10-Q 1 0001.txt 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 Quarter Ended March 2, 2001 Commission File Number 1-5197 Plymouth Rubber Company, Inc. (Exact name of registrant as specified in its charter) Massachusetts 04-1733970 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 104 Revere Street, Massachusetts 02021 (Address of principal executive offices) (Zip Code) (781) 828-0220 Registrant's telephone number,including area code Not Applicable. (Former name, former address, and former fiscal year, if changed since last report) Indicate by checkmark 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 receding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Class A common stock, par value $1 - 810,586 Class B common stock, par value $1 - 1,226,304 PLYMOUTH RUBBER COMPANY, INC. PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements: Page No. Condensed Consolidated Statement of Operations and Retained Earnings (Deficit) . . . . . . . . . . . . . . 2 Condensed Consolidated Statement of Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Balance Sheet . . . . . . . . . . 4 Condensed Consolidated Statement of Cash Flows . . . . . 5 Notes To Condensed Consolidated Financial Statements . . 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 12-14 PART II. OTHER INFORMATION 15 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements PLYMOUTH RUBBER COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (In Thousands Except Share and Per Share Amounts) (Unaudited) First Quarter Ended March 2, March 3, 2001 2000 -------- -------- Revenues: Net sales . . . . . . . . . . $ 15,017 $ 17,047 Cost and expenses: Cost of products sold. . . . . 13,825 13,562 Selling, general and administrative . . . . . . . 2,999 3,484 -------- -------- 16,824 17,046 -------- -------- Operating income (loss) . . . . . (1,807) 1 Interest expense. . . . . . . . . (613) (540) Other income (expense). . . . . . 84 (12) -------- -------- Income (loss) before taxes. . . . (2,336) (551) (Provision) benefit for income taxes . . . . . . . . 7 232 -------- -------- Net income (loss) . . . . . . . . (2,329) (319) Retained earnings (deficit) at beginning of period. . . . . (1,311) 2,678 -------- -------- Retained earnings (deficit) at end of period. . . . . . . . $ (3,640) $ 2,359 ======== ======== Per Share Data: Basic Earnings Per Share: Net income (loss) . . . . . . . $ (1.14) $ (0.16) ======== ======== Weighted average number of shares outstanding. . . . . . 2,036,890 2,048,456 ========= ========= Diluted Earnings Per Share: Net income (loss) . . . . . . . $ (1.14) $ (0.16) ======== ======== Weighted average number of shares outstanding. . . . . . 2,036,890 2,048,456 ========= ========= See Accompanying Notes To Condensed Consolidated Financial Statements 2 PLYMOUTH RUBBER COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF COMPREHRESIVE INCOME (In Thousands) (Unaudited) First Quarter Ended March 2, March 3, 2001 2000 -------- -------- Net income (loss) . . . . . . . . $ (2,329) $ (319) Other comprehensive income, net of tax: Foreign currency translation adjustment . . . . . . . . . 49 (34) -------- -------- Other comprehensive income. . . . 49 (34) -------- -------- Comprehensive income (loss) . . . $ (2,280) $ (353) ======== ======== See Accompanying Notes To Condensed Consolidated Financial Statements 3 PLYMOUTH RUBBER COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands) March 2, Dec. 2, 2001 2000 -------- -------- (Unaudited) Assets Current Assets: Cash. . . . . . . . . . . . . . $ 3 $ 4 Accounts receivable . . . . . . 9,013 10,009 Allowance for doubtful accounts (313) (331) Inventories: Raw materials . . . . . . . . 4,190 4,671 Work in process . . . . . . . 1,282 1,627 Finished goods. . . . . . . . 6,985 7,672 -------- -------- 12,457 13,970 -------- -------- Deferred tax assets, net. . . . -- -- Prepaid expenses and other current assets. . . . . . . . 806 926 -------- -------- Total current assets. . . . . . . 21,966 24,578 -------- -------- Plant Assets: Plant assets. . . . . . . . . . 48,258 47,970 Less: Accumulated depreciation (22,691) (21,874) -------- -------- Total plant assets, net . . . 25,567 26,096 -------- -------- Other Assets: Deferred tax assets, net. . . . -- -- Other long-term assets. . . . . 787 787 -------- -------- Total other assets . . . . . . 787 787 -------- -------- $ 48,320 $ 51,461 ======== ======== Liabilities and Stockholders' Equity Current Liabilities: Revolving line of credit. . . . $ 11,787 $ 12,238 Trade accounts payable. . . . . 8,210 7,845 Accrued expenses. . . . . . . . 2,424 2,618 Current portion of long-term borrowings. . . . . 12,888 13,234 -------- -------- Total current liabilities. . . 35,309 35,935 -------- -------- Long-Term Liabilities: Borrowings. . . . . . . . . . . 1,293 1,403 Pension obligation. . . . . . . 2,231 2,270 Deferred tax liability. . . . . 112 105 Other . . . . . . . . . . . . . 2,437 2,540 -------- -------- Total long-term liabilities. . 6,073 6,318 -------- -------- Stockholders' Equity: Preferred stock . . . . . . . . -- -- Class A voting common stock. . 810 810 Class B non-voting common stock 1,281 1,281 Paid in capital . . . . . . . . 9,084 9,084 Retained earnings . . . . . . . (3,640) (1,311) Accumulated other comprehensive (242) (291) Deferred compensation . . . . . (28) (38) -------- -------- 7,265 9,535 Less: Treasury stock at cost. . . (327) (327) -------- -------- Total stockholders' equity. . . . 6,938 9,208 -------- -------- $ 48,320 $ 51,461 ======== ======== See Accompanying Notes To Condensed Consolidated Financial Statements 4 PLYMOUTH RUBBER COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) (Unaudited) First Quarter Ended March 2, March 3, 2001 2000 -------- -------- Cash flows relating to operating activities: Net income (loss) . . . . . . . $ (2,329) $ (319) Adjustments to reconcile net income to net cash provided by (used in)operating activities: Depreciation and amortization 739 702 Amortization of deferred compensation . . . . . . . 10 10 Changes in assets and liabilities: Accounts receivable . . . . . 1,084 2,091 Inventory . . . . . . . . . . 1,582 (1,011) Prepaid expenses. . . . . . . 121 22 Other assets. . . . . . . . . 12 (7) Accounts payable. . . . . . . 311 1,361 Accrued expenses . . . . . . (260) (604) Pension obligation. . . . . . 11 (47) Other liabilities . . . . . . (103) (69) -------- -------- Net cash provided by operating activities 1,178 2,129 -------- -------- Cash flows relating to investing activities: Capital expenditures. . . . . . (98) (1,051) -------- -------- Net cash used in investing activities (98) (1,051) -------- -------- Cash flows relating to financing activities: Net decrease in revolving line of credit. . . . . . . . (510) (707) Proceeds from term debt . . . . -- 550 Payments of term debt . . . . . (342) (732) Payments on capital leases. . . (196) (160) Payments on treasury stock purchase. . . . . . . . . . . -- (36) -------- -------- Net cash (used in) provided by financing activities (1,048) (1,085) -------- -------- Effect of exchange rates on cash (33) 9 -------- -------- Net change in cash. . . . . . . . (1) 2 Cash at the beginning of the period 4 -- -------- -------- Cash at the end of the period . . $ 3 $ 2 ======== ======== Supplemental Disclosure of Cash Flow Information Cash paid for interest. . . . . . $ 580 $ 543 ======== ======== Cash paid for income taxes. . . . $ -- $ 72 ======== ======== See Accompanying Notes To Condensed Consolidated Financial Statements 5 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) The Company, in its opinion, has included all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. The interim financial information is not necessarily indicative of the results that will occur for the full year. The financial statements and notes thereto should be read in conjunction with the financial statements and notes for the years ended December 1, 2000, December 3, 1999, and November 27, 1998, included in the Company's 2000 Annual Report to shareholders on Form 10-K filed with the Securities and Exchange Commission. (2) The Company's revolving credit loan and long term debt agreements contain various covenants which, among other things, prohibit cash dividends without the consent of the lender and specify that the Company meet certain financial requirements, including certain net worth, fixed charge and EBITDA coverage ratios and minimum working capital levels. In addition, for certain short-term borrowings, the agreements contain certain subjective provisions which would result in an event of default if the bank would deem itself "insecure" for any reason. The short-term borrowings are also payable on demand. As of March 2, 2001, the Company was not in compliance with two of its financial covenants (minimum working capital and minimum fixed charge coverage ratio) with its primary term debt lender. Because of a cross default provision, the Company was therefore also not in compliance with a covenant with its primary working capital lender. As a result, the $9.1 million long-term portion of debt with these lenders has been classified as current on the Company's Consolidated Balance Sheet, and the total debt with these lenders is currently payable on demand. This reclassification resulted in a negative working capital of $13,343,000. The Company is projecting that it will not be in compliance with the covenants of its primary term debt and primary working capital facilities in the next twelve months. The Company expects that demands on its liquidity and credit resources will continue to be significant through fiscal 2001. The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The negative working capital position of $13,343,000, the demand status of the Company's term debt facilities, as described above, and the lack of borrowing capacity under the line of credit, at March 2, 2001, may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. As discussed in the Company's Form 10-K filed for the year ended December 1, 2000, the Company had developed cash conservation plans for Fiscal 2001. As of the 10-K filing date the Company had negotiated modified loan agreements with its primary term lender to defer certain principal payments and extend the remaining amortization period by four months, and was also working with another of its term lenders to negotiate a similar agreement. During March of 2001, this agreement was completed, allowing a reduced 2001 cash outflow of approximately $800,000 from deferred principal payments with these two lenders. As of the filing of the 10-K, the Company was also working with its primary working capital lender to increase cash availability and/or defer certain principal payments on term debt. During March and April of 2001, the Company completed such an agreement with its working capital lender to increase cash availability by a total of $400,000, commencing on March 26, 2001 and reducing by $5,000 a day to zero by July 13, 2001. The Company was also working with a number of other lenders to obtain additional financing or refinance its existing debt, but to date has not completed any such financing or refinancing. 6 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) As also described in the Fiscal 2000 10-K, the Company had developed plans to conserve cash, including cost reductions, inventory reductions, expense deferrals, capital expenditure reductions, incentive compensation reductions, and certain delayed payments. During April 2001, the Company has completed a number of cost reductions and expense deferrals, including the reduction of its direct labor force by 25 employees, or a future cost reduction of approximately $1,000,000 annually. During the first quarter of 2001, the Company has also reduced inventory by $1,727,000 at Plymouth Tapes, and $1,513,000 overall. As planned, the capital expenditures in the first quarter of 2001 were reduced to $98,000, as compared to $1,051,000 in the first quarter of 2000. Also as planned, no incentive compensation expenses were incurred during the first quarter of 2001. Certain payments were also delayed where possible. (3) In accordance with the Statement of Financial Accounting No. 109, Accounting for Income Taxes (FAS109), during the first quarter of 2001, the Company did not record the tax benefit of the loss generated from its domestic operations, because it could not be carried back to recover taxes paid in previous years, and will not be offset by the reversal of future taxable difference and, as such, is more likely than not to expire prior to realizability. The Company therefore recorded a $7,000 tax credit for the first quarter of 2001 related to its Spanish subsidiary, compared to a $232,000 tax credit for its domestic and foreign operations in the first quarter of 2000. (4) Claims under CERCLA The Company has been named as a Potentially Responsible Party ("PRP") by the United States Environmental Protection Agency ("EPA") in two ongoing claims under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). These CERCLA claims involve attempts by the EPA to recover the costs associated with the cleanup of two Superfund Sites in Southington, Connecticut--the Solvent Recovery Service of New England Superfund Site ("SRS Site") and the Old Southington Landfill Superfund Site ("OSL Site"). SRS was an independent and licensed solvent recycler/disposal company. The EPA asserts that SRS, after receiving and processing various hazardous substances from PRPs, shipped some resultant sludges and wastewater from the SRS Site to the OSL Site. The Company received a PRP notification regarding the SRS Site in June, 1992. The EPA originally attributed a 1.74% share of the aggregate waste volume at the SRS Site to the Company. Remedial action is ongoing at the Site, and the Company is a participant in the performing PRP group. Largely because of "orphaned" and non- participating parties' shares, the Company most recently has been contributing approximately 2.16% toward the performing PRP group's ongoing expenses. To date approximately $15 million in response costs have been spent or committed at this Site. Based upon the extensive investigations and remedial actions conducted at the Site to date, it is presently estimated that the total future costs at the SRS Site may range from approximately $18 million to $50 million. In the accompanying consolidated financial statements as of March 2, 2001 management has accrued $474,000 as a reserve against the Company's potential future liability in this matter, which is net of approximately $252,000 in payments made to date by the Company. The Company received a PRP notification regarding the OSL Site in January, 1994. In addition to numerous "SRS transshipper" PRPs (such as the Company), the EPA has named a number of other PRPs who allegedly shipped waste materials directly to the OSL Site. Based on EPA's asserted volume of shipments to SRS, EPA originally attributed 4.89% of the SRS transshipper PRPs' waste volume at the OSL Site to the Company, which is a fraction of the undetermined total waste volume at the Site. The remediation program at the OSL Site has been divided into two phases, called Operable 7 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) Units ("OU"). OU#1 primarily involves capping of the site and OU#2 is groundwater remediation, if any. A Record of Decision ("ROD") was issued in September, 1994 for OU#1 and, in December, 1997, following mediation, the Company contributed $140,180 in full settlement of OU#1 (toward a total contribution by the SRS transshipper PRPs of approximately $2.5 million). The SRS transshipper PRPs' payment of $2.5 million represented approximately 8% of the OU#1 total settlement. At present, neither the remedy for OU#2 nor the allocation of the costs thereof among the PRPs has been determined. Whatever remedy ultimately is selected, the SRS transshippers' allocable share of the OU#2 expenses likely will be greater than the 8% paid for OU#1. It has been estimated that the total costs of OU#2 may range from $10 million to $50 million. Management has accrued $337,000 in the accompanying consolidated financial statements as a reserve against the Company's potential future liability in this matter, which is net of approximately $168,000 in payments made to date by the Company. Based on all available information as well as its prior experience, management believes that its accruals in these two matters are reasonable. However, in each case the reserved amount is subject to adjustment for future developments that may arise from one or more of the following -- the long range nature of the case, legislative changes, insurance coverage, the joint and several liability provisions of CERCLA, the uncertainties associated with the ultimate groundwater remedy selected, and the Company's ability to successfully negotiate an outcome similar to its previous experience in these matters. Claims under Massachusetts General Laws, Chapter 21E While in the process of eliminating the use of underground storage tanks at the Company's facility in Canton, Massachusetts, the Company arranged for the testing of the areas adjacent to the tanks in question--a set of five tanks in 1994 and a set of three tanks in 1997. The tests indicated that some localized contamination had occurred. The Company duly reported these findings regarding each location to the Massachusetts Department of Environmental Protection ("DEP"), and the DEP has issued Notices of Responsibility under Massachusetts General Laws Chapter 21E to the Company for each location (RTN No. 3-11520 for the set of five tanks and RTN Nos. 3- 15347 and 3-19744 for the set of three tanks). The Company has retained an independent Licensed Site Professional ("LSP") to perform assessment and remediation work at the two locations. With regard to the first matter (involving the set of five tanks), the LSP has determined that the contamination appears to be confined to a small area of soil and does not pose an environmental risk to surrounding property or community. With regard to the second matter (involving the set of three tanks), a limited amount of solvent has been found in the soil and groundwater in the vicinity of the tanks. Costs incurred to date in connection with these two locations have totaled approximately $509,000. These costs have been funded through operating cash flows. It presently is estimated that the combined future costs to complete the assessment and remediation actions at the two locations will total approximately $262,000, and that amount has been accrued in the accompanying financial statements. In January 1997, the Company received a Chapter 21E Notice of Responsibility from the DEP concerning two sites located in Dartmouth, Massachusetts (RTN No. 4-0234) and Freetown, Massachusetts (RTN No. 4-0086), respectively. According to the DEP, drums containing oil and/or hazardous materials were discovered at the two sites in 1979, which led to some cleanup actions by the DEP. The DEP contends that an independent disposal firm allegedly hired by the Company and other PRPs, H & M Drum Company, was responsible for disposing of drums at the two sites. To date, the DEP has issued Notices of Responsibility to approximately 100 PRPs. A group of PRPs, including the Company, has retained an LSP to conduct subsurface investigations at both sites. The LSP has completed Limited Subsurface Investigations at both sites. At the Freetown site, 8 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) no reportable contamination was found either in soil or groundwater, and the LSP has recommended that the DEP close the site out. At the Dartmouth site, no reportable contamination was found in soil, while reportable, but lower than historical levels of contaminants were found in groundwater. The LSP's investigation at the Dartmouth site further indicates that there may be an upgradient off-site source of contaminants (which the Company would not be responsible for) that is impacting the site, and recommends further investigation into that possibility. While the results of the Limited Subsurface Investigations at these sites are relatively encouraging, until additional data is gathered, it is not possible to reasonably estimate the costs of any further investigation or cleanup that may be required at one or both sites, or the Company's potential share of liability or responsibility therefore. Accordingly, no reserve has been recorded in the accompanying financial statements with respect to these two sites. In April, 2000 the Company received a Chapter 21E Notice of Responsibility from the DEP concerning an oil release in the portion of the East Branch of the Neponset River that flows through the Company's property in Canton, Massachusetts (RTN No. 3-19407). The Company had duly reported the presence of oil in the river to the appropriate government agencies. The Company commenced cleanup and investigatory actions as soon as it became aware of the presence of the oil, and immediately retained both an LSP to oversee response actions in this matter and also an environmental services firm to perform cleanup and containment services. At the present time, neither the source nor the cause of the release has been positively determined. Costs incurred to date have totaled approximately $232,000. These costs have been funded through operating cash flows. It presently is estimated that the future costs in this matter will total approximately $100,000 which has been accrued in the accompanying financial statements. 9 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) (5) The following table reflects the factors used in computing earnings per share and the effect on income and the weighted average number of shares of potentially dilutive common stock. First Quarter Ended March 2, 2001 Loss Shares Per Share (Numerator) (Denominator) Amount ------------ ------------- ---------- Basic EPS Income (loss) available to common stockholders $ (2,329,000) 2,036,890 $ (1.14) ========== Effect of Dilutive Security (A) options -- -- ------------ ------------- Diluted EPS Income (loss) available to common stockholders and assumed conversions $ (2,329,000) 2,036,890 $ (1.14) ============ ============= ========== First Quarter Ended March 3, 2000 Loss Shares Per Share (Numerator) (Denominator) Amount ------------ ------------- ---------- Basic EPS Income (loss) available to common stockholders $ (319,000) 2,048,456 $ (0.16) ========== Effect of Dilutive Security (A) options -- -- ------------ ------------- Diluted EPS Income (loss) available to common stockholders and assumed conversions $ (319,000) 2,048,456 $ (0.16) ============ ============= ========== (A) Options for 334,365 and 205,725 shares of common stock were outstanding at March 2, 2001 and March 3, 2000, respectively, but were not included in computing diluted earnings per share in each of the respective periods because their effects were anti- dilutive. In addition, options for 151,204 and 284,474 shares of common stock were outstanding at March 2, 2001 and March 3, 2000, respectively, but were not included in computing diluted earnings per share because of the loss from operations. 10 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) (6) Plymouth Rubber Company, Inc. and its subsidiaries primarily operate through the following two business segments: Plymouth Tapes and Brite-Line Technologies. Management has determined these to be Plymouth Rubber Company's business segments, based upon its process of reviewing and assessing Company performance, and allocating resources. Plymouth Tapes manufactures plastic and rubber products, including automotive, electrical, and industrial tapes. Brite-Line Technologies manufactures and supplies rubber and plastic highway marking and safety products. Management evaluates the performance of its segments and allocates resources to them primarily based upon sales and operating income. Intersegment sales are at cost and are eliminated in consolidation. In addition, certain of the selling, general and administrative expenses recorded in Plymouth Tapes could be considered as incurred for the benefit of Brite-Line, but are currently not allocated to that segment. These expenses include certain management, accounting, personnel and sales services, and a limited amount of travel, insurance, directors fees and other expenses. The table below presents information related to Plymouth Rubber's business segments for the three months ended March 2, 2001 and March 3, 2000. First Quarter Ended March 2, March 3, 2001 2000 -------- -------- (In Thousands) Segment sales to unaffiliated customers: Plymouth Tapes . . . . . . . . $ 14,049 $ 16,397 Brite-Line Technologies . . . . 968 650 -------- -------- Consolidated net sales. . . . . $ 15,017 $ 17,047 ======== ======== Segment income: Plymouth Tapes. . . . . . . . . $ (1,359) $ 340 Brite-Line Technologie. . . . . (448) (339) -------- -------- Consolidated operating income (1,807) 1 Interest expense. . . . . . . . (613) (540) Other, net. . . . . . . . . . . 84 (12) -------- -------- Consolidated income (loss) before tax. . . . . . $ (2,336) $ (551) ======== ======== 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Sales decreased 12% to $15,017,000 from $17,047,000 last year. Sales at Plymouth Tapes decreased 14% to $14,049,000 from $16,397,000 last year. The largest decrease was in the automotive market, where sales decreased 22% from last year. Sales at Brite-Line Technologies increased 49% to $968,000 from $650,000 last year. Gross margin decreased to 7.9% from 20.4% last year. Gross margin at Plymouth Tapes decreased to 9.2% from 20.6% last year. The major factor was very low production volumes, resulting from both lower sales and from a $1.7 million reduction in Plymouth Tapes inventory during the quarter. Gross margin at Brite-Line Technologies decreased to (10.1)% from 16.0% last year, although gross margin dollars are normally seasonally low during the first quarter. The decrease in margin was primarily as a result of lower margin sales to a foreign customer. Selling, general and administrative expenses decreased 13.9% to $2,999,000 from $3,484,000 last year. At Plymouth Tapes, selling, general and administrative expenses decreased 12.9% to $2,649,000 from $3,041,000 last year. The major contributors to the reduction were a $157,000 decrease in freight, a $62,000 reduction in bonus expense, a $47,000 decrease in outside warehouse expenses, a $33,000 decrease in advertising, a $28,000 decrease in commissions, offset in part by $48,000 in lower bad debt recoveries. Selling, general and administrative expenses at Brite-Line Technologies decreased 21.0% to $350,000 from $443,000 last year. The major factors were a decrease in professional fees of $76,000 and a reduction in accrued bonus expense of $43,000. Interest expense increased 13.5% to $613,000 from $540,000 last year, because of higher interest rates on the revolving line of credit, increased fees, and higher term loan balances, slightly offset by a lower balance on the revolving line of credit. Other income increased to $84,000 from an expense of $12,000 last year, largely because of a $65,000 increase in foreign currency exchange gains and losses, and one-time rental income of $35,000. The above factors generated a pre-tax loss of $2,336,000, compared to a pre-tax loss of $551,000 in the first quarter of 2000. In accordance with the Statement of Financial Accounting No. 109, Accounting for Income Taxes (FAS109), during the first quarter of 2001, the Company did not record the tax benefit of the loss generated from its domestic operations, because it could not be carried back to recover taxes paid in previous years, and will not be offset by the reversal of future taxable difference and, as such, is more likely than not to expire prior to realizability. The Company therefore recorded a $7,000 tax credit for the first quarter of 2001 related to its Spanish subsidiary, compared to a $232,000 tax credit for its domestic and foreign operations in the first quarter of 2000. The net loss was $2,329,000, compared to a net loss of $319,000 in the first quarter of 2000. Cash generated from operating activities was $1.2 million in the first quarter of 2001, as compared to $2.1 million in the first quarter of 2000. The major factors contributing to cash from operating activities were a decrease in inventory of $1.6 million, a decrease in accounts receivable of $1.1 million, depreciation and amortization of $0.7 million, an increase in accounts payable of $0.3 million, and a decrease in prepaid expenses of $0.1 million, partially offset by a net loss of $2.3 million, a decrease in accrued expenses of $0.2 million, and a decrease in other liabilities of $0.1 million. This operating cash flow was used to pay off term debt and capital leases by $0.5 million, and to reduce the revolving line of credit by $0.5 million. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Liquidity As of March 2, 2001, the Company had used all of its borrowing capacity under its line of credit with its primary lender, after consideration of collateral limitations and the letter of credit related to a guarantee of 80 million pesetas (approximately $0.4 million) on a term loan agreement with a Spanish bank syndicate. As of March 2, 2001, the Company was not in compliance with two of its financial covenants (minimum working capital and minimum fixed charge coverage ratio) with its primary term debt lender. Because of a cross default provision, the Company was therefore also not in compliance with a covenant with its primary working capital lender. As a result, the $9.1 million long-term portion of debt with these lenders has been classified as current on the Company's Consolidated Balance Sheet, and the total debt with these lenders currently would be payable on demand. This reclassification resulted in a negative working capital of $13,343,000. The Company is projecting that it will not be in compliance with the covenants of its primary term debt and primary working capital facilities in the next twelve months. The Company expects that demands on its liquidity and credit resources will continue to be significant through fiscal 2001. As discussed in the Company's Form 10-K filed for the year ended December 1, 2000, the Company had developed cash conservation plans for Fiscal 2001. As of the 10-K filing date the Company had negotiated modified loan agreements with its primary term lender to defer certain principal payments and extend the remaining amortization period by four months, and was also working with another of its term lenders to negotiate a similar agreement. During March of 2001, this agreement was completed, allowing a reduced 2001 cash outflow of approximately $800,000 from deferred principal payments with these two lenders. As of the filing of the 10-K, the Company was also working with its primary working capital lender to increase cash availability and/or defer certain principal payments on term debt. The Company was also working with a number of other lenders to obtain additional financing or refinance its existing debt, but to date has not completed any such financing or refinancing. As also described in the Fiscal 2000 10-K, the Company had developed plans to conserve cash, including cost reductions, inventory reductions, expense deferrals, capital expenditure reductions, incentive compensation reductions, and certain delayed payments. During April 2001, the Company has completed a number of cost reductions and expense deferrals, including the reduction of its direct labor force by 25 employees, or a future cost reduction of approximately $1,000,000 annually. During the first quarter of 2001, the Company has also reduced inventory by $1,513,000. As planned, capital expenditures in the first quarter of 2001 were reduced to $98,000, as compared to $1,051,000 in the first quarter of 2000. Also as planned, no incentive compensation expenses were incurred during the first quarter of 2001. Certain payments were also delayed where possible. The Company continues to seek out opportunities to conserve cash, including cost reductions, capital expenditure reductions, incentive compensation reductions, and certain delayed payments and will continue to explore opportunities for additional financing or refinancing of existing debt. In the opinion of management, and based upon the plans above, anticipated cash flow from operations, and from existing, renegotiated, refinanced, and/or additional debt facilities, cash conservation measures, and other planned cash inflows will provide sufficient funds to meet expected needs during fiscal 2001. Although there has been no demand placed on the Company by its term lenders, should such a demand be placed, and should additional financing or refinancing not take place, the Company would most likely not be able to sustain operations. Although management expects to be able to accomplish its plans, there is no assurance that it will be able to do so. The Company's plans depend upon many factors, including those outlined in the Safe Harbor Statement below. Failure to accomplish these plans could have an adverse impact on the Company's liquidity and financial position, and its ability to continue operations. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As described above, the negative working capital position of $13,343,000 at March 2, 2001, demand status of the Company's term debt facilities and the lack of borrowing capacity under the line of credit may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has been contacted by the American Stock Exchange (AMEX) regarding minimum listing requirements on the number of public Class A common stockholders (200), and the aggregate market value of the publicly held Class A common stock ($1,000,000). The Company has met with AMEX representatives and believes that it meets the minimum number of public Class A stockholders. The Company will be reviewing various options regarding the aggregate market value of the publicly held Class A common stock, should that aggregate value remain below current listing standards. Safe Harbor Statement Certain statements in this report, in the Company's press releases and in oral statements made by or with the approval of an authorized executive officer of the Company may constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. These may include statements projecting, forecasting or estimating Company performance and industry trends. The achievement of the projections, forecasts or estimates is subject to certain risks and uncertainties. Actual results may differ materially from those projected, forecasted or estimated. The applicable risks and uncertainties include general economic and industry conditions that affect all international businesses, as well as matters that are specific to the Company and the markets it serves. General risks that may impact the achievement of such forecast include: compliance with new laws and regulations, significant raw material price fluctuations, changes in interest rates, currency exchange rate fluctuations, limits on the repatriation of funds and political uncertainty. Specific risks to the Company include: risk of recession in the economies and /or markets in which its products are sold, the Company's ability to refinance its credit facility or obtain additional financing, the concentration of a substantial percentage of the Company's sales with a few major automotive customers, cost of raw materials, and competition in pricing. 14 PLYMOUTH RUBBER COMPANY, INC. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the information contained in Item 3 of the Company's Annual Report on Form 10-K for its fiscal year ended December 1, 2000, and in Note 11 of the Notes To Consolidated Financial Statements contained in said report. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Index to Exhibits (b) Not Applicable 15 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 thereto duly authorized. Plymouth Rubber Company, Inc. (Registrant) /s/ Joseph J. Berns Joseph J. Berns Vice President - Finance Date: April 16, 2001 16 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS Exhibit No. Description (2) Not Applicable. (3)(i) Restated Articles of Organization -- incorporated by reference to Exhibit 3(i) of the Company's Annual Report on Form 10-K for the year ended December 2, 1994. (3)(ii) By Laws, as amended -- incorporated by reference to Exhibit (3)(ii) of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. (4)(i) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 29, 1995 -- incorporated by reference to Exhibit (4)(viii) to the Quarterly Report on Form 10-Q for the Quarter ended March 1, 1996. (4)(ii) Master Security Agreement between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 29, 1995 -- incorporated by reference to Exhibit (4)(viii) to the Quarterly Report on Form 10-Q for the quarter ended March 1, 1996. (4)(iii) Demand Note between Plymouth Rubber Company, Inc. and LaSalle National Bank dated June 6, 1996 -- incorporated by reference to Exhibit (2)(i) to the report on Form 8-K with cover page dated June 6, 1996. (4)(iv) Loan and Security Agreement between Plymouth Rubber Company, Inc. and LaSalle National Bank dated June 6, 1996 -- incorporated by reference to Exhibit (2)(ii) to the report on Form 8-K with cover page dated June 6, 1996. (4)(v) Amendment to Master Security Agreement between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated February 19, 1997 -- incorporated by reference to Exhibit (4)(xi) to the Quarterly Report on Form 10-Q for the quarter ended February 25, 1997. (4)(vi) Master Security Agreement between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated January 29, 1997 -- incorporated by reference to Exhibit (4)(xii) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 25, 1997. (4)(vii) Demand Note between Brite-Line Technologies, Inc. and LaSalle National Bank dated February 28, 1997 -- incorporated by reference to Exhibit (4)(xiii) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. (4)(viii) Loan and Security Agreement between Brite-Line Technologies, Inc. and LaSalle National Bank dated February 25, 1997 -- incorporated by reference to Exhibit (4)(xiv) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. (4)(ix) Continuing Unconditional Guaranty between Brite-Line Technologies, Inc. LaSalle National Bank dated February 25, 1997 -- incorporated by reference to Exhibit (4)(xv) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. (4)(x) Amendment to Loan and Security Agreement between Plymouth Rubber Company, Inc. and LaSalle National Bank dated May 7, 1997 -- incorporated by reference to Exhibit (4)(xvi) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. (4)(xi) Continuing Unconditional Guaranty between Plymouth Rubber Company, Inc. and LaSalle National Bank dated March 20, 1997 -- incorporated by reference to Exhibit (4)(xvii) to the Company's Quarterly Report on Form 10-Q or the quarter ended May 30, 1997. 17 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS (Continued) Exhibit No. Description (4)(xii) Public Deed which contains the loan guaranteed by mortgage and granted between Plymouth Rubber Europa, S.A. and Caja de Ahorros Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de Comercio dated April 11, 1997 -- incorporated by reference to Exhibit (4)(xviii) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. (4)(xiii) Corporate Guaranty between Plymouth Rubber Company, Inc. and Caja de Ahorros Municipal de Vigo, Banco de Bilbao, and Vizcaya y Banco de Comercio dated April 11, 1997 -- incorporated by reference to Exhibit (4)(xix) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. (4)(xiv) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 3, 1997 -- incorporated by reference to Exhibit (4)(xiv) to the Company's Annual Report on Form 10-K for the year ended November 27, 1998. (4)(xv) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated April 13, 1998 -- incorporated by reference to Exhibit (4)(xv) to the Company's Annual Report on Form 10-K for the year ended November 27, 1998. (4)(xvi) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated November 12, 1998 -- incorporated by reference to Exhibit (4)(xvi) to the Company's report on Form 10-K for the year ended November 27, 1998. (4)(xvii) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated November 25, 1998 -- incorporated by reference to Exhibit (4)(xvii) to the Company's report on Form 10-K for the year ended November 27, 1998. (4)(xviii) Amendments to Loan and Security Agreement between Plymouth Rubber Company, Inc., and LaSalle National Bank dated July 15, 1998 and February 18, 1999 -- incorporated by reference to Exhibit (4)(xviii) to the Company's report on Form 10-Q for the quarter ended February 26, 1999. (4)(xix) Amendment to Loan and Security Agreement between Brite-Line Technologies, Inc., and LaSalle National Bank dated February 18, 1999 -- incorporated by reference to Exhibit (4)(xviii) to the Company's report on Form 10-Q for the quarter ended February 26, 1999. (4)(xx) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated June 29, 1999 -- incorporated by reference to Exhibit (4)(xx) to the Company's report on Form 10-Q for the quarter ended August 26, 1999. (4)(xxi) First Amended and Restated Schedule A - Special Provisions to Loan and Security Agreement between Plymouth Rubber Company, Inc., and LaSalle National Bank dated June 16, 1999 -- incorporated by reference to Exhibit (4)(xxi) to the Company's report on Form 10-Q for the quarter ended March 3, 2000. (4)(xxii) Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 29, 1999 - incorporated by reference to Exhibit (4)(xxii) to the Company's report on Form 10-Q for the quarter ended March 3, 2000. 18 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS (Continued) Exhibit No. Description (10)(i) 1982 Employee Incentive Stock Option Plan -- incorporated by reference to Exhibit (10)(i) of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. (10)(ii) General Form of Deferred Compensation Agreement entered into between the Company and certain officers -- incorporated by reference to Exhibit (10)(ii) of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. (10)(iii) 1992 Employee Incentive Stock Option Plan -- incorporated by reference to Exhibit (10)(iv) of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. (10)(iv) 1995 Non-Employee Director Stock Option Plan -- incorporated by reference to Exhibit (4.3) of the Company's Registration Statement on Form S-8 dated May 4, 1995. (10)(v) 1995 Employee Incentive Stock Option Plan -- incorporated by reference to Exhibit (4.4) of the Company's Registration Statement on Form S-8 dated May 4, 1995. (11) Not Applicable. (15) Not Applicable (18) Not Applicable. (19) Not Applicable (22) Not Applicable. (23) Not Applicable. (24) Not Applicable. (27) Not Applicable. 19