10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934--

For the transition period from ________________ to __________________

Commission File Number: 0-14443

____________________

INTERNATIONAL baler CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	13-2842053
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5400 Rio Grande Avenue, Jacksonville, Florida 32254

(Address of principal executive offices) (Zip Code)

(904) 358-3812
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $.01 par value per share	IBAL	Pink Sheets

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.

YES ☒  NO ☐

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).

YES ☐  NO ☒

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 ☐
Non-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 ☐  NO ☒

As of June 12, 2020, there were 5,183,894 shares of common stock of the registrant outstanding.

1

INTERNATIONAL BALER CORPORATION

TABLE OF CONTENTS

ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets as of January 31, 2020, (unaudited) and October 31, 2019	3
Condensed Statements of Income for the three months ended January 31, 2020 and 2019 (unaudited)	4
Condensed Statements of Stockholders’ Equity for the three months ended January 31, 2020 (unaudited)	5
Condensed Statements of Cash Flows for the three months ended January 31, 2020 and 2019 (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	15
ITEM 4. CONTROLS AND PROCEDURES	15
PART II. OTHER INFORMATION	15
ITEM 1. LEGAL PROCEEDINGS	15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	16
ITEM 5. OTHER INFORMATION	16
ITEM 6. EXHIBITS	17
SIGNATURES	18

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INTERNATIONAL BALER CORPORATION
CONDENSED BALANCE SHEETS
		April 30, 2020			October 31, 2019
		Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	3,231,176		$	2,714,764
Certificate of deposit		1,010,169			1,003,389
Accounts receivable, net of allowance for doubtful accounts of $6,000 at April 30, 2020 and $15,000 at October 31, 2019		733,214			644,915
Inventories		4,341,746			4,119,057
Prepaid expense and other current assets		216,641			77,858
Total current assets		9,532,946			8,559,983
Property, plant and equipment, at cost:		4,413,356			4,336,733
Less: accumulated depreciation		3,133,313			3,026,513
Net property, plant and equipment		1,280,043			1,310,220
Other assets
Deferred income taxes		161,122			161,122
Total other assets		161,122			161,122
TOTAL ASSETS	$	10,974,111		$	10,031,325
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	607,938		$	329,618
Accrued liabilities		61,210			185,334
Customer deposits		1,066,764			656,569
Total current liabilities		1,735,912			1,171,521
Notes payable		626,466			—
Total liabilities		2,362,378			1,171,521
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, par value $.0001, 10,000,000 shares authorized, none issued		—			—
Common stock, par value $.01, 25,000,000 shares authorized;6,429,875 shares issued		64,299			64,299
Additional paid-in capital		6,419,687			6,419,687
Retained earnings		2,809,157			3,057,228
		9,293,143			9,541,214
Less:Treasury stock, 1,245,980 shares, at cost		(681,410	)		(681,410	)
Total stockholders' equity		8,611,733			8,859,804
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,974,111		$	10,031,325
See accompanying notes to condensed financial statements.

3

INTERNATIONAL BALER CORPORATION
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 2020 AND 2019
UNAUDITED
	Three Months					Six Months
		2020			2019		2020			2019
Net sales:
Equipment	$	1,267,141		$	2,199,466	$	2,710,122		$	3,858,690
Parts and service		747,802			715,085		1,315,082			1,525,117
Total net sales		2,014,943			2,914,551		4,025,204			5,383,807
Cost of sales		1,762,775			2,535,028		3,695,569			4,718,585
Gross profit		252,168			379,523		329,635			665,222
Operating expense:
Selling expense		119,404			142,208		252,977			253,019
Administrative expense		221,698			236,349		413,923			436,946
Total operating expense		341,102			378,557		666,900			689,965
Operating (loss) income		(88,934	)		966		(337,265	)		(24,743	)
Other income:
Interest income		5,344			899		11,194			1,820
Total other income		5,344			899		11,194			1,820
(Loss) income before income taxes		(83,590	)		1,865		(326,071	)		(22,923	)
Income tax benefit		(20,000	)		—		(78,000	)		(6,000	)
Net (loss) income	$	(63,590	)	$	1,865	$	(248,071	)	$	(16,923	)
(Loss) income per share, basic and diluted	$	(0.01	)	$	0.00	$	(0.05	)	$	(0.00	)
Weighted average number of shares outstanding		5,183,895			5,183,895		5,183,895			5,183,895
See accompanying notes to condensed financial statements.

4

INTERNATIONAL BALER CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
UNAUDITED
	Common Stock								Treasury Stock
	Shares		Amount		Additional Paid in Capital		Retained Earnings		Shares		Amount			Total
Balance - October 31, 2019	6,429,875	$	64,299	$	6,419,687	$	3,057,228		1,245,980	$	(681,410	)	$	8,859,804
Net loss							(184,481	)						(184,481	)
Balance - January 31, 2020	6,429,875		64,299		6,419,687		2,872,747		1,245,980		(681,410	)		8,675,323
Net loss							(63,590	)						(63,590	)
Balance - April 30, 2020	6,429,875	$	64,299	$	6,419,687	$	2,809,157		1,245,980	$	(681,410	)	$	8,611,733
	Common Stock								Treasury Stock
	Shares		Amount		Additional Paid in Capital		Retained Earnings		Shares		Amount			Total
Balance - October 31, 2018	6,429,875	$	64,299	$	6,419,687	$	3,380,842		1,245,980	$	(681,410	)	$	9,183,418
Net loss							(18,788	)						(18,788	)
Balance - January 31, 2019	6,429,875	$	64,299	$	6,419,687	$	3,362,054		1,245,980	$	(681,410	)	$	9,164,630
Net income							1,865							1,865
Balance - April 30, 2019	6,429,875	$	64,299	$	6,419,687	$	3,363,919		1,245,980	$	(681,410	)	$	9,166,495
See accompanying notes to condensed financial statements.

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INTERNATIONAL BALER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
UNAUDITED
		2020			2019
Cash flow from operating activities:
Net loss	$	(248,071	)	$	(16,923	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		106,800			105,230
Changes in operating assets and liabilities:
Accounts receivable		(88,299	)		(268,217	)
Inventories		(222,689	)		44,498
Prepaid expenses and other assets		(138,783	)		93,009
Accounts payable		278,320			(20,771	)
Accrued liabilities		(124,124	)		(121,252	)
Customer deposits		410,195			(295,134	)
Net cash used in operating activities		(26,651	)		(479,560	)
Cash flows from investing activities:
Purchase of property and equipment		(76,623	)		(215,352	)
Interest earned on certificates of deposit		(6,780	)		—
Net cash used in investing activities		(83,403	)		(215,352	)
Cash flows from financing activities:
Proceeds from PPP loan		626,466			—
Net cash provided by financing activities		626,466			—
Net increase (decrease) in cash and cash equivalents		516,412			(694,912	)
Cash and cash equivalents at beginning of period		2,714,764			4,733,510
Cash and cash equivalents at end of period	$	3,231,176		$	4,038,598
See accompanying notes to condensed financial statements.

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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 of 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 six-month period ended April 30, 2020 are not necessarily indicative of the results that may be expected for the year ending October 31, 2020. The accompanying balance sheet as of October 31, 2019 was derived from the audited financial statements as of October 31, 2019.

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, 2019.

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.

(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.

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(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 six-month period ended April 30:

	2020			2019
Beginning balance	$	60,000		$	80,000
Warranty service provided		(71,803	)		(59,243	)
New product warranties		27,101			38,587
Changes to pre-existing warranty accruals		34,702			10,656
Ending balance	$	50,000		$	70,000

(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 $49,989 and $67,844 for the six months ended April 30, 2020 and 2019, respectively, and are included in selling expense on the accompanying Condensed Statements of Income.

(f) Recent Accounting Pronouncements:

Recently Adopted Accounting Pronouncements:

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard effective November 1, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASC 606 the Company concluded that ASC 606 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers therefore the Company did not record a cumulative transition adjustment.

8

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 will be required to be recorded on the balance sheet with the exception of short-term leases. Early application is permitted. The guidance must be adopted using a modified retrospective transition method. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. ASU 2016-02 was adopted in our fiscal year beginning November 1, 2019. The Company has concluded that ASU 2016-02 had no effect on our financial statements and related disclosures as we are not party to a significant number of leases.

4. Revenue from Contracts with Customers:

a) Overview

The Company adopted ASC 606 on November 1, 2018. 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.

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 and 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 six months ended in April 30, 2020 deferred revenue of $566,300 from the fiscal year ended October 31, 2019 was recognized.

b) Disaggregation of Revenue

Disaggregated revenue is by primary geographic market is as follows:

Revenue by Geographic Area	Six Months Ended April 30, 2020
United States	$	3,807,552
International		217,652
Total	$	4,025,204

5. Related Party Transactions:

The Estate of Leland E. Boren is a stockholder of the Company and is the owner of Avis Industrial Corporation (Avis). The Estate controls over 80% of the outstanding shares of the Company. Avis owns 100% of The American Baler Company, a competitor of the Company. On January 1, 2014, Avis acquired The Harris Waste Management Group, Inc. (Harris), also a competitor of the Company. On July 31, 2014 Harris acquired the assets of IPS Balers, Inc. in Baxley, Georgia, another competitor of the Company. These baler companies operate completely independent of each other. The company had no purchases from these companies in the first half of fiscal 2020 and in the fiscal year ending October 31, 2019. The Company had no sales to The American Baler Company in the first half of fiscal 2020 and in the fiscal year ended October 31, 2019. The Company sold two closed door horizontal balers to Harris Waste Management for $122,950 in fiscal 2019 and had no sales to Harris Waste Management in the first half of fiscal 2020.

9

6. Inventories:

Inventories consisted of the following:

	April 30, 2020		October 31, 2019
Raw materials	$	2,536,801	$	2,035,612
Work in process		1,679,361		1,239,861
Finished goods		125,584		843,584
	$	4,341,746	$	4,119,057

7. Debt:

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, 2021. The line of credit had no outstanding balance at April 30, 2020 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.

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 included, 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 April 30, 2020 and at October 31, 2019. 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 April 30, 2020 and October 31, 2019, net deferred tax assets were $161,122.

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.

10

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 $20,547 which has been paid.

In December 2018 the Company discovered an employee theft of Company property. The Company has researched what items were stolen and our estimate is that the value of the stolen items was approximately $200,000. Since the Company conducts a physical inventory at the end of each fiscal year, any losses incurred for the fiscal year ended October 31, 2018 would have been reflected in the operating results of the Company for that fiscal year. The Company carries Crime Insurance which has an upper limit of $1,000,000 and a deductible of $25,000. In May 2019 the Company’s insurer approved the crime insurance claim and agreed to reimburse the Company $175,841. Insurance proceeds were received in May of 2019 and were recorded as other income in the accompanying condensed statements of income.

10. Subsequent Events

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.  The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations. 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, and future results of operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations or financial condition for the fiscal year ending October 31, 2020.

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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, 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.

13

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.

14

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

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 April 30, 2020, the end of the period covered by this Quarterly Report on Form 10-Q, and under the supervision and with the participation of the 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.

Management, with the participation of the Company’s principal executive and principal financial officers, also assessed the effectiveness of the Company’s internal control over financial reporting as of April 30, 2020. This assessment was performed using the criteria established under the Internal Control-Integrated Framework established by Committee of Sponsoring Organization of the Treadway Commission (“COSO”).

The Company previously reported a material weakness in certain purchasing and inventory controls in its Annual Report on Form 10-K for the year ending October 31, 2018. During the second quarter of the fiscal year ended October 31, 2019, management made certain improvements to purchasing controls, logical access controls to inventory records, and physical access to inventory items. Management believes the control improvements that have been initiated have fully remediated the control weakness previously reported and that and that internal controls over financial reporting were effective as of April 30, 2020.

In designing and evaluating the control systems, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

The Company’s management, including CEO and CFO, confirm that there were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended April 30, 2020, other than those related to the material weakness described above, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 the settlement of this claim was $20,547 which has been paid.

15

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual Meeting on April 27, 2020. As of the close of business on March 17, 2020, the record date for the Annual Meeting, there were 5,183,895 shares of Company common stock outstanding and entitled to vote at the Annual Meeting. Each share of Company common stock was entitled to one vote. Stockholders holding an aggregate of 4,497,302 shares of Company common stock entitled to vote at the Annual Meeting, representing 86.75% of the outstanding shares of Company common stock as of the record date, and which constituted a quorum thereof, were present in person or represented by proxy at the Annual Meeting.

At the Annual Meeting, the Company’s stockholders considered two proposals, each of which is described in more detail in the Company’s definitive proxy statement for the Annual Meeting filed with the Securities and Exchange Commission on March 25, 2020.

The final results of such stockholder voting on each proposal brought before the Annual Meeting are set forth below:

Proposal No. 1 - Election of Class I Directors. The two director nominees proposed by the Board were elected to serve as members of the Board until the next annual meeting of stockholders and until their successors are duly elected and qualified by the following final voting results:

	Votes For		Votes Withheld
Victor W. Biazis		4,476,267		21,035
Martha R. Songer		4,476,105		21,197

Proposal No. 2 - Ratification of Appointment of Independent Registered Public Accounting Firm. The ratification of the appointment of Pivot CPAs as the Company’s independent registered public accounting firm for the year ending October 31, 2020, was approved by the following final voting results:

Votes For		Votes Against	Votes Abstained
	4,496,740	562	-

ITEM 5. OTHER INFORMATON

None

16

ITEM 6. EXHIBITS

The following exhibits are submitted herewith: 

Exhibit No.	Description
31.1	Certification of Victor W. Biazis, Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a–14(a)/15d-14(a).
31.2	Certification of William E. Nielsen, Chief Financial, pursuant to Rule 13a-14(a)/15d-14(a).
32.1	Certification of Victor W. Biazis, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of William E. Nielsen, Chief Financial Officer, pursuant To 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

17

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.

		INTERNATIONAL BALER CORPORATION
Dated: June 12, 2020	By:	/s/ Victor W. Biazis
		Victor W. Biaziz
		Cheif Executive Officer
	By:	/s/ William E. Nielsen
		William E. Nielsen
		Chief Financial Officer

Dated: Septem D Dated: June 12, 2020 

18

EX-31.1

Exhibit 31.1

I, Victor W. Biazis, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended April 30, 2020 of International Baler Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and

5. The registrants certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

		INTERNATIONAL BALER CORPORATION
June 12, 2020	By:	/s/ Victor W. Biazis
		Victor W. Biazis
		Chief Executive Oficer

EX-31.2

Exhibit 31.2

I, William E. Nielsen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended April 30, 2020 of International Baler Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and

5. The registrants certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

		INTERNATIONAL BALER CORPORATION
Dated: June 12, 2020	By:	/s/ William E. Nielsen
		William E. Nielsen
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:

I have reviewed the Quarterly Report of International Baler Corp. on Form 10-Q for the quarter ended April 30, 2020 (the “Report”);

To the best of my knowledge, the Report (i) fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of International Baler Corporation during the period covered by this Report.

		INTERNATIONAL BALER CORPORATION
Dated: June 12, 2020	By:	/s/ Victor W. Biazis
		Victor W. Biazis
		Chief Executive Oficer

EX-32.2

Exhibit 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:

I have reviewed the Quarterly Report of International Baler Corp. on Form 10-Q for the quarter ended April 30, 2020 (the “Report”);

To the best of my knowledge, the Report (i) fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of International Baler Corporation during the period covered by this Report.

		INTERNATIONAL BALER CORPORATION
Dated: June 12, 2020	By:	/s/ William E. Nielsen
		William E. Nielsen
		Chief Financial Officer

XML

Debt

6 Months Ended

Apr. 30, 2020

Debt Disclosure [Abstract]

Debt

7. Debt:

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, 2021. The line of credit had no outstanding balance at April 30, 2020 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.

XML

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Apr. 30, 2020

Accounting Policies [Abstract]

Accounts Receivable and Allowance for Doubtful Accounts

(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.

Inventories

(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.

Warranties and Service

(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 six-month period ended April 30:

	2020			2019
Beginning balance	$	60,000		$	80,000
Warranty service provided		(71,803	)		(59,243	)
New product warranties		27,101			38,587
Changes to pre-existing warranty accruals		34,702			10,656
Ending balance	$	50,000		$	70,000

Fair Value of Financial Instruments

(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.

Advertising Expenses

(e) Advertising Expenses

Advertising costs are expensed as incurred. Advertising expense was $49,989 and $67,844 for the six months ended April 30, 2020 and 2019, respectively, and are included in selling expense on the accompanying Condensed Statements of Income.

Recent Accounting Pronouncements

(f) Recent Accounting Pronouncements:

Recently Adopted Accounting Pronouncements:

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard effective November 1, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASC 606 the Company concluded that ASC 606 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers therefore the Company did not record a cumulative transition adjustment.

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 will be required to be recorded on the balance sheet with the exception of short-term leases. Early application is permitted. The guidance must be adopted using a modified retrospective transition method. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. ASU 2016-02 was adopted in our fiscal year beginning November 1, 2019. The Company has concluded that ASU 2016-02 had no effect on our financial statements and related disclosures as we are not party to a significant number of leases.

XML

Summary of Significant Accounting Policies

6 Months Ended

Apr. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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.

(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 six-month period ended April 30:

	2020			2019
Beginning balance	$	60,000		$	80,000
Warranty service provided		(71,803	)		(59,243	)
New product warranties		27,101			38,587
Changes to pre-existing warranty accruals		34,702			10,656
Ending balance	$	50,000		$	70,000

(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 $49,989 and $67,844 for the six months ended April 30, 2020 and 2019, respectively, and are included in selling expense on the accompanying Condensed Statements of Income.

(f) Recent Accounting Pronouncements:

Recently Adopted Accounting Pronouncements:

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard effective November 1, 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Based on an evaluation of the impact ASC 606 the Company concluded that ASC 606 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from customers therefore the Company did not record a cumulative transition adjustment.

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 will be required to be recorded on the balance sheet with the exception of short-term leases. Early application is permitted. The guidance must be adopted using a modified retrospective transition method. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. ASU 2016-02 was adopted in our fiscal year beginning November 1, 2019. The Company has concluded that ASU 2016-02 had no effect on our financial statements and related disclosures as we are not party to a significant number of leases.

XML

Document and Entity Information - shares	6 Months Ended
	Apr. 30, 2020	Jun. 12, 2020
Document And Entity Information
Entity Registrant Name	International Baler Corporation
Entity Central Index Key	0000781902
Document Type	10-Q
Document Period End Date	Apr. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--10-31
Is Entity's Reporting Status Current?	Yes
Is Entity Smaller Reporting Company?	true
Is Entity Emerging Growth Company?	false
Entity Filer Category	Non-accelerated Filer
Entity File Number	0-14443
Entity Incorporation, State Country Code	DE
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding		5,183,894
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020
Is Entity Shell Company?	false

XML

Condensed Statements of Stockholders' Equity (Unaudited) - USD ($)	Common Stock	Additional Paid-In Capital	Retained Earnings	Treasury Stock	Total
Beginning Balace, Shares at Oct. 31, 2018	6,429,875	1,245,980
Beginning Balance, Value at Oct. 31, 2018	$ 64,299	$ 6,419,687	$ 3,380,842	$ (681,410)	$ 9,183,418
Net Income			(18,788)		(18,788)
End Balance, Shares at Jan. 31, 2019	6,429,875	1,245,980
End Balance, Value at Jan. 31, 2019	$ 64,299	$ 6,419,687	3,362,054	(681,410)	9,164,630
Net Income			1,865		1,865
End Balance, Value at Apr. 30, 2019	$ 64,299	$ 6,419,687	3,363,919	(681,410)	9,166,495
Beginning Balace, Shares at Oct. 31, 2019	6,429,875	1,245,980
Beginning Balance, Value at Oct. 31, 2019	$ 64,299	$ 6,419,687	3,057,228	(681,410)	8,859,804
Net Income			(184,481)		(184,481)
End Balance, Shares at Jan. 31, 2020	6,429,875	1,245,980
End Balance, Value at Jan. 31, 2020	$ 64,299	$ 6,419,687	2,872,747	(681,410)	8,675,323
Net Income			(63,590)		(63,590)
End Balance, Shares at Apr. 30, 2020	6,429,875	1,245,980
End Balance, Value at Apr. 30, 2020	$ 64,299	$ 6,419,687	$ 2,809,157	$ (681,410)	$ 8,611,733

XML

Summary of Significant Accounting Policies - Warranty Accrual (Details) - USD ($)	6 Months Ended
	Apr. 30, 2020	Apr. 30, 2019
Accounting Policies [Abstract]
Beginning balance	$ 60,000	$ 80,000
Warranty service provided	(71,803)	(59,243)
New product warranties	27,101	38,587
Changes to pre-existing warranty accruals	34,702	10,656
Ending balance	$ 50,000	$ 70,000

XML

Related Party Transactions (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Apr. 30, 2020	Apr. 30, 2019	Apr. 30, 2020	Apr. 30, 2019	Oct. 31, 2019
Sales	$ 2,014,943	$ 2,914,551	$ 4,025,204	$ 5,383,807
Avis Industrial Corp.
Percentage of Ownership	100.00%		100.00%
Leland E. Boren
Percentage of Ownership	80.00%		80.00%
Harris Waste Management
Sales					$ 122,950

XML

Commitment and Contingencies (Details Narrative) - USD ($)	1 Months Ended	6 Months Ended
	Dec. 31, 2018	Apr. 30, 2020	May 31, 2019
Loss Contingency, Information about Litigation Matters [Abstract]
Theft	$ 200,000
Reimbursement from insurance claim			$ 175,841
Settlement of claim		$ 20,547

XML

Condensed Statements of Income (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Apr. 30, 2020	Apr. 30, 2019	Apr. 30, 2020	Apr. 30, 2019
Net sales:
Equipment	$ 1,267,141	$ 2,199,466	$ 2,710,122	$ 3,858,690
Parts and service	747,802	715,085	1,315,082	1,525,117
Total net sales	2,014,943	2,914,551	4,025,204	5,383,807
Cost of sales	1,762,775	2,535,028	3,695,569	4,718,585
Gross profit	252,168	379,523	329,635	665,222
Operating expense:
Selling expense	119,404	142,208	252,977	253,019
Administrative expense	221,698	236,349	413,923	436,946
Total operating expense	341,102	378,557	666,900	689,965
Operating (loss) income	(88,934)	966	(337,265)	(24,743)
Other income:
Interest income	5,344	899	11,194	1,820
Total other income	5,344	899	11,194	1,820
(Loss) income before income taxes	(83,590)	1,865	(326,071)	(22,923)
Income tax benefit	(20,000)	0	(78,000)	(6,000)
Net (loss) income	$ (63,590)	$ 1,865	$ (248,071)	$ (16,923)
(Loss) income per share, basic and diluted	$ (0.01)	$ 0.00	$ (0.05)	$ (0.00)
Weighted average number of shares outstanding	5,183,895	5,183,895	5,183,895	5,183,895

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Basis of Presentation

6 Months Ended

Apr. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

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 of 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 six-month period ended April 30, 2020 are not necessarily indicative of the results that may be expected for the year ending October 31, 2020. The accompanying balance sheet as of October 31, 2019 was derived from the audited financial statements as of October 31, 2019.

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, 2019.

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Income Taxes (Details Narrative) - USD ($)	Apr. 30, 2020	Oct. 31, 2019
Components of Deferred Tax Assets [Abstract]
Net deferred tax assets	$ 161,122	$ 161,122

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Inventories (Tables)

6 Months Ended

Apr. 30, 2020

Inventory Disclosure [Abstract]

Inventories

Inventories consisted of the following:

	April 30, 2020		October 31, 2019
Raw materials	$	2,536,801	$	2,035,612
Work in process		1,679,361		1,239,861
Finished goods		125,584		843,584
	$	4,341,746	$	4,119,057

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Revenue from Contracts with Customers (Details Narrative)	Apr. 30, 2020 USD ($)
Revenue from Contract with Customer [Abstract]
Deferred revenue	$ 566,300

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Inventories

6 Months Ended

Apr. 30, 2020

Inventory Disclosure [Abstract]

Inventories

6. Inventories:

Inventories consisted of the following:

	April 30, 2020		October 31, 2019
Raw materials	$	2,536,801	$	2,035,612
Work in process		1,679,361		1,239,861
Finished goods		125,584		843,584
	$	4,341,746	$	4,119,057

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Subsequent Events

6 Months Ended

Apr. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

10. Subsequent Events

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.  The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations. 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, and future results of operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations or financial condition for the fiscal year ending October 31, 2020.

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Summary of Significant Accounting Policies (Details Narrative) - USD ($)	6 Months Ended
	Apr. 30, 2020	Apr. 30, 2019
Accounting Policies [Abstract]
Advertising expense	$ 49,989	$ 67,844

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Inventories - Inventories (Details) - USD ($)	Apr. 30, 2020	Oct. 31, 2019
Inventory Disclosure [Abstract]
Raw materials	$ 2,536,801	$ 2,035,612
Work in process	1,679,361	1,239,861
Finished goods	125,584	843,584
Inventories	$ 4,341,746	$ 4,119,057

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Condensed Balance Sheets (Unaudited) - USD ($)	Apr. 30, 2020	Oct. 31, 2019
Current assets:
Cash and cash equivalents	$ 3,231,176	$ 2,714,764
Certificate of deposit	1,010,169	1,003,389
Accounts receivable, net of allowance for doubtful accounts of $6,000 at April 30, 2020 and $15,000 at October 31, 2019	733,214	644,915
Inventories	4,341,746	4,119,057
Prepaid expense and other current assets	216,641	77,858
Total current assets	9,532,946	8,559,983
Property, plant and equipment, at cost	4,413,356	4,336,733
Less: accumulated depreciation	3,133,313	3,026,513
Net property, plant and equipment	1,280,043	1,310,220
Other assets:
Deferred income taxes	161,122	161,122
Total other assets	161,122	161,122
TOTAL ASSETS	10,974,111	10,031,325
Current liabilities:
Accounts payable	607,938	329,618
Accrued liabilities	61,210	185,334
Customer deposits	1,066,764	656,569
Total current liabilities	1,735,912	1,171,521
Notes payable	626,466	0
Total liabilities	2,362,378	1,171,521
Stockholders' equity:
Preferred stock, par value $.0001, 10,000,000 shares authorized, none issued	0	0
Common stock, par value $.01, 25,000,000 shares authorized; 6,429,875 shares issued	64,299	64,299
Additional paid-in capital	6,419,687	6,419,687
Retained earnings	2,809,157	3,057,228
Total stockholders' equity before treasury stock	9,293,143	9,541,214
Less: Treasury stock, 1,245,980 shares, at cost	(681,410)	(681,410)
Total stockholders' equity	8,611,733	8,859,804
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 10,974,111	$ 10,031,325

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Condensed Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Apr. 30, 2020	Apr. 30, 2019
Cash flow from operating activities:
Net income	$ (248,071)	$ (16,923)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	106,800	105,230
Changes in operating assets and liabilities:
Accounts receivable	(88,299)	(268,217)
Inventories	(222,689)	44,498
Prepaid expenses and other assets	(138,783)	93,009
Accounts payable	278,320	(20,771)
Accrued liabilities	(124,124)	(121,252)
Customer deposits	410,195	(295,134)
Net cash (used in) provided by operating activities	(26,651)	(479,560)
Cash flows from investing activities:
Purchase of property and equipment	(76,623)	(215,352)
Interest earned on certificates of deposit	(6,780)	0
Net cash used in investing activities	(83,403)	(215,352)
Cash flows from financing activities:
Proceeds from PPP loan	626,466	0
Net cash provided by financing activities	626,466	0
Net increase (decrease) in cash and cash equivalents	516,412	(694,912)
Cash and cash equivalents at beginning of year	2,714,764	4,733,510
Cash and cash equivalents at end of year	$ 3,231,176	$ 4,038,598

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Revenue from Contracts with Customers

6 Months Ended

Apr. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

4. Revenue from Contracts with Customers:

a) Overview

The Company adopted ASC 606 on November 1, 2018. 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.

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 and 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 six months ended in April 30, 2020 deferred revenue of $566,300 from the fiscal year ended October 31, 2019 was recognized.

b) Disaggregation of Revenue

Disaggregated revenue is by primary geographic market is as follows:

Revenue by Geographic Area	Six Months Ended April 30, 2020
United States	$	3,807,552
International		217,652
Total	$	4,025,204

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Income Taxes

6 Months Ended

Apr. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

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 included, 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 April 30, 2020 and at October 31, 2019. 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 April 30, 2020 and October 31, 2019, net deferred tax assets were $161,122.

The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and administrative expenses.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Apr. 30, 2020

Accounting Policies [Abstract]

Warranty Accrual

Following is a tabular reconciliation of the changes in the warranty accrual for the six-month period ended April 30:

	2020			2019
Beginning balance	$	60,000		$	80,000
Warranty service provided		(71,803	)		(59,243	)
New product warranties		27,101			38,587
Changes to pre-existing warranty accruals		34,702			10,656
Ending balance	$	50,000		$	70,000

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Revenue from Contracts with Customers (Tables)

6 Months Ended

Apr. 30, 2020

Revenue from Contract with Customer [Abstract]

Disaggregated revenue

Disaggregated revenue is by primary geographic market is as follows:

Revenue by Geographic Area	Six Months Ended April 30, 2020
United States	$	3,807,552
International		217,652
Total	$	4,025,204

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Related Party Transactions

6 Months Ended

Apr. 30, 2020

Related Party Transactions [Abstract]

Related Party Transactions

5. Related Party Transactions:

The Estate of Leland E. Boren is a stockholder of the Company and is the owner of Avis Industrial Corporation (Avis). The Estate controls over 80% of the outstanding shares of the Company. Avis owns 100% of The American Baler Company, a competitor of the Company. On January 1, 2014, Avis acquired The Harris Waste Management Group, Inc. (Harris), also a competitor of the Company. On July 31, 2014 Harris acquired the assets of IPS Balers, Inc. in Baxley, Georgia, another competitor of the Company. These baler companies operate completely independent of each other. The company had no purchases from these companies in the first half of fiscal 2020 and in the fiscal year ending October 31, 2019. The Company had no sales to The American Baler Company in the first half of fiscal 2020 and in the fiscal year ended October 31, 2019. The Company sold two closed door horizontal balers to Harris Waste Management for $122,950 in fiscal 2019 and had no sales to Harris Waste Management in the first half of fiscal 2020.

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Commitments and Contingencies

6 Months Ended

Apr. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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 $20,547 which has been paid.

In December 2018 the Company discovered an employee theft of Company property. The Company has researched what items were stolen and our estimate is that the value of the stolen items was approximately $200,000. Since the Company conducts a physical inventory at the end of each fiscal year, any losses incurred for the fiscal year ended October 31, 2018 would have been reflected in the operating results of the Company for that fiscal year. The Company carries Crime Insurance which has an upper limit of $1,000,000 and a deductible of $25,000. In May 2019 the Company’s insurer approved the crime insurance claim and agreed to reimburse the Company $175,841. Insurance proceeds were received in May of 2019 and were recorded as other income in the accompanying condensed statements of income.

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Revenue from Contracts with Customers - Disaggregated revenue (Details) - USD ($)	3 Months Ended		6 Months Ended
	Apr. 30, 2020	Apr. 30, 2019	Apr. 30, 2020	Apr. 30, 2019
Revenue by Geographic Area
Total	$ 2,014,943	$ 2,914,551	$ 4,025,204	$ 5,383,807
United States
Revenue by Geographic Area
Total			3,807,552
International
Revenue by Geographic Area
Total			$ 217,652

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Debt (Details Narrative) - USD ($)	1 Months Ended	6 Months Ended
	Apr. 16, 2020	Apr. 30, 2020	Apr. 30, 2019	Oct. 31, 2019
Short-term Debt [Line Items]
Line of Credit Agreement		$ 1,650,000
Line of credit limit		$ 1,000,000
Interest Rate Terms		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.
Term	2 years
Interest rate	1.00%
Proceeds from loan	$ 626,466	$ 626,466	$ 0
Line of Credit [Member]
Short-term Debt [Line Items]
Outstanding balance		$ 0		$ 0

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Condensed Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Apr. 30, 2020	Oct. 31, 2019
Current Assets:
Accounts receivable, net of allowance for doubtful accounts	$ 6,000	$ 15,000
Stockholders' equity:
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, share authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Common stock, par value	$ 0.01	$ .01
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	6,429,875	6,429,875
Treasury stock, shares	1,245,980	1,245,980

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Nature of Business

6 Months Ended

Apr. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business:

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%.