently

         exercisable stock options.
(8)      Includes 100,000 shares of Common Stock subject to presently

         exercisable stock options.

(9)      Includes 40,000 shares of Common Stock subject to presently
         exercisable stock options.

(10)     Based on a Schedule 13G dated February 28, 1997 filed by The Kaufmann
         Fund. The Company makes no representation as to the accuracy or
         completeness of the information reported.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED CERTAIN TRANSACTIONS.

         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 in May 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. In addition to the
foregoing, the Company loaned to Mr. Nassar an additional $141,650,  $349,265
and $318,104 during fiscal 1995, 1996 and 1997, respectively.  As of April 15,
1997, a total of $812,777 was owed to the Company by Mr. Nassar, which amount
bears interest at an annual rate of 8%.  The Company may in the future make
loans to officers and employees in furtherance of proper corporate purposes.

         GCO leases two facilities in Montgomery, Alabama and an airplane from
Dicky W. McAdams, a director of the Company and the Chairman of GCO. One of
these facilities and the airplane is owned directly by Mr. McAdams and the
other facility is owned by a partnership in which Mr. McAdams has a 50%
interest. Lease payments to Mr. McAdams and the partnership totaled $170,990 in
fiscal 1997.

         In connection with the employment by the Company of James W. Inglis as
its Chief Operating Officer and Senior Executive Vice President, the Company
issued to Mr. Inglis on May 15, 1996 50,000 shares of Common Stock at a
purchase price of $9.80 per share.  This represents a discount of $116,250 or
$2.325 per share, based on the closing price of the Company's Common Stock as
reported on The Nasdaq National Market on May 15, 1996.



                                     -59-
<PAGE>   61


         Ronald McSwain and Herb Wolk, directors of the Company, are also
owners of floorcovering retailers which are franchisees of the Company. The
following table sets forth for the periods indicated, the amounts paid to the
Company by the franchisees controlled by these directors and rebates received
by these franchisees.  Rebate payments to these franchisees by the Company
represent a pass through of volume rebates paid by various floorcovering
manufacturers to the Company.

<TABLE>
<CAPTION>
                                  FISCAL 1995               FISCAL 1996                FISCAL 1997                
                             ----------------------    --------------------     -----------------------           

                             AMOUNTS PAID                  AMOUNTS PAID               AMOUNTS PAID                

 NAME                         TO COMPANY    REBATES     TO COMPANY  REBATES      TO COMPANY     REBATES           
 ----                         ----------    -------     ----------  -------     -----------     -------           
 <S>                          <C>          <C>         <C>         <C>            <C>          <C>                
 Ronald McSwain  . . . .       323,175      274,550     242,550     206,453        330,602      210,113           
 Herb Wolk . . . . . . .        72,134       48,328      47,604      26,863         61,485       25,553           
                             ---------    ---------   ---------   ---------      ---------    ---------           
                                                                                                                  
           Total . . . .      $395,309     $322,878    $290,154    $233,316       $392,087     $235,666           
                              ========     ========    ========    ========       ========     ========           
</TABLE>

      Although there has not been any independent determination of the fairness
and reasonableness of the terms and conditions of the transactions between the
Company and its affiliates, the Company believes that these transactions are on
terms no less favorable than those which could have been obtained from parties
not affiliated with the Company or other franchisees. As with any contractual
arrangement, the terms of these transactions are subject to adjustment should
the parties so desire. The Company, however, has no present intention of
adjusting the terms of these transactions.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

      (a)        1.       Financial Statements.  The following financial
statements and accountants' reports have been filed as Item 8 in Part II of
this Report:

         Report of Independent Public Accountants
         Independent Auditors' Report
         Consolidated Balance Sheets - January 31, 1997 and 1996
         Consolidated Statements of Operations - Year ended January 31, 1997,
                 Ten Months ended January 31, 1996 and Year Ended March 31,
                 1995
         Consolidated Statements of Stockholders' Equity - Year ended January
                 31, 1997, Ten Months ended January 31, 1996 and Year Ended
                 March 31, 1995
         Consolidated Statements of Cash Flows - Year ended January 31, 1997,
                 Ten Months ended January 31, 1996 and Year Ended March 31,
                 1995
         Notes to Consolidated Financial Statements

      2.         Financial Statement Schedules.

      The following financial statement schedule of The Maxim Group, Inc. for
the year ended January 31, 1997, the ten month transition period ended January
31, 1996 and for the year ended March 31, 1995 is included pursuant to Item 8
in Part II of this Report:

<TABLE>
         <S>              <C>    
                          Report of Independent Public
                          Accountants on Schedule 

         Schedule II      Valuation and Qualifying Accounts
</TABLE>

       Schedules not listed above have been omitted because they are not
applicable or the information required to be set forth therein is included in
the consolidated financial statements or notes thereto.



                                     -60-

<PAGE>   62



         3.      Exhibits.

         The following exhibits are filed with or incorporated by reference
into this report. The exhibits which are denominated by an asterisk (*) were
previously filed as a part of, and are hereby incorporated by reference from
either (i) a Registration Statement on Form SB-2 under the Securities Act of
1933 for the Registrant, Registration No. 33-66926 (referred to as "SB-2"),
(ii) Amendment No. 1 to the Registrant's Registration Statement on Form SB-2
(referred to as "SB-2 Amendment No. 1"), (iii) the Registrant's Annual Report
on Form 10-KSB for the year ended March 31, 1995 (referred to as "1995 10-K");
(iv) the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (referred to as "1995 10-Q"), (v) the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1996 (referred to as "1996
10-Q"), and (vi) a Registration Statement on Form S-3 under the Securities Act
of 1933 for the Registrant, Registration No. 333- 20105 (referred to as "S-3").
Except as otherwise indicated, the exhibit number corresponds to the exhibit
number in the referenced document.

<TABLE>
<CAPTION>
         EXHIBIT
         NUMBER               DESCRIPTION OF EXHIBIT
         -------              ----------------------

      <S>                <C> 
         *3.1            -   Certificate of Incorporation of the Company (SB-2).

        3.1.1            -   Certificate of Amendment dated August 29, 1996.

         *3.2            -   By-Laws of the Company (SB-2).

        3.2.1            -   Amendment No. 1 to By-Laws effective August 29, 1996.

         *4.1            -   Specimen Certificate of Common Stock (SB-2 Amendment No. 2).

        *10.1            -   1993 Incentive Stock Option Plan (SB-2).

      *10.1.1            -   Amendment No. 1 to 1993 Incentive Stock Option Plan (1995 10-K)

        *10.2            -   Employment Agreement dated July 30, 1993 between the Company and A.J. Nassar (SB-
                             2).

        *10.3            -   Form of Franchise Membership Agreement (SB-2 Amendment No. 1, Exhibit 10.3.1).

        *10.6            -   Employment Agreement dated September 28, 1994 between GCO, Inc. and Dicky W.
                             McAdams (1995 10-K).

        *10.7            -   Employment Agreement dated July 30, 1993 by and between Image Industries, Inc. and
                             Larry M. Miller (S-3, Exhibit 10.1)

        *10.8            -   Extension of Employment Agreement dated July 30, 1996 by and between Image
                             Industries, Inc. and Larry M. Miller (S-3, Exhibit 10.2)

        *10.9            -   Amended Employment Agreement dated August 30, 1996 by and between the Registrant,
                             Image Industries, Inc. and Larry M. Miller (S-3, Exhibit 10.3)
</TABLE>



                                     -61-
<PAGE>   63


<TABLE>
<S>     <C>              <C>                                           
       *10.10            -   Employment Agreement dated July 30, 1993 by and between Image Industries, Inc. and
                             H. Stanley Padgett (S-3, Exhibit 10.4)

       *10.11            -   Extension of Employment Agreement dated July 30, 1996 by and between Image
                             Industries, Inc. and H. Stanley Padgett (S-3, Exhibit 10.5)

       *10.12            -   Amended Employment Agreement dated August 30, 1996 by and between the Registrant, Image Industries, 
                             Inc, and H. Stanley Padgett (S-3, Exhibit 10.6)

       *10.18            -   Credit Agreement between the Company, its subsidiaries and First Union National
                             Bank of Georgia, N.A. dated August 30, 1996 regarding $125 million Credit Facility
                             (1996 10-Q).

       *10.22            -   Lease Agreement dated October 30, 1995 between Kevodrew Realty, Inc. and Kinnaird
                             & Francke Interiors, Inc. for lease of retail space in Louisville, Kentucky (1995
                             10-Q).

         11.1            -   Statement Regarding Computation of Per Share Earnings.

         21.1            -   Subsidiaries of the Registrant

         23.1            -   Consent of Arthur Andersen LLP

         23.2            -   Consent of KPMG Peat Marwick LLP

         27.1            -   Financial Data Schedule

         (b)     Reports on Form 8-K.  No reports on Form 8-K were filed during the quarter ended January 31, 1997.
                 -------------------                                                                               
</TABLE>




                                      -62-
<PAGE>   64

                                   SIGNATURES

         In accordance with the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, in the City of Kennesaw, State of Georgia on
April 28, 1997.

                             THE MAXIM GROUP, INC.


                             By: /s/ A. J. Nassar 
                                 -----------------------------------
                                 A.J. Nassar
                                 President and Chief Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                Signature                              Title                              Date
                ---------                              -----                              ----


 <S>                                      <C>                                       <C>
  /s/ A. J. Nassar                        President, Chief Executive                April 28, 1997
 --------------------------------------   Officer and Director                      
 A.J. Nassar                              (principal executive officer)  
                                          

  /s/ Thomas P. Leahey                    Executive Vice President,                 April 28, 1997
 --------------------------------------   Finance and Treasurer                                                                
 Thomas P. Leahey                         (principal financial officer)
                                          


  /s/ H. Gene Harper                      Chief Financial Officer and               April 28, 1997
 --------------------------------------   Secretary (principal                                                            
 H. Gene Harper                           accounting officer)     
                                          


  /s/ James W. Inglis                     Chief Operating Officer,                  April 28, 1997
 --------------------------------------   Senior Executive Vice                                                            
 James W. Inglis                          President and Director   
                                          

  /s/ Larry M. Miller                     Senior Executive Vice                     April 28, 1997
 --------------------------------------   President and Director                                                          
 Larry M. Miller                          


  /s/ H. Stanley Padgett                  Senior Executive Vice                     April 28, 1997
 --------------------------------------   President and Director                                                            
 H. Stanley Padgett                       

  /s/ Richard A. Kaplan                   Director                                  April 28, 1997
 --------------------------------------                                                           
 Richard A. Kaplan

                                          Director                                                      
 --------------------------------------                                                           
 Dicky W. McAdams


  /s/ Ronald McSwain                      Director                                  April 28, 1997
 --------------------------------------                                                           
 Ronald McSwain
</TABLE>



<PAGE>   65

<TABLE>
<CAPTION>
                Signature                              Title                              Date
                ---------                              -----                              ----
 <S>                                      <C>                                       <C>
  /s/ J. Michael Nixon                    Director                                  April 28, 1997
 --------------------------------------                                                           
 J. Michael Nixon

                                          Chairman of the Board                     April 28, 1997
  /s/ M. B. Seretean                   
 --------------------------------------
 M.B. Seretean

  /s/ Herb Wolk                           Director                                  April 28, 1997
 --------------------------------------                                                           
 Herb Wolk
</TABLE>




<PAGE>   66

<TABLE>
<CAPTION>
                                                      EXHIBIT INDEX

            EXHIBIT                                                                 SEQUENTIAL
            NUMBER                     DESCRIPTION OF EXHIBIT                       PAGE NO.
            ------                     ----------------------                       --------
            <S>             <C>                                                      <C>
            3.1.1           Certificate of Amendment dated 
                            August 29, 1996

            3.2.1           Amendment No. 1 to By-Laws effective
                            August 29, 1996

            11.1            Statement Regarding Computation of Per
                            Share Earnings

            21.1            Subsidiaries of the Registrant

            23.1            Consent of Arthur Andersen LLP

            23.2            Consent of KPMG Peat Marwick LLP

            27.1            Financial Data Schedule
</TABLE>