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, 2019, 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

In the first quarter ended January 31, 2020, the Company had net sales of $2,010,261 compared to net sales of $2,469,256 in the first quarter of fiscal 2019. The decrease in net sales was primarily the result of market conditions in the first quarter of fiscal 2020, versus the first quarter of fiscal 2019. The Company had no shipments of two-ram balers and lower shipments of closed door horizontal balers in the first quarter of fiscal 2020.

Cost of sales increased to $1,932,794 in the first quarter of fiscal 2020 compared to $2,183,557 in the first quarter of 2019. Cost of sales sold as a percentage of net sales increased to 96.2% for the first quarter of fiscal 2020 compared to 88.4% for the first quarter of fiscal 2019.

The Company had a net loss of $184,481 in the first quarter of fiscal 2020, compared to a net loss of $18,788 in the first quarter fiscal 2019. The lower net income is the result of lower sales, gross profit and higher selling expenses.

The sales order backlog was approximately $1,950,000 at January 31, 2020 and $2,630,000 at January 31, 2019. The Company received $1,380,000 in new orders in the first week of February 2020.

Financial Condition and Liquidity:

Net working capital at January 31, 2020 was $7,246,344 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.





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Average days sales outstanding (DSO) in the first three months of fiscal 2020 were 33.7 days, as compared to 23.0 days in the first three months of fiscal 2019. DSO is calculated by dividing the total of the month-end net accounts receivable balances for the period by three, and dividing that result by the average day's sales for the period (period sales ÷ 91.25).

During the three months ended January 31, 2020 and 2019, the Company made additions to plant and equipment of $11,037 and $146,778 respectively.

The Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2019. 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 January 31, 2020 and at October 31, 2019.

In the event that the Company's line of credit would not be available, the Company would pursue a line of credit from other sources, and take steps to minimize expenditures, such as delaying capital expenditures and reducing overhead costs.

The Company had cash deposits in banks of $3,238,879 and $3,411,825 above the FDIC insured limit of $250,000 per bank at January 31, 2020 and October 31, 2019, respectively.

Off-Balance Sheet Arrangements

As of January 31, 2020, 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, 2019.

Recent Accounting Pronouncements

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

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