-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ia+pIYzwk32+7ycDEJOPEiE/i9GDan46bv1auiW4MIpPRyLQiSwBhgtnAa2VDipo QusA3xB9k+Rndhy25XnATQ== 0001000189-97-000006.txt : 19970801 0001000189-97-000006.hdr.sgml : 19970801 ACCESSION NUMBER: 0001000189-97-000006 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCAL INC CENTRAL INDEX KEY: 0001000189 STANDARD INDUSTRIAL CLASSIFICATION: 3470 IRS NUMBER: 954544569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-27748 FILM NUMBER: 97646548 BUSINESS ADDRESS: STREET 1: 14538 KESWICK ST CITY: VAN NUYS STATE: CA ZIP: 91405 BUSINESS PHONE: 8187820711 MAIL ADDRESS: STREET 1: 14538 KESWICK ST CITY: VAN NUYS STATE: CA ZIP: 91405 10-K405/A 1 UNITED STATES SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From ________________ to ________________ COMMISSION FILE NUMBER 0-27748 OCAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-4544569 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14538 KESWICK STREET VAN NUYS, CALIFORNIA 91405 (Address of principal executive offices) Registrant's telephone number, including area code: (818) 782-0711 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.001 PAR VALUE (Title of Class) 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 periods 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 information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [X] As of February 28, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the last reported sales price of the Common Stock as reported by Nasdaq, was approximately $8,140,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. There were 5,780,000 shares of the Registrant's Common Stock outstanding as of February 28, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement of the Registrant for the Registrant's 1997 Annual Meeting of Stockholders, which definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant's fiscal year end of December 31, 1996, are incorporated by reference into Part III. This Form 10-K/A amends that certain Form 10-K filed by the Registrant on March 24, 1997 in order to correct an error that occurred in the EDGAR transmission with respect to certain items in the Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994 in Item 8, Financial Statements and Supplemental Data. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of Ocal, Inc. We have audited the accompanying consolidated balance sheets of Ocal, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 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 consolidated financial position of Ocal, Inc. as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP January 20, 1997 Los Angeles, California OCAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
For the Years Ended December 31, ________________________________ 1996 1995 1994 ____ ____ ____ Net sales $ 25,000 $ 24,885 $ 19,123 Cost of goods sold 17,141 16,645 12,281 ________ ________ ________ Gross margin 7,859 8,240 6,842 Operating expenses: Selling, general and administrative 4,027 3,945 3,537 Stockholders' compensation 313 2,806 1,605 ________ ________ ________ Operating income 3,519 1,489 1,700 Interest income (expense), net 17 (386) (308) ________ ________ ________ Income before income taxes 3,536 1,103 1,392 Provision for income taxes 1,180 22 8 ________ ________ ________ Net income $ 2,356 $ 1,081 $ 1,384 Average common and common equivalent shares outstanding 5,224 3,250 3,250 Net income per share $ 0.45 $ 0.33 $ 0.43 The accompanying notes are an integral part of these statements.
OCAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, December 31, 1996 1995 ____________ ____________ ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,619 $ 127 Accounts receivable, net of allowance for doubtful accounts of $122 in 1996 and $109 in 1995 2,580 3,090 Notes receivable - stockholder and related parties - 1,765 Inventories 6,947 7,248 Prepaid expenses and other current assets 171 182 Deferred income taxes 293 - ____________ ____________ Total current assets 16,610 12,412 Property and equipment at cost less accumulated depreciation and amortization 1,524 1,396 Other assets Deferred offering costs - 490 Other noncurrent assets 148 - ____________ ____________ Total other assets 148 490 ____________ ____________ TOTAL ASSETS $ 18,282 $ 14,298 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,167 $ 2,075 Commissions payable 452 476 Accrued expenses 136 298 Income taxes payable 37 11 Notes payable - bank - 5,802 Distribution payable - stockholders 300 - Current maturities of notes payable - stockholders 1,500 377 ____________ ____________ Total current liabilities 3,592 9,039 Other liabilities Long-term notes payable - stockholders 1,757 - Deferred income taxes 218 - ____________ ____________ Total other liabilities 1,975 - Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued - - Common stock, $.001 par value, 15,000,000 shares authorized, issued and outstanding: 5,780,000 shares at 1996 and 3,250,000 shares at 1995 6 3 Additional paid-in capital 10,708 711 Retained earnings 2,001 4,545 ____________ ____________ Total stockholders' equity 12,715 5,259 ____________ ____________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,282 $ 14,298 The accompanying notes are an integral part of these statements.
OCAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Years Ended December 31, ____________________________________________ 1996 1995 1994 ____________ ____________ ____________ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,356 $ 1,081 $ 1,384 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 261 306 241 Deferred income taxes (75) - - Changes in assets and liabilities: Accounts receivable, net 510 (963) (85) Inventories 301 (851) (1,422) Prepaid expenses and other 11 (65) (10) Accounts payable (908) 808 611 Commissions payable (24) 138 41 Accrued expenses (162) 18 (60) Income taxes payable 26 11 - ____________ ____________ ____________ Net cash provided by operating activities 2,296 483 700 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (389) (159) (128) Repayment by (loan to) stockholder and related parties 1,645 (1,645) - Other items, net (148) - - ____________ ____________ ____________ Net cash provided by (used in) investing activities 1,108 (1,804) (128) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from (repayment of) notes payable - bank (5,802) 4,959 (1,163) Repayment of notes payable - supplier - (700) - Borrowings from (repayment of) notes payable - related parties - (2,400) 655 Net proceeds from (costs of) sale of common stock 10,490 (490) - Distribution of S corporation retained earnings to prior S corporation stockholders (4,900) - - Additions to notes and distribution payable - stockholders 3,300 - - ____________ ____________ ____________ Net cash provided by (used in) financing activities 3,088 1,369 (508) Net increase in cash and cash equivalents 6,492 48 64 Cash and cash equivalents at beginning of year 127 79 15 ____________ ____________ ____________ Cash and cash equivalents at end of year $ 6,619 $ 127 $ 79 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 242 $ 416 $ 99 Income taxes $ 1,229 $ 24 $ 79 The accompanying notes are an integral part of these statements.
OCAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (In thousands)
Common Stock Additional ________________ Paid-in Retained Shares Amount Capital Earnings Total _______ _______ __________ __________ __________ Balance at December 31, 1993 3,250 $ 3 $ 711 $ 2,080 $ 2,794 Net income 1,384 1,384 _______ _______ __________ __________ __________ Balance at December 31, 1994 3,250 3 711 3,464 4,178 Net income 1,081 1,081 _______ _______ __________ __________ __________ Balance at December 31, 1995 3,250 3 711 4,545 5,259 Shares issued in initial public offering 2,530 3 9,997 10,000 Distributions of S corporation retained earnings to prior S corporation stockholders (4,900) (4,900) Net income 2,356 2,356 _______ _______ __________ __________ __________ Balance at December 31, 1996 5,780 $ 6 $ 10,708 $ 2,001 $ 12,715 The accompanying notes are an integral part of these statements.
OCAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of Presentation: Concurrent with the closing of the Company's initial public offering of common stock on March 18, 1996 (Note 3), all of the outstanding capital stock of OCAL, Incorporated ("Ocal Alabama"), Occidental Coating Company ("Occidental"), Ocal Data Company ("Ocal Data"), and Ocal Transport Co. ("Ocal Transport") was acquired by the Company through capital contributions by their respective prior stockholders in exchange for an aggregate of 3,250,000 shares of the Company's common stock (the "Reorganization"). The Company's Chairman, CEO and President was the sole or majority stockholder of each of the contributed companies and is the 53.0% stockholder of the Company as of December 31, 1996. The accounts of Ocal Alabama, Occidental, Ocal Data and Ocal Transport are included in the accompanying consolidated financial statements of the Company on their historical basis. The stockholders' equity section of the consolidated financial statements for prior periods has been retroactively restated from that reported in the Registration Statement and Prospectus related to the Company's initial public offering to reflect the Company's capital structure and the Reorganization with the common stock of these entities classified as paid-in capital. All significant intercompany accounts and transactions have been eliminated in consolidation. (B) Description of Business: The Company manufactures PVC- coated rigid steel conduit, elbows and fittings which are sold principally in the United States to distributors who resell the products for ultimate use principally in new construction or as replacement parts. Ocal Data provides data processing services to Ocal Alabama and unrelated parties. Ocal Transport and Occidental have had no operations. (C) Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (D) Cash and Cash Equivalents: At December 31, 1996, cash equivalents include highly liquid investments of approximately $6,200,000 invested primarily in tax-exempt municipal securities and high-grade commercial paper. These investments are stated at cost which approximates fair value. The Company considers all highly liquid instruments purchased with a remaining maturity of three months or less to be cash equivalents. (E) Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories are as follows:
December 31, ____________ 1996 1995 _______ _______ Raw materials $ 3,038 $ 3,372 Finished goods 3,909 3,876 _______ _______ 6,947 7,248
(F) Property, Plant and Equipment: Property, plant and equipment are recorded at cost and are depreciated using the straight-line method over the following estimated useful lives: Galvanizer 20 years Other manufacturing equipment and molds 7 years Office equipment 5-7 years Vehicles 3 years Leasehold improvements Remaining life of lease (G) Revenue Recognition: The Company recognizes revenue from product sales to customers upon shipment. The Company warrants its products against defects for one year and has policies permitting customers to return products under certain circumstances. In addition, certain of the Company's distributors and agents are entitled to rebates upon attaining specified sales levels. Provision is made currently for the estimated amount of product returns and rebates that may occur under these programs. (H) Income Taxes: Prior to the Reorganization, Ocal Alabama had elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code. Under those provisions, Ocal Alabama did not pay federal or state corporate income taxes on its taxable income. Instead, the stockholders were liable for federal and state income taxes on Ocal Alabama's taxable income. The State of California adopted the provisions of the S corporation election but charged a franchise tax at the corporate level. In connection with its initial public offering, Ocal Alabama's Subchapter S election was terminated, and accordingly, the Company is now subject to federal and state income taxes. For information purposes, the pro forma financial information (see Note 2) includes pro forma amounts for the income taxes that would have been recorded if the Company had historically been a C corporation. (I) Fair Value of Financial Instruments: The carrying values of the Company's financial instruments, which consist of cash and cash equivalents, notes receivable - stockholder and related parties, notes payable - bank, and notes payable - related parties, approximate their fair values. (J) Net Income Per Share: Net income per share is computed by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the periods, after giving effect to dilutive stock options and warrants, if any. (K) Reclassifications: Certain previously reported amounts have been reclassified to conform to the current period presentation. (L) New Accounting Standard: In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". The standard encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related Interpretations. The Company grants stock options for a fixed number of shares with an exercise price not less than the fair value of the shares at the date of grant and accordingly, recognizes no compensation expense for the stock option grants. See Note 7. 2. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The pro forma financial information is prepared on a basis consistent with pro forma information appearing in the Registration Statement and Prospectus related to the Company's initial public offering. The pro forma financial information includes adjustments (i) to reflect levels of stockholders' compensation for certain stockholders whose compensation is classified as stockholders' compensation in the accompanying consolidated statements of income (based on the $312,500 of salaries and bonuses paid to those stockholders for the year ending December 31, 1996) and (ii) to provide related income taxes as if all of the Company's income were taxed at C corporation rates based upon pro forma income before income taxes. Reconciliations between historical and pro forma results of operations follow (in thousands except per share amounts):
For the Years Ended December 31, ________________________________ 1996 1995 _______ _______ Income before income taxes $ 3,536 $ 1,103 Pro forma adjustments (described above) (i) Stockholders' compensation - 2,493 _______ _______ Pro forma income before income taxes 3,536 3,596 (ii) Tax provision (1,420) (1,438) _______ _______ Pro forma net income $ 2,116 $ 2,158 Pro forma net income per share $ 0.41 $ 0.66 Weighted average shares outstanding 5,224 3,250
3. INITIAL PUBLIC OFFERING On March 18, 1996, the Company completed the initial public offering of 2,200,000 shares of its common stock at a price of $5.00 per share. On April 25, 1996, the underwriters exercised their overallotment option by purchasing an additional 330,000 shares of the Company's common stock at a price of $5.00 per share. After underwriters' discounts, commissions and expenses, the net proceeds of the offering and overallotment exercise to the Company were $10,000,000. Expenses of the offering charged to paid-in capital aggregated $1,390,000, which included $490,000, principally attorneys and accountants fees, which were paid in 1995 and reflected as deferred offering costs at December 31, 1995. 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
December 31, ____________ 1996 1995 _______ _______ Machinery and equipment $ 1,556 $ 1,425 Office equipment 365 264 Leasehold improvements 311 311 Molds 429 346 Vehicles 148 123 _______ _______ 2,809 2,469 Less accumulated depreciation and amortization (1,285) (1,073) _______ _______ Property and equipment - net $ 1,524 $ 1,396
5. REVOLVING BANK LINE OF CREDIT Ocal Alabama and Occidental (jointly and severally, the "Borrower") have a revolving bank line of credit which provides for maximum borrowings of $6,500,000 (subject to certain specified percentages of the Borrower's accounts receivable and inventories). The related agreement requires the maintenance of certain financial ratios and tangible net worth amounts and provides for various restrictions, including limitations on capital expenditures, additional indebtedness, salaries of certain officers of the Company, and payment of dividends by the Company. The bank has the right to demand the repayment of the note, thereby terminating the line of credit, with 180 days' prior written notice. Interest is payable at the bank's prime interest rate plus .75% (9.0% at December 31, 1996). At December 31, 1995, there were $5,802,000 of borrowings outstanding at an interest rate of 9.25%. There were no borrowings outstanding at December 31, 1996. The amount of unused credit available at December 31, 1996, based upon the Company's collateral, was $3,978,000. 6. TRANSACTIONS WITH RELATED PARTIES Notes receivable Notes receivable - stockholder and related parties consist of the following:
December 31, ____________ 1996 1995 _______ _______ 6.5% unsecured note receivable from the major stockholder of the Company, receivable on demand $ - $ 1,645 6.5% unsecured note receivable from a partnership in which the major stockholder of the Company is a partner, receivable on demand - 120 _______ _______ $ - $ 1,765
Notes payable Notes payable - stockholders consist of the following:
December 31, ____________ 1996 1995 _______ _______ 6.5% unsecured note payable to the major stockholder of the Company, payable on demand $ - $ 377 6.5% unsecured note payable to the major stockholder of the Company, due on March 18, 1999 257 - 6.5% unsecured notes payable due to former stockholders of Ocal Alabama - see (ii) below 3,000 - _______ _______ Total $ 3,257 $ 377 Less: portion due within one year 1,500 377 _______ _______ Long-term portion $ 1,757 $ -
As part of the Reorganization on March 18, 1996, Ocal Alabama declared a distribution to its then stockholders in an amount of $4,600,000, which was an estimate of all of its undistributed S corporation retained earnings as of that date. The distribution was paid as follows: (i) $1,600,000 was paid in cash on March 25, 1996; and (ii) $3,000,000 in notes payable were issued to the stockholders of Ocal Alabama. These notes bear interest at the rate of 6.5% per annum and are payable $1,500,000 on September 18, 1997 and $1,500,000 on March 18, 1999. The amount of undistributed S corporation retained earnings as of March 18, 1996 was finalized as $4,900,000 after Ocal Alabama's income tax return for the period from January 1, 1996 through March 18, 1996 was completed. The additional $300,000 of distribution payable to stockholders is reflected in current liabilities at December 31, 1996. Other The Company's corporate office is leased from a partnership in which the Company's major stockholder is the general partner, and the lease expires on December 31, 1998. Summary Amounts of these related party transactions charged to expense are as follows:
December 31, ____________ 1996 1995 _______ _______ Rent expense $ 36 $ 66 Interest expense $ 170 $ 88
7. CAPITAL STOCK Preferred Stock The Company's Board of Directors is authorized to issue up to 5,000,000 shares of preferred stock, in series, to fix dividend rates, conversion rights, voting rights, terms of redemption, liquidation preferences, and to increase or decrease the number of shares in any series. No preferred stock is currently outstanding, and the Company has no present plans for the issuance of any preferred stock. Specific rights granted to future holders of preferred stock could be used to restrict the Company's ability to merge with, or sell its assets to, a third party. The ability of the Board of Directors to issue preferred stock could discourage, delay or prevent a takeover of the Company, thereby preserving control of the Company by the current stockholders. Stock Options In August 1995, the Board of Directors adopted, and the stockholders of the Company approved, the Ocal, Inc. 1995 Stock Option Plan (the "Plan"). The Plan provides for the award of incentive stock options to employees and the award of non- qualified stock options to employees, independent contractors, directors and consultants. The Company has reserved 400,000 shares of Common Stock under the Plan. Options to purchase Common Stock are generally conditioned upon continued employment or service to the Company, expire from five to ten years after the grant date, and become exercisable commencing with the first anniversary date of the grant. Stock options under the Plan are granted at prices not less than the fair market value on the date of the grant. There were no options outstanding prior to the Company's initial public offering on March 18, 1996. Activity during the year was as follows:
Options Outstanding (in thousands) Price Range ______________ ______________ Balance, December 31, 1995 - - Options granted 108 $3.91 to $5.94 Options canceled or expired (3) $5.00 ___ Balance, December 31, 1996 105 $3.91 to $5.94
At December 31, 1996, options for 10,000 shares were exercisable. The Company has adopted the disclosure-only provisions of SFAS No. 123 and, accordingly, does not recognize compensation cost. Had the Company elected to recognize compensation cost based on the fair value of the options granted at the grant date as prescribed by SFAS No. 123, net income and net income per share for 1996 would have been reduced to the pro forma amounts indicated in the table below (in thousands except per share amounts):
As Reported Pro Forma ___________ _________ 1996 net income $ 2,356 $ 2,310 1996 net income per share $ 0.45 $ 0.44
For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options' vesting periods. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: Expected dividend yield 0.00% Expected stock price volatility 46.4% Risk-free interest rate 6.70% Expected life of options 5 years Vesting assumption 33.3% per year The weighted average fair value of options granted during 1996 is $2.50 per share. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. The Company's stock options have characteristics significantly different from those of traded options such as vesting restrictions and extremely limited transferability. In addition, the assumptions used in option valuation models are highly subjective, particularly the expected stock price volatility of the underlying stock. Because changes in these subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its stock options. Pro forma net income and net income per share are the same as reported amounts prior to 1996, as no stock options were granted until the initial public offering on March 18, 1996. Accordingly, the pro forma effect on net income of applying SFAS 123 for 1996 is not indicative of the effect for future years, because it does not reflect a full year of expense. Warrants At December 31, 1996, warrants to purchase up to 220,000 shares of Common Stock were outstanding. These warrants are exercisable for a period of four years commencing March 18, 1997 at an exercise price of $6.50 per share. 8. INCOME TAXES Through March 18, 1996, the date of the Reorganization and the Company's initial public offering, Ocal Alabama and Ocal Data had elected to be taxed as S corporations under the provisions of the Internal Revenue Code. Pursuant to such elections, stockholders of these companies included their proportionate share of the taxable income of these companies in their personal tax returns. Accordingly, no provision for federal income taxes was required or provided for the operations of Ocal Alabama and Ocal Data through March 18, 1996. The State of California adopted the provisions of the S corporation election but charged a franchise tax at the corporate level. As of March 18, 1996, as a result of the Reorganization, the Company and all of its subsidiaries became C corporations subject to state and federal income taxes at statutory rates. Such income taxes are provided on the results of operations in the accompanying consolidated statement of income for the period from March 18, 1996 through December 31, 1996. The provision for income taxes consists of the following:
Years ended December 31, ________________________ 1996 1995 1994 _______ _______ _______ Current provision - Federal $ 960 $ - $ - State 305 22 8 _______ _______ _______ 1,265 22 8 Deferred provision - Federal (90) - - State 5 - - _______ _______ _______ (85) - - _______ _______ _______ Provision for taxes 1,180 22 8
The following table reconciles the Company's provision for income taxes to the statutory federal income tax rate of 34% for the year ended December 31, 1996: Federal income tax provision at statutory rate based upon the Company's taxable income subsequent to March 18, 1996 $ 964 State income taxes, net of federal benefit, based upon the Company's taxable income subsequent to March 18, 1996 180 Other, net 36 _______ $ 1,180
Deferred income taxes reflect the net tax effects of temporary differences between the reported amounts of assets and liabilities in the financial statements and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 1996 are as follows: Receivables valuation $ 126 Inventory valuation 51 State franchise taxes 105 Other 11 _______ Total deferred tax assets 293 Deferred tax liability - depreciation 218
9. STOCKHOLDERS' COMPENSATION Stockholders' compensation in 1995 and 1994 includes amounts to facilitate the payment by certain former stockholders of Ocal Alabama of their personal income taxes which include the taxable income of Ocal Alabama for those years as a result of its election of S corporation status. 10. LEASE COMMITMENTS The Company leases its manufacturing facilities under an agreement expiring on December 31, 2001. The lease for the manufacturing facilities contains certain rent escalation clauses and provides the Company with an option to extend the lease through December 31, 2002. The Company's major stockholder has personally guaranteed the lease obligation for the manufacturing facilities. The Company's corporate office is leased from a partnership in which the Company's major stockholder is the general partner (see Note 6), and the expiration date is December 31, 1998. The Company also leases autos under various agreements expiring in 1998. Future minimum lease payments under noncancelable operating leases as of December 31, 1996 are as follows (amounts in thousands):
Years ended December 31, ________________________ 1997 $ 225 1998 212 1999 162 2000 158 2001 148 Thereafter - ________ Total $ 905
Rent expense was as follows (amounts in thousands):
Years ended December 31, ________________________ 1996 $ 196 1995 167 1994 221
Included in rent expense are amounts paid to a partnership for rental of the Company's corporate office in the amounts indicated in Note 6. 11. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and trade receivables. The Company places its cash equivalents with high credit quality institutions. The primary users of the Company's products are electrical contractors and large industrial companies which obtain such products through a group of approximately 600 distributors and resellers who purchase the products directly from the Company. Credit is extended to these distributors and resellers based upon an evaluation of the customer's financial condition, and collateral is generally not required. Management does not believe significant credit risk exists at December 31, 1996. The Company's four largest customers are multiple location distributors. During 1996 and 1994, sales to any individual customer did not exceed 10% of the Company's net sales. During 1995, there were two individual customers that represented 15.3% and 11.4%, respectively, of the Company's net sales. Management believes that the loss of any of these distributors would not have a material adverse effect on the Company. These customers are comprised of chains of individual distributors who make independent purchasing decisions. 12. COMMITMENTS AND CONTINGENCIES The Company is a party to various lawsuits arising in the ordinary course of business. The Company does not believe that the outcome of any of these lawsuits will have a material adverse effect on the Company's business or financial condition. 13. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1996 and 1995 follow (in thousands of dollars except for per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter Year _______ _______ _______ _______ ____ 1996 Net sales $ 5,721 $ 6,011 $ 7,193 $ 6,075 $ 25,000 Gross profit 1,821 1,891 2,172 1,975 7,859 Net income 639 540 612 565 2,356 Pro forma net income 499 540 612 465 2,116 Net income per share .18 .09 .11 .10 .45 Pro forma net income per share .14 .09 .11 .08 .41 1995 Net sales $ 6,025 $ 6,784 $ 5,987 $ 6,089 $ 24,885 Gross profit 2,051 2,367 1,939 1,883 8,240 Net income (loss) 575 777 787 (1,058) 1,081 Pro forma net income 601 706 485 366 2,158 Net income (loss) per share .18 .24 .24 (.33) .33 Pro forma net income per share .18 .22 .15 .11 .66
The pro forma financial information is prepared on a basis consistent with pro forma information appearing in the Registration Statement and Prospectus related to the Company's initial public offering. The pro forma financial information includes adjustments (i) to reflect levels of stockholders' compensation for certain stockholders whose compensation is classified as stockholders' compensation in the accompanying consolidated statements of income (based on the $312,500 of salaries and bonuses paid to those stockholders for the year ending December 31, 1996) and (ii) to provide related income taxes as if all of the Company's income were taxed at C corporation rates based upon pro forma income before income taxes. SIGNATURE Pursuant to the requirements of Section 13 or 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, thereunto duly authorized. OCAL, INC. By: /s/ Lida R. Frankel ___________________ Lida R. Frankel Chief Financial Officer Date: July 28, 1997 -----END PRIVACY-ENHANCED MESSAGE-----