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 January 31, 2021 ("first quarter of fiscal 2021") compared to
the three months ended January 31, 2020 ("first quarter of fiscal 2020")
In the first quarter ended January 31, 2021, the Company had net sales of
$2,349,904 compared to net sales of $2,010,261 in the first quarter of fiscal
2020, an increase of 16.9%. Equipment sales included twenty balers and conveyers
at an average price of $78,211 in the first quarter of fiscal 2021 while in the
same quarter of fiscal 2020, the Company sold sixteen balers and conveyers at an
average cost of $90,186. Parts and service sales were significantly higher,
38.5%, in the first quarter of fiscal 2021, $785,684, compared to the first
quarter of fiscal 2020, $567,280.
Gross profit increased to $199,717 in the first quarter of fiscal 2021, compared
to $77,467 in the first quarter of fiscal 2020. The higher gross profit is
primarily the result of higher parts and service sales in the first quarter in
fiscal 2021. Parts and service sales have higher gross profit margins than
equipment sales gross profit margins.
Total operating expense, consisting of selling and administrative expense,
increased by 8.6% to $373,735 in the first quarter of fiscal 2021 compared to
$325,798 in the first quarter of fiscal 2020. The Company did not layoff or
furlough any employees as a result of the COVID-19 pandemic.
The Company had a loss from operations of $174,018 in the first quarter of
fiscal 2021 compared to a loss from operations of $248,331 in the first quarter
of fiscal 2020.
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The Company recorded income of $626,466 from the Paycheck Protection Program
(PPP) loan which was forgiven. For the first quarter of fiscal 2020. The Company
had pre-tax income of $453,339 compared to a pre-tax loss of $242,481 in the
first quarter of fiscal 2020. The Company had an income tax benefit of $36,000
in the first quarter of fiscal 2021 compared to an income tax benefit of $58,000
in the first quarter of fiscal 2020. Income from the forgiven PPP loan is not
taxable.
The sales order backlog was approximately $2,700,000 at January 31, 2021 and
$1,950,000 at January 31, 2020.
Financial Condition and Liquidity:
Net working capital at January 31, 2021 was $7,604,133 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 three months of fiscal 2021
were 25.3 days, as compared to 33.7 days in the first three months of fiscal
2020. Days sales outstanding was negatively impacted in fiscal 2020 as the
Company sold a prototype baler for $546,000 without receiving a customer deposit
on this equipment. 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, 2021 and 2020, the Company made
additions to property, plant and equipment of $35,808 and $11,037 respectively.
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 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, 2021. The
line of credit had no outstanding balance at January 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.
The Company had cash deposits in banks of $3,569,115 and $3,275,135 above the
FDIC insured limit of $250,000 per bank at January 31, 2021 and October 31,
2020, respectively.
Off-Balance Sheet Arrangements
As of January 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.
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