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EX-32.1 - EXHIBIT 32.1 - INTERNATIONAL BALER CORPex32_1.htm
EX-32.2 - EXHIBIT 32.2 - INTERNATIONAL BALER CORPex32_2.htm
EX-31.1 - EXHIBIT 31.1 - INTERNATIONAL BALER CORPex31_1.htm
EX-31.2 - EXHIBIT 31.2 - INTERNATIONAL BALER CORPex31_2.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

FORM 10-K

_________________

☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: October 31, 2015

or

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

 

International Baler Corporation

(Exact name of registrant as specified in its charter)

 

Delaware 0-14443 13-2842053
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation or Organization) File Number) Identification No.)

5400 Rio Grande Avenue, Jacksonville, Florida 32254
(Address of Principal Executive Offices) (Zip Code)

904-358-3812
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class
Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share

Title of each class
Name of each exchange on which registered

_________________

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes ☐  No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes ☐  No ☒

 

Indicate by check mark 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 preceding 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 ☒  No ☐  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes ☐  No ☐ 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     Yes ☐  No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer  ☐ Accelerated filer  ☐ Non-accelerated filer  ☐ Smaller reporting company  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐  No ☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. (April 30, 2015 closing price $2.04) : $2,659,260

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes ☐  No ☐

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date (January 15, 2016): 5,183,895

 

 1 
 

Table of Contents
      Page
Part I    
   
  Item 1. Business  3
  Item 2. Properties  6
  Item 3. Legal Proceedings  6
     
Part II    
     
  Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities  7
  Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation  8
  Item 8. Financial Statements and Supplementary Data  11
  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  11
  Item 9A. Controls and Procedures  11
  Item 9B. Other Information  12
       
Part III    
     
  Item 10. Director and Executive Officers and Corporate Governance  13
  Item 11. Executive Compensation  16
  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  19
  Item 13. Certain Relationships and Related Transactions, and Director Independence  21
  Item 14. Principal Accountant Fees and Service  22
       
Part IV      
       
  Item 15. Exhibits, Financial Statements and Schedules  23
       
Signatures      24

 

 

 2 
 

 

PART I

 

ITEM 1. BUSINESS

 

International Baler Corp. was incorporated on September 10, 1975, in the State of Delaware under the name B.W. Energy Systems, Inc. Its name was changed to Waste Technology Corp. in August 1983. In March 2009, Waste Technology Corporation’s wholly-owned subsidiary, International Baler Corporation (IBC), was merged into Waste Technology Corporation and the Company changed its name to International Baler Corporation. International Baler Corporation maintains its executive offices and manufacturing facilities at 5400 Rio Grande Avenue, Jacksonville, Florida 32254. The Company’s telephone number is (904) 358-3812. The Company's fiscal year end is October 31.

 

General

 

The Company is a manufacturer of baling equipment which is fabricated from steel and utilizes hydraulic and electrical components to compress a variety of materials into bales for easier handling, shipping, disposal, storage, and for recycling. Materials commonly baled include scrap metal, corrugated boxes, newsprint, aluminum cans, plastic bottles, and other solid waste. More sophisticated applications include baling of textile materials, fibers and synthetic rubber. The Company offers a wide variety of balers, standard models, as well as custom models to meet specific customer requirements.

 

Products

 

Balers utilize mechanical, hydraulic, and electrical mechanisms to compress a variety of materials into bales for easier and lower cost handling, shipping, disposal, storage, and/or bulk sales for recycling. The Company offers a wide variety of balers, certain types that are standardized and others that are designed to specific customer requirements. The Company's products include (i) general purpose horizontal and vertical balers, (ii) specialty balers, such as those used for textile materials, used clothing, aluminum cans, 55-gallon drums and synthetic rubber; and (iii) accessory equipment such as conveyors, fluffers, bale tying machines, and plastic bottle piercers (machines which puncture plastic bottles before compaction for greater density).

 

General Purpose Balers

 

These balers are designed for general purpose compaction of waste materials. They are manufactured in either vertical or horizontal loading models, depending on available floor space and desired capacity. Typical materials that are handled by this equipment include paper, corrugated boxes, and miscellaneous solid waste materials. These balers range in bale weight capacity from approximately 300 to 2,000 pounds and range in price from approximately $5,000 to $500,000. General purpose baler sales constituted approximately 53% and 42% of net sales for the fiscal years ended October 31, 2015 and 2014, respectively.

 

Specialty Balers

 

Specialty balers are designed for specific applications which require modifications of the general baler configuration. The rubber baler is designed to apply pressure in such a way as to compress the synthetic rubber into a self-contained bale that does not require tying. The scrap metal baler is designed to form a bale, referred to as a scrap metal "briquette" of specified size and weight. The drum crusher baler is capable of collapsing a standard 55-gallon drum into a "pancake" approximately four (4) to eight (8) inches high, which also serves to contain any remaining contents. The textile baler is capable of compressing and baling loose fibers, which do not ordinarily adhere to each other under pressure. In addition, a double chamber baler has been designed for use by the clothing and textile industries.

 

 3 
 

 

Specialty balers range in price from approximately $5,000 to $550,000, and are less exposed to competitive pressures than are general purpose balers. Specialty baler sales constituted approximately 26% and 45% of net sales for the fiscal years ended October 31, 2015 and 2014, respectively.

 

Accessory Equipment

 

The Company manufactures and markets a number of accessory equipment items in order to market a complete waste handling system. This equipment includes conveyors, which carry waste from floor level to the top of large horizontal balers; extended hoppers on such balers; rufflers, which break up material to improve bale compaction; electronic start/stop controls and hydraulic oil coolers and cleaners. For 2015 and 2014, accessory equipment did not represent a significant percentage of net sales.

 

Manufacturing

 

The Company manufactures its products in its facility in Jacksonville, Florida, where it maintains a fully equipped and staffed manufacturing plant. IBC purchases raw materials, such as steel sheets and beams and components such as hydraulic pumps, valves and cylinders, and certain controls and other electric equipment which are used in the fabrication of the balers. The Company has no long-term supply agreements, and has not experienced unusual delays in obtaining raw materials or components.

 

The raw materials required by IBC to manufacture the balers, principally steel, motors, and hydraulic systems, are readily available from a number of sources and IBC is not dependent on any particular source. IBC is not dependent on any significant patents, trademarks, licenses, or franchises in connection with its manufacture of balers.

 

While IBC maintains an inventory of raw materials, most of it is intended for specific orders and inventory turnover is relatively rapid. Approximately 60% of its inventory turns over in 45 to 90 days and the remaining balance, consisting of customized equipment, turns over in 3 to 6 months. IBC's business is not seasonal.

 

Sales and Marketing

 

IBC sells its products throughout the United States and to some extent in Europe, the Far East, and South America to manufacturers of synthetic rubber and polymers, plastic recycling facilities, power generating facilities, textile mills, paper mills, cotton gins, supermarkets and other retail outlets, paper recycling facilities, and municipalities.

 

IBC has a sales force of four (4) employees, including one regional sales manager, who rely upon responses to advertising, personal visits, attendance at trade shows, referrals from existing customers and telephone calls to dealers and/or end users. Approximately 60% of sales are made through manufacturer's representatives and dealers. Sales made through the Company’s dealers are generally discounted and sales are recorded net of the discount amount. Occasionally sales are made with a commission payment, selling expense, through a representative who is not a dealer.

 

The Company's general purpose balers are sold throughout the United States to such end users as waste producing retailers, manufacturing and fabricating plants, bulk material producers, and solid waste recycling facilities. Specialty balers are sold worldwide, including Europe, the Far East, and South America to manufacturers of rubber and polymers, plastic recycling facilities, paper recycling facilities, textile mills and power generating facilities. During fiscal 2015, foreign sales amounted to $5,716,023 or approximately 32% of the Company’s net sales while in fiscal 2014, foreign sales amounted to $9,741,075, approximately 49% of the Company’s net sales. In fiscal 2015, 24% of the Company’s sales were to Singapore and in fiscal 2014, 23% of the Company’s total sales were to Saudi Arabia. The higher foreign sales in 2014 were the result of higher rubber baler sales.

 

 4 
 

 

During fiscal 2015 and fiscal 2014, IBC had sales to more than 300 customers. In fiscal 2015, three customers accounted for 24.4%, 10.5% and 9.1% of total net sales, respectively, while in fiscal 2014, three customers accounted for 15.4%, 10.2% and 9.4% of net sales, respectively.

 

The Company builds only a small quantity of balers for its inventory and generally builds based on firm sales orders. The Company's open sales orders at October 31, 2015 were $3,420,000 and at October 31, 2014 were $8,200,000. The Company generally delivers its orders within four (4) months of the date booked.

 

Warranties and Service

 

IBC typically warranties its products for one year from the date of sale as to materials and six months as to labor, and offers services for other required repairs and maintenance. Service is rendered by repairing or replacing parts at IBC's Jacksonville, Florida, facility, and by on-site service provided by Company personnel who are based in Jacksonville, Florida, or by local service agents who are engaged as needed. Repair services and spare parts sales represented 13.6 % and 14.2% of the Company’s net sales for fiscal 2015 and 2014, respectively.

 

Competition

 

The potential market for the Company's balers is nationwide and overseas, but the majority of the Company’s general purpose baler sales are in the United States. The Company competes in these markets with approximately 20 companies, none of which are believed to be dominant, but some of which may have significantly greater sales and financial resources than the Company. The Company is able to compete with these companies due to its reputation in the market place, its ability to service the balers it manufactures and sells, as well as its ability to custom design balers to a customer's particular needs. The Company experiences intense competition with respect to its lower priced or general purpose balers, based upon price, including freight, and based on performance. The Company experiences less competition with respect to its specialized baler equipment, such as synthetic rubber, scrap metal, and textile balers.

 

Regulation

 

Machinery, such as the Company's balers, is subject to both federal and state regulation relating to safe design and operation. The Company complies with design requirements and its balers include interlocks to prevent operation while the loading door is open, and also includes required printed safety warnings.

 

Research and Development

 

The Company has the broadest line of products in the baler industry and continues to provide its customers with new products and product improvements. The Company invests a minimal amount on general research and development of new products.

 

Compliance with Environmental Laws

 

The Company generally believes that it has complied with and is in compliance, with all federal, state, and local environmental laws. In November 2014, the Company agreed to a Consent Order with the Florida Department of Environmental Protection to remove solid waste sand blasting material from its property. The Company recorded an accrued liability of $291,000 as of October 31, 2014, for the cost of the removal of this material. The removal of the sand blasting material was completed in January 2015.

 

 5 
 

 

Employees

 

As of October 31, 2015, the Company employed 67 full-time employees as follows: 5 in management and supervision: 9 in sales and service; 42 in manufacturing; 6 in engineering; and, 5 in administration.

 

Available Information

 

The Company is a reporting company, as that term is defined under the Securities Acts, and therefore, files reports, including, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K and other information with the Securities and Exchange Commission (the “Commission”). In addition, the Company will provide, without charge to its stockholders, upon written or oral request by such stockholder, a copy of any information referred to herein that is incorporated by reference except exhibits to such information that are incorporated by reference unless the exhibits are themselves specifically incorporated by reference. All such requests should be directed to William E. Nielsen, at International Baler Corp., 5400 Rio Grande Avenue, Jacksonville, Florida 32254, telephone number (904) 358-3812.

 

The Company is an electronic filer. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission, including all of the Company’s filings with the Commission. The address of such site is (http://www.sec.gov).

 

The Company’s website is located at http://www.intl-baler.com. Under the “Corporate Information” section of the website, you may access, free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings (Form 3, 4 and 5) and any amendments to those reports as reasonably practicable after the Company electronically files such reports with the SEC. The information contained on the Company’s website is not part of this Report or any other report filed with the SEC.

 

ITEM 2. PROPERTIES

 

IBC is the owner of the buildings and property located at 5400 Rio Grande Avenue, Jacksonville, Florida. The building contains approximately 62,000 square feet and is situated on eight (8) acres. IBC manufactures all of the Company's products at this location. The property has no mortgage. However, the Company’s primary lender, First Merchants Bank of Muncie, Indiana, has a security interest in the property as part of the collateral for the line of credit which it provides to the Company. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

ITEM 3. LEGAL PROCEEDINGS

 

To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company which would have a result materially adverse to the Company. To the knowledge of management, no director, executive officer or affiliate of the Company or owner of record or beneficially owned interest of more than 5% of the Company’s common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

 

On August 26, 2010, the Company was served with a wrongful death lawsuit filed by the Estate of a former employee who was fatally injured in a workplace accident while an employee of the Company. The accident occurred in September 2008. The Plaintiff has demanded $2,500,000 to settle this claim. A motion to dismiss the Complaint was granted without prejudice in January 2012, allowing the plaintiff the ability to file an amended complaint. In July 2014, the Company filed a Motion for Summary Judgment to have the complaint dismissed. On December 1, 2014, the Company and its insurance company agreed to settle this claim for $150,000. The Company was responsible for $75,000, one-half, the total settlement amount. During the fourth quarter of fiscal 2014, the Company accrued an additional $50,000 for a total accrued liability of $75,000 at October 31, 2014 to reflect its share of the liability for settlement. This settlement amount was paid in the first quarter of 2015.

 6 
 

  

On December 26, 2013 the Company was served with a civil action filed by Georgetown Paper Stock of Rockville, Inc. for breach of warranties. In November 2014, a jury returned a verdict in favor of the Plaintiff, Georgetown Paper Stock of Rockville, Inc. for $368,248. The Company was responsible for $277,968 of this amount and its dealer BE Equipment, Inc., was responsible for $90,280. The Company recorded an accrued liability of $285,000 and an asset in transit of $85,000 resulting in net expense of $200,000 in the fourth quarter of fiscal 2014. The payments were made in the first quarter of fiscal 2015. The baler was returned in the second quarter of fiscal 2015.

 

In November 2014, the Company agreed to a Consent Order with the Florida Department of Environmental Protection to remove solid waste sand blasting material from its property. The Company recorded an accrued liability of $291,000 as of October 31, 2014, the cost of the removal of this material. The removal of the sand blasting material was completed in January 2015.

 

Total legal fees expensed in fiscal 2015 was approximately $9,000. Total legal fees and settlement expenses charged to administration expense during fiscal 2014 was approximately $907,000, which was comprised of $50,000 for the settlement of the wrongful death suit, $200,000 for the Georgetown Paper Stock settlement, $291,000 for environmental cleanup, and $366,000 of attorney fees.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

 

The Company's stock is presently traded on the OTC Electronic Bulletin Board of NASDAQ under the symbol IBAL. As of October 31, 2015, the number of shareholders of record of the Company's Common Stock was approximately 400, and management believes that there are approximately 700 beneficial owners of the Company’s common stock.

 

The range of high and low bid quotations for the Company's common stock during the fiscal years ended October 31, 2015 and 2014, are set forth below.

 

Fiscal Year Ended          
October 31, 2015   High    Low 
           
First Quarter  $2.50   $2.01 
Second Quarter   2.50    1.97 
Third Quarter   2.25    1.60 
Fourth Quarter   1.94    1.60 
           
           
Fiscal Year Ended          
October 31, 2014   High    Low 
           
First Quarter  $2.00   $1.28 
Second Quarter   2.34    1.67 
Third Quarter   2.32    1.42 
Fourth Quarter   2.48    1.61 

 

The Company has paid no dividends since its inception. Other than the requirement of the Delaware Corporation law that dividends be paid out of capital surplus only and that the declaration and payment of a dividend not render the Company insolvent, there are no restrictions on the Company's present or future ability to pay dividends.

 

 7 
 

 

The payment by the Company of dividends, if any, in the future, rests within the discretion of its Board of Directors and will depend, among other things, upon the Company's earnings, its capital requirements, its financial condition and other relevant factors.

 

By reason of the Company's present financial status and its contemplated financial requirements, the Company does not anticipate paying any dividends on its common stock during the foreseeable future, but intends to retain any earnings for future expansion of its business.

 

Recent Sales of Unregistered Securities

 

During the past two years ended October 31, 2015, the Company has not sold any unregistered securities.

 

Purchases of Equity Securities

 

During the fiscal year ended October 31, 2015, neither the Company, nor anyone on its behalf, repurchased any of the Company securities.

 

Securities authorized for issuance under equity compensation plans

 

None.

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

This “Management’s Discussion and Analysis” contains forward-looking statements within the meaning of Section 21B of the Securities and Exchange Act of 1934, as amended. These forward-looking statements represent the Company’s present expectations or beliefs concerning future events on certain assumptions which are subject to risks and uncertainties, including, but not limited to, changes in general economic conditions and changing competition which could cause actual results to differ materially from those indicated.

 

Results of Operations

 

For the fiscal year ending October 31, 2015, net sales were $18,099,473 compared to $19,785,503 in fiscal 2014, a decrease of 8.5%. The decrease in net sales was the result of lower shipments of higher priced synthetic rubber balers, twenty-two in fiscal 2014 versus five in fiscal 2015, partially offset by higher shipments of general purpose balers in fiscal 2015.

 

The Company had net income of $812,368 in fiscal 2015, compared to net income of $714,419 in fiscal 2014, an increase of 13.7%. The higher net income was the result of lower selling and administrative expenses, $2,006,343 in fiscal 2015, versus $3,026,698 in fiscal 2014. The higher administrative expenses in fiscal 2014 were primarily the result of $359,000 higher legal fees, a $200,000 charge for the Georgetown Paper Stock lawsuit, $50,000 additional accrual for the wrongful death settlement and $107,000 higher directors fees. Also, the Company recorded an administrative expense of $291,000 for the accrued liability for the removal of sand blast material from its property. The lower shipments of rubber balers in fiscal 2015 resulted in lower gross profit and gross profit margins, 18.2% in fiscal 2015 and 21.3% in fiscal 2014.

 

 8 
 

 

Liquidity and Capital Resources

 

The Company’s net working capital at October 31, 2015 was $7,426,846 as compared to $6,384,939 (as restated) at October 31, 2014. The increase in net working capital was primarily due to the operating results in 2015.

 

Average Days Sales Outstanding (DSO) in fiscal 2015 was 24.9 days as compared to 66.0 days in fiscal 2014. The decrease in DSO in fiscal 2015 was primarily the result of a significant ($1,286,000) delayed payment due to a customer’s requirement for an additional electrical panel on conveyors purchased from the Company in fiscal 2014. This receivable was collected in the first quarter of fiscal 2015. DSO is calculated by dividing the total of the month-end net accounts receivable balances for the period by twelve, and dividing that result by the average day’s sales for the period (period sales ÷ 365).

 

The Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana that was entered into on January 7, 2013. The line of credit allows the Company to borrow at an interest rate equal to the sum of the LIBOR Rate applicable to each interest period plus 2.39%. The line of credit is secured by all assets of the Company and has a term of two years. On February 26, 2015 the credit agreement was renewed with a termination date of May 15, 2017. The line of credit had no outstanding balance at October 31, 2015 and a balance of $644,345 at October 31, 2014.

 

In fiscal 2015 the Company made additions of $208,710 to its buildings and manufacturing equipment, compared to additions of $146,593 in fiscal 2014. There are no unusual or infrequent events or transactions or significant economic changes which materially affect the amount of reported income. The Company believes that its cash, line of credit, and results of operations are sufficient to fund future operations.

 

The Company is unaware of any events or uncertainties which are reasonably likely to have a material impact on the Company’s short-term or long-term liquidity or the net sales, or net income. The Company has no known or anticipated significant elements of income or loss that do not arise from the Company’s operations.

 

Off Balance Sheet Arrangements

 

The Company has no off balance sheet arrangements.

 

Inflation

 

The costs of the Company are subject to the general inflationary trends existing in the general economy. The Company believes that expected pricing for its equipment will be able to include sufficient increases to offset any increase in costs due to inflation.

 

Critical Accounting Policies and Estimates

 

This discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we deem reasonable to the situation. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in our estimates could materially impact our results of operations and financial condition in any particular period.

 

We consider our critical accounting policies and estimates to be as follows based on the high degree of judgment or complexity in their application:

 

 9 
 

 

Allowance for Doubtful Accounts

 

The Company maintains allowances for doubtful accounts for estimated losses on trade receivables resulting from the inability to collect outstanding accounts due from its customers. The allowances include specific amounts for disputed, troubled and aged accounts using current knowledge of particular customer credit worthiness and general allowances based on historical collection experience, current economic trends, credit worthiness of customers and changes in customer payment terms.

 

Management believes the estimates used in determining the allowance for doubtful accounts are critical accounting estimates because changes in credit worthiness and economic conditions, including bankruptcies, could have a material impact on operating results.

 

The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Inventory Allowance

 

The Company analyzes inventory for excess or slow moving inventory. The Company reviews inventory for obsolescence on a regular basis. The allowance is estimated based on factors such as historical trends, current market conditions and management’s assessment of when the inventory would likely be sold and the quantities and prices at which the inventory would likely be sold in the normal course of business. Changes in product specifications, customer product preferences or the loss of a customer could result in unanticipated impairment in net realizable value that may have a material impact on cost of goods sold, gross margin and net income. Obsolete or damaged inventory is disposed of or written down to net realizable value on a quarterly basis.

 

Additional adjustments, if necessary, are made based on management’s specific review of inventory on-hand. Management believes the estimates used in determining the allowance for excess and slow moving inventory are critical accounting estimates as changes in the estimates could have a material impact on net income and the estimates involve a high degree of judgment.

 

Warranty Allowance

 

The Company warranties its products for one (1) year from the date of sale as to materials and six (6) months as to labor, and offers a service plan for other required repairs and maintenance. The Company maintains an accrued liability for expected warranty claims. The warranty allowance is based on historical warranty costs, quantity and type of balers currently under warranty, and known potential warranty issues.

 

Management believes the estimates used in determining the allowance for warranties are critical accounting estimates because changes in the estimate could have a material impact on operating results.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. There were no valuation allowances on the deferred tax assets at October 31, 2015 and 2014 as management believes it will fully utilize them. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. There were no accruals for uncertain tax positions at October 31, 2015 or 2014.

 

 10 
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements and supplementary data commence on page F-1.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of the end of the period covered by this report, and under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of the design and operation of these disclosure controls and procedures.

 

Based on this evaluation, we concluded that we had errors related to our financial reporting as of October 31, 2014. We have restated the prior year’s financial statements as described in Note 2 to our financial statements.

 

In connection with the weakness described above, management enhanced its review and approval procedures related to the Company’s disclosure controls and procedures.

 

As part of a continuing effort to improve the Company’s business processes management is evaluating its internal controls and may update certain controls to accommodate any modifications to its business processes or accounting procedures.

 

Internal Control over Financial Reporting

 

(a)Management’s Annual Report on Internal Control over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining effective internal controls over financial reporting, as such terms is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

 

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

 11 
 

 

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

 

Management, with the participation of the Company’s principal executive and principal financial officer, assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2015. This assessment was performed using the criteria established under the Internal Control-Integrated Framework established by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”).

 

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error or circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and reporting and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As a result of the restatement, management concluded that it did not maintain adequate internal control in the area of cash and cash equivalents during the period ended October 31, 2014 and failed to properly identify current versus long term certificates of deposit as financial instruments to be reported outside of cash and cash equivalents.

 

In connection with the material weakness described above, management remediated its control deficiency through enhanced review and approval procedures related to the presentation of cash and other financial instruments.

 

Based on the assessment performed using the criteria established by COSO, management has concluded that the Company maintained effective internal control over financial reporting as of and for the year ended October 31, 2015.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

(b) Changes in Internal Control over Financial Reporting

 

During the year ended October 31, 2015, there have not been any changes in the Company’s internal controls that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 12 
 

 

PART III

 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Identification of Directors and Officers

 

The current executive officers and directors of the Company are as follows:

 

NAME   Age   Positions Held  Date of Initial Election or Designation
Roger Griffin   54   Director  4/21/2008
5400 Rio Grande Ave.       President &   
Jacksonville, FL 32254       Chief Executive Officer   
Lael E. Boren   47   Director  4/15/2011
1909 S. Main Street           
Upland, IN 46989           
            
Leland E. Boren   92   Director  3/9/2005
1909 S. Main Street           
Upland, IN 46989           
            
Ronald L. McDaniel   76   Director  5/16/2006
Western-Cullen-Hayes, Inc.       Chairman of the Board   
2700 West 36th Place           
Chicago, IL 60632           
            
William E. Nielsen   68   Director  11/20/1997
5400 Rio Grande Ave.       Chief Financial Officer    6/14/94
Jacksonville, FL 32254           
            
Matthew M. Price   48   Director  5/11/2007
Bingham Greenbaum Doll, LLP           
2700 Market Tower           
10 West Market Street           
Indianapolis, IN 46204           
            
John J. Martorana   65   Director  1/5/2009
5148 Hanover Lane           
Lakeland, FL 33817           
            
Martha R. Songer   59   Director  1/30/2012

 

The Board of Directors is divided into three (3) classes of directors ("Class I", "Class II", and "Class III"), with each class having as nearly the same number of directors as practicable. Stockholders elect such class of directors, Class I, Class II, or Class III, as the case may be, to succeed such class directors whose terms are expiring, for a three (3) year term, and such class of directors shall serve until the successors are elected and qualify. Officers of the Company serve at the pleasure of the Board of Directors.

 

During fiscal 2015 the Board of Directors met two times.

 

 13 
 

 

There are no family relationships between executive officers or directors of the Company except that Lael E. Boren is the son of Leland E. Boren.

 

Except as noted above, there is no understanding or arrangement between any director or any other persons pursuant to which such individual was or is to be selected as a director or nominee of the Company.

 

Background of Executive Officers and Directors

 

The following is a brief account of the experience, during the past five years, of each director and executive officer of the Company:

 

Roger Griffin joined the Company in February 2008 as President and Chief Executive Officer. Previously, Mr. Griffin was Vice President of Operations at Schaefer Interstate Railing in Salisbury, NC. Prior to that Mr. Griffin spent several years with Metaldyne which acquired the Whitsett, NC plant of Dana Corporation and before that he spent eleven years in management with Dana Corporation at their Whitsett, NC and Jonesboro, AR facilities. Mr. Griffin received a BS in Business Administration from American Intercontinental University in 2009.

 

Leland E. Boren is the Chairman, Chief Executive Officer and President of Avis Industrial Corporation located in Upland, Indiana. He is also President and CEO of PHD, Inc., Ft. Wayne, Indiana and has held this position since 2010. From 1945 through 1971, Mr. Boren was employed by The Pierce Company (formerly The Pierce Governor Company) in various capacities. He became President of The Pierce Governor Company in 1958. The Pierce Company merged with Avis Industrial Corporation in 1971 and Mr. Boren became President of Avis at that time.

 

Ronald L. McDaniel has been president of Western-Cullen-Hayes, Inc. since 1980. He was Vice President and General Manager of Western-Cullen-Hayes from 1975 to 1980. From 1957 to 1975, Mr. McDaniel worked for Western-Cullen-Hayes and Burro Crane, an affiliated company, in various capacities including division controller. Mr. McDaniel has a bachelor’s degree from the University of Dayton and an MBA from the University of Chicago.

 

William E. Nielsen prior to joining the Company, acted as a financial consultant to Fletcher Barnum Inc., a privately held manufacturing concern, from October 1993 through June 1994. From 1980 through July 1993, he was the Vice President, Administration and Finance at Unison Industries, Inc. Mr. Nielsen received a BBA in Finance and an M.B.A. at Western Illinois University in 1969 and 1970, respectively.

 

Matthew M. Price is an attorney with the law firm of Bingham Greenebaum Doll LLP since 1993. Mr. Price received a BA degree from Wabash Collage in 1990 and a J.D. from Indiana University School of Law in 1993. Mr. Price is a member of the Indiana State Bar Association and the Indianapolis Bar Association. Mr. Price is a member of his law firm’s corporate transactions practice group, and his business practice focuses on project financing, government and regulatory compliance for private and public companies, including small and large manufacturers.

 

John J. Martorana has been a consultant to several divisions of Wastequip, Inc. since 2007. Mr. Martorana was the President of Wastequip of Florida from 1994 to 2007 after joining that company in 1991 as Vice President. From 1984 to 1991 he was responsible for sales and steel purchasing for Industrial Refuse Sales Inc., a family owned business which was sold to Wastequip, Inc. prior to joining Industrial Refuse Sales Mr. Martorana worked in the steel industry. He received a BS Degree in Education from Butler University in 1972.

 

Lael E. Boren has served as general manager and president of various organizations including Badger Equipment Company and The Pierce Company. Prior to that, Mr. Boren owned an electronics business in Muncie and Marion, Indiana. He received a Bachelor’s of General Studies from Ball State University in 2014. Mr. Boren is the son of Leland E. Boren, also a director of the company.

 

Martha R. Songer is Vice President and Assistant to the President at Avis Industrial Corporation in Upland, Indiana and has been in this position since 2012. Prior to that Ms. Songer was Alumni Director at Taylor University also in Upland, Indiana. Ms. Songer received a Bachelor of Science from Taylor University in 1978 and a Master of Science in Management in 2002 from Indiana Wesleyan University.

 

 14 
 

 

Involvement in Certain Legal Proceedings

 

To the knowledge of the Company’s management, during the past five years, no director, person nominated to become a director or an executive officer of the Company:

 

(1)Filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;
   
 (2)Was convicted in a criminal proceeding or named subject of pending criminal proceeding (excluding traffic violations and other minor offenses);
   
 (3)Was the subject of any order, judgment, or decree not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting his or her involvement in any type of business, securities, or banking activities;
   
 (4)Was found by a court of competent jurisdiction in a civil action by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated any Federal or State Securities laws, and the judgment in such civil action of finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated.

 

Section 16 (a) Beneficial Ownership Reporting Compliance

 

In fiscal 2014, none of the Company’s officers, directors, and beneficial owners of more than ten percent of the company’s common stock were delinquent in filing of any of their Form 3, 4, and 5 reports.

 

Code of Ethics

 

The Company has adopted a code of business conduct and ethics for directors, officers (including the Company’s principal executive officer, principal financial officer and controller) and employees, known as the Standards of Business Conduct. The Standards of Business Conduct are available on the Company’s website at http://www.intl-baler.com. The Company intends to disclose any Amendments to its Code of Ethics and any waiver from a provision of the Code of Ethics granted to the Company’s Chief Executive Officer, Chief Financial Officer, or other persons performing similar functions, on the Company’s website within five business days following such amendment or waiver. Stockholders may request a free copy of the Standards of Business Conduct from:

 

International Baler Corporation

Attention: William E. Nielsen

5400 Rio Grande Avenue

Jacksonville, Florida 32254

(904)358-3812

 

Committees

 

The Company’s Board of Directors consists of eight members, three of whom the Board has determined are independent, Ronald McDaniel, Matthew Price and John Martorana. The Company has sought and continues to seek appropriate individuals to serve on the Board of Directors who meet the requirements necessary to qualify as independent directors to serve on the Company’s Board of Directors.

 

 15 
 

 

Ronald McDaniel, Matthew Price and Lael Boren are members of Board’s Audit Committee. Mr. McDaniel serves as the audit committee’s “financial expert” as that term is defined by applicable Securities and Exchange Commission (“SEC”) regulations. Mr. McDaniel’s qualifications for this position are based upon his educational background and work experience as set forth above. The Company’s Audit Committee Charter is posted on the Company’s website.

 

The Company does not have a standing nominating committee or a nominating committee charter. However, the full Board of Directors performs the functions of a nominating committee. The Board identifies the candidates for Board membership. In identifying candidates, the Board will seek recommendations from existing Board members, executive officers of the Company and all persons who own more than five percent (5%) of the Company’s outstanding stock. The Board has no stated specific minimum qualifications that must be met by a candidate for a position on the Board of Directors. The Board will consider a variety of factors in evaluating the qualifications of a candidate including the candidate’s professional experience, educational background, knowledge of the Company’s business and personal qualities. The Board may, when appropriate, retain an executive search firm and other advisors to assist it in identifying candidates for the Board. In addition, the Board will consider any candidates that may have been recommended by any of the Company’s stockholders who have made those recommendations in accordance with the procedures described below under the heading “Stockholders’ Proposals.” In addition, such stockholder recommendations must be accompanied by (1) such information about each prospective director nominee as would have been required to be included in a proxy statement filed pursuant to the rules of the Securities and Exchange Commission had the prospective director nominee been nominated by the Board of Directors and (2) that the prospective director nominee has consented to be named, if nominated, as a nominee and, if elected, to serve as a director.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

The objective of the Company’s compensation program is to attract and retain qualified and talented professional individuals to perform the duties of the Company’s executive offices. The Company’s compensation program is designed to fairly reward the Company’s executive officers for their overall performance in the management of the affairs of the Company. The measurement of successful performance has significant elements of subjective judgment in view of the lack of any directly comparable single element or group of elements to which the Company and its performance may be readily compared from time to time.

 

The elements of compensation of the Company’s compensation programs include salary, health insurance, stock options, and in certain circumstances the award of a cash bonus. As of the present time, the Company compensation plan does not include any defined benefit retirement plan; any social club memberships or dues or any payments for housing, cars, boats, or other property of any kind to any person. The Company has not entered into any employment contracts with its executive officers nor any contracts for compensation to any person in the event of a change in control of the Company. The Company pays no other elements of compensation to its executive officers. The relatively small size of the Company in comparison to other entities presents the Company with additional risks in meeting its objectives of attracting and retaining qualified and talented professional individuals.

 

The salary component of the compensation is most important and the Company attempts to be competitive with what it believes to be the compensation of other companies of similar size and scope of operations. To date the Company has not engaged the services of a compensation review consultant or service in view of the cost of such services compared to the size and revenues of the Company. The award of a bonus upon review of Company performance provides an additional incentive. The Company determines the amount for each element to pay by reviewing annually the compensation levels of the Company’s executive officers and determining from the performance of the Company during that time since the last review what an appropriate compensation level may be during the upcoming annual period. The Company has no existing formula for determination of the salary, stock options, or bonus elements of compensation.

 

 16 
 


 

Executive Officer Compensation

 

The following table sets forth a summary of all compensation awarded to, earned by or paid to, the Company's Chief Executive Officer, Chief Financial Officer and each of the Company's executive officers whose compensation exceeded $100,000 per annum for services rendered in all capacities to the Company and its subsidiaries during fiscal years ended October 31, 2015 and 2014:

 

SUMMARY COMPENSATION TABLE

Annual Compensation Long Term Awards

NAME AND PRINCIPAL POSITION

 

YEAR

SALARY ($)

 

BONUS ($)

OTHER ANNUAL COMPENSATION ($)

NUMBER OF OPTIONS

ALL OTHER COMPENSATION

TOTAL COMPENSATION

Roger Griffin 2015 130,000 -0- -0- -0- -0- 130,000
President & CEO 2014 130,000 100,000 -0- -0- -0- 230,000
               
William E Nielsen 2015 134,000 -0- -0- -0- -0- 134,000
Chief Financial Officer 2014 134,000 35,000 -0- -0- -0- 169,000

 

Outstanding Equity Awards at Fiscal Year-End
Option Awards   Stock Awards

 

 

Name

(a)

Number of Securities Underlying Unexercised Options

(#)

Exercisable

(b)

Number of Securities Underlying Unexercised Options

(#)

Unexercisable

(c)

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options

(#)

(d)

Option Exercise Price

($)

(e)

Option Expiration

Date

(f)

Number of Shares or Units of Stock That Have Not Vested

(#)

(g)

Market Value of Shares or Units of Stock That Have Not Vested

(#)

(h)

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested

(#)

(i)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested

(#)

(j)

None                  

 

None of the Company’s other Executive Officers earned compensation in fiscal 2015 and 2014 in excess of $100,000 for services rendered to the Company in any capacity.

 

Option Grants and Exercises in Last Fiscal Year

 

No options were granted during fiscal 2015 to the Company's Chief Executive Officer or any of the Company's most highly compensated executive officers whose compensation exceeded $100,000 for fiscal 2015.

 

 17 
 

 

Compensation of Directors

 

The Board of Directors of the Company compensated non-employee directors $3,000 per month, together with direct out-of-pocket expenses incurred to attend meetings. In September 2015 the Board of Directors resolved to decrease the compensation of non-employee directors from $3,000 per month to $100 per month.

 

Members of the Board of Directors may also be requested to perform consulting or other professional services for the Company from time to time. The Board of Directors has reserved to itself the right to review all directors' claims for compensation on an ad hoc basis.

 

Directors who are on the Company’s Audit, Compensation, and Nominating Committees do not receive any consulting, advisory or compensatory fees from the Company. However, such Board members may receive fees from the Company for their services on those committees.

 


Director Compensation for Fiscal 2015
 

Change in Pension Value and Nonqualified Deferred Compensation

Earnings

($)

 

Name

Fees Earned or Paid

in Cash

($)

Stock Awards

($)

Option Awards

($)

Non

Equity Incentive Plan

Compensation

($)

All Other Compensation

($)

Total

($)

Ronald L. McDaniel 30,200 -0- -0- -0- -0- -0- 30,200
Matthew M. Price 30,200

-0-

-0-

-0- -0- -0- 30,200
Lael E. Boren 30,200

-0-

-0-

-0-

-0-

-0-

30,200
Leland Boren 30,200

-0-

-0- 

-0-

-0-

-0-

30,200
John J. Martorana 30,200 -0- -0- -0- -0- -0- 30,200
Martha R. Songer 30,200 -0- -0- -0- -0- -0- 30,200

 

 

Employment Contracts

 

The Company does not have employment contracts with the Chief Executive Officer or any other member of management.

 

Compensation Committee Interlocks and Insider Participation

 

There are no interlocking relationships between any member of the Company's Compensation Committee and any member of the compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member of the Compensation Committee is or was formerly an officer or an employee of the Company.

 

 18 
 

 

Compensation Committee Report

 

The Compensation Committee reviews with management the Compensation Discussion & Analysis section of the Company’s 2014 Form 10-K, Item 11, and Proxy Statement. Based on its review and discussions with management the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for 2015 and in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015.

 

The Compensation Committee

Ronald L. McDaniel

John J. Martorana

Lael E. Boren

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information with respect to the ownership of the Company's Common Stock as of December 31, 2015 by (i) those persons known by the Company to be the beneficial owners of more than 5% of the total number of outstanding shares of Common Stock, (ii) each director and executive officer, and (iii) all officers and directors as a group as of December 31, 2015 with these computations based on 5,183,895 shares of common stock being outstanding at that time.

 

 19 
 

 

NAME AND ADDRESS OF BENEFICIAL OWNER  TITLE HELD   AMOUNT OF BENEFICIAL OWNERSHIP OWNERSHIP1    APPROXIMATE PERCENT OF CLASS 
              
Roger Griffin  President & CEO   None    -0- 
5400 Rio Grande Ave.             
Jacksonville, FL 32254             
              
Leland E. Boren  Director   3,736,9972    72.10%
1909 S. Main Street            
Upland, IN 46989             
              
John Martorana  Director   20,000    0.40%
5148 Hanover Lane             
Lakeland, FL  33817             
              
Ronald L. McDaniel  Director   None    -0- 
Western-Cullen-Hayes, Inc.             
2700 W. 36th Place             
Chicago, IL 60632             
              
William E. Nielsen  Director   None    -0- 
5400 Rio Grande Avenue  Chief Financial          
Jacksonville, FL 32254  Officer          
              
Matthew M. Price  Director   None    -0- 
Bingham Greenbaum Doll, LLP             
2700 Market Tower             
10 West Market Street             
Indianapolis, IN 46204             
              
Lael E. Boren  Director   2,000    0.00%
1909 S Main Street             
Upland, IN 46989             
              
Martha R. Songer  Director   2,000    0.00%
1909 S. Main Street             
Upland, IN  46989             
              
International Baler Corporation  Stockholder   119,3393

    2.30%
Profit Sharing Trust             
5400 Rio Grande Avenue             
Jacksonville, FL 32254             
              
All Officers and Directors      

3,880,3364

    74.90%
as a Group (4 persons)             
              

 

1 Unless otherwise stated, all shares of common stock are directly held with sole voting power and dispositive power.

2 Consists of 2,633,896 shares held directly and 1,103,101 shares owned by Avis Industrial Corporation.

3 Employees’ Profit Sharing Trust of which William Nielsen is Trustee.

4 Consists of 3,760,997 shares held directly and 119,339 shares held by International Baler Corporation Employee Profit Sharing Trust.

 

 20 
 

 

Changes In Control

 

To the knowledge of the Company’s management, there are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.

 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Management and Others

 

Leland E. Boren, shareholder and director of the Company, is the owner of Avis Industrial Corporation (Avis). Mr. Boren controls over 50% of the outstanding shares of the Company. Avis owns 100% of The American Baler Company, a competitor of the Company. On January 1, 2014, Avis acquired The Harris Waste Management Group, Inc. (Harris), also a competitor of the Company. On July 31, 2014 Harris acquired the assets of IPS Balers, Inc. in Baxley, Georgia, another competitor of the Company. These baler companies operate completely independent of each other. The Company had no equipment sales to, or purchases from these companies in the fiscal years ending October 31, 2015 and 2014.

 

Indebtedness of Management

 

No officer, director or security holder known to the Company to own of record or beneficially more than 5% of the Company's common stock or any member of the immediate family of any of the foregoing persons is indebted to the Company.

 

Parent of the Issuer

 

The Company has no parent.

 

Independence of Directors

 

Rule 4350 (c) (1) of The Nasdaq Stock Market rules requires that a majority of the members of the Company’s Board of Directors be independent in that they are not officers or employees of the Company and are free of any relationship that would interfere with the exercise of their independent judgment.

 

The Board of Directors has determined that three of the Company’s seven Directors, Ronald L. McDaniel, Matthew M. Price and John Martorana are independent as defined by the listing standards of the Nasdaq Stock Market Rules, Section 10A(m)(3) of the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission.

 

However, Rule 4350(c) (5) provides an exemption from the requirement that a majority of the Company’s Directors be independent if the Company is considered a “controlled company”. A controlled company is defined as a company of which more than 50% of the voting power is held by an individual, a group, the Company’s independent registered public accounting firm, or another company. As Leland E. Boren, director, owns more than 50% of the Company’s common stock, the Company is considered a “controlled company” under the applicable rules of The Nasdaq Stock Market and as such is exempt from certain of the corporate governance rules of The Nasdaq Stock Market, such as the requirement that the board of directors consist of a majority of independent directors.

 

 21 
 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table presents the fees for professional services rendered by The GriggsGroup CPAs for the audit of the Company’s annual financial statements for the years ended October 31, 2015 and 2014:

 

 Fee Category   2015    2014 
 Audit Fees  $58,750   $55,500 
 Audit-Related Fees   0    0 
 Tax Fees   10,000    10,000 
 All Other Fees   0    0 
 Total Fees  $68,750   $65,500 

 

Audit fees include fees related to the services rendered in connection with the annual audit of the Company’s financial statements, the quarterly reviews of the Company’s quarterly reports on Form 10-Q and the reviews of and other services related to registration statements and other offering memoranda.

 

Audit-related fees are for assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of the Company’s financial statements.

 

Tax Fees include (i) tax compliance, (ii) tax advice, (iii) tax planning and (iv) tax reporting.

 

All Other Fees includes fees for all other services provided by the principal accountants not covered in the other categories.

 

All of the 2015 services described above were approved by the Audit Committee in accordance with the SEC rule that requires audit committee pre-approval of audit and non-audit services provided by the Company’s independent registered public accounting firm. The Audit Committee has considered whether the provisions of such services, including non-audit services, by The GriggsGroup CPAs is compatible with maintaining The GriggsGroup’s CPAs’ independence and has concluded that it is.

 

 22 
 

 

ITEM 15. EXHIBITS

 

The Following Documents are filed as Part of this Report

 

1. Financial Statements:

 

Reports of Independent Registered Public Accounting Firms

Balance Sheets

Statements of Operations

Statements of Stockholders' Equity

Statements of Cash Flows

Notes to Financial Statements

 

2. Exhibits

 

The following exhibits are filed with, or incorporated by reference into this report.

 

 

Exhibit Number

 

Description

 

2.1

 

Agreement of Merger between International Baler Corporation and IBC Merger Corporation dated June 24, 1997 (Incorporated by reference to Exhibit 10.39 to Company’s Current Report on Form 8-K, Date of Report June 27, 1997[“Report on Form 8-K June 27, 1997”]).

 

2.2

 

Certificate of Merger of International Baler Corporation into IBC Merger Corporation (Incorporated by reference to Exhibit 10.39.1 to Report on Form 8-K June 27, 1997).

 

2.3

 

Certificate of Merger merging Consolidated Baling Machine Company, Inc. and Florida Waste Systems, Inc. Into International Baler Corporation filed July 30, 2004.

 

3.1

 

Articles of Incorporation and by-laws of Waste Technology Corp. and amendments (Incorporated by reference to the Company’s Registration Statement on Form S-18 filed in April, 1985, Registration No. 2-97045[the “Statement on Form S-18"])

 

3.2

 

Certificate of Incorporation of International Baler Corporation f/k/a National Compactor & Technology Systems, Inc. and all amendments thereto (Incorporated by reference to Exhibit 3.3 to Form 8 Amendment No.1 to the Company’s Annual Report on Form 10-K for the year ended October 31, 1989[“Amendment No. 1 to 1989 Form 10-K”]).

 

3.3

By-laws of International Baler Corporation (Incorporated by reference to Exhibit 3.4 to Amendment No. 1 to 1989 Form 10-K).

 

3.4

 

Certificate of Incorporation of Consolidated Baling Machine Co., Inc. f/k/a Solid Waste Recovery Test Center, Inc. and all amendments thereto (Incorporated by reference to Exhibit 3.5 to Amendment No. 1 to 1989 Form 10-K).

 

3.5

 

By-laws of Consolidated Baling Machine Co., Inc. (Incorporated by reference to Exhibit 3.6 to Amendment No. 1 to 1989 Form 10-K).

 

 

 

3.7

 

Certificate of Amendment to Certificate of Incorporation of Waste Technology Corp. Filed on November 4, 1991(Incorporated by reference to Exhibit 3.1.1 to Company’s Annual Report on Form 10-K for the year ended October 31, 1991[the “1991 Form 10-K”]

 

3.8

 

Certificate of Amendment to Certificate of Incorporation of Waste Technology Corp. Filed on November 21 1991(Incorporated by reference to Exhibit 3.1.2 to Company’s 1991 Form 10-K).

 

3.9

 

Revised and restated by-laws of Waste Technology Corp. (Incorporated by reference to Exhibit 3.2 to Company’s 1991 Form 10-K).

 

3.10

 

Amendment to revised and restated by-laws of Waste Technology Corp. (Incorporated by reference to Exhibit 3.2.1 to Company’s 1991 Form 10-K).

 

3.11

 

Certificate of Incorporation of Waste Tech Real Estate Corp. (Incorporated by reference to Exhibit 3.7 to Company’s Annual Report on Form 10-K for year ended October 31, 1990).

 

4.1

 

1995 Stock Option Plan (Incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K for the year ended October 31, 1995).

 

10.1

 

Agreement between the Company and International Baler Corp. dated September 8, 1986, relating to acquisition of assets and stock (Incorporated by reference to Exhibit 10.1 to Statement on Form S-18).

 

10.2

 

Agreement dated February 3, 1987, between the Company and N. J. Cavagnaro & Sons and Machine Corp., Nicholas J. Cavagnaro Jr., George L. Cavagnaro, and Pauline L. Cavagnaro together with the exhibits annexed thereto for the acquisition of N. J. Cavagnaro & Sons Machine Corp. (Incorporated by reference to Exhibit 10.2 to Company’s Annual Report on Form 10-K for the year ended October 31, 1987 [the “1987 Form 10-K”]).

 

10.3

 

Waste Technology Corp. Profit Sharing Plan including Agreement of Trust (Incorporated by reference to Exhibit 10.7 to Report on Form 8-K June 1, 1989).

 

10.4

Form of Deferred Compensation Agreement for Ted C. Flood (Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10K for the year ended October 31, 1991).

 

10.5

 

Agreement between International Baler Corporation and Ted C. Flood dated as December 29, 1995 (Incorporated by reference to Exhibit 10.38 to the Company’s Annual report on Form 10-KSB for the year ended October 31, 1996 [the “1996 Form 10-KSB”]).

 

10.6

 

Promissory Note made by Ted C. Flood to the order of International Baler Corporation dated December 29, 1995 (Incorporated by reference to Exhibit 10.38.1 to the 1996 Form 10-KSB).

 

 

10.7

 

Promissory Note made by Ted C. Flood to the order of Waste Technology Corp. dated April 5, 1996 (Incorporated by reference to Exhibit 10.38.2 to the 1996 Form 10-KSB).

 

10.8

 

Promissory Note made by Ted C. Flood to the order of Waste Technology Corp. dated October 5, 1996(Incorporated by reference to Exhibit 10.38.3 to the 1996 Form 10-KSB).

 

14

 

Code of Ethics (Incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-KSB for the year ended October 31, 2003).

 

31*

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

 

32*

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Exhibit filed with this Report.

 

 23 
 

 

SIGNATURES

 

 

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

    INTERNATIONAL BALER CORPORATION
    (Registrant)
     
  By: /s/ D. Roger Griffin
    Chief Executive Officer
     
  Dated: January 28, 2016

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated.

 

Signature Title Date
     
     
/s/ Ronald L. McDaniel Director January 28, 2016
Ronald L. McDaniel Chairman of the Board  
     
     
/s/ D. Roger Griffin Director January 28, 2016
D. Roger Griffin President and Chief Executive Officer  
     
     
/s/ Lael Boren Director January 28, 2016
Lael E. Boren    
     
     
/s/ Leland E. Boren Director January 28, 2016
Leland E. Boren    
     
     
/s/ William E. Nielsen Director January 28, 2016
Willian E. Nielsen Chief Financial Officer  
     
     
/s/ Matthew M. Price Director January 28, 2016
Matthew M. Price    
     
     
/s/ John J. Martorana Director January 28, 2016
John J Martorana    
     
     
/s/ Martha R. Songer Director January 28, 2016
Martha R. Songer    

 

 24 
 

 

 

 

 

 

 

 

 

 

 

INTERNATIONAL BALER CORPORATION

 

FINANCIAL STATEMENTS

 

OCTOBER 31, 2015 AND 2014.

 

(With Report of Independent Registered Public Accounting Firm Thereon)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-1 
 

 

Report of Independent Registered Public Accounting Firm

 

 

 

 

Board of Directors and Stockholders

International Baler Corporation

 

We have audited the accompanying balance sheets of International Baler Corporation as of October 31, 2015 and 2014 and the related statements of income, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

As discussed in Note 2 to the financial statements, the accompanying 2014 financial statements have been restated to correct an error.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Baler Corporation as of October 31, 2015 and 2014 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ The GriggsGroup CPAs

 

Ponte Vedra Beach, Florida

January 28, 2016

 

 F-2 
 

INTERNATIONAL BALER CORPORATION
BALANCE SHEETS
       
 
       
       
    October 31, 2015    October 31, 2014 
ASSETS        (As Restated) 
           
Current assets:          
  Cash and cash equivalents  $3,665,219   $1,772,598 
  Certificates of deposit   654,753    447,954 
  Accounts receivable, net of allowance for doubtful accounts          
           of $15,000 at October 31, 2015 and $29,412 at October 31, 2014   1,218,989    3,732,637 
  Inventories   3,871,167    4,788,881 
  Prepaid expense and other current assets   101,610    183,725 
  Deferred income taxes   246,186    217,676 
          Total current assets   9,757,924    11,143,471 
           
Property, plant and equipment, at cost:   3,451,863    3,243,153 
  Less: accumulated depreciation   2,269,206    2,115,740 
          Net property, plant and equipment   1,182,657    1,127,413 
           
  Other assets   309,757    584,402 
           
TOTAL ASSETS  $11,250,338   $12,855,286 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current liabilities:          
  Revolving promissory note  $—     $644,345 
  Notes payable-current portion   10,223    9,879 
  Accounts payable   463,000    923,391 
  Accrued liabilities   904,798    1,512,985 
  Customer deposits   953,057    1,667,932 
          Total current liabilities   2,331,078    4,758,532 
           
   Deferred income taxes   191,004    171,480 
   Notes payable-long term   18,837    28,223 
          Total liabilities   2,540,919    4,958,235 
           
Commitments and contingencies (Note 8)          
           
Stockholders' equity:          
  Preferred stock, par value $.0001,          
        10,000,000 shares authorized, none issued   —      —   
  Common stock, par value $.01,          
        25,000,000 shares authorized;  6,429,875 shares          
        issued at October 31, 2015 and October 31, 2014   64,299    64,299 
  Additional paid-in capital   6,419,687    6,419,687 
  Retained earnings   2,906,843    2,094,475 
    9,390,829    8,578,461 
           
   Less:  Treasury stock, 1,245,980 shares          
                   at October 31, 2015 and October 31, 2014, at cost   (681,410)   (681,410)
           
           Total stockholders' equity   8,709,419    7,897,051 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $11,250,338   $12,855,286 
           
           
See accompanying notes to financial statements.

 F-3 
 

INTERNATIONAL BALER CORPORATION
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 2015 AND 2014
       
       
       
   2015  2014
           
           
Net sales:          
     Equipment  $15,646,647   $16,969,452 
     Parts and service   2,452,826    2,816,051 
Total net sales   18,099,473    19,785,503 
           
Cost of sales   14,808,065    15,577,846 
           
Gross profit   3,291,408    4,207,657 
           
           
Operating expense:          
     Selling expense   879,667    999,018 
     Administrative expense   1,126,676    2,027,640 
Total operating expense   2,006,343    3,026,658 
           
Operating income   1,285,065    1,180,999 
           
Other income (expense):          
     Interest income   3,500    6,706 
     Interest expense   (5,535)   (35,816)
Total other income  (expense)   (2,035)   (29,110)
           
           
Income before income taxes   1,283,030    1,151,889 
           
Income tax provision   470,662    437,470 
           
Net income  $812,368   $714,419 
           
           
Income per share, basic and diluted  $0.16   $0.14 
           
Weighted average number of shares outstanding   5,183,895    5,183,895 
           
           
See accompanying notes to financial statements.

 

 F-4 
 

 

INTERNATIONAL BALER CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED OCTOBER 31, 2015 AND 2014
                      
                      
                   
                   
    Common Stock              Treasury Stock      
    NUMBER OF SHARES ISSUED    PAR VALUE    ADDITIONAL PAID-IN CAPITAL    RETAINED EARNINGS (DEFICIT)    NUMBER OF SHARES    COST    TOTAL STOCKHOLDERS’ EQUITY 
                                    
Balance at October 31, 2013   6,429,875   $64,299   $6,419,687   $1,380,056    1,245,980   $(681,410)  $7,182,632 
                                    
Net Income   —      —      —      714,419    —      —      714,419 
                                    
Balance at October 31, 2014   6,429,875    64,299    6,419,687    2,094,475    1,245,980    (681,410)   7,897,051 
                                    
Net Income   —      —      —      812,368    —      —      812,368 
                                    
Balance at October 31, 2015   6,429,875   $64,299   $6,419,687   $2,906,843    1,245,980   $(681,410)  $8,709,419 
                                    
                                    
                                    
See accompanying notes to financial statements.

 

 F-5 
 

 

INTERNATIONAL BALER CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2015 AND 2014
       
       
       
    2015    2014 
         (As Restated) 
Cash flow from operating activities:          
  Net income  $812,368   $714,419 
  Adjustments to reconcile net income to net cash provided by (used in)          
  operating activities:          
     Depreciation and amortization   153,466    143,109 
     Provision for doubtful accounts   (14,412)   (16,352)
     Deferred income tax   (8,986)   33,427 
     Changes in operating assets and liabilities:          
       Accounts receivable   2,528,060    (1,249,398)
       Inventories   917,714    1,171,484 
       Prepaid expenses and other assets   82,115    (84,933)
       Accounts payable   (460,391)   (516,386)
       Accrued liabilities and deferred taxes   (608,187)   853,889 
       Customer deposits   (714,875)   989,978 
           Net cash provided by operating activities   2,686,872    2,039,237 
           
Cash flows from investing activities:          
   Purchases of property and equipment   (208,710)   (105,338)
   Purchases of certificates of deposit   —      (442,285)
   Redemptions of certificates of deposit   67,846    —   
           Net cash used in investing activities   (140,864)   (547,623)
           
Cash flows from financing activities          
   Payments on notes payable   (9,042)   (3,153)
   Advances from revolving promissory note   450,000    400,000 
   Payments on revolving promissory note   (1,094,345)   (1,404,304)
           Net cash used in financing activities   (653,387)   (1,007,457)
           
Net increase in cash and cash equivalents   1,892,621    484,157 
           
Cash and cash equivalents at beginning of period   1,772,598    1,288,441 
           
Cash and cash equivalents at end of period  $3,665,219   $1,772,598 
           
Supplemental disclosure of cash flow information:          
Cash paid during period for:          
    Interest  $5,535   $35,816 
    Income taxes   77,254    572,729 
           
Supplemental noncash investing activities:          
Property, plant and equipment purchases:          
    Purchase of property, plant and equipment, total  $—     $146,593 
    Vehicle purchased under note payable   —      41,255 
    Cash paid for property, plant and equipment  $—     $105,338 
           
           
           
See accompanying notes to financial statements.

 

 F-6 
 

 

(1) Nature of Business

 

International Baler Corporation (the “Company”) is a manufacturer of baling equipment which utilizes technical, hydraulic and electrical mechanisms to compress a variety of materials into bales for easier handling, shipping, disposal, storage, and for recycling. Materials commonly baled include scrap metal, corrugated boxes, newsprint, aluminum cans, plastic bottles, and other solid waste. More sophisticated applications include baling of textile materials, fibers and synthetic rubber. The Company offers a wide variety of balers, standard models as well as custom models to meet specific customer requirements.

 

The Company’s customers include recycling facilities, paper mills, textile mills, and the companies which generate the materials for baling and recycling.

 

(2) Summary of Significant Accounting Policies

 

(a) Use of Estimates

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, valuation of deferred tax assets, valuation of inventory, and estimates for warranty claims. Actual results could differ from those estimates.

 

(b) Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

 

(c) Accounts Receivable and Allowance for Doubtful Accounts

 

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable. The Company reviews its allowance for doubtful accounts monthly including the analysis of historical trends, customer credit worthiness and the aging of receivables. In addition, past due balances are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

(d) Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined by a method that approximates the first-in, first-out method. Work in process and finished goods are valued based on underlying costs to manufacture balers which include direct materials, direct and indirect labor, and overhead. The Company reviews inventory for obsolescence on a regular basis.

 

 F-7 
 

 

(e) Property, Plant, and Equipment

 

Property, plant and equipment are stated at cost net of accumulated depreciation. The cost of property, plant, and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed primarily using the straight-line method over the estimated lives of 5-20 years for machinery and equipment and 31-40 years for buildings.

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.

 

(f) Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgement occurs.

 

The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and administrative expenses.

 

(g) Revenue Recognition

 

The Company recognizes revenue when finished products and/or parts are shipped and the customer takes ownership and assumes the risk of loss. Revenue from installation services is recognized on completion of the service. The Company recognizes revenue from repair services in the period in which the service is provided.

 

(h) Warranties and Service

 

The Company typically warrants its products for one (1) year from the date of sale as to materials and six (6) months as to labor, and offers services for other required repairs and maintenance. Service is rendered by repairing or replacing parts at the Company’s Jacksonville, Florida, facility, by on-site service provided by Company personnel who are based in Jacksonville, Florida, or by local service agents who are engaged as needed. The Company maintains an accrued liability for expected warranty claims. The warranty accrual is based on historical warranty costs, the quantity and type of balers currently under warranty, and known warranty issues.

 

 F-8 
 

 

Following is a tabular reconciliation of the changes in the warranty accrual:

 

    2015    2014 
Beginning balance  $65,000   $60,000 
Warranty service provided   (199,891)   (175,728)
New product warranties   195,583    169,695 
Changes to pre-existing warranty accruals   9,308    (11,033)
Ending balance  $70,000   $65,000 

  

(i) Earnings Per Share

 

Basic earnings per share is calculated using the weighted average number of common shares outstanding during each year. Diluted earnings per share includes the net number of shares that would be issued upon the exercise of stock options using the treasury stock method. Options are not considered in loss years as they would be anti-dilutive. There were no stock options outstanding for the years ended October 31, 2015 and 2014, respectively.

 

(j) Business Reporting Segments

 

The Company operates in one segment based on the information monitored by the Company’s operating decision makers to manage the business.

 

(k) Fair Value of Financial Instruments

 

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, short term certificates of deposit, accounts receivable, accounts payable, accrued liabilities, and customer deposits, approximate their fair value due to the short-term nature of these assets and liabilities. The fair value of non-current certificates of deposit have maturities of less than 22 months and include low interest rates consistent with market rates, therefore the carrying value of these instruments approximates fair value. The non-current certificates of deposit are considered level 2 instruments within the fair value hierarchy.

 

(l) Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the topic. The guidance requires an entity to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the considerations to which the company expects to be entitled in exchange for those goods or services.

 

In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date". The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its financial statements.

 

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. The amendments in ASU 2015-17 eliminates the current requirement for an entity to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, an entity will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in this ASU are effective for public entities for financial statements issued for annual periods and interim periods beginning after December 15, 2016. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company is currently assessing the impact of the adoption of this guidance on its financial statements.

 

 F-9 
 

 

(m) Restatement of Prior Year

 

The Company made a correction to the prior year’s financial statements to reclassify certain certificates of deposit with initial maturities of greater than 90 days outside of cash and cash equivalents. The effect of the correction is to present certificates of deposit of approximately $450,000 as current assets and approximately $583,000 as other non-current assets at October 31, 2014. Also the purchase of approximately $442,000 of certificates of deposit have been presented within investing activities on the statement of cash flows during the year ended October 31, 2014. The correction had no effect on reported net income in any prior period.

 

(3) Related Party Transactions

 

Leland E. Boren, a shareholder and director of the Company, is the owner of Avis Industrial Corporation (Avis). Mr. Boren controls over 50% of the outstanding shares of the Company. Avis owns 100% of The American Baler Company, a competitor of the Company. On January 1, 2014, Avis acquired The Harris Waste Management Group, Inc., also a competitor of the Company. On July 31, 2014 Harris acquired the assets of IPS Balers, Inc. in Baxley, Georgia, another competitor of the Company. These baler companies operate independent of each other. The Company had no equipment sales to, or purchases from these companies in the years ending October 31, 2015 and 2014.

 

(4) Inventories

 

Inventories consisted of the following:  2015  2014
Raw materials  $1,688,032   $1,715,772 
Work in process   1,758,666    2,584,378 
Finished goods   424,469    488,731 
   $3,871,167   $4,788,881 

 

(5) Property, Plant, and Equipment

 

The following is a summary of property, plant, and equipment, at cost, less accumulated depreciation and amortization:

 

   2015  2014
Land  $82,304   $82,304 
Building and Improvements   1,174,555    1,078,950 
Machinery and Equipment   2,176,187    1,980,778 
Vehicles   101,121    101,121 
    3,451,863    3,243,153 
Less accumulated depreciation   2,269,206    2,115,740 
   $1,182,657   $1,127,413 

 

Depreciation expense was $153,466 and $143,109 during the years ended October 31, 2015 and 2014, respectively.

 

 

 F-10 
 

 

(6) Debt

 

The Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie Indiana that was entered into on January 7, 2013. The line of credit allows the Company to borrow at an interest rate equal to the sum of the LIBOR Rate applicable to each interest period plus 2.39%. The line of credit is secured by all assets of the Company. On February 26, 2015 the credit agreement was renewed with a termination date of May 15, 2017. The line of credit had no outstanding balance at October 31, 2015 and a balance of $644,345 at October 31, 2014.

 

In July 2014 the Company financed a service truck by entering into a loan agreement with Ford Credit for $41,254. The note has a term of forty-eight months at an interest rate of 3.8%. Principal payments for fiscal years ending October 31, are scheduled as follows:

 

 2016   $10,255
 2017    10,646 
 2018    8,159 
 Total   $29,060 
        

  

(7) Commitments and Contingencies

 

The Company in the ordinary course of business, is subject to claims made under, and from time to time is named as a defendant in legal proceedings relating to the operations of its business, including the sale of its products. The Company believes that the reserves reflected in its financial statements are adequate to pay losses and loss adjustment expenses which may result from such claims and proceedings; however, such estimates may be more or less than the amount ultimately paid when the claims are settled. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity.

 

On August 26, 2010, the Company was served with a wrongful death lawsuit filed by the Estate of a former employee who was fatally injured in a workplace accident while an employee of the Company. The accident occurred in September 2008. The Plaintiff demanded $2,500,000 to settle this claim. A motion to dismiss the Complaint was granted without prejudice in January 2012, allowing the Plaintiff the ability to file an amended Complaint. In July 2014, the Company filed a Motion for Summary Judgment to have the complaint dismissed. On December 1, 2014, the Company and its insurance company agreed to settle this claim for $150,000. The Company was responsible for $75,000, one-half of the total settlement amount. During the fourth quarter of fiscal 2014, the Company accrued an additional $50,000 for a total accrued liability of $75,000 related to this settlement. This settlement amount was paid in the first quarter of 2015.

 

On December 26, 2013 the Company was served with a civil action filed by Georgetown Paper Stock of Rockville, Inc. for breach of warranties. In November 2014, a jury returned a verdict in favor of the Plaintiff, Georgetown Paper Stock of Rockville, Inc. in the amount of $368,248. The Company was responsible for $277,968 of this amount and its dealer, BE Equipment, Inc., was responsible for $90,280. The Company recorded an accrued liability of $285,000 and an asset in transit of $85,000 resulting in net expense of $200,000 in the fourth quarter of fiscal 2014. The payments were made in the first quarter of fiscal 2015. The baler was returned in the second quarter of fiscal 2015.

 

In November 2014, the Company agreed to a Consent Order with the Florida Department of Environmental Protection to remove solid waste sand blasting material from its property. The Company recorded an accrued liability of $291,000 as of October 31, 2014, for the cost of the removal of this material. The removal of the sand blasting material was completed in January 2015.

 

The Company had outstanding commitments relating to standby letters of credit for performance and warranty guarantees of approximately $963,000 and $1,031,000 at October 31, 2015 and 2014, respectively. These letters of credit are collateralized by certificates of deposit which have expiration dates which coincide with the expiration dates of the letters of credit. Certificates of deposit, of $308,501 and $583,146 at October 31, 2015 and 2014, respectively, which mature in one year or more are included in other assets in the accompanying balance sheet.

 

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(8) Income Taxes

 

Income tax provision attributable to income from continuing operations consists of:

 

      2015  2014
Current income tax provision:          
Federal      $438,901   $358,172
State        40,748   45,871
         479,649   404,043
Deferred income tax provision:          
Federal       (8,224)  30,587
State       (763)  2,840
         (8,987)  33,427
Income tax provision       $470,662   $437,470

 

 

The differences between income taxes as provided at the federal statutory tax rate of 34% and the Company’s actual income taxes are as follows:

 

   2015  2014
Expected federal income tax expense at          
Statutory rate  $436,230   $391,642 
State income tax expense, net of federal          
income tax effect   26,390    23,821 
Other – meals and entertainment   8,042    9,389 
Other   —      12,618 
Income tax provision  $470,662   $437,470 

 

Tax assets are recognized in the balance sheet if it is more likely than not that they will be realized on future tax returns. As of October 31, 2015 and 2014, the net deferred tax assets were $55,182 and $46,196, respectively. The Company determined it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets of October 31, 2015 and 2014 and no valuation allowance is deemed necessary. The realization of deferred tax assets will depend on the Company’s ability to continue to generate taxable income in the future.

 

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The significant components of the net deferred income taxes at October 31, 2015 and 2014 are as follows:

 

 

   2015  2014
Deferred tax assets          
Inventory reserve  $70,238   $70,238 
Other reserves and allowances   89,514    64,045 
Capitalized inventory costs   86,434    91,094 
Total deferred tax assets   246,186    225,377 
           
Deferred tax liabilities          
Property, plant, and equipment   (191,004)   (179,181)
Total gross deferred tax liabilities   (191,004)   (179,181)
Net deferred income taxes  $55,182   $46,196 

 

For the years ended October 31, 2015 and 2014, the Company did not have any unrecognized tax benefits or obligations as a result of tax positions taken during a prior period or during the current period. No interest or penalties have been recorded as a result of tax uncertainties. Our evaluation was performed for the tax years ended October 31, 2007 through October 31, 2015, the tax years which remain subject to examination by tax jurisdictions as of October 31, 2015.

 

(9) Employee Benefit Plan

 

The Company has a defined contribution plan and profit sharing program for its employees. The Company made no contributions to the plan during the years ended October 31, 2015 or 2014.

 

(10) Business and Credit Concentrations

 

Export sales were approximately 32% and 49% of net sales for the years ended October 31, 2015 and 2014, respectively. The principal international markets served by the Company, include Canada, China, Mexico, United Kingdom, India, Korea, Japan, Russia, Saudi Arabia, Singapore, and Brazil. In fiscal 2015, three customers accounted for 24.4%, 10.5% and 9.1% of net sales, respectively, while in fiscal 2014, three customers accounted for 15.4%, 10.2% and 9.4% of net sales, respectively. During fiscal 2015, 24.4% of the Company’s sales were to Singapore and during fiscal 2014, 23.4% of the Company’s total sales were to Saudi Arabia. Three customers accounted for 24.4%, 22.4%, and 20.5% respectively, of the Company’s accounts receivable at October 31, 2015 and two customers accounted for 40.2%, and 20.2%, respectively, of the Company accounts receivable at October 31, 2014.

 

The Company had cash deposits in banks of $3,165,219 above the FDIC insured limit of $250,000 per bank at October 31, 2015.

 

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