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

_________________

FORM 10-Q

_________________

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

For the quarterly period ended: January 31, 2017

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, FL 32254

(Address of Principal Executive Offices) (Zip Code)

 

904-358-3812

(Registrant’s telephone number, including area code)

N/A
(Former name or former address and former fiscal year, if changed since last report)

_________________

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 (§232.405 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 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 ☒

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 Sections 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 ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,183,895 shares of common stock at February 28, 2017.

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INTERNATIONAL BALER CORPORATION 

TABLE OF CONTENTS

  PAGE
PART I. FINANCIAL INFORMATION  
   
ITEM 1. FINANCIAL STATEMENTS 3
   
Balance Sheets ad of January 31, 2017, (unaudited) and October 31, 2016 3
   
Statements of Income for the three months ended January 31, 2017 and 2016 (unaudited) 4
   
Statement of Changes in Stockholders’ Equity for the three months ended January 31, 2017 (unaudited) 5
   
Statement of Cash Flows for the three months ended January 31, 2017 and 2016 (unaudited) 6
   
Notes to Financial Statements (unaudited) 7
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 10
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
   
ITEM. 4 CONTROLS AND PROCEDURES 11
   
PART II. OTHER INFORMATION 12
 
ITEM 1. LEGAL PROCEEDINGS 12
   
ITEM 5. OTHER INFORMATION 12
   
ITEM 6. EXHIBITS 12
   
SIGNATURES 13

 

 2 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

INTERNATIONAL BALER CORPORATION
BALANCE SHEETS
       
       
       
    January 31, 2017    October 31, 2016 
ASSETS   Unaudited      
           
Current assets:          
  Cash and cash equivalents  $3,944,199   $2,719,337 
  Certificates of deposit   311,048    310,463 
  Accounts receivable, net of allowance for doubtful accounts of $15,000 at January 31, 2017 and at October 31, 2016   325,537    881,997 
  Inventories   3,679,465    3,839,115 
  Income taxes receivable   191,303    191,303 
  Prepaid expense and other current assets   119,943    155,961 
          Total current assets   8,571,495    8,098,176 
           
Property, plant and equipment, at cost:   3,932,370    3,930,058 
  Less: accumulated depreciation   2,498,731    2,449,231 
          Net property, plant and equipment   1,433,639    1,480,827 
           
  Other assets   1,256    1,256 
  Deferred income taxes   56,719    35,719 
          Total other assets   57,975    36,975 
           
TOTAL ASSETS  $10,063,109   $9,615,978 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
           
Current liabilities:          
  Accounts payable  $547,685   $390,108 
  Accrued liabilities   267,092    276,717 
  Customer deposits   487,916    149,324 
          Total current liabilities   1,302,693    816,149 
          Total liabilities   1,302,693    816,149 
           
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 January 31, 2017 and October 31, 2016   64,299    64,299 
  Additional paid-in capital   6,419,687    6,419,687 
  Retained earnings   2,957,840    2,997,253 
    9,441,826    9,481,239 
           
           
   Less:  Treasury stock, 1,245,980 shares, at cost   (681,410)   (681,410)
           
           Total stockholders' equity   8,760,416    8,799,829 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $10,063,109   $9,615,978 
           
See accompanying notes to financial statements.

 

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INTERNATIONAL BALER CORPORATION
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 2017 AND 2016
UNAUDITED
       
       
    
    2017    2016 
Net sales:          
     Equipment  $1,659,313   $2,988,693 
     Parts and service   578,480    591,134 
Total net sales   2,237,793    3,579,827 
           
Cost of sales   2,008,495    3,019,318 
           
Gross profit   229,298    560,509 
           
           
Operating expense:          
     Selling expense   109,202    233,521 
     Administrative expense   181,816    222,266 
Total operating expense   291,018    455,787 
           
Operating income  (loss)   (61,720)   104,722 
           
Other income (expense):          
     Interest income   1,307    2,105 
     Interest expense   —      (296)
Total other income  (expense)   1,307    1,809 
           
           
Income (loss) before income taxes   (60,413)   106,531 
           
Income tax provision (benefit)   (21,000)   38,000 
           
Net income (loss)  $(39,413)  $68,531 
           
           
Income (loss) per share, basic and diluted  $(0.01)  $0.01 
           
Weighted average number of shares outstanding   5,183,895    5,183,895 
           
See accompanying notes to financial statements.

 

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INTERNATIONAL BALER CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 2017
UNAUDITED
 
 
                   
    Common Stock              Treasury Stock      
    NUMBER OF SHARES ISSUED    PAR VALUE    ADDITIONAL PAID-IN CAPITAL    RETAINED EARNINGS    NUMBER OF SHARES    COST    

TOTAL

STOCKHOLDERS’ EQUITY

 
Balance at November 1, 2016   6,429,875   $64,299   $6,419,687   $2,997,253    1,245,980   $(681,410)  $8,799,829 
                                    
Net loss   —      —      —      (39,413)   —      —      (39,413)
                                    
Balance at January 31, 2017   6,429,875   $64,299   $6,419,687   $2,957,840    1,245,980   $(681,410)  $8,760,416 
                                    
See accompanying notes to financial statements.

 

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INTERNATIONAL BALER CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2017 AND 2016
UNAUDITED
       
       
       
    2017    2016 
Cash flow from operating activities:          
  Net income  (loss)  $(39,413)  $68,531 
  Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:         
     Depreciation and amortization   49,500    40,500 
     Deferred income taxes   (21,000)   —   
     Changes in operating assets and liabilities:          
       Accounts receivable   556,460    681,353 
       Inventories   159,650    388,222 
       Prepaid expenses and other assets   36,018    (28,070)
       Accounts payable   157,577    230,939 
       Accrued liabilities   (9,625)   (305,109)
       Customer deposits   338,592    (23,293)
           Net cash provided by operating activities   1,227,759    1,053,073 
           
Cash flows from investing activities:          
   Purchase of property and equipment   (2,312)   (8,980)
   Redemptions of (interest earned on) certificates of deposit   (585)   161,910 
           Net cash (used in) provided by investing activities   (2,897)   152,930 
           
Cash flows from financing activities:          
   Payments on notes payable   —      (29,060)
            Net cash used in financing activities   —      (29,060)
           
Net increase in cash and cash equivalents   1,224,862    1,176,943 
           
Cash and cash equivalents at beginning of period   2,719,337    3,665,219 
           
Cash and cash equivalents at end of period  $3,944,199   $4,842,162 
           
Supplemental disclosure of cash flow information:          
Cash paid during period for:          
    Interest  $—     $2,063 
    Income taxes  $—     $285,000 
           
See accompanying notes to financial statements.

 

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. Nature of Business:

 

International Baler Corporation (the “Company”) is a manufacturer of baling equipment which is designed 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, and conveyors to meet specific customer requirements.

 

The Company’s customers include recycling facilities, distribution centers, textile mills, and companies which generate the materials for baling and recycling. The Company sells its products worldwide with annual sales outside the United States typically ranging from 10% to 35%.

 

2. Basis of Presentation:

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information in footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the three-month period ended January 31, 2017 are not necessarily indicative of the results that may be expected for the year ending October 31, 2017. The accompanying balance sheet as of October 31, 2016 was derived from the audited financial statements as of October 31, 2016. Accrued income taxes are presented as separate line items on the balance sheet due to the size of the balances in these accounts. 

 

3. Summary of Significant Accounting Policies:

 

(a) Accounts Receivable & 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. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

(b) 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.

 

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(c) 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.

 

(d)       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 types of balers currently under warranty, and known warranty issues.

 

Following is a tabular reconciliation of the changes in the warranty accrual for the three-month period ended January 31:

 

   2017  2016
Beginning balance  $65,000   $70,000 
Warranty service provided   (28,392)   (8,031)
New product warranties   33,186    29,887 
Changes to pre-existing warranty accruals   (4,794)   (21,856)
Ending balance  $65,000   $70,000 

 

(e) 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.

 

4. Related Party Transactions:

 

Leland E. Boren, a stockholder and director of the Company, is the owner of Avis Industrial Corporation (Avis). Mr. Boren controls over 75% 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 for the three months ended January 31, 2017 or in fiscal year ended October 31, 2016.

 

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5. Inventories:

 

Inventories consisted of the following:

 

  

 January 31,

2017

 

October 31,

2016

Raw materials  $1,856,895   $1,813,545 
Work in process   1,454,729    1,291,729 
Finished goods   367,841    733,841 
   $3,679,465   $3,839,115 

 

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 February 26, 2015. 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 expires on May 15, 2017. The line of credit had no outstanding balance at January 31, 2017 and at October 31, 2016.

 

In July 2014 the Company financed a service truck by entering into a loan agreement with Ford Credit for $41,254. The note had a term of forty-eight months at an interest rate of 3.8%. The loan balance of $27,382 was paid off in January 2016.

 

7. Income Taxes:

 

Tax assets are recognized in the balance sheet if it is more likely than not that they will be realized on future tax returns. Factors considered included, historical results of operations, volatility of the economic conditions and projected earnings based on current operations. Based on this evidence, it is more likely than not that the deferred tax assets would be realized. Accordingly, there is no valuation allowance as of January 31, 2017 and at October 31, 2016. However, if it is determined that all or part of the deferred tax assets will not be used in the future, an adjustment to the deferred tax assets would be charged against net income in the period such determination is made. As of January 31, 2017 and October 31, 2016, net deferred tax assets were $35,719.

 

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

 

In accordance with ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, the Company classifies all deferred tax assets and liabilities as noncurrent. This ASU has been applied retrospectively to all periods presented.

 

8. Commitments and Contingencies:

 

The Company, in the ordinary course of business, is subject to claims made, and from time to time is named as a defendant in legal proceedings relating to the sales 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.

 

The company had outstanding commitments relating to a standby letter of credit for performance and warranty guarantees of approximately $310,000 at January 31, 2017 and at October 31, 2016. This letter of credit is collateralized by a certificate of deposit which has an expiration date which coincides with the expiration date of the letter of credit.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read together with our unaudited financial statements and the related notes thereto included in Part I, Item 1 “Financial Statements”. For further information, refer to the Company’s Annual Report on Form 10-K for the year ended October 31, 2016, and the Management Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q.

 

Results of Operations: Three Month Comparison

 

In the first quarter ended January 31, 2017, the Company had net sales of $2,237,793 compared to net sales of $3,579,827 in the first quarter of fiscal 2016, a decrease of 37.5%. The decrease in net sales was the result of lower shipments of two-ram balers, two in the first quarter of fiscal 2017 versus seven in the first quarter of fiscal 2016. Two-ram balers are the Company’s largest balers and range in price from $160,000 to over $600,000.

 

In the last six months of calendar year 2016 the market for balers was slowed due to lower prices for recycled materials such as cardboard and plastic. At the current time prices for these commodities are improving.

 

The Company had a net loss of $39,413 in the first quarter of fiscal 2017, compared to net income of $68,531 in the first quarter of fiscal 2016. The lower net income was the result of the lower sales and gross profit, partially offset by lower selling and administrative expenses. The lower selling and administration expenses are the result of personnel reductions and are considered to be ongoing.

 

The sales order backlog was approximately $2,145,000 at January 31, 2017 and $2,785,000 at January 31, 2016.

 

Financial Condition and Liquidity:

 

Net working capital at January 31, 2017 was $7,268,802 as compared to $7,282,027 at October 31, 2016. The Company currently believes that it will have sufficient cash flow to be able to fund operating activities for the next twelve months.

 

Average days sales outstanding (DSO) in the first three months of fiscal 2017 were 25.0 days, as compared to 18.2 days in the first three months of fiscal 2016. DSO is calculated by dividing the total of the month-end net accounts receivable balances for the period by three, and dividing that result by the average day’s sales for the period (period sales ÷ 91.25).

 

During the three months ended January 31, 2017 and 2016, the Company made additions to plant and equipment of $2,312 and $8,980, respectively.

 

The Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana that was entered into on February 26, 2016. 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 expires on May 15, 2017. The line of credit had no outstanding balance at January 31, 2017 and October 31, 2016.

 

In the event that the Company’s line of credit would not be available, the Company would pursue a line of credit from other sources, and take steps to minimize expenditures, such as delaying capital expenditures and reducing overhead costs.

 

Forward Looking Statements

 

Certain statements in this Report contain 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. The Company cautions that such statements are necessarily based 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.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 


The Company is exposed to changes in interest rates as a result of its financing activities, including its borrowings on the revolving line of credit facility. Based on the current level of borrowings, a change in interest rates is not expected to have a material effect on operations or financial position.

 

ITEM 4. CONTROLS AND PROCEDURES

 

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 that 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 our management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), 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 is necessarily 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 the management, including the Company’s 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 and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

 

Management, with the participation of the Company’s principal executive and principal financial officers, assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2017. This assessment was performed using the criteria established under the Internal Control-Integrated Framework established by Committee of Sponsoring Organization of the Treadway Commission (“COSO”).

 

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.

 

Changes in Internal Control over Financial Reporting

 

The Company’s management, including CEO and CFO, confirm that there were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended January 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 5. OTHER INFORMATON

 

On January 10, 2017 Roger Griffin resigned as President, Chief Executive Officer and Director of International Baler Corporation. Mr. Griffin resigned in order to pursue other interests. The Board of Directors named William E. Nielsen, the Company’s Chief Financial Officer, to the position of President and Chief Executive Officer. Mr. Nielsen has been the Company’s Chief Financial Officer since 1994.

 

ITEM 6. EXHIBITS

 

The following exhibits are submitted herewith:

 

Exhibit  
31 Certification of William E. Nielsen, Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a–14(a)/15d-14(a).
32 Certification of William E. Nielsen, 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.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned there unto duly authorized.

 

Dated: Septem D Dated: March 14, 2017 

    INTERNATIONAL BALER CORPORATION
     
March 14, 2017 By: /s/ William E. Nielsen
    William E. Nielsen
    Chief Executive Officer
    Chief Financial Officer

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