UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM
(Mark one)
For
the quarterly period ended
or
For the transition period from ________________ to __________________
Commission
File Number:
____________________
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
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Securities registered under Section 12(b) of the Act: None
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
☐
As of September 9, 2021, there were shares of common stock of the registrant outstanding.
| 1 |
INTERNATIONAL BALER CORPORATION
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | |
| ITEM 1. FINANCIAL STATEMENTS | |
| Condensed Balance Sheets as of July 31, 2021, (unaudited) and October 31, 2020 | 3 |
| Condensed Statements of Income for the three months and nine months ended July 31, 2021 and 2020 (unaudited) | 4 |
| Condensed Statements of Stockholders’ Equity for the nine months ended July 31, 2021 and 2020 (unaudited) | 5 |
| Condensed Statements of Cash Flows for the nine months ended July 31, 2021 and 2020 (unaudited). | 6 |
| Notes to Condensed Financial Statements (unaudited) | 7 |
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12 |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 14 |
| ITEM 4. CONTROLS AND PROCEDURES | 14 |
| PART II. OTHER INFORMATION | |
| ITEM 1. LEGAL PROCEEDINGS | 15 |
| ITEM 5. OTHER INFORMATION | 15 |
| ITEM 6. EXHIBITS | 16 |
| SIGNATURES | 17 |
| 2 |
INTERNATIONAL BALER CORPORATION
CONDENSED BALANCE SHEETS
| July 31, 2021 | October 31, 2020 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Certificate of deposit | ||||||||
| Accounts
receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventories | ||||||||
| Prepaid expense and other current assets | ||||||||
| Income taxes receivable | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, at cost: | ||||||||
| Less: accumulated depreciation | ||||||||
| Net property, plant and equipment | ||||||||
| Other assets | ||||||||
| Deferred income taxes | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Customer deposits | ||||||||
| Total current liabilities | ||||||||
| Long term debt | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value $., shares authorized, issued | ||||||||
| Common stock, par value $., shares authorized; shares issued | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| 9,274,888 | 9,132,799 | |||||||
| Less:Treasury stock, shares, at cost | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
| See accompanying notes to condensed financial statements. | ||||||||
| 3 |
INTERNATIONAL BALER CORPORATION
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2021 AND 2020
UNAUDITED
| Three Months | Nine Months | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales: | ||||||||||||||||
| Equipment | $ | $ | $ | $ | ||||||||||||
| Parts and service | ||||||||||||||||
| Total net sales | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expense: | ||||||||||||||||
| Selling expense | ||||||||||||||||
| Administrative expense | ||||||||||||||||
| Total operating expense | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Total other income | ||||||||||||||||
| Loss income before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| (Loss) income per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| See accompanying notes to condensed financial statements. | ||||||||||||||||
| 4 |
INTERNATIONAL BALER CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2021 AND 2020
UNAUDITED
| Common Stock | Treasury Stock | |||||||||||||||||||||||||||
| Shares | Amount | Additional Paid in Capital | Retained Earnings | Shares | Amount | Total | ||||||||||||||||||||||
| Balance - October 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Balance - January 31, 2021 | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance - April 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance - July 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Common Stock | Treasury Stock | |||||||||||||||||||||||||||
| Shares | Amount | Additional Paid in Capital | Retained Earnings | Shares | Amount | Total | ||||||||||||||||||||||
| Balance - October 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance - January 31, 2020 | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance April 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance July 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| See accompanying notes to condensed financial statements. | ||||||||||||||||||||||||||||
| 5 |
INTERNATIONAL BALER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2021 AND 2020
UNAUDITED
| 2021 | 2020 | |||||||
| Cash flow from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Deferred income tax | ( | ) | ||||||
| Provision for doubtful accounts | ||||||||
| Gain on sale of fixed assets | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Income taxes receivable | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds received on sale of fixed assets | ||||||||
| Interest earned on certificates of deposit | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from PPP loan | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| See accompanying notes to condensed financial statements. | ||||||||
| 6 |
NOTES TO CONDENSED 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 condensed 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 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 July 31, 2021 are not necessarily indicative of the results that may be expected for the year ending October 31, 2021. The accompanying balance sheet as of October 31, 2020 was derived from the audited financial statements as of October 31, 2020.
These unaudited condensed financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended October 31, 2020.
The Company is closely monitoring ongoing developments in connection with the COVID-19 global pandemic, which has had an adverse impact on sales as many customers are holding off purchasing new equipment.
As of date of this report, the COVID-19 pandemic has not materially adversely impacted our capital and financial resources. Due to the economic uncertainty that has resulted from the pandemic, and the potential impact of such to our stakeholders, we are unable to predict with certainty any potential impacts to our business. Additionally, because we are unable to determine the ultimate severity or duration of the outbreak or its long-term effects on, among other things, the global, national or local economies, the capital and credit markets, our workforce, our customers or our suppliers, at this time we are unable to predict the adverse extent that the COVID-19 crisis will have on our business, financial condition, liquidity and results of operations.
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.
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(b) Inventories:
Inventories are stated at the lower of cost and net realizable value. 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.
(c) Warranties and Service:
The Company typically warrants its products for one (1) year from the date of sale as to materials, three (3) years for structural damage 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:
| 2021 | 2020 | |||||||
| Beginning balance | $ | $ | ||||||
| Warranty service provided | ( | ) | ( | ) | ||||
| New product warranties | ||||||||
| Changes to pre-existing warranty accruals | ||||||||
| Ending balance | $ | $ | ||||||
(d) 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.
(e) Advertising Expenses
Advertising
costs are expensed as incurred. Advertising expense was $
(f) Recent Accounting Pronouncements:
Recently Adopted Accounting Pronouncements:
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs and any not listed below were assessed and determined to be applicable or are expected to have a minimal impact on the Company’s condensed financial statements.
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In February 2016, the FASB issued ASU No. 2016-02, Leases, ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. All leases are required to be recorded on the balance sheet with the exception of short-term leases. This standard was adopted by the Company on November 1, 2019. Prior to adoption, the Company determined that all its lease agreements qualify as short term leases, having a lease term of twelve months or less and no purchase option, and has elected to recognize its lease payments in profit or loss on a straight-line basis over the lease term. Accordingly the Company did not record a transition adjustment.
4. Revenue from Contracts with Customers:
a) Overview
The Company recognizes revenues from the sale of finished products upon shipment and the transfer of control to the customer. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue, if sold separately, is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. Revenue from service plans is recognized over time based on the term of the service agreement.
All other product sales with customer specific acceptance provisions are recognized at a point in time upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.
Generally, pricing is fixed with payment terms of thirty days after shipment. The majority of the Company’s contracts have short duration and a single performance obligation to deliver a configured to order baler and related equipment to the customer. The Company has elected to expense shipping and handling costs as incurred.
In
the first nine months ended on July 31, 2021 deferred revenue of $
b) Disaggregation of Revenue
Disaggregated revenue is by primary geographic market is as follows:
| Nine Months Ended July 31 | ||||||||
| Equipment Revenue by Geographic Area | 2021 | 2020 | ||||||
| United States | $ | $ | ||||||
| International | ||||||||
| Total | $ | $ | ||||||
5. Related Party Transactions:
Avis
Industrial Corporation (Avis) controls over
| 9 |
6. Inventories:
Inventories consisted of the following:
| July 31, 2021 | October 31, 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
7. Debt:
The
Company has a $
On
April 16, 2020 the Company received a $
8. 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
include 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, 2021 and at October 31, 2020. 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, 2021 and October 31, 2020, net deferred tax assets were $
The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and administrative expenses.
9. 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.
On
December 1, 2017 the Company was served with a complaint related to an injury to an employee working at Integrated Coating and Seed Technology
Inc., (INCOTEC). The employee was operating a baler manufactured by the Company in 1994. The injury occurred on December 4, 2015. The
plaintiff is Star Insurance Company. The Company’s insurer settled this claim in March 2020. The Company’s liability on this
settlement of the claim was $
| 10 |
On
March 22, 2021, the Company was served with a complaint related to an injury to an employee working at a Stericycle facility in North
Little Rock, Arkansas. The employee was working on a baler manufactured by the Company in 2003. The employee suffered an injury to his
left hand on April 10, 2018. The plaintiff is Scott Tinsley, the injured employee. The Company’s insurance policy related to this
complaint has a deductible of $
On July 27, 2021, the Company was served with a complaint related to an injury to an employee working at Mackay Mitchell Envelope Company in Mount Pleasant, Iowa. On August 10, 2019, the employee, Xaisavath Phanthouvong, was working on a baler manufactured by the Company in 1996. The employee suffered a serious injury to his left hand. The Company’s insurance policy related to this complaint has no deductible and the Company does not expect to incur any significant expenses related to this claim.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “us,” and “our,” refer to International Baler Corporation.
Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, but not limited to, changes in general economic conditions, changing competition and our ability to market and sell our commercial and industrial balers. These risks and uncertainties, as well as other risks and uncertainties, could cause our actual results to differ significantly from management’s expectations. The forward-looking statements included in this Quarterly Report on Form 10-Q reflect the beliefs of our management on the date of this Quarterly Report. We undertake no obligation to update publicly any forward-looking statements for any reason.
General
The following discussion should be read together with our unaudited condensed 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, 2020, 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
Three months ended July 31, 2021 (“third quarter of fiscal 2021”) compared to the three months ended July 31, 2020 (“third quarter of fiscal 2020”)
In the third quarter ended July 31, 2021, the Company had net sales of $2,723,772 compared to net sales of $2,665,238 in the third quarter of fiscal 2020, an increase of 2.2%. Equipment sales included twenty balers and conveyers at an average price of $91,896 in the third quarter of fiscal 2021 while in the same quarter of fiscal 2020, the Company sold fifteen balers and conveyers at an average price of $129,128. Parts and service sales in the current quarter were, $885,858, compared to $727,267, an increase of 32.7%. The Baler shipments were negatively impacted by the delayed arrival of purchased components.
Gross profit decreased to $114,304 in the third quarter of fiscal 2021, compared to $379,758 in the third quarter of fiscal 2020. The lower gross profit was the result of lower gross margin equipment sales in the third quarter of 2021 compared to higher gross profit equipment sales in the third quarter of the prior year. Gross profit margins were adversely affected by higher costs for components and steel.
Total operating expense, consisting of selling and administrative expense, increased by 25.0% to $567,172 in the third quarter of fiscal 2021 compared to $453,728 in the third quarter of fiscal 2020. Selling expenses included an increase in the allowance for doubtful accounts of $60,000. Administrative expenses included approximately $125,000 in professional service charges related to a fair value opinion of the Company’s common stock.
| 12 |
The Company had a pre-tax loss of $451,204 in the third quarter of fiscal 2021 compared to a pre-tax loss of $61,594 in the same quarter of fiscal 2020. The larger pre-tax loss was the result of lower gross profit and the higher selling and administrative expenses mentioned above.
Results of Operations: Nine Month Comparison
Nine months ended July 31, 2021 compared to the nine months ended July 31, 2020.
The Company had net sales of $7,711,687 in the first nine months of fiscal 2021, compared to net sales of $6,690,442 in the same period of fiscal 2020. The higher net sales in the first nine months of fiscal 2021 was the result of improved market conditions, particularly related to the COVID-19 pandemic in the first nine months of fiscal 2020. Equipment sales included sixty-eight balers and conveyors in the first nine months of fiscal 2021 versus equipment sales of fifty-two balers and conveyors in the same period of 2020. Parts and service sales were $616,180 higher in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020. This increase was due to improved market conditions.
Gross profit increased to $725,560 in the first nine months of fiscal 2021 compared to $709,393 in the first nine months of fiscal 2020. The higher gross profit was the result of the higher net sales.
Selling and administrative expenses increased from $1,120,628 in fiscal 2020 to $1,357,392 in fiscal 2021, an increase of 14.5%. The variance in these expenses from fiscal 2020 to fiscal 2021 were higher sales salaries, the increase in the allowance for doubtful accounts, higher legal and other professional service expenses in 2021, partially offset by higher sales commissions in 2020.
The Company recorded income of $626,466 from the Paycheck Protection Program (PPP) loan which was forgiven in the first quarter of fiscal 2021. In the first nine months of fiscal 2021, the Company had a pre-tax loss of $1,911. For the first nine months of fiscal 2021, the Company had an operating loss of $631,832 compared to an operating loss of $411,235 in the same period in fiscal 2020.
The sales order backlog was approximately $3,690,000 at July 31, 2021 and $1,525,000 at July 31, 2020.
Financial Condition and Liquidity:
Net working capital at July 31, 2021 was $7,168,105 as compared to $7,721,268 at October 31, 2020. 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 2021 were 31.9 days, as compared to 32.5 days in the first nine months of fiscal 2020. 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, 2021 and 2020, the Company made additions to property, plant and equipment of $93,686 and $179,666 respectively.
The Company has a $1,000,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2021. 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, 2021. The line of credit had no outstanding balance at July 31, 2021 and at October 31, 2020.
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.
| 13 |
The Company had cash deposits in banks of $3,409,843 and $3,275,135 above the FDIC insured limit of $250,000 per bank at July 31, 2021 and October 31, 2020, respectively.
Off-Balance Sheet Arrangements
As of July 31, 2021, we have no material off-balance sheet arrangements with unconsolidated entities.
Critical Accounting Estimates
There have been no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020.
Recent Accounting Pronouncements
See Note 3(f) to our Financial Statements for a discussion of recent accounting pronouncements.
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
Evaluation of 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 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.
As of July 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q, and under the supervision and with the participation of management, including the Company’s CEO and CFO, management evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation and subject to the foregoing, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Except as noted in the preceding paragraphs, there has been no change in internal controls over financial reporting that occurred during the most recent quarter that has materially affected, or is 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
In the ordinary course of conducting our business, we have in the past and may in the future become involved in various legal actions and other claims. These legal proceedings may be subject to many uncertainties and there can be no assurance of the outcome of any individual proceedings. We do not presently anticipate any material legal proceedings that, if determined adversely to us, would have a material adverse effect on our financial position, results of operations or cash flows. See Note 9, Commitments and Contingencies, to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for information regarding certain legal proceedings in which we are involved.
ITEM 5. OTHER INFORMATION
On May 15, 2021, the Company renewed its line of credit agreement with First Merchants Bank of Muncie, Indiana for $1,000,000. 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, 2022. The line of credit had no outstanding balance at July 31, 2021 and at October 31, 2020
On April 1, 2021, the Board of Directors of the Company established a special committee of independent and disinterested directors (the “Special Committee”) to evaluate the principal terms of a proposal by Avis Industrial Corporation, an Indiana corporation (“Avis”), to acquire all of the outstanding shares of the Company’s common stock not already owned by it. Avis currently owns approximately 81.1% of the Company’s outstanding shares. The Special Committee commenced negotiations with Avis. On June 10, 2021, the Special Committee hired a financial advisor to assist it in evaluating the proposal received from Avis. With the parties having not been able to reach a definitive agreement on acceptable terms, on September 2, 2021, Avis notified the Company that it would no longer continue negotiations with respect to the proposed acquisition.
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ITEM 6. EXHIBITS
The following exhibits are filed as part of this Quarterly Report.
*Furnished herewith
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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: September 9, 2021
INTERNATIONAL BALER CORPORATION
BY: /s/Victor W. Biazis
Victor W. Biazis
Chief Executive Officer
BY:/s/William E. Nielsen
William E. Nielsen
Chief Financial Officer
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