10-Q 1 j0886901e10vq.txt RADVA CORP. U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q -------------------------------------------- Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------------------------- For Quarterly Period Commission File ended June 30, 2004 Number 0-15464 RADVA CORPORATION (Exact name of small business issuer as specified in its charter) VIRGINIA 54-0715892 (State of other jurisdiction of (IRS Employer incorporation or organization) Identification Number) Drawer 2900 FSS Radford, Virginia 24143 (Address of principal executive offices) Issuer's telephone number, including area code (540) 639-2458 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- Applicable only to corporate issuers: State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 3,987,987 --------- Transitional Small Business Disclosure Format: Yes No X --- --- RADVA CORPORATION INDEX Page Number ------ PART I. FINANCIAL INFORMATION: INDEPENDENT ACCOUNTANTS' REPORT 3 Item 1. Financial Statements Balance Sheets, December 31, 2003 and June 30, 2004 4 Statements of Operations, Six Months Ended June 30, 2003 and June 30, 2004 5 Statements of Cash Flows, Six Months Ended June 30, 2003 and June 30, 2004 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION 9 - 2 - PERSINGER & COMPANY, L.L.C. CERTIFIED PUBLIC ACCOUNTANTS 203 W. GRAYSON STREET TEL. (276) 236-8135 P.O. BOX 797 FAX (276) 236-0797 GALAX, VA 24333 INDEPENDENT ACCOUNTANTS' REPORT BOARD OF DIRECTORS RADVA CORPORATION RADFORD, VIRGINIA WE HAVE REVIEWED THE ACCOMPANYING CONDENSED CONSOLIDATED BALANCE SHEET OF RADVA CORPORATION AND SUBSIDIARY AS OF MARCH 31, 2004, AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2004. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE CORPORATION'S MANAGEMENT. WE CONDUCTED OUR REVIEW IN ACCORDANCE WITH STANDARDS ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. A REVIEW OF INTERIM FINANCIAL INFORMATION CONSISTS PRINCIPALLY OF APPLYING ANALYTICAL PROCEDURES TO FINANCIAL DATA AND OF MAKING INQUIRIES OF PERSONS RESPONSIBLE FOR FINANCIAL AND ACCOUNTING MATTERS. IT IS SUBSTANTIALLY LESS IN SCOPE THAN AN AUDIT CONDUCTED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS, THE OBJECTIVE OF WHICH IS THE EXPRESSION OF AN OPINION REGARDING THE FINANCIAL STATEMENTS TAKEN AS A WHOLE. ACCORDINGLY, WE DO NOT EXPRESS SUCH AN OPINION. BASED ON OUR REVIEW, WE ARE NOT AWARE OF ANY MATERIAL MODIFICATIONS THAT SHOULD BE MADE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THEM TO BE IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. WE HAVE PREVIOUSLY AUDITED, IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS, THE CONSOLIDATED BALANCE SHEET OF RADVA CORPORATION AND SUBSIDIARY AS OF DECEMBER 31, 2003, AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, STOCKHOLDERS' EQUITY, AND CASH FLOWS FOR THE YEAR THEN ENDED (NOT PRESENTED HEREIN); AND IN OUR REPORT DATED FEBRUARY 13, 2004, WE EXPRESSED AN UNQUALIFIED OPINION ON THOSE CONSOLIDATED FINANCIAL STATEMENTS. IN OUR OPINION, THE INFORMATION SET FORTH IN THE ACCOMPANYING CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2003 IS FAIRLY STATED, IN ALL MATERIAL RESPECTS, IN RELATION TO THE CONSOLIDATED BALANCE SHEET FROM WHICH IT HAS BEEN DERIVED. GALAX, VIRGINIA AUGUST 10, 2004 - 3 - RADVA CORPORATION Balance Sheets (Unaudited) (In Thousands)

See accountants' report and accompanying notes to financial statements. - 4 - RADVA CORPORATION Statements of Operations Three Months and Six Months Ended June 30 (In Thousands, except per share data)

See accountants' report and accompanying notes to financial statements. - 5 - RADVA CORPORATION Statements of Cash Flows Six Months Ended June 30 (Unaudited) (In Thousands)

See accountants' report and accompanying notes to financial statements. - 6 - RADVA CORPORATION Notes to Financial Statements June 30, 2004 (1) General The financial statements conform to generally accepted accounting principles and to general industry practices. The financial statements are unaudited. However, in the opinion of management, all adjustments which are normal and necessary for a fair presentation of the financial statements have been included. (2) Property, Plant and Equipment A summary of property, plant and equipment follows: Land and improvements............................. $ 169,565 Buildings and improvements........................ 3,144,643 Machinery and equipment........................... 5,790,548 Transportation equipment.......................... 365,921 Office equipment.................................. 320,711 ---------- $9,791,388 (3) Accrued Expenses Accrued expenses are comprised of the following: Payroll and employment benefits................... $ 149,952 Other............................................. 53,450 ---------- $ 203,402 (4) Notes Payable Notes payable to related parties.................. 222,160 Line of credit with commercial bank, $1,500,000 limit, interest variable (4.25% at June 30, 2004) ......................... $ 456,000 ---------- $ 678,160 ========== (5) Long-term Debt A summary of long-term debt follows: Installment note payable to bank, due in variable monthly installments, including interest at prime plus 2.25% (6.25% at March 31, 2004); collateralized by all of the company's assets. 1,882,248 Installment note payable to bank, due in monthly installments of $17,402, including interest at prime plus 2.25% (6.50% at June 30, 2004); collateralized by all of the company's assets. 1,143,103 Installment note payable to bank, due in variable monthly installments, including interest at prime plus 1.25% (5.50% at June 30, 2004); collateralized by equipment 83,691 Installment note payable to bank, due in monthly installments of $798, including interest at 3.9%; collateralized by equipment. 35,420 ---------- Total long-term debt 3,144,462 Less current installments of long-term debt 200,085 ---------- Long-term debt, excluding current installments $2,944,377 ========== - 7 - Item 2 Management's Discussion and Analysis Financial Condition and Results of Operations Results of Operations - Six months ended June 30, 2003 Compared to the six months ended June 30, 2004 The Company incurred a net loss of $248,000 in the first six months of 2004 compared to a net loss of $19,000 in the first six months of 2003. For this same period, revenues were down $1,015,000 from $5,039,000 for the six months ended June 30, 2003 to $4,024,000 for the six months ended June 30, 2004. The primary cause of the reduced revenues and increased losses was a result of the Company's loss of its major customer, which had accounted for 37.8% of Company revenues in 2003. Cost of sales, as a percent of manufacturing revenues, was up 7.3%, from 74.7% for the first six months of 2003 to 82.0% for the first six months of 2004. The increased cost of sales percentage primarily resulted from the effect of the large reduction in revenues related to fixed manufacturing costs. However, rapid rises in the cost of the Company's raw materials has also contributed to rising cost percentages, resulting in an increase of almost 5% of production at the Company's Radford, Virginia plant. Shipping and selling expenses were down $121,000 for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. However, due to a change in sales mix, shipping and selling expenses as a percentage of revenues was relatively unchanged. General and administrative expenses were down $144,000 for the six months ended June 30, 2004 due to cost controls over a wide range of expenses. Some principal cost reductions were as follows: Office salaries $51,000, travel $11,000, bank fees $17,000 and bad debts $16,000. Results of Operations - Three months ended June 30, 2003 Compared to the three months ended June 30, 2004 The factors noted above in the six month comparisons were also the factors largely contributing to differences in results for the three months ended June 30, 2003 compared to the three months ended June 30, 2004. Revenues were down $640,000, largely responsible for increasing losses from $62,000 for the three months ended June 30, 2003 to $256,000 for the three months ended June 30, 2004. Cost of sales, as a percentage of manufacturing revenues, was up 11.2%, from 74.4% for the second quarter of 2003 to 85.6% for the second quarter of 2004. Again, the major factors responsible for the increased percentages were fixed costs related to sharply reduced revenues and increases in direct material costs. Shipping and selling expenses were $81,000 lower in the second quarter of 2004 compared to the second quarter of 2003. However, as a percentage of revenues, these expenses increased .5%, due to reduced revenues only partly offset by a changed sales mix. Liquidity and Capital Resources At June 30, 2004 the balance available on the Company's line of credit was $118,804 and working capital was $35,000. In February 2004 the Company refinanced its line of credit with a new lender, reducing its interest rate by 2.25% to prime. However, the refinancing did reduce the Company's availability on its line of credit by the elimination of inventory from the collateral base on which the line of credit is secured. - 8 - Losses in the second quarter of 2004 have resulted in the Company being out of compliance with bank covenants related to the Company's credit line. The Company will work with the bank in an effort to obtain a waiver of noncompliance. PART II: OTHER INFORMATION Item 1. Legal Proceedings See item 3 of the Company's Form 10-K for the fiscal year ended December 31, 2003. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Securities Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K Not applicable. Pursuant to the requirements of the Securities Exchange Act of 1934,this form 10-Q has been signed on behalf of the Registrant by its Assistant Secretary/Treasurer who is authorized to sign on behalf of the Registrant and is the Registrant's principal financial officer. RADVA CORPORATION /s/ William F. Fry ------------------------------- William F. Fry Secretary/Treasurer August 9, 2004 - 9 -

RADVA CORP 10-Q