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.





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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.





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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.

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