Attached files

file filename
EX-32 - EXHIBIT 32 - INTERNATIONAL BALER CORPex32.htm
EX-31 - EXHIBIT 31 - INTERNATIONAL BALER CORPex31.htm

 

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: July 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 August 31, 2017.

 1 

 

  

INTERNATIONAL BALER CORPORATION 

TABLE OF CONTENTS

 

  PAGE
PART I. FINANCIAL INFORMATION  
   
ITEM 1. FINANCIAL STATEMENTS 3
   
Balance Sheets as of July 31, 2017, (unaudited) and October 31, 2016 3
   
Statements of Income for the three months and nine months ended July 31, 2017 and 2016 (unaudited) 4
   
Statement of Stockholders’ Equity for the nine months ended July 31, 2017 (unaudited) 5
   
Statements of Cash Flows for the nine months ended July 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
   
ITEM 5. OTHER INFORMATION 12
   
ITEM 6. EXHIBITS 13
   
SIGNATURES 14

 

 2 

 

 

INTERNATIONAL BALER CORPORATION
BALANCE SHEETS
         
         
   

July 31,

2017

  October 31, 2016
    (Unaudited)    
ASSETS              
                 
Current assets:                
Cash and cash equivalents   $ 3,768,805     $ 2,719,337  
Certificates of deposit     —         310,463  
Other receivable     305,433       —    
Accounts receivable, net of allowance for doubtful accounts of $15,000 at July 31, 2017 and at October 31, 2016     1,315,154       881,997  
Inventories     3,754,442       3,839,115  
Income taxes receivable     148,220       191,303  
Prepaid expense and other current assets     195,111       155,961  
Total current assets     9,487,165       8,098,176  
                 
Property, plant and equipment, at cost:     3,946,884       3,930,058  
Less: accumulated depreciation     2,597,731       2,449,231  
Net property, plant and equipment     1,349,153       1,480,827  
                 
Other assets     1,256       1,256  
Deferred income taxes     35,719       35,719  
Total other assets     36,975       36,975  
TOTAL ASSETS   $ 10,873,293     $ 9,615,978  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 1,035,607     $ 390,108  
Accrued liabilities     374,311       276,717  
Customer deposits     573,706       149,324  
Total current liabilities     1,983,624       816,149  
Total liabilities     1,983,624       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 July 31, 2017 and October 31, 2016     64,299       64,299  
Additional paid-in capital     6,419,687       6,419,687  
Retained earnings     3,087,093       2,997,253  
      9,571,079       9,481,239  
                 
Less: Treasury stock, 1,245,980 shares, at cost     (681,410 )     (681,410 )
Total stockholders' equity     8,889,669       8,799,829  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 10,873,293     $ 9,615,978  
                 
See accompanying notes to financial statements.

 

 3 

 

 

INTERNATIONAL BALER CORPORATION
STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2017 AND 2016
UNAUDITED
             
             
    Three Months    Nine Months 
                     
    2017    2016    2017    2016 
Net sales:                    
Equipment  $2,285,750   $2,596,687   $5,954,117   $7,424,739 
Parts and service   826,209    721,159    2,061,356    2,126,505 
Total net sales   3,111,959    3,317,846    8,015,473    9,551,244 
                     
Cost of sales   2,695,557    2,841,478    7,020,860    8,172,274 
                     
Gross profit   416,402    476,368    994,613    1,378,970 
                     
                     
Operating expense:                    
Selling expense   128,223    186,586    351,181    615,058 
Administrative expense   164,624    260,531    509,422    721,453 
Total operating expense   292,847    447,117    860,603    1,336,511 
                     
Operating income   123,555    29,251    134,010    42,459 
                     
Other income (expense):                    
Interest income   1,579    2,166    4,330    8,872 
Interest expense   —      —      —      (514)
Total other income (expense)   1,579    2,166    4,330    8,358 
                     
                     
Income before income taxes   125,134    31,417    138,340    50,817 
                     
Income tax provision   44,000    11,000    48,500    18,000 
                     
Net income  $81,134   $20,417   $89,840   $32,817 
                     
Income per share, basic and diluted  $0.02   $0.00   $0.02   $0.01 
                     
Weighted average number of shares outstanding   5,183,895    5,183,895    5,183,895    5,183,895 
                     
See accompanying notes to financial statements.

 

 4 

 

 

INTERNATIONAL BALER CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JULY 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 income   —      —      —      89,840    —      —      89,840 
                                    
Balance at July 31, 2017   6,429,875   $64,299   $6,419,687   $3,087,093    1,245,980   $(681,410)  $8,889,669 
                                    
See accompanying notes to financial statements.

 

 5 

 

 

INTERNATIONAL BALER CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2017 AND 2016
UNAUDITED
       
       
   2017  2016
Cash flow from operating activities:          
Net income  $89,840   $32,817 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   148,500    133,500 
Changes in operating assets and liabilities:          
Accounts receivable   (433,157)   173,347 
Other receivable   (305,433)   —   
Inventories   84,673    (46,596)
Prepaid expenses and other assets   (39,150)   (161,137)
Income taxes receivable   43,083    —   
Accounts payable   645,499    (9,248)
Accrued liabilities   97,594    (619,926)
Customer deposits   424,382    (555,055)
Net cash provided by (used in) operating activities   755,831    (1,052,298)
           
Cash flows from investing activities:          
Purchase of property and equipment   (16,826)   (477,726)
Withdrawals and redemptions of certificates of deposit   310,463    459,132 
Net cash provided by (used in) investing activities   293,637    (18,594)
           
Cash flows from financing activities:          
Payments on notes payable   —      (29,060
Net cash used in financing activities   —      (29,060)
           
Net increase (decrease) in cash and cash equivalents   1,049,468    (1,099,952)
           
Cash and cash equivalents at beginning of period   2,719,337    3,665,219 
           
Cash and cash equivalents at end of period  $3,768,805   $2,565,267 
           
Supplemental disclosure of cash flow information:          
Cash paid during period for:          
Interest  $—     $461 
Income taxes  $—     $392,400 
           
See accompanying notes to financial statements.

 

 6 

 

 

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 nine-month period ended July 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.

 

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.

 

 7 

 

  

(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 nine-month period ended July 31:

 

   2017  2016
Beginning balance  $65,000   $70,000 
Warranty service provided   (166,653)   (183,389)
New product warranties   119,082    148,495 
Changes to pre-existing warranty accruals   67,571    29,894 
Ending balance  $85,000   $65,000 

 

(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 nine months ended July 31, 2017 or in fiscal year ended October 31, 2016.

 

 8 

 

  

5. Inventories:

 

Inventories consisted of the following:

 

  

 July 31,

2017

 

October 31,

2016

Raw materials  $1,932,872   $1,813,545 
Work in process   1,560,729    1,291,729 
Finished goods   260,841    733,841 
   $3,754,442   $3,839,115 

 

6. Debt:

 

The Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2017. The line of credit allows the Company to borrow at an interest rate equal to the Wall Street Journal prime rate minus 0.95%, adjusting daily. The line of credit is secured by all assets of the Company and expires on May 15, 2018. The line of credit had no outstanding balance at July 31, 2017 and at October 31, 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 July 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 July 31, 2017 and October 31, 2016, net deferred tax assets were $35,719.

 

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

 

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 had outstanding commitments relating to a standby letter of credit for performance and warranty guarantees of approximately $310,000 at July 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. In July 2017 the National Bank of Abu Dhabi made a draw on the letter of credit of $305,433. No warranty claims or any other claims have been received by the Company. The amount of the funds to be returned is shown on the balance sheet as other receivable. The funds were returned to the Company’s account in September 2017.

 

 9 

 

 

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 third quarter ended July 31, 2017, the Company had net sales of $3,111,959 compared to net sales of $3,317,846 in the third quarter of fiscal 2016, a decrease of 6.2%. Equipment shipments in the third quarter of fiscal 2017 and 2016 were substantially the same, except that the Company sold two higher value rubber balers during the third quarter of 2016 and one rubber baler during the third quarter of 2017.

 

The Company had net income of $81,134 in the third quarter of fiscal 2017, compared to net income of $20,417 in the third quarter of fiscal 2016. The higher net income is primarily the result of significantly lower selling and administrative expenses related to reductions in personnel, one regional sales manager, one other sales person, and the president of the Company whose duties were taken over by the Company’s CFO.

 

Results of Operations: Nine Month Comparison

 

The Company had net sales of $8,015,473 in the first nine months of fiscal 2017, compared to $9,551,244 in the same period of 2016, a decrease of 16.1%. The lower sales in the first nine months of fiscal 2017 compared to the first nine months of fiscal 2016 was primarily the result of lower shipments of rubber balers, one versus two, and larger two-ram balers, seven versus fourteen, respectively.

 

The Company had net income of $89,840 in the first nine months of fiscal 2017, compared to net income of $32,817 in the first nine months of fiscal 2016. Gross profit margins declined in the first nine months of 2017 from 2016 due to the lower sales volume and the lower absorption of fixed overhead costs, however, the Company reduced selling and administration expenses to allow the Company to be profitable. The lower selling and administrative expenses were primarily related to personnel reductions as discussed previously.

 

The sales order backlog was approximately $3,190,000 at July 31, 2017 and $1,500,000 at July 31, 2016.

 

Financial Condition and Liquidity:

 

Net working capital at July 31, 2017 was $7,503,541 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 nine months of fiscal 2017 were 26.4 days, as compared to 22.6 days in the first nine months of fiscal 2016. DSO is calculated by dividing the total of the month-end net accounts receivable balances for the period by nine, and dividing that result by the average day’s sales for the period (period sales ÷ 273).

 

During the nine months ended July 31, 2017 and 2016, the Company made additions to plant and equipment of $16,826 and $477,726, respectively.

 

 10 

 

 

The Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2017. The line of credit allows the Company to borrow at an interest rate equal to the Wall Street Journal prime rate minus 0.95%, adjusting daily. The line of credit is secured by all assets of the Company and expires on May 15, 2018. The line of credit had no outstanding balance at July 31, 2017 and at 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.

 

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)/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 CEO/CFO, 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 CEO/CFO 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 July 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”).

 

 11 

 

 

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

 

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.

 

 12 

 

 

ITEM 6. EXHIBITS

 

The following exhibits are submitted herewith:

Exhibit   Description
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.

 

 13 

 

 

 

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.

 

 

    INTERNATIONAL BALER COPORATION
     
Dated: September 12, 2017 By: /s/ William E. Nielsen
    Williiam E. Nielsen
    Chief Executive Officer
    Chief Financial Officer

 

 14