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, the impact and the unknown risks relating to the COVID-19 pandemic, 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, 2019, and the Management Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q.





Results of Operations:

Three Months Ended April 30, 2020 ("second quarter of fiscal 2020") compared to the three months ended April 30, 2019 ("second quarter of fiscal 2019")

The Company had net sales of $2,014,943 for the second quarter of fiscal 2020 compared to net sales of $2,914,551 for the second fiscal quarter of 2019. The decrease in net sales was primarily the result of market conditions in the second quarter of fiscal 2020, versus the second quarter of fiscal 2019. The Company shipped one auto-tie baler and one two-ram baler in the second quarter of fiscal 2020 versus no auto-tie balers and four two-ram balers in the second quarter of fiscal 2019.

Cost of sales decreased by 30% to $1,762,772 for the second quarter of fiscal 2020 compared to cost of sales of $2,535,028 for the second quarter of fiscal 2019. The decrease in cost of sales was primarily a result of lower sales volume. Gross profit as a percentage of sales declined slightly from 13.0% in the second quarter of 2019 to 12.5% in the current year second quarter.

Total operating expenses, consisting of selling expenses and administrative expenses, decreased by 9.9% to $341,102 in the second quarter of fiscal 2020 compared to $378,557 in the second quarter of fiscal 2019. The Company did not furlough or layoff any employees as a result of the pandemic virus.

Interest income increased to $5,334 for the second quarter of fiscal 2020 compared to $899 for the second quarter of fiscal 2019.





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The Company's net loss before income taxes was $83,590 in the second quarter of 2020 compared to net income of $1,865 in the second quarter of 2019. The net loss was principally due to decreased revenues and a lower gross profit margin.

The Company had an income tax benefit of $20,000 in the second quarter of 2020 compared to no benefit in the second quarter of 2019.

As a result of the foregoing, the Company had a net loss of $63,590 in the second quarter of fiscal 2020 versus net income of $1,865 in the prior year second quarter.

Six Months Ended April 30, 2020 ("second half of fiscal 2020") compared to the six months ended April 30, 2019 ("second half of fiscal 2019")

The Company had net sales of $4,025,204 in the first six months of fiscal 2020, compared to net sales of $5,383,807 in the same period of 2019. The lower sales were due to the deteriorating market conditions starting in March 2020. Sales in the first six months of fiscal 2020 included one two-ram baler, $163,000, versus five two-ram balers $1,690,000, in the same period of 2019.

Cost of sales decreased by 21.7% to $3,695,569 in the second half of fiscal 2020 compared to cost of sales of $2,535,028 in the same period for fiscal 2019. The decrease in cost of sales was primarily a result of lower sales volume. Gross profit as a percentage of sales declined from 12.4% in the second half of fiscal 2019 to 8.2% in the second half of fiscal 2020.

Total operating expenses, consisting of selling expenses and administrative expenses, decreased by 3.3% to $666,900 in the second half of fiscal 2020 compared to $689,965 in the same period in fiscal 2019. The Company did not furlough or layoff any employees as a result of the pandemic virus.

Interest income increased to $11,194 for the second half of fiscal 2020 compared to $1,820 for the second half of fiscal 2019.

The Company's net loss before income taxes was $326,071 in the second half of fiscal 2020 compared to a net loss of $22,923 in the second half of fiscal 2019. The net loss in the second half of 2019 was principally due to the Company's decreased revenues and lower gross profit margin.

The Company had an income tax benefit of $78,000 in the first half of 2020 compared to $6,000 in the second half of 2019.

As a result of the forgoing, the Company had a net loss of $248,071 in the first six months of fiscal 2020 compared to a net loss of $16,923 in the first six months of 2019.

Financial Condition and Liquidity:

Net working capital at April 30, 2020 was $7,170,568 as compared to $7,388,462 at October 31, 2019. 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 six months of fiscal 2020 were 39.3 days, as compared to 22.9 days in the first six months of fiscal 2019. DSO is calculated by dividing the total of the month-end net accounts receivable balances for the period by six, and dividing that result by the average day's sales for the period (period sales ÷ 181).

During the six months ended April 30, 2020 and 2019, the Company made additions to plant and equipment of $76,623 and $215,352 respectively.





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The Company had a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2020 with a $1,000,000 line of credit limit. 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, 2020. The line of credit had no outstanding balance at April 30, 2021 and at October 31, 2019.

On April 16, 2020 the Company received a $626,466 loan made pursuant to the terms of the Paycheck Protection Program authorized by the CARES Act. The loan has a two-year term and accrues simple interest at a fixed annual rate of 1.00%. Under the terms of the CARES Act guidelines, a portion of the loan up to 100% may be forgiven by the U.S. Small Business Administration if the amount spent is within the timeframe and under the guidelines that have been set for forgiveness.

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.

The Company had cash deposits in banks of $4,043,348 and $3,411,825 above the FDIC insured limit of $250,000 per bank at April 30, 2020 and October 31, 2019, respectively.

Impact of the COVID-19 Pandemic

We are closely monitoring ongoing developments in connection with the COVID-19 global pandemic, which has the potential to adversely impact several aspects of our commercial and manufacturing operations, including but not limited to potential disruptions to our supply-chain operations, including procurement of raw materials and packaging materials, a portion of which are sourced internationally.

As of the 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 whether the COVID-19 crisis will have a material adverse impact on our business, financial condition, liquidity and results of operations.

Off-Balance Sheet Arrangements

As of April 30, 2020, the Company has 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, 2019.

Recent Accounting Pronouncements

See Note 1(f) to our Financial Statements for a discussion of recent accounting pronouncements.

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