-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IrpDWnpnaBdFKL6uAtsvXHHNVsSk0l7uC4pLBzf/OmKt9nSB1oowHd0QLVp5Imbq CwFN95JmEiWotOuJtwdLhQ== 0000079225-03-000011.txt : 20030714 0000079225-03-000011.hdr.sgml : 20030714 20030714121426 ACCESSION NUMBER: 0000079225-03-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030530 FILED AS OF DATE: 20030714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLYMOUTH RUBBER CO INC CENTRAL INDEX KEY: 0000079225 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 041733970 STATE OF INCORPORATION: MA FISCAL YEAR END: 1127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05197 FILM NUMBER: 03784924 BUSINESS ADDRESS: STREET 1: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178280220 MAIL ADDRESS: STREET 1: PLYMOUTH RUBBER CO INC STREET 2: 104 REVERE ST CITY: CANTON STATE: MA ZIP: 02021 10-Q 1 q2_form10q.txt FORM 10-Q MAY 30, 2003 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 May 30, 2003 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 $ 0.01 - 810,586 Class B common stock, par value $ 0.01 - 1,248,390 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 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-16 Item 3. Quantitative and Qualitative Disclosure about Market Risks 18 Item 4. Controls and Procedures 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes In Securities 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 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) Second Quarter Ended Six Months Ended ----------------------- ----------------------- May 30, May 31, May 30, May 31, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net Sales $ 18,287 $ 17,854 $ 31,830 $ 31,795 ---------- ---------- ---------- ---------- Costs and Expenses: Cost of products sold 14,789 13,704 26,560 24,558 Selling, general and administrative 3,282 3,101 6,048 5,916 ---------- ---------- ---------- ---------- 18,071 16,805 32,608 30,474 ---------- ---------- ---------- ---------- Operating income (loss) 216 1,049 (778) 1,321 Interest expense (466) (489) (883) (984) Other income 91 53 132 172 ---------- ---------- ---------- ---------- Income (loss) before taxes (159) 613 (1,529) 509 Benefit (provision) for income taxes (25) 105 (35) 82 ---------- ---------- ---------- ---------- Net income (loss) (184) 718 (1,564) 591 Retained earnings (deficit) at beginning of period (5,607) (4,455) (4,227) (4,328) ---------- ---------- ---------- ---------- Retained earnings (deficit) at end of period $ (5,791) $ (3,737) $ (5,791) $ (3,737) ========== ========== ========== ========= Per Share Data: Basic Earnings (Loss) Per Share: Net income (loss) $ (0.09) $ 0.35 $ (0.76) $ 0.29 ========== ========== ========== ========== Weighted average number of shares outstanding 2,058,976 2,058,976 2,058,976 2,058,976 ========== ========== ========== ========== Diluted Earnings (Loss) Per Share: Net income (loss) $ (0.09) $ 0.34 $ (0.76) $ 0.29 ========== ========== ========== ========== Weighted average number of shares outstanding 2,058,976 2,092,026 2,058,976 2,067,307 ========== ========== ========== ========== See Accompanying Notes to Condensed Consolidated Financial Statements 2 PLYMOUTH RUBBER COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In Thousands) (Unaudited) Second Quarter Ended Six Months Ended ----------------------- ----------------------- May 30, May 31, May 30, May 31, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income (loss) $ (184) $ 718 $ (1,564) $ 591 Other comprehensive income, net of tax: Foreign currency translation adjustment 128 72 215 57 ---------- ---------- ---------- ---------- Other comprehensive income 128 72 215 57 ---------- ---------- ---------- ---------- Comprehensive income (loss) $ (56) $ 790 $ (1,349) $ 648 ========== ========== ========== ========= See Accompanying Notes to Condensed Consolidated Financial Statements 3 PLYMOUTH RUBBER COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands) May 30, Nov. 29, 2003 2002 ---------- ---------- Assets (Unaudited) Current Assets: Cash $ 2 $ 37 Accounts receivable, less allowance for doubtful accounts of $400 and $397 at May 30, 2003 and November 29, 2002 12,691 11,366 Inventories: Raw materials 4,094 3,481 Work in process 2,021 1,799 Finished goods 7,046 6,361 ---------- ---------- 13,161 11,641 ---------- ---------- Prepaid expenses and other current assets 739 984 ---------- ---------- Total current assets 26,593 24,028 ---------- ---------- Plant Assets: Plant assets 48,693 47,627 Less: Accumulated depreciation (28,026) (26,199) ---------- ---------- Total plant assets, net 20,667 21,428 ---------- ---------- Other long-term assets 876 790 ---------- ---------- $ 48,136 $ 46,246 ========== ========== Liabilities and Stockholders' Equity Current Liabilities: Short-term debt $ 15,430 $ 13,314 Accounts payable 8,482 7,035 Accrued expenses 4,245 4,482 Current portion of long-term obligations 1,959 1,536 ---------- ---------- Total current liabilities 30,116 26,367 ---------- ---------- Long-Term Liabilities: Borrowings 8,236 8,972 Pension obligation 5,359 5,115 Deferred tax liability 143 119 Other 2,569 2,611 ---------- ---------- Total long-term liabilities 16,307 16,817 ---------- ---------- Stockholders' Equity: Preferred stock, $10 par value, 500,000 shares authorized; no shares issued and outstanding -- -- Class A voting common stock, $0.01 par value, 1,500,000 shares authorized, 810,586 shares issued and outstanding 8 8 Class B non-voting common stock, $0.01 par value, 3,500,000 shares authorized, 1,281,304 shares issued and 1,248,390 shares outstanding 13 13 Paid in capital 11,154 11,154 Retained earnings (deficit) (5,791) (4,227) Accumulated other comprehensive loss (3,486) (3,701) ---------- ---------- 1,898 3,247 Less: Treasury stock at cost (32,914 shares) (185) (185) ---------- ---------- Total stockholders' equity 1,713 3,062 ---------- ---------- $ 48,136 $ 46,246 ========== ========== See Accompanying Notes to Condensed Consolidated Financial Statements 4 PLYMOUTH RUBBER COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) (Unaudited) Six Months Ended ----------------------- May 30, May 31, 2003 2002 ---------- ---------- Cash flows relating to operating activities: Net income (loss) $ (1,564) $ 591 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,440 1,479 Gain on disposal of plant assets -- (131) Changes in assets and liabilities: Accounts receivable (922) (929) Inventory (1,190) (1,558) Prepaid expenses and other current assets 249 398 Other assets 16 (109) Accounts payable 1,210 (1,449) Accrued expenses (293) (280) Pension obligation 244 75 Other liabilities (68) (9) ---------- ---------- Net cash used in operating activities (878) (1,922) ---------- ---------- Cash flows relating to investing activities: Capital expenditures (235) (115) Sale/lease back of plant assets -- 47 Proceeds from sales of plant assets -- 131 ---------- ---------- Net cash provided by (used in) investing activities (235) 63 ---------- ---------- Cash flows relating to financing activities: Net increase (decrease) in short-term debt 2,126 2,256 Payments on term debt (774) (241) Payments on capital leases (145) (114) ---------- ---------- Net cash provided by financing activities 1,207 1,901 ---------- ---------- Effect of exchange rates on cash (129) (24) ---------- ---------- Net change in cash (35) 18 Cash at the beginning of the period 37 7 ---------- ---------- Cash at the end of the period $ 2 $ 25 ========== ========== Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 920 $ 971 ========== ========== Cash paid for income taxes $ 16 $ 26 ========== ========== See Accompanying Notes to Condensed Consolidated Financial Statement 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 condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the years ended November 29, 2002, November 30, 2001, and December 1, 2000, included in the Company's 2002 Annual Report filed with the Securities and Exchange Commission on Form 10-K. (2) The consolidated 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 $3,523,000, the funding requirement for the defined benefit plan of $1,262,000 for the plan year ending November 30, 2002, the lack of sales growth, and the overall risks associated with the fiscal 2003 plan may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management's belief that cash flows generated from operations and available incremental borrowings will be sufficient to meet the Company's liquidity needs during fiscal 2003. Management has also identified a number of additional expense reductions possible in 2003, including the deferral of certain planned personnel replacements or additions, the deferral of certain planned marketing expenses, reduced product costs through materials substitutions, and decreased usage of certain operating supplies. Although management expects to be able to accomplish its business and financing plans, there is no assurance that it will be able to do so. The Company's plans depend upon many factors. Failure to accomplish these plans could have an adverse impact on the Company's liquidity, financial position, and ability to continue operations. (3) Environmental The Company has been named as a Potentially Responsible Party by the United States Environmental Protection Agency in two ongoing claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). The Company has also received Notices of Responsibility under Massachusetts General Laws Chapter 21E on two sites in Massachusetts. The Company has accrued $740,000 as of May 30, 2003 to cover future environmental expenditures related to these claims, which is net of $505,000 payments made to date. The accrual represents the Company's estimate of the remaining remediation costs based upon the best information currently available. Actual future costs may be different from the amount accrued for as of May 30, 2003 and may be affected by various factors, including future testing, the remediation alternatives taken at the sites, and actual cleanup costs. The final remediation costs could also be subject to adjustment because of the long term nature of the cases, legislative changes, insurance coverage, joint and several liability provisions of CERCLA, and the Company's ability to successfully negotiate an outcome similar to its previous experience in these matters. The Company has also received Notices of Responsibility under Massachusetts General Laws Chapter 21E on three sites at the Company's facilities in Canton, Massachusetts. In all of these cases, the Company has taken a variety of actions towards the ultimate cleanup, depending upon the status of each of the sites. These activities include the retention of an independent Licensed Site Professional, investigation, assessment, 6 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) containment, and remediation. The Company has accrued $290,000 as of May 30, 2003 to cover estimated future environmental cleanup expenditures, which is net of $948,000 payments made to date. Actual future costs may be different from the amount accrued for as of May 30, 2003. (4) The following table reflects the factors used in computing earnings (loss) per share and the effect on income (loss) and the weighted average number of shares of potentially dilutive securities. Second Quarter Ended May 30, 2003 ---------------------------------------- Loss Shares Per Share (Numerator) (Denominator) Amount ---------- ---------- ---------- Basic EPS Loss available to common stockholders $ (184,000) 2,058,976 $ (0.09) ========== Effect of dilutive stock options (A) -- -- ---------- ---------- Diluted EPS Loss available to common stockholders and assumed conversions $ (184,000) 2,058,976 $ (0.09) ========== ========== ========== Second Quarter Ended May 31, 2002 ---------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ---------- ---------- ---------- Basic EPS Income available to common stockholders $ 718,000 2,058,976 $ 0.35 ========== Effect of dilutive stock options (A) -- 33,050 ---------- ---------- Diluted EPS Income available to common stockholders and assumed conversions $ 718,000 2,092,026 $ 0.34 ========== ========== ========== (A) Options for 390,225 and 477,739 shares of common stock were outstanding at May 30, 2003 and May 31, 2002, respectively, but were not included in computing diluted earnings per share in each of the respective periods because their exercise prices were greater than the average market price of the Company's common stock for the period and their effects were anti-dilutive. In addition, options for 20,260 shares of common stock were outstanding at May 30, 2003 but were not included in computing diluted earnings per share because of the loss. 7 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) Six Months Ended May 30, 2003 ---------------------------------------- Loss Shares Per Share (Numerator) (Denominator) Amount ---------- ---------- ---------- Basic EPS Loss available to common stockholders $ (1,564,000) 2,058,976 $ (0.76) ========== Effect of dilutive stock options (A) -- -- ---------- ---------- Diluted EPS Loss available to common stockholders and assumed conversions $ (1,564,000) 2,058,976 $ (0.76) ========== ========== ========== Six Months Ended May 31, 2002 ---------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ---------- ---------- ---------- Basic EPS Income available to commonstockholders $ 591,000 2,058,976 $ 0.29 ========== Effect of dilutive stock options (A) -- 8,331 ---------- ---------- Diluted EPS Income available to common stockholders and assumed conversions $ 591,000 2,067,377 $ 0.29 ========== ========== ========== (B) Options for 321,113 and 505,739 shares of common stock were outstanding at May 30, 2003 and May 31, 2002, respectively, but were not included in computing diluted earnings per share in each of the respective periods because their exercise prices were greater than the average market price of the Company's common stock for the period and their effects were anti-dilutive. In addition, options for 29,001 shares of common stock were outstanding at May 30, 2003 but were not included in computing diluted earnings per share because of the loss. In April 2003, the shareholders approved the amendment to the Company's Restated Articles of Organization reducing the par value for Class A and Class B Common Stock from $1.00 per share to $0.01 per share. Accordingly, the value for Class A and Class B Common Stock and Paid in capital on the Condensed Consolidated Balance Sheet, have been adjusted for this change in par value. (5) Stock Compensation. The Company's stock option plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company uses the disclosure requirements of Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). Under APB No. 25, the Company does not recognize 8 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) compensation expense on stock options granted to employees, because the exercise price of each option is equal to the market price of the underlying stock on the date of the grant. If the company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by FAS 123, the Company's net loss and loss per share would have been reduced to the following pro forma amounts: Second Quarter Ended Six Months Ended ----------------------- ----------------------- May 30, May 31, May 30, May 31, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income (loss), as reported: $ (184) $ 718 $ (1,564) $ 591 Deduct: Total stock-based employee compensation determined under fair value method for all awards, net of related tax effects (35) (48) (69) (96) ---------- ---------- ---------- ---------- Pro forma net income (loss) $ (219) $ 670 $ (1,633) $ 495 ========== ========== ========== ========== Earnings per share: Basic, as reported $ (0.09) $ 0.35 $ (0.76) $ 0.29 ========== ========== ========== ========== Basic, pro forma $ (0.11) $ 0.33 $ (0.79) $ 0.24 ========== ========== ========== ========== Diluted, as reported $ (0.09) $ 0.34 $ (0.76) $ 0.29 ========== ========== ========== ========== Diluted, pro forma $ (0.11) $ 0.32 $ (0.79) $ 0.24 ========== ========== ========== ========== (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 the 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 second quarter and six months ended May 30, 2003 and May 31, 2002. 9 PLYMOUTH RUBBER COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) Second Quarter Ended Six Months Ended ----------------------- ----------------------- May 30, May 31, May 30, May 31, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Segment sales to unaffiliated ,customers: Plymouth Tapes $ 15,189 $ 14,432 $ 28,393 $ 28,071 Brite-Line Technologies 3,098 3,422 3,437 3,724 ---------- ---------- ---------- ---------- Consolidated net sales $ 18,287 $ 17,854 $ 31,830 $ 31,795 ========== ========== ========== ========= Segment operating income (loss): Plymouth Tapes $ (250) $ 521 $ (808) $ 1,179 Brite-Line Technologies 466 528 30 142 ---------- ---------- ---------- ---------- Consolidated segment operating income (loss) 216 1,049 (778) 1,321 Interest expense (466) (489) (883) (984) Other income (expense) 91 53 132 172 ---------- ---------- ---------- ---------- Consolidated income (loss) ,before taxes $ (159) $ 613 $ (1,529) $ 509 ========== ========== ========== ========= 10 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations First Six Months, 2003, Compared with First Six Months, 2002 Sales increased 0.1% to $31,830,000 in 2003 from $31,795,000 in 2002. Sales at Plymouth Tapes increased 1.1% to $28,393,000 in 2003 from $28,071,000 in 2002. While sales in the automotive markets increased approximately 4% compared to 2002, sales in all other markets, including the electrical and contractor markets, decreased approximately 3% from 2002, due largely to the economic slowdown in the industrial markets, partially offset by favorable exchange rates on foreign denominated sales. Sales at Brite-Line Technologies decreased 7.7% to $3,437,000 in 2003, from $3,724,000 in 2002. Gross margin decreased $1,967,000, or 27.2%, to $5,270,000 in 2003 from $7,237,000 in 2002. Gross margin, as a percentage of sales, decreased to 16.6% in 2003 from 22.8% in 2002. Plymouth Tapes' gross margin decreased $1,851,000, or 29.6%, to $4,395,000 in 2003 from $6,246,000 in 2002. Gross margin, as a percentage of sales, decreased to 15.5% in 2003 from 22.3% in 2002. The major factors driving this decrease were: higher raw material purchase prices for 2003, primarily for PVC resins, which accounted for approximately $600,000 of unfavorable margin, or 2.1% of sales; increased manufacturing overhead costs, which accounted for $524,000, or 1.8% of sales, due to higher spending for insurance, pension, utilities, and indirect labor; and overall production yields, which decreased approximately $300,000 or 1.1% of sales, compared to 2002. At Brite-Line Technologies, gross margin decreased $116,000, or 11.7%, to $875,000 in 2003 from $991,000 in 2002 and, as a percentage of sales, decreased to 25.5% in 2003 from 26.6% in 2002 due to lower production levels, which translated into unabsorbed manufacturing cost, partially offset by a decrease in lower margin sales. Selling, general and administrative expenses in 2003 increased $132,000 to $6,048,000 from $5,916,000 in 2002. Selling, general and administrative expenses, as a percentage of sales, increased to 19.0% in 2003 from 18.6% in 2002. At Plymouth Tapes, selling, general and administrative expenses in 2003 increased $136,000 to $5,203,000 from $5,067,000 in 2002. Selling, general and administrative expenses, as a percentage of sales, increased slightly to 18.3% in 2003 from 18.1% in 2002. The major increases were a $193,000 increase in advertising to support new sales strategies, a $167,000 increase in professional fees for legal, audit, and marketing consulting, a $69,000 increase in salaries and fringe, a $63,000 increase in freight, and a $43,000 increase in travel expenses, mostly offset by a $209,000 absence of a freight loss which occurred in 2002, a $141,000 reduction in deferred compensation expense, a $60,000 decrease in foreign selling costs, and a $40,000 decrease in commissions. At Brite- Line Technologies, selling, general and administrative expenses in 2003 decreased slightly by $4,000 to $845,000 from $849,000 in 2002. Selling, general and administrative expenses, as a percentage of sales, increased to 24.6% from 22.8% in 2002. Increases in travel, salaries, development expenses, and customer-supplied equipment were mostly offset by decreases in bad debt expense and freight. Interest expense in 2003 decreased 10.3% to $883,000 from $984,000 in 2002, because of a decrease in fees, as well as lower average balances and lower interest rates on both the revolving line of credit and the real estate loan. Other income was $132,000 in 2003, primarily due to foreign exchange gains, compared to $172,000 in 2002, which included a $131,000 gain on the sale of equipment, and $41,000 of miscellaneous income. The after-tax loss for 2003 was $1,564,000, compared to an after- tax profit of $591,000 in 2002. In accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS109), a full valuation allowance was recorded for any tax benefits generated from the Company's domestic operations in 2003, as they could not be carried back to recover taxes paid and may not be offset by the reversal of future taxable differences. The Company's liquidity situation at May 30, 2003 also provides significant negative evidence regarding its ability to generate sufficient taxable income in the future to realize any deferred tax benefit. 11 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued) Second Quarter, 2003, Compared with Second Quarter, 2002 Sales increased 2.4% to $18,287,000 in 2003 from $17,854,000 in 2002. Sales at Plymouth Tapes increased 5.2% to $15,189,000 in 2003 from $14,432,000 in 2002. Sales in the automotive markets increased 3.6% from last year, and sales in all other markets increased 7.8% due largely to small increases in industrial demand. Sales at Brite-Line Technologies decreased 9.5% to $3,098,000 in 2003, from $3,422,000 in 2002, due to a decrease in foreign sales. Gross margin in 2003 decreased $652,000, or 15.7%, to $3,498,000 in 2003 from $4,150,000 in 2002. Gross margin, as a percentage of sales, decreased to 19.1% in 2003 from 23.2% in 2002. Plymouth Tapes' gross margin in 2003 decreased $615,000, or 19.8%, to $2,493,000 in 2003 from $3,108,000 in 2002. Plymouth Tapes' gross margin, as a percentage of sales, decreased to 16.4% in 2003 from 21.5% in 2002. The major factors driving this decrease were: higher raw material purchase prices for 2003, primarily for PVC resins, which accounted for approximately $340,000 of unfavorable margin, or 2.2% of sales; increased manufacturing overhead costs, which accounted for $230,000, or 1.5% of sales, due to higher spending for insurance, pension, utilities, and indirect labor; and overall production yields, which decreased approximately $180,000, or 0.6% of sales, compared to 2002. At Brite-Line Technologies, gross margin in 2003 decreased $37,000 to $1,005,000 in 2003 from $1,042,000 in 2002 and, as a percentage of sales, increased to 32.4% in 2003 from 30.5% in 2002 due to a decrease in lower margin sales, partially offset by lower production levels, which translated into unabsorbed manufacturing costs. Selling, general and administrative expenses in 2003 increased $181,000, or 5.8%, to $3,282,000 from $3,101,000 in 2002. Selling, general and administrative expenses, as a percentage of sales, increased to 17.9% in 2003 from 17.4% in 2002. At Plymouth Tapes, selling, general and administrative expenses in 2003 increased $156,000, or 6.0%, to $2,743,000 from $2,587,000 in 2002. Plymouth Tapes' selling, general and administrative expenses, as a percentage of sales, increased slightly to 18.1% in 2003 from 17.9% in 2002. The major increases were a $159,000 increase in advertising to support new sales strategies, a $63,000 increase in professional fees for legal, audit, and marketing consulting, a $64,000 increase in freight, and a $63,000 increase in salaries and fringe, partially offset by a $141,000 reduction in deferred compensation expense, and a $42,000 decrease in foreign selling costs. At Brite-Line Technologies, selling, general and administrative expenses in 2003 increased $25,000, or 4.9%, to $539,000 from $514,000 in 2002. Brite-Line Technologies' selling, general and administrative expenses, as a percentage of sales, increased to 17.4% in 2003 from 15.0% in 2002. Increases in customer-supplied equipment and advertising were partially offset by decreases in bad debt expense and freight. Interest expense in 2003 decreased 4.7% to $466,000 from $489,000 in 2002, because of lower average balances and lower interest rates on both the revolving line of credit and the real estate loan, as well as a decrease in fees. Other income was $91,000 in 2003, including $87,000 of foreign exchange gains, compared to $53,000 in 2002, which included $32,000 of foreign exchange gains, and $20,000 of miscellaneous income. The after-tax loss for 2003 was $184,000, compared to an after- tax profit of $718,000 in 2002. In accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS109), a full valuation allowance was recorded for any tax benefits generated from the Company's domestic operations in 2003, as they could not be carried back to recover taxes paid and may not be offset by the reversal of future taxable differences. The Company's liquidity situation at May 30, 2003 also provides significant negative evidence regarding its ability to generate sufficient taxable income in the future to realize any deferred tax benefit. Liquidity and Capital Resources Prior to December, 2002, the Company's term debt agreements had contained various covenants specifying certain financial requirements, including minimum tangible net worth, fixed charge and EBITDA coverage ratios, working capital and maximum ratio of total liabilities to net worth. In 12 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued) addition, the revolving working capital credit facility and the real estate term loan contain an acceleration provision, which can be triggered if the lender determines that an event of default has occurred. As of each quarter end from September 1, 2000 through August 30, 2002, the Company had been in violation of certain covenants of its term debt facility and therefore, due to a cross default provision, the Company had not been in compliance with a covenant under its revolving working capital credit facility and real estate term loan. As a result, all of the Company's term loans (except for that of its Spanish subsidiary) had been classified as current liabilities on the Company's Consolidated Balance Sheet at the end of each fiscal quarter end. In addition, during July 2002, the Company received a demand from its primary term debt lender for the payment of their outstanding loan balances in the amount of $8,658,000, which represented the total of all future payments and accumulated late fees, and a demand letter from a smaller equipment lender for approximately $69,000 of payments due. During 2002, the Company negotiated with these lenders and, in November 2002, reached formal agreement to obtain relief from their demands and to restructure existing term debt facilities. Under the new arrangements, the term debt lenders accepted significantly reduced principal payments over the next three years, eliminated financial covenants, waived existing defaults and rescinded demands for accelerated payment, in return for enhanced collateral positions. As of May 30, 2003, the Company had approximately $867,000 of unused borrowing capacity under its revolving line of credit with its primary working capital lender, after consideration of collateral limitations. The Company's working capital position decreased from a negative $2,339,000 at November 29, 2002 to a negative $3,523,000 at May 30, 2003, due to a $2,116,000 increase in short term debt, a $1,447,000 increase in accounts payable, a $423,000 increase in the current portion of long term borrowings, a $245,000 decrease in prepaid and other current assets, and a $35,000 decrease in cash, partially offset by a $1,520,000 increase in inventory, a $1,325,000 increase in accounts receivable, and a $237,000 decrease in accrued expenses. During the second quarter of 2002, the Company received a funding waiver from the Internal Revenue Service ("IRS") for the $855,000 payment due to its defined benefit plan for the year ended November 30, 2001, conditioned on the Company satisfying the minimum funding requirements for the plan years ending November 30, 2002 and November 30, 2003. This waiver amount was added in equal installments as an additional payment due in each the five succeeding plan years. Also during the second quarter of 2003, the Company notified the Pension Benefit Guaranty Corporation that the Company intended to make the $1,262,000 contribution for the following plan year ending November 30, 2002 by the final due date of August 15, 2003, instead of on a quarterly basis. During the first quarter of 2003, the Company requested a partial funding waiver from the Internal Revenue Service for $1,030,000 of the $1,262,000 payment due for the plan year ending November 30, 2002. During the second and third quarters of 2003, the Internal Revenue Service and the Pension Benefit Guaranty Corporation, who is also reviewing the waiver request, have requested additional information, which the Company has provided. As of July 14, 2003, the Company had not been notified of the Internal Revenue Service's decision. Should a waiver not be granted, and should the Company not be able to make all of the minimum funding payments due by August 15, 2003, the Company would be required to notify the IRS, the Pension Benefit Guaranty Corporation, and the Pension Plan participants. The IRS would assess an excise tax of 10% on the amount of the payment shortfall, which would be currently payable, and the Pension Benefit Guaranty Corporation would impose a tax lien on the Company for the amount of payment shortfall. The Pension Benefit Guaranty Corporation could choose to take one or more additional actions, which could include having the Company continue funding the plan at some level, asking the Company for additional security, taking over the Plan, terminating the Plan, or other possibilities. Some of these possible actions could have an adverse impact on the Company's liquidity, financial position, and ability to continue operations. 13 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued) The consolidated 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 $3,523,000, the funding requirement for the defined benefit plan of $1,262,000 for the plan year ending November 30, 2002, the lack of sales growth, and the overall risks associated with the fiscal 2003 plan may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management's belief that cash flows generated from operations, and available incremental borrowings will be sufficient to meet the Company's liquidity needs during fiscal 2003. Management has also identified and implemented a number of additional expense reductions possible in 2003, including the deferral of certain planned personnel replacements or additions, the deferral of certain planned marketing expenses, and reduced product costs through materials substitutions. Although management expects to be able to accomplish its business and financing plans, there is no assurance that it will be able to do so. The Company's plans depend upon many factors. Failure to accomplish these plans could have an adverse impact on the Company's liquidity, financial position, and ability to continue operations. Cash used in operating activities was $878,000 in 2003, as compared to $1,922,000 in 2002. The major factors contributing to cash used in operating activities were net loss of $1,564,000, an increase in inventory of $1,190,000, an increase in accounts receivable of $922,000, a decrease in accrued expenses of $293,000, and a decrease in other liabilities of $68,000, partially offset by depreciation and amortization of $1,440,000, an increase in accounts payable of $1,210,000, a decrease in prepaid expenses of $249,000, an increase in pension obligation of $244,000, and a $16,000 decrease in other assets. Additional short-term borrowings of $2,126,000 were used to provide this operating cash, pay off term debt and capital leases of $919,000, and for capital expenditures of $235,000. On May 23, 2003, the Company received notification from the American Stock Exchange (the "AMEX") that, as of the first quarter of fiscal 2003, the Company was not in compliance with AMEX listing requirements, due to shareholders' equity being less than $2,000,000 and losses from continuing operations and/or net losses in two of its three most recent fiscal years. In order to maintain the listing of its common stock on AMEX, Plymouth was required to submit a plan by June 23, 2003, subject to acceptance by AMEX, describing actions to be taken to bring it into compliance with listing requirements within 18 months. On June 23, 2003 the Company submitted to the American Stock Exchange a plan describing the program by which the Company will be brought back into compliance with AMEX's listing requirements by the end of November 2004. The filing of the Plan is subject to acceptance by AMEX and may result in an extension of time, up to 18 months, for the Company to regain compliance with AMEX listing standards. A summary of the Company's cash requirements related to its outstanding long term debt and future minimum lease payments is as follows: Fiscal Year: Long Term Debt Operating Lease Total Commitments ----------- ----------- ------------ 2003 $ 617,000 $ 278,000 $ 895,000 2004 1,630,000 535,000 2,165,000 2005 5,771,000 296,000 6,067,000 2006 606,000 95,000 701,000 2007 663,000 -- 663,000 Thereafter 302,000 -- 302,000 ----------- ----------- ------------ Total $ 9,589,000 $ 1,204,000 $ 10,793,000 =========== =========== ============ 14 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued) Critical Accounting Policies The Company's significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements on the Company's 2002 Annual Report filed with the Securities and Exchange Commission on Form 10-K. Certain accounting policies are important to the portrayal of the Company's financial condition and results of operations, and require management's subjective judgments. These policies relate to the deferred tax asset valuation allowance, inventory reserves, provision for doubtful accounts receivable and impairment of long lived assets. Recognition of a deferred tax asset is dependent on generating sufficient future taxable income prior to the expiration of the tax loss or credit carryforward. The Company has taken a full valuation allowance for this tax benefit in accordance with the Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". Should the Company's liquidity situation improve, the amount of the deferred tax asset considered realizable could be increased and could result in a credit to income tax expense in the period such determination was made. The Company writes down its inventory for estimated obsolescence or unmarketable inventory based upon the difference between the cost of the inventory and the estimated net realizable value, based upon assumptions about future demand and market pricing. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company periodically reviews the aging of accounts receivable to identify potentially uncollectible accounts and establishes a reserve based on experience and discussion with customers. Actual write-offs could differ from bad debt reserves. The Company reviews long-lived assets annually or whenever events of circumstances indicate that the carrying amounts of the asset may not be recoverable in accordance with SFAS No. 144. Impaired assets are written down to their estimated fair value based on the best information available to the Company. Impact of New Accounting Pronouncements In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement No. 145 (FAS 145), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. FAS 145 rescinds FAS 4, Reporting Gains and Losses from Extinguishment of Debt, FAS 44, accounting for Intangible Assets of Motor Carriers, and FAS 64 (an amendment of FAS 4), Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. FAS 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. However, an entity would not be prohibited from classifying such gains and losses as extraordinary items so long as they are both unusual in nature and infrequent in occurrence. This provision will be effective for fiscal years beginning after December 15, 2002. FAS 145 also amends FAS 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The amendment to FAS 13 and other technical amendments will be effective for all transactions occurring and financial statements issued after May 15, 2002. The Company is in the process of assessing the impact of the adoption of FAS 145. In June 2002, the FASB issued Statement No. 146 (FAS 146), Accounting for Costs Associated with Exit or Disposal Activities, which eliminates Emerging Issues Task Force (EITF) Issue No. 94- 3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an 15 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued) Activity (including Certain Costs Incurred in a Restructuring). FAS 146 applies to costs associated with an exit activity including: (a) termination benefits provided to current employees that are involuntarily terminated under the terms of a benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract (one-time termination benefit); (b) costs to terminate a contract that is not a capital lease; and (c) costs to consolidate facilities or relocate employees. FAS 146 requires that these liabilities be recognized and measured initially at fair value in the period in which the liability is incurred. If fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. The provisions on FAS 146 are effective for the Company for exit or disposal activities initiated after December 31, 2002. The Company does not believe that the adoption of this pronouncement will have a material effect on its financial results. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34). FIN 45 clarifies the requirements of the FASB Statement No. 5 (FAS 5), Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. Many guarantees are embedded in purchase or sales agreements, service contracts, joint venture agreements, or other commercial agreements and the guarantor in many of those arrangements does not receive separately identifiable up-front payment (e.g., a premium) for issuing the guarantee. Prior to FIN 45, many guarantors did not recognize an initial liability for such embedded guarantees. Now, however, they are required to recognize a liability at fair value upon issuance of the guarantees, regardless of whether they receive a separate premium for doing so. The Interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with a separately identified premium and guarantees issued without a separately identified premium. For guarantees issued or modified after December 31, 2002, significant new disclosure requirements are effective beginning with 2002 calendar year-end financial statements, including a requirement to disclose the maximum amount of future payments that an entity might need to make under a guarantee and a reconciliation of during the period in their product warranty liabilities. The Company is in the process of assessing the impact of the adoption of FIN 45. On December 31, 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment of FAS 123 (FAS 148). As the title of the standard implies, it is fairly limited in its scope, however it will have implications for all entities that issue stock-based compensation to their employees. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This Statement permits two additional transition methods for entities that adopt the preferable method of accounting for stock-based employee compensation. Both of those methods avoid the ramp-up effect arising from prospective application of the fair value based method. In addition, to address concerns raised by some constituents about the lack of comparability caused by multiple transition methods, this Statement does not permit the use of the original Statement 123 prospective method of transition for changes to the fair value based method made in fiscal years beginning after December 15, 2003. During the first quarter of fiscal 2003 the Company adopted the provisions of FAS 148. In January 2003, the FASB issued FASB Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities, which possess certain characteristics. The Interpretation requires that if a 16 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued) business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This Interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. The Company does not have any ownership in any variable interest entities as of February 28, 2003. The Company will apply the consolidation requirement of FIN 46 in future periods if it should own any interest in any variable interest entity. In April 2003, the FASB issued Statement of Financial Accounting Standard No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," ("FAS 149") which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FAS 133. FAS 149 is effective for contracts entered into or modified after June 30, 2003 except for the provisions that were cleared by the FASB in prior pronouncements. The Company is currently assessing the financial impact of adopting FAS 149 in fiscal year 2003. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, ("FAS 150"). This statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. This Statement shall be effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the provision of this statement to have a significant impact on the statement of financial position. 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, forecast 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, risk of the Company's working capital lender and real estate lender demanding payment of outstanding balances, risk of not receiving waiver from the government on the required contribution into the pension plan, the concentration of a substantial percentage of the Company's sales with a few major automotive customers, cost of raw materials, and pricing pressures from competitors and customers. 17 PLYMOUTH RUBBER COMPANY, INC. Item 3. Quantitative and Qualitative Disclosure about Market Risks At May 30, 2003, the carrying value of Company's debt totaled $25.6 million, which approximated its fair value. This debt includes amounts at both fixed and variable interest rates. For fixed rate debt, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact earnings and cash flows, assuming other factors are held constant. At May 30, 2003, the Company had fixed rate debt of $9.5 million and variable rate debt of $16.1 million. Holding other variables constant (such as foreign exchange rates and debt levels) a one- percentage point decrease in interest rates would increase the unrealized fair market value of fixed rate debt by approximately $183,000. The earnings and cash flows impact for the next year resulting from a one percentage point increase in interest rates would be approximately $161,000, holding other variables constant. Item 4. Controls and Procedures (a) Disclosure controls and procedures. Within 90 days before filing this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Our disclosure controls and procedures include our internal controls. Maurice J. Hamilburg, President and Co-Chief Executive Officer, Joseph D. Hamilburg, Chairman and Co-Chief Executive Officer, and Joseph J. Berns, Vice President of Finance and Chief Financial Officer supervised and participated in this evaluation. Based on this evaluation, Maurice J. Hamilburg, Joseph D. Hamilburg, and Joseph J. Berns, concluded that, as of the date of their evaluation, our disclosure controls and procedures were effective. (b) Internal controls. Since the date of the evaluation described above, there have not been any significant changes in our internal controls or in other factors that could significantly affect those controls. 18 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 November 29, 2002, 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 The Company's Annual Meeting was held on April 25, 2003. The following members were elected to the Company's Board of Directors to hold office for the ensuing three-year term: Nominees In Favor Opposed Maurice J. Hamilburg, Sumner Kaufman and Duane E. Wheeler 674,105 220 The results on the voting of the following additional item were as follows: Approval of the amendment to the Company's Restated Articles of Organization reducing the par value for Class A and Class B Common Stock from $1.00 per share to $0.01 per share. In Favor Opposed Abstain 671,495 280 2,550 Approval of the adoption of 2002 Non-Employee Director Stock Option Plan In Favor Opposed Abstain 551,330 2,432 1,363 The ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors of the Company for the next fiscal year: In Favor Opposed Abstain 645,967 2 1,353 19 PLYMOUTH RUBBER COMPANY, INC. PART II. OTHER INFORMATION - Continued Item 5. Other Information Certification Under Sarbanes-Oxley Act Our co- chief executive officers and chief financial officer have furnished to the SEC the certification with respect to this Report that is required by Section 906 of the Sarbanes-Oxley Act of 2002. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Index to Exhibits (b) Not Applicable 20 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: July 14, 2003 21 SECTION 302 CERTIFICATIONS I, Maurice J. Hamilburg, President and Co- Chief Executive Officer of Plymouth Rubber Company, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Plymouth Rubber Company, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly 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: July 14, 2003 /s/ Maurice J Hamilburg Maurice J. Hamilburg President and Co-Chief Executive Office 22 SECTION 302 CERTIFICATIONS - Continued I, Joseph D. Hamilburg, Chairman and Co- Chief Executive Officer of Plymouth Rubber Company, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Plymouth Rubber Company, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly 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: July 14, 2003 /s/ Joseph D. Hamilburg Joseph D. Hamilburg Chairman and Co-Chief Executive Officer 23 I, Joseph Berns, Vice President-Finance and Chief Financial Officer of Plymouth Rubber Company, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Plymouth Rubber Company, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly 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: July 14, 2003 /s/ Joseph J. Berns Joseph Berns, Vice President-Finance and Chief Financial Office 24 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS Exhibit No. Description 2 Not Applicable. 3.1 Restated Articles of Organization -- incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 2, 1994. 3.2 By Laws, as amended -- incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. 4.1 Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 29, 1995 -- incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q for the Quarter ended March 1, 1996. 4.2 Master Security Agreement between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 29, 1995 -- incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q for the quarter ended March 1, 1996. 4.3 Demand Note between Plymouth Rubber Company, Inc. and LaSalle National Bank dated June 6, 1996 -- incorporated by reference to Exhibit 2.1 to the report on Form 8-K with cover page dated June 6, 1996. 4.4 Loan and Security Agreement between Plymouth Rubber Company, Inc. and LaSalle National Bank dated June 6, 1996 -- incorporated by reference to Exhibit 2.2 to the report on Form 8-K with cover page dated June 6, 1996. 4.5 Amendment to Master Security Agreement between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated February 19, 1997 -- incorporated by reference to Exhibit 4.10 to the Quarterly Report on Form 10-Q for the quarter ended February 25, 1997. 4.6 Master Security Agreement between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated January 29, 1997 -- incorporated by reference to Exhibit 4.12 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 25, 1997. 4.7 Demand Note between Brite-Line Technologies, Inc. and LaSalle National Bank dated February 28, 1997 -- incorporated by reference to Exhibit 4.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. 4.8 Loan and Security Agreement between Brite-Line Technologies, Inc. and LaSalle National Bank dated February 25, 1997 -- incorporated by reference to Exhibit 4.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. 4.9 Continuing Unconditional Guaranty between Brite-Line Technologies, Inc. LaSalle National Bank dated February 25, 1997 -- incorporated by reference to Exhibit 4.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. 4.10 Amendment to Loan and Security Agreement between Plymouth Rubber Company, Inc. and LaSalle National Bank dated May 7, 1997 -- incorporated by reference to Exhibit 4.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. 25 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS Exhibit No. Description 4.11 Continuing Unconditional Guaranty between Plymouth Rubber Company, Inc. and LaSalle National Bank dated March 20, 1997 -- incorporated by reference to Exhibit 4.12 to the Company's Quarterly Report on Form 10-Q or the quarter ended May 30, 1997. 4.12 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 4.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. 4.13 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 4.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 30, 1997. 4.14 Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 3, 1997 - incorporated by reference to Exhibit 4.14 to the Company's Annual Report on Form 10-K for the year ended November 27, 1998. 4.15 Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated April 13, 1998 - - incorporated by reference to Exhibit 4.15 to the Company's Annual Report on Form 10-K for the year ended November 27, 1998. 4.16 Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated November 12, 1998 - incorporated by reference to Exhibit 4.16 to the Company's report on Form 10-K for the year ended November 27, 1998. 4.17 Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated November 25, 1998 - incorporated by reference to Exhibit 4.17 to the Company's report on Form 10-K for the year ended November 27, 1998. 4.18 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 4.18 to the Company's report on Form 10-Q for the quarter ended February 26, 1999. 4.19 Amendment to Loan and Security Agreement between Brite-Line Technologies, Inc., and LaSalle National Bank dated February 18, 1999 - incorporated by reference to Exhibit 4.19 to the Company's report on Form 10-Q for the quarter ended February 26, 1999. 4.20 Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated June 29, 1999 - incorporated by reference to Exhibit 4.20 to the Company's report on Form 10-Q for the quarter ended August 26, 1999. 4.21 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 4.21 to the Company's report on Form 10-Q for the quarter ended March 3, 2000. 26 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS Exhibit No. Description 4.22 Promissory Note between Plymouth Rubber Company, Inc. and General Electric Capital Corporation dated December 29, 1999 - incorporated by reference to Exhibit 4.22 to the Company's report on Form 10-Q for the quarter ended March 3, 2000. 10.1 1982 Employee Incentive Stock Option Plan -- incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. 10.2 General Form of Deferred Compensation Agreement entered into between the Company and certain officers -- incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. 10.3 1992 Employee Incentive Stock Option Plan -- incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended November 26, 1993. 10.4 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. 10.5 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. 10.6 Second Modification Agreement between Plymouth Rubber Company, Inc. and General Electric Capital Corporation -- incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K dated December 16, 2003 10.8 Security Agreement by and between Plymouth Rubber Company, Inc., General Electric Capital Corporation, The CIT Group/Equipment Financing, Inc. and Banknorth, N.A. Corporation --incorporated by reference to Exhibit 99.3 of the Company's Current Report on Form 8-K dated December 16, 2003. 10.9 Patent Security Agreement by and between Plymouth Rubber Company, Inc., General Electric Capital Corporation, The CIT Group/Equipment Financing, Inc. and Banknorth, N.A. -- incorporated by reference to Exhibit 99.4 of the Company's Current Report on Form 8-K dated December 16, 2003. 10.10 Trademark Security Agreement by and between Plymouth Rubber Company, Inc., General Electric Capital Corporation, The CIT Group/Equipment Financing, Inc. and Banknorth, N.A. -- incorporated by reference to Exhibit 99.5 of the Company's Current Report on Form 8-K dated December 16, 2003. 10.11 Modification Agreement between Plymouth Rubber Company, Inc. and Banknorth Leasing Corporation --incorporated by reference to Exhibit 99.6 of the Company's Current Report on Form 8-K dated December 16, 2003. 10.12 Mortgage and Assignment of Leases and Rents by Plymouth Rubber Company, Inc. to and for the benefit of General Electric Capital Corporation, The CIT Group/Equipment Financing, Inc. and Banknorth, N.A. --incorporated by reference to Exhibit 99.7 of the Company's Current Report on Form 8-K dated December 16, 2003. 27 PLYMOUTH RUBBER COMPANY, INC. INDEX TO EXHIBITS Exhibit No. Description 10.13 First Modification to Mortgage and Assignments of Leases and Rents to and for the benefit of General Electric Capital Corporation, The CIT Group/Equipment Financing, Inc. and Banknorth, N.A. --incorporated by reference to Exhibit 99.8 of the Company's Current Report on Form 8-K dated December 16, 2003 11 Not Applicable. 15 Not Applicable 18 Not Applicable. 19 Not Applicable. 22 Not Applicable. 23 Not Applicable. 24 Not Applicable. 27 Not Applicable. 28 -----END PRIVACY-ENHANCED MESSAGE-----