UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Period Ended
JUNE 30, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
14538 Keswick Street
Van Nuys, California 91405
(Address of principal executive office) (Zip Code)
(818) 782-0711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 12 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 the number of shares outstanding at
AUGUST 7, 1996: 5,780,000.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
For the Three Months Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
1995 1996
<S> <C> <C>
Net sales $6,784,244 $6,011,563
Cost of goods sold 4,417,503 4,119,967
Gross margin 2,366,741 1,891,596
Selling, general and administrative expenses 1,025,229 942,732
Stockholders' compensation 487,500 78,125
Operating income 854,012 870,739
Interest income (expense), net (82,419) 29,006
Income before income taxes 771,593 899,745
Provision (benefit) for income taxes (5,793) 360,000
Net income $777,386 $539,745
Net income per share $0.24 $0.09
</TABLE>
<TABLE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME (NOTE 3)
For the Three Months Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
1995 1996
<S> <C> <C>
Net sales $6,784,244 $6,011,563
Cost of goods sold 4,417,503 4,119,967
Gross margin 2,366,741 1,891,596
Selling, general and administrative expenses 1,025,229 942,732
Stockholders' compensation 78,125 78,125
Pro forma operating income 1,263,387 870,739
Interest income (expense), net (82,419) 29,006
Pro forma income before income taxes 1,180,968 899,745
Pro forma provision for income taxes 475,000 360,000
Pro forma net income $705,968 $539,745
Pro forma net income per share $0.22 $0.09
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
1995 1996
<S> <C> <C>
Net sales $12,809,311 $11,732,271
Cost of goods sold 8,391,653 8,019,946
Gross margin 4,417,658 3,712,325
Selling, general and administrative expenses 1,920,658 1,757,213
Stockholders' compensation 975,000 156,250
Operating income 1,522,000 1,798,862
Interest expense, net (163,958) (59,428)
Income before income taxes 1,358,042 1,739,434
Provision for income taxes 6,000 560,000
Net income $1,352,042 $1,179,434
Net income per share $0.42 $0.25
</TABLE>
<TABLE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME (NOTE 3)
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
1995 1996
<S> <C> <C>
Net sales $12,809,311 $11,732,271
Cost of goods sold 8,391,653 8,019,946
Gross margin 4,417,658 3,712,325
Selling, general and administrative expenses 1,920,658 1,757,213
Stockholders' compensation 156,250 156,250
Pro forma operating income 2,340,750 1,798,862
Interest expense, net (163,958) (59,428)
Pro forma income before income taxes 2,176,792 1,739,434
Pro forma provision for income taxes 870,000 700,000
Pro forma net income $1,306,792 $1,039,434
Pro forma net income per share $0.40 $0.22
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
ASSETS
December 31, June 30,
1995 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 126,883 $ 6,763,147
Accounts receivable, net of allowance
for doubtful accounts of $108,539 in
1995 and $80,849 in 1996 3,089,965 2,738,063
Notes receivable - stockholder and
related parties 1,765,409 -
Inventories 7,247,407 6,393,808
Prepaid expenses and other 181,950 311,471
Total current assets 12,411,614 16,206,489
Property, plant and equipment, at cost
less accumulated depreciation and
amortization 1,396,007 1,307,299
Deferred offering costs 490,136 -
Total assets $14,297,757 $17,513,788
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,073,765 $ 1,565,298
Accrued expenses 785,543 753,009
Notes payable - bank 5,802,263 -
Current portion of notes payable
- stockholders 376,661 -
Total current liabilities 9,038,232 2,318,307
Long-term notes payable - stockholders - 3,256,661
Deferred income taxes - 100,000
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;
5,450,000 shares issued and out-
standing (3,250,000 shares at
December 31, 1995) 3,250 5,780
Paid-in capital 711,105 10,708,436
Retained earnings 4,545,170 1,124,604
Total stockholders' equity 5,259,525 11,838,820
Total liabilities and stockholders' equity $14,297,757 $17,513,788
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
OCAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended JUNE 30, 1996 and 1995
(Unaudited)
<CAPTION>
1995 1996
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,352,042 $ 1,179,434
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 132,411 146,872
Deferred income taxes - 100,000
Changes in assets and liabilities:
Accounts receivable, net (1,476,044) 351,902
Inventories 49,077 853,599
Prepaid expenses and other (14,833) (129,521)
Accrued expenses 126,277 (32,534)
Accounts payable 402,800 (508,467)
Net cash provided by operating activities 571,730 1,961,285
Cash flows from investing activities
Acquisition of property and equipment (48,603) (58,164)
Repayment of (loan to) stockholder (1,609,572) 1,645,409
Net cash provided by (used in) investing activities (1,658,175) 1,587,245
Cash flows from financing activities
Borrowings from (repayment of) notes payable -
bank 4,235,949 (5,802,263)
Repayment of notes payable - supplier (746,041) -
Repayment of notes payable - related parties (2,423,722) -
Net proceeds from sale of common stock - 10,489,997
Distribution of S corporation retained earnings
to prior S corporation shareholders - (4,600,000)
Additions to notes payable- stockholders - 3,000,000
Net cash provided by financing activities 1,066,186 3,087,734
Net increase (decrease) in cash (20,259) 6,636,264
Cash at beginning of period 78,883 126,883
Cash at end of period $58,624 $6,763,147
<FN>
See accompanying notes.
</TABLE>
<PAGE>
OCAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
1.GENERAL
The accompanying consolidated condensed financial statements
and financial information included herein have been prepared
by the Company, without audit, pursuant to the interim
period reporting requirements of Form 10-Q. Consequently,
certain information and note disclosures normally included
in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. Readers of this report should refer to the
consolidated financial statements and the notes thereto
included into the Company's Registration Statement on Form
S-1 and related Prospectus dated March 12, 1996.
In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring
adjustments) necessary for the fair presentation of its
consolidated financial position at June 30, 1996, consolidated
results of operations for the three months ended June 30, 1996
and 1995, and consolidated results of operations and cash flows
for the six months ended June 30, 1996 and 1995.
The Company's interim results of operations are not
necessarily indicative of the results to be expected for the
full year.
2.BASIS OF PRESENTATION
Concurrent with the closing of the Company's initial public
offering of 2,200,000 shares of common stock (Note 9) on
March 18, 1996, 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"). On April 15, 1996, the Underwriters exercised
their full overallotment option and purchased an additional
330,000 shares of the Company's common stock. The Company's
Chairman, CEO and President was the sole or majority shareholder
of each of the contributed companies and is the 52.7% shareholder of
the Company as of June 30, 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
balance sheet at December 31, 1995 has been reclassified
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 Ocal Alabama,
Occidental, Ocal Data and Ocal Transport classified as
paid-in capital.
<PAGE>
OCAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
Net income per share information is based on average outstanding
common and common equivalents shares as follows:
Six months ended June 30, 1995 3,250,000
Six months ended June 30, 1996 4,662,992
Three months ended June 30, 1995 3,250,000
Three months ended June 30, 1996 5,733,377
3.PRO FORMA FINANCIAL INFORMATION
The pro forma consolidated condensed statements of income are prepared on
a basis consistent with those appearing in the Registration Statement and
Prospectus dated March 12, 1996 related to the Company's initial public
offering. The pro forma statements include adjustments (i) to reflect
levels of stockholder's compensation for certain stockholders whose
compensation is classified as stockholder's compensation in the
accompanying consolidated condensed statements of income (based on the
$312,500 of salaries and bonuses anticipated to be 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:
Three months ended June 30, 1995:
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(described above)
Income before income taxes $771,593 $409,375 (i) $1,180,968
Provision (benefit) for
income taxes (5,793) (480,793) (ii) 475,000
Net income $777,386 ($71,418) $ 705,968
Net income per share $0.24 $0.22
Three months ended June 30, 1996:
No reconciliation is needed for
this period as there are no
differences between historical
and pro forma results of
operations.
Six months ended June 30, 1995:
Income before income taxes $1,358,042 $818,750 (i) $2,176,792
Provision for income taxes 6,000 (864,000) (ii) 870,000
Net income $1,352,042 ($45,250) $1,306,792
Net income per share $0.42 $0.40
Six months ended June 30, 1996:
Income before income taxes $1,739,434 $ - (i) $1,739,434
Provision for income taxes 560,000 (140,000) (ii) 700,000
Net income $1,179,434 ($140,000) $1,039,434
Net income per share $0.25 $0.22
<PAGE>
OCAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
4.INVENTORIES
Inventories consist of the following:
December 31, June 30,
1995 1996
Raw materials $3,372,280 $2,422,171
Finished goods 3,875,127 3,971,637
$7,247,407 $6,393,808
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31, June 30,
1995 1996
Machinery and equipment $1,424,720 $1,424,720
Office equipment 264,515 322,678
Leasehold improvements 310,640 310,640
Molds 346,129 346,129
Automotive equipment 122,585 122,585
2,468,589 2,526,752
Less accumulated depreciation and amortization (1,072,582) (1,219,453)
$1,396,007 $1,307,299
6. REVOLVING BANK LINE OF CREDIT
The Company has a revolving bank line of credit which provides for maximum
borrowings of $6,500,000 (subject to certain specified percentages of the
Company's accounts receivables and inventories) which is collateralized
by the Company's accounts receivables and inventories. Interest is
payable at the bank's prime interest rate plus .75% (9.00% at June 30,
1996). Borrowings outstanding under the line of were $5,802,263 at
December 31, 1995 and were subsequently repaid with a portion of the
proceeds received from the Company's initial public offering on March 18,
1996. There were no borrowings outstanding on the bank line of credit
at June 30, 1996.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, June 30,
1995 1996
Commissions $475,572 $453,137
Payroll and related taxes 87,445 109,633
Income taxes 11,105 116,950
Interest 184,254 50,026
Other 27,167 23,263
$785,543 $753,009
<PAGE>
OCAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
8. TRANSACTIONS WITH RELATED PARTIES
NOTES RECEIVABLE
Notes receivable-stockholder and related parties consist of the following:
December 31, June 30,
1995 1996
6.5% unsecured note receivable from the major
stockholder of the Company, receivable on demand $1,645,409 -
6.5% unsecured note receivable from a partnership in
which the major stockholder of the Company is a
partner, receivable on demand 120,000 -
$1,765,409 -
NOTES PAYABLE
Notes payable - stockholders consists of the following:
December 31, June 30,
1995 1996
6.5% unsecured note payable on demand to the major
stockholder of the Company $376,661 $ -
6.5% unsecured note payable due March 18, 1999
to the major stockholder of the Company 256,661
6.5% unsecured notes payable due to former
shareholders of Ocal Alabama - see (ii) below 3,000,000
376,661 3,256,661
Less portion due within one year 376,661 -
Due after one year $ - $3,256,661
OTHER
As part of the Reorganization on March 18, 1996, Ocal Alabama declared a
distribution to its then stockholders in an amount equal to all of its
undistributed S corporation retained earnings which aggregated
approximately $4,600,000. Such 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 shareholders of Ocal Alabama which
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
distribution may be adjusted upon completion of Ocal Alabama's income tax
returns for the period from January 1, 1996 through March 18, 1996.
<PAGE>
OCAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1996
9. 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. After
underwriters' discounts, commissions and expenses, the net proceeds of the
offering to the Company were $9,905,000. Other expenses of the offering
charged to paid-in capital aggregated $1,390,139. On April 15, 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, before underwriting discounts, commissions and expense
allowances of $.50 per share.
10.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 (loss) of these companies in
their personal income tax returns. Accordingly, no provision for federal
income tax is required or has been provided for the operations of Ocal
Alabama and Ocal Data through March 18, 1996.
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 June 30, 1996.
Included in the provision for income taxes for the six months ended
June 30, 1996 is a one-time accrual of deferred income taxes in the
amount of $100,000 as a result of terminating Ocal-Alabama's S
corporation status due to the Reorganization. These deferred income
taxes relate primarily to temporary depreciation differences.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with management's
discussion and analysis of financial condition and results of operations
incorporated in the Company's Registration Statement on Form S-1 and related
prospectus dated March 12, 1996.
OVERVIEW
Concurrent with the closing of the Company's initial public offering of
2,200,000 shares of common stock on March 18, 1996, 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"). On
April 15, 1996, the Underwriters exercised their full overallotment option
and purchased an additional 330,000 shares of the Company's common stock. The
Company's Chairman, CEO and President was the sole or majority shareholder of
each of the contributed companies and is the 52.7% shareholder of the Company
as of June 30, 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.
RESULTS OF OPERATIONS
Statement of Income Data
The following table sets forth, for the periods indicated, statement of income
data expressed as a percentage of total net sales.
Three months ended Six months ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 65.1% 68.5% 65.5% 68.4%
Gross margin 34.9% 31.5% 34.5% 31.6%
Selling, general and
administrative expenses 15.1% 15.7% 15.0% 15.0%
Stockholders' compensation 7.2% 1.3% 7.6% 1.3%
Operating income 12.6% 14.5% 11.9% 15.3%
Interest income (expense) (1.2%) 0.5% (1.3%) (0.5%)
Income before income taxes 11.4% 15.0% 10.6% 14.8%
Provision (benefit) for
income taxes (0.1%) 6.0% 0.1% 4.8%
Net income 11.5% 9.0% 10.5% 10.0%
<PAGE>
The Company's net sales decreased 11.4%, from $6,784,000 for the
three months ended June 30, 1995 to $6,012,000 for the three months
ended June 30, 1996, primarily due to heavy competitive pricing
pressures. The pressures in the Company's industry in general have
been brought on by its own marketing efforts to increase
competition at potential job sites. Net sales decreased 8.4%, from
$12,809,000 for the six months ended June 30, 1995 to $11,732,000
for the six months ended June 30, 1996, primarily due to the
pricing pressures during the recent quarter, along with lower
shipments because of cold and wet weather in the Northeast during
the first two months of 1996 that caused delays on job sites
resulting in order delays or cancellations.
Gross margin decreased 20.1%, from $2,367,000 for the three months
ended June 30, 1995 to $1,892,000 for the three months ended
June 30, 1996, because of the combination of the decrease in net
sales and a lower gross margin percentage which decreased from
34.9% in 1995 to 31.5% in 1996. The decrease in gross margin was
directly related to the increased pricing pressures in the
industry. The same can be said for the six month period, where the
gross margin decreased 16.0%, from $8,392,000 for 1995 to
$8,020,000 for 1996. The six month period shows a decrease in
gross margin from 34.5% in 1995 to 31.6% in 1996, due to the
increased pricing pressures.
Selling, general and administrative ("SG&A") expenses decreased
8.1%, from $1,025,000 for the three months ended June 30, 1995 to
$943,000 for the three months ended June 30, 1996, due principally
to lower number of employees in both the California administrative
and Texas sales offices, offset by an increase in expenses related
to being a public company such as public relations costs, director
fees and expenses, and stock-issuance fees which were non-existent
in 1995. The same explanation applies to the six month period, in
which SG&A expenses decreased 8.5%, from $1,921,000 in 1995 to
$1,757,000 in 1996.
Stockholders' compensation decreased 84.1% from $487,500 for the
three months ended June 30, 1995 to $78,000 for the three months
ended June 30, 1996, and also from $975,000 for the six months
ended June 30, 1995 to $156,000 for the six months ended June 30,
1996, due principally to a substantially decreased level of bonuses
paid to stockholders. Before the Company's Reorganization on
March 18, 1996, Ocal Alabama paid bonuses to its stockholders each
year primarily to provide stockholders with funds to satisfy their
income tax obligations on the Company's S corporation income taxed
directly to the stockholders. The Company has agreed to limit
<PAGE>
compensation in fiscal 1996 to the stockholders' whose compensation
is included in stockholders' compensation expense, to an aggregate
of $312,500.
Interest expense (net) decreased from $82,000 for the three months
ended June 30, 1995 to an income (net) of $29,000 for the three
months ended June 30, 1996 because the Company is no longer
utilizing its line of credit with the bank and is instead receiving
interest on its unused portion of the proceeds received from its
initial public offering on March 18, 1996 and subsequent over-
allotment option exercised by the Underwriters on April 15, 1996.
Interest expense is still accruing on the notes payable due to
stockholders. Interest expense (net) decreased 63.8% from $164,000
for the six months ending June 30, 1995 to $59,000 for the six
months ending June 30, 1996 for the same reason as the three month
period, offset by slightly higher balance of borrowings for the
first two months of 1996.
Provision for income taxes increased $366,000, from a benefit of
$6,000 for the three months ended June 30, 1995 to a provision of
$360,000 for the three months ended June 30, 1996, due to the
conversion of certain subsidiaries of the Company from
S corporation to C corporation status upon the Reorganization on
March 18, 1996, which subjects the Company to state and federal
income taxes at statutory rates beginning as of that date. The
same is true for the six month period where income taxes increased
$554,000, from $6,000 for 1995 to $560,000 for 1996. Also included
in the provision for income taxes for the six months ended June 30,
1996 is one-time accrual of deferred income taxes of $100,000 on
March 18, 1996 as a result of termination of Ocal Alabama's S
corporation status. For all periods in 1995, the Company's income
was not subject to federal income taxes because of its
subsidiaries' S corporation status.
Net income decreased 30.1%, from $777,000 for the three months
ending June 30, 1995 to $540,000 for the three months ending
June 30, 1996, due principally to the increased tax provision for
income taxes and competitive pricing pressures of the industry
which reduced gross margin, offset by the decrease in stockholder's
compensation and interest expense. Net income decreased 12.8%,
from $1,352,000 for the six months ended June 30, 1995 to
$1,179,000 for the six months ended June 30, 1996, primarily for
the same reasons as the three month period but with less impact
than the three months ended June 30, 1996 as the increased tax
provision did not take effect until March 18, 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On March 18, 1996, the Company completed its initial public
offering whereby it sold 2,200,000 shares of its common stock at
$5.00 per share and received net proceeds, after all underwriters'
expenses and other costs of the offering, of $8,514,861. The
proceeds of the offering were used principally to pay of the
$3,947,886 balance of the Company's note payable to the bank and to
pay the $1,600,000 cash portion of Ocal Alabama's distribution of
its S corporation retained earnings to its former stockholders.
The balance of the proceeds were added to the Company's working
capital. On April 15, 1996, the Underwriters exercised their over-
allotment option by purchasing an additional 330,000 shares of the
Company's common stock at a price of $5.00 per share, before
underwriting discounts, commissions and expense allowances of $.50
per share for an additional $1,485,000 in net proceeds, all which
was added to the Company's working capital. Working capital
increased from $3,373,382 at December 31, 1995 to $13,888,182 at
June 30, 1996 primarily attributable to the proceeds of the initial
public offering and over-allotment option exercised by the
Underwriters.
The Company has a revolving bank line of credit which provides for
borrowings of up to $6,500,000 (subject to certain specified
percentages of the Company's accounts receivable and inventories).
Interest is payable at the bank's prime interest rate plus .75%,
which was 9.00% at June 30, 1996. All of the outstanding balance
under the credit line was repaid on March 18, 1996, with a portion
of the proceeds from the Company's initial public offering. There
were no outstanding borrowings on the line of credit at
June 30, 1996.
During the six months ended June 30, 1996, cash provided from
operations totalled $1,961,285, principally due to the Company's
net income, and a decrease in inventories and accounts receivable,
which was offset by increased accounts payable and prepaid
expenses. During the six months ended June 30, 1995, cash provided
by operations totalled $571,730, principally due to net income and
a decrease in accounts payable but substantially offset by
increased accounts receivable.
During the six months ended June 30, 1995, cash used in investments
totalled $1,658,000, principally due to a loan to the primary
stockholder of the Company. During the six months ended June 30,
1996, cash provided by investments totalled $1,587,000, principally
due to repayment of the same loan to the primary stockholder.
During the six months ended June 30, 1995, cash provided by
financing activities totalled $1,066,186, principally due to
increased borrowings from the bank which were used to repay notes
<PAGE>
payable to a supplier and related parties. During the six months
ended June 30, 1996, cash provided by financing activities totalled
$3,088,000, attributable to the net proceeds received from the
initial public offering and over-allotment option, offset in
part by repayment of the note to the bank and the distribution of
Ocal Alabama's S corporation earnings to the former shareholders
net of the note payable additions due the former shareholders for
the distribution.
The Company believes that its current level of cash and cash
equivalents and the availability under its bank line of credit will
be sufficient to fund the Company's capital needs for at least the
next twelve to eighteen months.
INCOME TAXES
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 which the
Company estimates will subject its taxable income after that date
to a combined tax rate of approximately 40%. Such income taxes are
provided in the accompanying consolidated statements of income for
the period from March 18, 1996 through June 30, 1996. Previously,
the Company only recorded a provision for state income taxes at S
corporation tax rates which were nominal in amount. Included in
the provision for income taxes for the six months ended June 30,
1996, is a one-time accrual of deferred income taxes in the amount
of $100,000 as a result of terminating Ocal Alabama's S corporation
status due to the Reorganization on March 18, 1996. These deferred
income taxes relate primarily to temporary depreciation
differences.
INFLATION AND SEASONALITY
The Company does not believe its operations have been materially
affected by inflation. The Company has been successful, in most
cases, at mitigating the effects of inflation by increasing prices
and by maintaining sufficiently large inventories. The Company's
business is not seasonal.
<PAGE>
PART II - OTHER INFORMATION
OCAL, INC.
June 30, 1996
Item Exhibits and Reports on Form 8-K.
(a) Exhibits:
Not applicable
(b) Reports on Form 8-K:
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCAL, INC.
Registrant
August 7, 1996 ILAN BENDER
Date ILAN BENDER
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
AND PRESIDENT
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