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 April 30, 2021 ("second quarter of fiscal 2021") compared to the three months ended April 30, 2020 ("second quarter of fiscal 2020")

In the second quarter ended April 30, 2021, the Company had net sales of $2,638,010 compared to net sales of $2,014,943 in the second quarter of fiscal 2020, an increase of 30.9%. Equipment sales included twenty-eight balers and conveyers at an average price of $58,965 in the second quarter of fiscal 2021 while in the same quarter of fiscal 2020, the Company sold twenty-one balers and conveyers at an average price of $60,340. Parts and service sales in the current quarter were, $986,987, compared to $747,802, an increase of 32.7%. The higher sales in the second quarter of Fiscal 2021 were the result of improved market conditions as the COVID-19 pandemic affected the results of the second quarter of fiscal 2020.

Gross profit increased to $411,539 in the second quarter of fiscal 2021, compared to $252,168 in the second quarter of fiscal 2020. The higher gross profit is primarily the result of higher baler sales and parts and service sales in the second 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 22.1% to $416,485 in the second quarter of fiscal 2021 compared to $341,102 in the second quarter of fiscal 2020. The higher selling and administrative expense were the result of higher advertising expenses, legal expenses, and the reserve for the deductible on the products liability claim ($20,000).

The Company had a pre-tax loss of $4,046 in the second quarter of fiscal 2021 compared to a pre-tax loss of $83,590 in the same quarter of fiscal 2020. The Company did not layoff or furlough any employees as a result of the COVID-19 pandemic.





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Results of Operations: Six Month Comparison

Six Months Ended April 30, 2021 ("second half of fiscal 2021) compared to the six months ended April 30, 2020 ("second half of fiscal 2020").

The Company had net sales of $4,987,915 in the first six months of fiscal 2021, compared to net sales of $4,025,204 in the same period of fiscal 2020. The higher net sales in the first half of fiscal 2021 was the result of improved market conditions, particularly related to the COVID-19 pandemic in the second quarter of fiscal 2020. Equipment sales included forty-eight balers and conveyors in the first half of fiscal 2021 versus equipment sales of thirty-eight balers and conveyors in the same period of 2020. Parts and service sales were $457,589 higher in the first half of fiscal 2021 compared to the first half of fiscal 2020. This increase was due to market conditions.

Gross profit increased to $611,256 in the first six months of fiscal 2021 compared to $329,635 in the first six months of fiscal 2020. The higher gross profit was the result of the higher net sales.

Selling and administrative expenses increased from $666,900 in fiscal 2020 to $790,220 in fiscal 2021, an increase of 18.5%. The largest increases in cost were legal expenses, sales salaries, advertising, and the reserve for the products liability claim.

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 half of fiscal 2021, the Company had pre-tax income of $449,293. For the first six months of fiscal 2021, the Company had an operating loss of $178,964 compared to an operating loss of $337,265 in the same period in fiscal 2020.

The sales order backlog was approximately $2,310,000 at April 30, 2021 and $3,040,000 at April 30, 2020.

Financial Condition and Liquidity:

Net working capital at April 30, 2021 was $7,631,639 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 six months of fiscal 2021 were 29.3 days, as compared to 39.3 days in the first six 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 ÷ 181).

During the six months ended April 30, 2021 and 2020, the Company made additions to property, plant and equipment of $60,656 and $76,623 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 April 30, 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.





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The Company had cash deposits in banks of $2,969,208 and $3,275,135 above the FDIC insured limit of $250,000 per bank at April 30, 2021 and October 31, 2020, respectively.

Off-Balance Sheet Arrangements

As of April 30, 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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