ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
RADVA Corporation (the "Company") was organized in 1962 as a Virginia corporation to engage in the production of molded and fabricated products from expandable polystyrene. Historically, the Company has specialized in the production of customized expanded polystyrene packaging materials used to protect products during shipment; however, the Company developed a composite building panel produced from expanded polystyrene and steel which it sold under the trademark THERMASTRUCTURE. During 1998, the Company sold 95% of its assets and interest in the composite building panel system. These assets were then transferred to a newly organized company, ThermaSteel Corporation, which continues to market the system worldwide. During 2002, the Company reacquired an additional 5% interest in Thermasteel Corporation, bringing its interest in Thermasteel Corporation to 10%. The Company also has a subsidiary, Triter Corporation, which was formed for the purpose of making the triterine referenced to in the Annual Report letter.
PROTECTIVE PACKAGING PRODUCTS
RADVA is an industry leader in the design and manufacture of shape molded and fabricated foam products for material handling, protective packaging, specialty designs, point of purchase displays, insulated shipping containers, and a variety of other needs. RADVA products are used in businesses as varied as consumer electronics, seafood, and furniture.
RADVA's shape molded product line includes a variety of flexible and rigid, molded and fabricated items from foam resins. RADVA products are offered as custom-fabricated solutions to customer needs, and as standard shapes and containers. All products share the same high quality of manufacture.
More than 400 customers, including many Fortune 500 firms, count on RADVA solutions to help them meet their own customer's needs in a quick, cost-effective manner.
When RADVA was incorporated in 1962, its primary production material was expanded polystyrene (EPS). EPS remains a significant base material because of its low cost and relatively low environmental impact. However, RADVA products also use a variety of other materials, depending upon the customer's need. Common materials include ARCEL(R), GECET(R), R-MER(R), EPP and EPE, PE and PU and thermoformed PVC and styrene.
RADVA is headquartered in Radford, Virginia, and has manufacturing facilities in Radford and Portsmouth, Virginia. These locations are within a day's drive of 75 percent of the U.S. market. Each facility includes more than 75,000 square feet of manufacturing and warehouse space with additional off-site warehousing. More than 35 molding presses, including new, highly efficient Kurtz & Hirsch machines enable RADVA to meet strict customer requirements quickly and with consistent high quality. Complete prototype and drop testing capabilities, a tool and die shop, and very strong supplier relationships enable the firm to develop creative, cost-effective solutions for customers.
RADVA employs approximately 100 people, and serves as one of the country's largest three mid-Atlantic EPS recycling drop-off facilities.
RAW MATERIALS AND SUPPLIERS
The principal raw material used by the Company in the production of protective packaging products is expandable polystyrene resin. This material may be obtained from several major suppliers. In addition, the Company uses several copolymer resins in the manufacture of engineered expanded foam protective packaging. Although the copolymer resins currently used by the Company are only available from one supplier, similar copolymer resins may be obtained from other suppliers.
PATENTS AND TRADEMARKS
The Company holds a patent for a new construction material which the Company plans to market in the future. The Company pursues a policy of filing for patents on any product development that it considers to be significant.
SEASONALITY
The Company ordinarily experiences a reduction in the manufacture and sale of protective packaging products during the winter months after filling holiday season orders. The demand for building products is affected by the level of activity in the construction industry and housing market and can be expected to decrease during the fall and winter seasons when there has historically been a decrease in construction activity and housing sales.
CUSTOMERS
The Company's protective packaging business has a broad base of customers; however, one customer accounted for approximately 37.0% of protective packaging revenues in 2002.
BACKLOG
The Company had approximately $1,055,000 in backlog orders for protective packaging products as of December 31, 2002, compared to backlog orders of approximately $1,160,000 as of December 31, 2001. Although the Company believes that such backlog orders are firm, the purchase orders for protective packaging products generally may be canceled without cause by the customer. The Company expects to fill all of these orders during 2003.
COMPETITION
The protective packaging business is highly competitive, and some of the Company's competitors are large and have greater financial and other resources than the Company. The Company's competition in protective packaging products is primarily from four local and regional manufacturers with plants within or close to the Company's market area. The principal elements of competition in the sale of protective packaging products are price and the ability to service customers. The Company believes that its technical design facility gives it an advantage over competitors within its market area.
RESEARCH AND DEVELOPMENT
The Company maintains a laboratory and testing facility within its manufacturing plant in Radford, Virginia. The laboratory and testing facilities, which consist of 2,000 square feet is used for product testing, development of new products, and quality control evaluations.
REGULATION
The Company is subject to state and federal laws and regulations affecting its business, including those promulgated under the Occupational Safety and Health Act ("OSHA") and by the Environmental Protection Agency. The Company's manufacturing facilities are subject to compliance with comprehensive OSHA standards. The Company believes that its manufacturing facilities and processes are currently in compliance with OSHA and does not anticipate capital expenditures for environmental control facilities or for compliance with OSHA standards during 2003. The Company does not believe that its compliance with federal and state environmental regulations has had or will have a material effect on its capital expenditures, earnings, or competitive position.
EMPLOYEES
The Company employs approximately 100 persons. None of the Company's employees is represented by a labor union, and the Company believes that its employee relations are good.
EXECUTIVE OFFICERS
The following table identifies and sets forth certain information about the executive officers of the Company
NAME AGE POSITION AND YEAR OF ELECTION ---- --- ----------------------------- Luther I. Dickens 70 Chief Executive Officer (1998) Stephen L. Dickens 45 President and Chief Operations Officer (1998) William F. Fry 63 Chief Financial Officer (1989) Michael R. Samples 50 Vice President, Manufacturing (1999)
ITEM 2.
ITEM 2. PROPERTIES
REAL ESTATE
The real estate owned or leased by the Company and used in the Company's primary business operations is described below.
(1) The Company owns approximately 10 acres of land in Radford, Virginia, and a 71,000 square foot building located on the Radford property. The building includes approximately 5,000 square feet of office space and approximately 66,000 square feet of manufacturing space. The Radford property is subject to deeds of trust which had outstanding balances as of December 31, 2002 aggregating approximately $3,281,323.
(2) The Company owns approximately 7 acres of land in Portsmouth, Virginia, and a 74,000 square foot building located on the Portsmouth property. The building includes approximately 2,000 square feet of office space and approximately 42,000 square feet of manufacturing space. The Portsmouth property is subject to the same deed of trust referred to in (1) above which had an outstanding balance as of December 31, 2002 of approximately $3,281,323.
(3) The Company rents approximately 6,000 square feet of office space in Radford, Virginia, under a lease which requires monthly rental payments of $3,700. The property is rented to the Company by a partnership in which Mr. Dickens has an interest.
PERSONAL PROPERTY AND EQUIPMENT
The personal property and equipment at the main Radford plant and the Portsmouth plant consist principally of machinery and equipment used to produce expanded polystyrene products.
The Company owns 2 trucks and 14 trailers and leases 2 tractors which are used to ship products to customers. The Company owns 1 van and 7 cars which it uses principally for sales and sales service functions. The Company believes that its present equipment is adequate, well maintained, and in good operating condition.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
STOCK INFORMATION
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET AND PRICE INFORMATION
The Company's common stock, par value $.01 per share (the "Common Stock"), has been traded in the over-the-counter market since June 1986. The following table provides the high and low bid quotations with respect to shares of the Common Stock for the periods indicated as reported by the Dow Jones Historical Stock Quote Reporter Service.
The foregoing quotations of high and low bid prices represent prices between dealers and do not include retail mark-up, mark-down, or commissions. They do not necessarily represent actual transactions. There was no established public trading market for the Common Stock before June 1986.
The aggregate market value of the voting stock held by non-affiliates of the Company as of March 7, 2003 shown on the facing page of this report was calculated as follows: the number of shares beneficially owned by the officers and directors of the Company as a group as of March 7, 2003 was subtracted from 3,987,987, the total number of shares outstanding on that date, and the resulting figure was multiplied by $.22, the average of the bid and asked prices of the Company's stock in the over-the-counter market on March 7, 2003. The foregoing calculation should not be deemed an admission that any of the officers or directors of the Company is an "affiliate" of the Company.
NUMBER OF STOCKHOLDERS
As of March 7, 2003 there were 272 record holders of the Common Stock.
DIVIDENDS
The Company has not declared cash dividends on the Common Stock during its three most recent fiscal years. The declaration and payment of dividends is entirely within the discretion of the Board of Directors of the Company and will depend upon the earnings, capital requirements, and financial condition of the Company. The Company anticipates that it will retain earnings for the next several years to finance the development of its business.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
The following table sets forth the percentage relationship that certain items in the statements of operations bear to the net revenues of the Company for each year during the five-year period ended December 31, 2002.
2002 COMPARED TO 2001
Although net income in 2001, aided by an extraordinary gain of $345,000, was higher than 2002 by $151,000, the Company's operating income doubled in 2002, from $124,000 in 2001 to $246,000 in 2002. This increase in operating income was achieved in spite of a decrease in sales of $278,000. Other income increased due to the Company having provided $100,000 in managerial services to Thermasteel Corporation in which the Company has a ten percent ownership interest.
Cost of sales, as a percentage of manufacturing revenues, decreased 3.5%, from 75.5% in 2001 to 72.0% in 2002. The most significant factor contributing to this decrease in cost percentage was a reduction of the cost of gas and oil of $309,000.
Shipping and selling expenses, as a percentage of manufacturing revenues, increased 1.7%, from 8.7% in 2001 to 10.4% in 2002. Freight costs were greater in 2002 by $239,000 due to a change in some shipping terms from FOB shipping point to FOB destination. Partly offsetting the increase in freight costs were reductions in sales salaries and commissions at the Company's Portsmouth plant of $40,000 and a reduction of driver and shipping labor at the Company's Radford plant by $51,000.
General and administrative and research and development expenses were little changed from 2001 to 2002. The research and development expenses are incurred in the development of a new product, triterine, referenced in the Annual Report letter which is unrelated to the Company's primary packaging business.
2001 COMPARED TO 2000
The Company's operating income was $124,000 in 2001 compared to an operating loss of $852,000 in 2000. This dramatic improvement in operations was a result of many factors and was achieved in spite of a $448,000 reduction in revenues from $10,077,000 in 2000 to $9,629,000 in 2001. Before allocating interest or corporate overhead cost, the Radford and Portsmouth plants increased operating income by $623,000 and $598,000, respectively. This improvement in operating income resulted from a combination of increased sales prices, sharply lower costs for raw materials and increased labor efficiency.
Cost of sales, as a percent of manufacturing net revenues, decreased 10.9%, from 86.4% in 2000 to 75.5% in 2001. Among the many factors contributing to this 10.9% reduction in costs were lower raw material prices and increased labor efficiencies partly offset by increased cost for oil and gas. Raw material costs percentages decreased from 29.8% in 2000 to 21.9% in 2001 at the Company's Radford plant and decreased from 43.3% in 2000 to 38.6% in 2001 at the Company's Portsmouth plant. The higher material cost at the Portsmouth plant results from the use of a different mix of resins. Labor percentages decreased from 28.0% in 2000 to 25.4% in 2001 at the Company's Radford plant and decreased from 22.5% in 2000 to 18.7% in 2001 at the Company's Portsmouth plant.
Shipping and selling expenses decreased by .5% and general and administrative expenses increased by .6% in 2001 as compared to 2000. The Company spent $103,000 on research and development in 2001 in efforts to prepare the Company's patented new heat resistant building material, Triterine, for production and marketing which is scheduled for 2002.
The Company negotiated a $400,000 reduction in the amount owed its bank as part of a successful refinancing effort, resulting in a net extraordinary gain of $345,000.
2000 COMPARED TO 1999
The Company incurred an operating loss in 2000 of $851,922 compared to operating income of $528,294 in 1999. This reduction in operating income was a result of a margin squeeze resulting from competitive pressures and rapidly rising manufacturing costs.
The cost of expandable polystyrene (EPS) has cycles of ups and downs, but there was an unusually fast rise in EPS cost during the first half of year 2000. Interest and depreciation cost increased, partly as a result of our having expanded capacity in 1999 to accommodate anticipated growth. Also, labor rates increased due to a shortage of workers and the price of natural gas, which is one of our major manufacturing cost, escalated rapidly.
Cost of sales and shipping and selling expenses increased, as a percentage of manufacturing net revenues, by 11.6% and 1.8%, respectively. These increases were primarily a result of the margin squeeze discussed above.
IMPACT OF INFLATION
The Company's standard purchase order form allows it to increase the price of its protective packaging products on 30 days' notice and, therefore, to pass on increases in the cost of raw materials. A significant increase in the rate of inflation and a concomitant increase in interest rates could adversely affect the Company since a large portion of the Company's indebtedness is linked to the prime interest rate.
LIQUIDITY AND CAPITAL RESOURCES
A major refinancing of the Company was accomplished in 2001 which resulted in longer amortization of the Company's long-term debt. Working capital increased from $158,000 at December 31, 2001 to $266,000 at December 31, 2002. The Company had $65,000 available on its line of credit at year-end.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ---- Independent Auditors' Reports....................................... 11
Balance Sheets as of December 31, 2002 and 2001..................... 12-13
Statements of Operations for the Years Ended December 31, 2002, 2001, and 2000................................ 14
Statements of Stockholders' Equity for the Years Ended December 31, 2002, 2001, and 2000.......................... 15
Statements of Cash Flows for the Years Ended December 31, 2002, 2001, and 2000.......................... 16-17
Notes to Financial Statements as of December 31, 2002, 2001, and 2000............................................. 18-27
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule V - Property, Plant and Equipment......................... 28
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant, and Equipment................... 29
Schedule VIII - Valuation and Qualifying Accounts................... 30
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders RADVA Corporation
We have audited the consolidated financial statements and the consolidated financial statement schedules of RADVA Corporation and subsidiary as of and for the years ended December 31, 2002 and 2001 as listed in the accompanying index. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of RADVA Corporation and subsidiary as of December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the 2002 and 2001 financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
Galax, Virginia January 22, 2003
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001
continued
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
See notes to consolidated financial statements.
RADVA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
See notes to consolidated financial statements.
RADVA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
See notes to consolidated financial statements.
RADVA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
continued
RADVA CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental disclosure of noncash investing activities:
During 2002 Radva acquired an additional 5% interest in Thermasteel Corporation by forgiveness of a certain portion of debt receivable from Thermasteel which resulted in a transfer of the following assets:
Assets transferred: Notes receivable $ 296,140 Investment retained (5%) $(296,140) --------- $ - =========
See notes to consolidated financial statements.
RADVA CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002, 2001 AND 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
RADVA Corporation and subsidiary (the Company) are custom designers of material handling solutions and manufacturers of protective packaging materials and containers. The Company operates facilities in Radford and Portsmouth, Virginia.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiary, Triter Corporation. There were no inter-company transactions for the years presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of demand deposits. For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of less than three months to be cash equivalents. The Company includes cash meeting this criteria whose use is limited by restrictions contained in loan covenants.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at cost less allowance for doubtful accounts. The allowance for doubtful accounts is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost of raw materials, supplies, work-in process and finished goods is determined by the first-in, first-out method.
INVESTMENT IN THERMASTEEL CORP.
As part of transferring certain assets and liabilities to Thermasteel Corp., Radva retained a 10% ownership interest. Company accounts for this investment on the cost basis.
OTHER ASSETS
Included in other assets are patents, loan costs and marketing and manufacturing rights, which are amortized over their respective estimated lives, and trademark rights, which are amortized over 12 years. Accumulated amortization was $1,488,596 and $1,433,329 as of December 31, 2002 and 2001, respectively.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of plant and equipment is provided on the straight-line basis over the estimated useful lives of the respective assets as follows:
Buildings and improvements 5 to 30 years Machinery and equipment 5 to 15 years Automotive equipment 3 to 5 years Office equipment 3 to 10 years
Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases.
Additions to property, plant and equipment are recorded at cost. All expenditures for repairs, renewals and replacements which do not materially extend the useful life of the property are charged to expense. Other improvements and betterments are capitalized. With respect to dispositions, the asset and accumulated depreciation accounts are relieved of cost and accumulated depreciation with any resulting gain or loss credited or charged to earnings.
REVENUE RECOGNITION
Net revenues represent sales of protective packaging materials and containers. Revenues from sales are recognized upon completion of the transaction.
ADVERTISING
Advertising costs are expensed as incurred and included in shipping and selling expenses. Advertising expense amounted to $12,128, $6,801, and $24,077 for the years ended December 31, 2002, 2001, and 2000, respectively.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company's tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amount.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure about the fair value of certain instruments. Cash, receivables, accounts payable and accrued liabilities are reflected in the financial instruments at fair value because of the short-term maturity of these instruments. The estimated fair values of the company's financial instruments are disclosed in Note 3.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 vary from the estimates that were used.
RECLASSIFICATION
Certain reclassifications have been made to prior years' financial statements to place them on a comparable basis with the current year.
NOTE 2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
CASH AND CASH EQUIVALENTS:
The carrying amount approximates fair value because of the short maturity of those instruments.
RECEIVABLE - OTHER:
The carrying amount is a reasonable estimate of fair value since entire amount is due within one year.
LONG-TERM DEBT:
The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities with similar collateral requirements.
The estimated fair values of the Company's financial instruments as of December 31, 2002 are as follows:
NOTE 4. RECEIVABLES
Information about impaired receivables as of and for the years ended December 31, 2002 and 2001 is as follows:
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
NOTE 6. ACCRUED EXPENSES
Current accrued expenses are composed of the following:
NOTE 7. NOTES PAYABLE
A summary of notes payable follows:
NOTE 8. LONG-TERM DEBT
A summary of long-term debt follows:
Substantially all real property, equipment, accounts receivable and inventory are pledged as collateral on various debt instruments.
The aggregate principal maturities of long-term debt during each of the five years subsequent to December 31, 2001 follows:
Years Ended December 31,
2003 $ 164,559 2004 174,696 2005 181,013 2006 193,136 2007 206,070 Thereafter 2,372,452 ----------- $ 3,291,926 ===========
NOTE 9. INCOME TAX MATTERS
Net deferred tax assets and liabilities consist of the following components as of December 31, 2002 and 2001:
As noted, the deferred tax assets equal the deferred tax liabilities resulting in no effect on the income statement or stockholders' equity for the year.
The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income for the years ended December 31, 2002, 2001 and 2000 due to the following:
NOTE 10. RETIREMENT PLANS
The Company has a profit sharing plan (the Plan) which covers all full-time officers and employees who have at least one year of service and attained the age of 21. Contributions to its profit sharing plan are at Company's discretion. The Plan is a qualified plan under applicable sections of the Internal Revenue Code. Profit sharing expense for the period ended December 31, 2002, 2001 and 2000 was $ -0-.
The Company adopted a 401K retirement plan during 1998 which covers all full-time officers and employees who have at least one year of service and attained the age of 21. Contributions to the plan are made at a rate of 25% of each employee's contribution up to a maximum of 4% of each employee's earnings for the year. The plan is a qualified plan under applicable sections of the Internal Revenue Code. Company contributions for the year ended December 31, 2002 and 2001 were $13,948 and $14,332, respectively.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company rents office space from Chuckatuck, a partnership in which the Company's Chief Executive Officer is a partner. The lease is for a five-year period which ends December 31, 2003. The present lease payment is $3,700 per month and the minimum lease obligation for 2003 is $44,400.
The Company's Chief Executive Officer is personally guaranteeing the notes payable of the company.
On June 18, 2002, the Company issued a note to a stockholder for $25,000. The note payable is unsecured, bearing interest at 8% annually and is due on demand. As of December 31, 2002, the balance on this note is $25,000 and $1,073 interest has accrued on this note. See Note 7.
On June 18, 2002, the Company issued a note to a stockholder for $25,000. The note payable is unsecured, bearing interest at 8% annually and is due on demand. As of December 31, 2002, the balance on this note is $15,000 and $892 interest has accrued on this note. See Note 7.
NOTE 12. OPERATING LEASES
The Company leases certain of its manufacturing and office facilities and equipment. Rental expense for the years ended December 31, 2002, 2001 and 2000 was $142,476, $123,719, and $155,698, respectively. All leases have expired; however, the Company continues to lease these facilities under the previous lease schedules.
NOTE 13. MAJOR CUSTOMER AND SUPPLIER
The percentage of net revenue attributable to the Company's major customers (exceeding 10% of total revenues) is 37.0% for 2002, 34.1% for 2001, and 31.8% for 2000.
The percentage of cost of sales attributable to the Company's major suppliers (exceeding 10% of total cost of sales) is 30.2% for 2002, 34.7% for 2001, and 31.1% for 2000.
NOTE 14. RESEARCH AND DEVELOPMENT
The Company has incurred costs in developing a patented structural material called Triterine. The Company intends to market this to construction companies as a load-bearing wall, as roofing material and as flooring material.
NOTE 15. EXTRAORDINARY ITEM
During the year ended December 31, 2001, the Company extinguished debt with a bank. As part of extinguishing this debt the Company negotiated a reduction in the amount owed by $400,000. This resulted in a gain to the Company. The gain is reflected in the income statement net of related cost.
The Company obtained funds to extinguish this debt by issuing preferred stock and obtaining additional financing from another commercial lender.
NOTE 16. OTHER ASSETS - OTHER
Other assets - other consist of the following:
NOTE 17. CONTINGENCIES
DEBT ASSUMPTION:
On April 1, 1997 Company reacquired certain real estate of Thermastructure, Ltd. by assuming obligations owed to the Industrial Development Authority (IDA) amounting to $775,818.
As of December 31, 2002 Company remains primarily liable on debt assumed as part of transfer of certain real estate. Outstanding balance on this debt amounted to $481,600 as of December 31, 2002.
NOTE 18. NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Basic earnings per share excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding for the period and the number of equivalent shares assumed outstanding under the Company's stock option plans and convertible preferred stock outstanding.
Options held to purchase 400,000 common shares at $.81 were not dilutive and were outstanding at December 31, 2002 and 2001. These shares are not included in the diluted earnings per share calculation because the options' exercise price was greater than the average market price of the common shares. Diluted earnings per share was calculated as follows:
The Company has 600,000 shares of 8% cumulative convertible preferred stock outstanding. The preferred stock is convertible into common stock based on its liquidation amount ($.50 per share of $300,000) plus any accrued and unpaid dividends (none as of 12/31/02). The conversion price for the common stock is $0.50 per share which equates to 600,000 shares of common stock potentially being issued.
NOTE 19. STOCK OPTION PLANS
The Company has two Stock Option Plans, the 1998 Stock Option Plan and the 1998 Non-employee Directors Stock Option Plan. Both Plans contained retroactive effective dates of July 8, 1998 and September 28, 1998, respectively.
The Company's 1998 Stock Option Plan (the Plan) authorizes the granting of stock options, up to a total of 375,000 shares of common stock, to any employee of the Company. Under the Plan, the exercise price of each option equals fair market value of the Company's stock on the grant date, and an option's maximum term is ten years. If the employee is a 10% shareholder the exercise price of each option shall not be less than 110% of the fair market value on the grant date, and an option's maximum term is five years.
The Company's 1998 Non-employee Directors Stock Option Plan (the Plan) authorizes the granting of stock options, up to a total of 125,000 shares of common stock, to the directors of the Company who are not otherwise employees of the Company or any Subsidiary and were not employees for a period of at least one year before the date of grant of an option under the Plan. Under the Plan, the exercise price of each option equals fair market value of the Company's stock on grant date, and an option's maximum term is ten years.
A summary of the status of the Company's Stock Option Plans as of December 31, 2002, and the changes during the year is presented below:
The range of option prices for options outstanding as of December 31, 2002, was $.81 with a weighted average remaining contractual life of approximately 6 years.
If the Company had used the fair value based method of accounting for its Employee Stock Option Plan, as prescribed by Statements of Financial Accounting Standards No. 123, compensation cost in net income for the year ended December 31, 2002 would have increased by $324,000, resulting in net loss of $(197,782) net of tax. The basic and diluted earnings per share would have been $(.05) and $(.04), respectively.
The fair value of each option grant of $.81 is estimated on the date of grant using the exercise price since fair value could not be reasonably estimated at grant date.
NOTE 20. STOCK REPURCHASE PLAN
Board of Directors has authorized the Company to repurchase up to 200,000 shares of the Company's common stock. The Company has purchased 187,240 shares pursuant to the Stock Repurchase Plan.
NOTE 21. INVESTMENT IN THERMASTEEL
During 1998, the Company acquired a 5% interest in Thermasteel Corporation. The initial 5% interest and promissory notes from Thermasteel were received in exchange for receivables, inventory, investments, fixed assets, licenses, patents, and trademarks. The net investment in the 5% interest as a result of this transaction was $261,925. During 2002, a portion of the promissory notes from Thermasteel were forgiven in exchange for an additional 5% interest. This transaction resulted in an increase in the investment in Thermasteel of $296,140. The total investment in Thermasteel as of December 31, 2002 is $558,065.
RADVA CORPORATION AND SUBSIDIARY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(A) During 2001, the Company removed fully depreciated assets that were no longer in service.
RADVA CORPORATION AND SUBSIDIARY
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(A) During 2001, the Company removed fully depreciated assets that were no longer in service.
RADVA CORPORATION AND SUBSIDIARY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(A) Represents uncollectible amounts written off, net of recoveries.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the Company's directors is incorporated by reference to material contained under the heading "Election of Directors" in the Company's proxy statement for its annual meeting of stockholders scheduled for April 23, 2003.
Information as to the Company's executive officers is set forth under the heading "Executive Officers" in ITEM 1 of this report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information as to executive compensation is incorporated by reference to material contained under the headings "Cash Compensation" and "Compensation Plans" in the Company's proxy statement for its annual meeting of stockholders scheduled for April 23, 2003.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to the security ownership of certain beneficial owners and management is incorporated by reference to material contained under the heading "Principal Stockholders" in the Company's proxy statement for its annual meeting of stockholders scheduled for April 23, 2003.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as to certain relationships and related transactions is incorporated by reference to material contained under the heading "Certain Relationships and Related Transactions" in the Company's proxy statement for its annual meeting of stockholders scheduled for April 23, 2003.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements (Included in PART II)
See ITEM 8 in PART II
(a) (2) Financial Statement Schedules (Included in PART II)
See ITEM 8 in PART II
(a) (3) Exhibits
The exhibits filed with this report and the documents incorporated by reference as exhibits to this report are described below.
(3)(a) Articles of Incorporation of the Company (Incorporated by reference to Exhibit B to Registration Statement No. 0-15464 filed with the Securities and Exchange Commission on March 9, 1987).
(3)(b) Bylaws of the Company (Incorporated by reference to Exhibit C to Registration Statement No. 0-15464 filed with the Securities and Exchange Commission on March 9, 1987).
(4)(f) See Article III, Section 4 of Exhibit 3(a).
(4)(g) See Articles II, III, VI, VIII and IX of Exhibit (3)(b).
(10)(c) Lease dated April 29, 1986 between Chuckatcuk Partnership and the Company relating to the Company's principal executive office space in Radford, Virginia (Incorporated by reference to Exhibit 10(d) to Registration Statement No. 33-5319 filed with the Securities and Exchange Commission on June 25, 1986).
(10)(g) Agreement dated as of July 1, 1985 between ARCO Chemical Company and the Company relating to the sale of various copolymer resins (Incorporated by reference to Exhibit 10(g) to Registration Statement No. 33-5319 filed with the Securities and Exchange Commission on June 25, 1986.)
(10)(h) Agreement dated as of April 11, 1986 between ARCO Technology, Inc. and the Company relating to a license of certain manufacturing rights (Incorporated by reference to Exhibit 10(h) to Registration Statement No. 33-5319 filed with the Securities and Exchange Commission on June 5, 1986.)
(10)(i) Bank of Virginia Trust Company Prototype Plan and Trust Agreement and accompanying Joinder Agreement (Incorporated by reference to Exhibit 10(i) to Registration Statement No. 33-5319 filed with the Securities and Exchange Commission on June 24, 1986.)
(10)(j) 1986 Stock Option Plan for employees of the Company (Incorporated by reference to Exhibit 10(j) to Registration Statement No. 33-5319 filed with the Securities and Exchange Commission on June 24, 1986.)
(10)(l) Purchase Agreement dated December 31, 1987 between the Company and the Atlantic Richfield Company (Incorporated by reference to Exhibit 10 to the Company's current report on Form 8-K filed with the Securities and Exchange Commission on January 13, 1988.
(11) Statement recomputation of per share earnings.
(b) Reports on Form 8-K None
(c) Exhibits
See ITEM 14(a)(3) above.
(d) Financial Statement Schedules
See ITEM 14(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RADVA Corporation
Dated: March 25, 2003 By /s/ Luther I. Dickens ------------------------------ Luther I. Dickens Chief Executive Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: March 25, 2003 By /s/ Luther I. Dickens ------------------------------ Luther I. Dickens Chief Executive Officer and Chairman of the Board
Dated: March 25, 2003 By /s/ Rush G. Allen ------------------------------ Rush G. Allen Director
Dated: March 25, 2003 By /s/ J. Granger Macfarlane ------------------------------ J. Granger Macfarlane Director
Dated: March 25, 2003 By /s/ Stephen L. Dickens ------------------------------ Stephen L. Dickens President and Director
Dated: March 25, 2003 By /s/ David B. Kinney ------------------------------ David B. Kinney Director
Dated: March 25, 2003 By /s/ Richard W. Frizzell ------------------------------ Richard W. Frizzell Director
CERTIFICATIONS --------------
I, Luther I. Dickens, Chief Executive Officer, Radva Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-K of Radva Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date");
(c) and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ Luther I. Dickens ------------------------------------------- Luther I. Dickens Chief Executive Officer
CERTIFICATIONS --------------
I, William F. Fry, Vice President-Chief Financial Officer of Radva Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-K of Radva Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(c) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(d) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date");
(c) and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ William F. Fry ----------------------------------------- William F. Fry Vice President-Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Radva Corporation (the "Company") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 19 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 21, 2003 /s/ Luther I. Dickens ------------------------------------------- Luther I. Dickens Chief Executive Officer
Date: March 21, 2003 /s/ William F. Fry ----------------------------------------- William F. Fry Vice President-Chief Financial Officer