UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM
10-K
_________________
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended: October 31, 2018
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from: _____________ to _____________
_________________
International
Baler Corporation
(Exact
name of registrant as specified in its charter)
_________________
Delaware
|
0-14443
|
13-2842053
|
(State
or Other Jurisdiction
|
(Commission
|
(I.R.S.
Employer
|
of
Incorporation or Organization)
|
File
Number)
|
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(b) of the Act: None
Title
of each class
Name of each exchange on which registered
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share
Title
of each class
Name of each exchange on which registered
_________________
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
☐ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes
☐ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
|
Smaller
reporting company ☒
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
State
the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price
at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day
of the registrant’s most recently completed second fiscal quarter. (April 30, 2018 closing price $2.01) : $1,993,711
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes
☐ No ☐
APPLICABLE
ONLY TO CORPORATE REGISTRANTS
Indicate
the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date
(January 15, 2019): 5,183,895
Table
of Contents
|
|
|
Page
|
Part
I
|
|
|
Item
1. Business
|
3
|
Item
2. Properties
|
6
|
Item
3. Legal Proceedings
|
6
|
Part
II
|
|
|
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
7
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
|
8
|
Item
8. Financial Statements and Supplementary Data
|
10
|
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
10
|
Item
9A. Controls and Procedures
|
10
|
Item
9B. Other Information
|
12
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Part
III
|
|
|
Item
10. Director and Executive Officers and Corporate Governance
|
13
|
Item
11. Executive Compensation
|
16
|
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
19
|
Item
13. Certain Relationships and Related Transactions, and Director Independence
|
20
|
Item
14. Principal Accountant Fees and Service
|
21
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Part
IV
|
|
|
Item
15. Exhibits, Financial Statements and Schedules
|
22
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Signatures
|
|
23
|
PART
I
ITEM
1. BUSINESS
International
Baler Corp. was incorporated on September 10, 1975, in the State of Delaware under the name B.W. Energy Systems, Inc. Its name
was changed to Waste Technology Corp. in August 1983. In March 2009, Waste Technology Corporation’s wholly-owned subsidiary,
International Baler Corporation (IBC), was merged into Waste Technology Corporation and the Company changed its name to International
Baler Corporation. International Baler Corporation maintains its executive offices and manufacturing facilities at 5400 Rio Grande
Avenue, Jacksonville, Florida 32254. The Company’s telephone number is (904) 358-3812. The Company's fiscal year end is
October 31.
General
The
Company is a manufacturer of baling equipment which is fabricated from steel and utilizes hydraulic and electrical components
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 to meet specific customer requirements.
Products
Balers
utilize mechanical, hydraulic, and electrical mechanisms to compress a variety of materials into bales for easier and lower cost
handling, shipping, disposal, storage, and/or bulk sales for recycling. The Company offers a wide variety of balers, certain types
that are standardized and others that are designed to specific customer requirements. The Company's products include (i) general
purpose horizontal and vertical balers, (ii) specialty balers, such as those used for textile materials, used clothing, aluminum
cans, 55-gallon drums and synthetic rubber; and (iii) accessory equipment such as conveyors, fluffers, bale tying machines, and
plastic bottle piercers (machines which puncture plastic bottles before compaction for greater density).The Company also provides
service and repair work to general purpose and specialty balers.
General
Purpose Balers
These
balers are designed for general purpose compaction of waste materials. They are manufactured in either vertical or horizontal
loading models, depending on available floor space and desired capacity. Typical materials that are handled by this equipment
include paper, corrugated boxes, and miscellaneous solid waste materials. These balers range in bale weight capacity from approximately
300 to 3,000 pounds and range in price from approximately $5,000 to $600,000. General purpose baler sales constituted approximately
61% and 58% of net sales for the fiscal years ended October 31, 2018 and 2017, respectively.
Specialty
Balers
Specialty
balers are designed for specific applications which require modifications of the general baler configuration. The rubber baler
is designed to apply pressure in such a way as to compress the synthetic rubber into a self-contained bale that does not require
tying. The scrap metal baler is designed to form a bale, referred to as a scrap metal "briquette" of specified size
and weight. The drum crusher baler is capable of collapsing a standard 55-gallon drum into a "pancake" approximately
four (4) to eight (8) inches high, which also serves to contain any remaining contents. The textile baler is capable of compressing
and baling loose fibers, which do not ordinarily adhere to each other under pressure. In addition, a double chamber baler has
been designed for use by the clothing and textile industries.
Specialty
balers range in price from approximately $5,000 to $550,000, and are less exposed to competitive pressures than are general purpose
balers. Specialty baler sales constituted approximately 7% and 15% of net sales for the fiscal years ended October 31, 2018 and
2017, respectively.
Accessory
Equipment
The
Company manufactures and markets a number of accessory equipment items in order to market a complete waste handling system. This
equipment includes conveyors, which carry waste from floor level to the top of large horizontal balers; extended hoppers on such
balers; rufflers, which break up material to improve bale compaction; electronic start/stop controls and hydraulic oil coolers
and cleaners. For 2018 and 2017, accessory equipment did not represent a significant percentage of net sales.
Warranties
and Service
IBC
typically warranties its products for one year from the date of sale as to materials, three (3) years for structural damage, and
six months as to labor, and offers services for other required repairs and maintenance. Service is rendered by repairing or replacing
parts at IBC's Jacksonville, Florida, facility, and by on-site service provided by Company personnel who are based in Jacksonville,
Florida, or by local service agents who are engaged as needed. Repair services and spare parts sales represented approximately
27% and 25% of the Company’s net sales for fiscal 2018 and 2017, respectively.
Manufacturing
The
Company manufactures its products in its facility in Jacksonville, Florida, where it maintains a fully equipped and staffed manufacturing
plant. IBC purchases raw materials, such as steel sheets and beams and components such as hydraulic pumps, valves and cylinders,
and certain controls and other electric equipment which are used in the fabrication of the balers. The Company has no long-term
supply agreements, and has not experienced unusual delays in obtaining raw materials or components.
The
raw materials required by IBC to manufacture the balers, principally steel, motors, and hydraulic systems, are readily available
from a number of sources and IBC is not dependent on any particular source. IBC is not dependent on any significant patents, trademarks,
licenses, or franchises in connection with its manufacture of balers.
While
IBC maintains an inventory of raw materials, most of it is intended for specific orders and inventory turnover is relatively rapid.
Approximately 60% of its inventory turns over in 45 to 90 days and the remaining balance, consisting of customized equipment,
turns over in 3 to 6 months. IBC's business is not seasonal.
Sales
and Marketing
IBC
sells its products throughout the United States and to some extent in Europe, the Far East, and South America to manufacturers
of synthetic rubber and polymers, plastic recycling facilities, power generating facilities, textile mills, paper mills, cotton
gins, supermarkets and other retail outlets, paper recycling facilities, and municipalities.
IBC
has a sales force of three (3) employees who rely upon responses to advertising, personal visits, attendance at trade shows, referrals
from existing customers and telephone calls to dealers and/or end users. Approximately 45% of sales are made through manufacturer's
representatives and dealers. Sales made through the Company’s dealers are generally discounted and sales are recorded net
of the discount amount. Occasionally sales are made with a commission payment, selling expense, through a representative who is
not a dealer.
The
Company's general purpose balers are sold throughout the United States to such end users as waste producing retailers, manufacturing
and fabricating plants, bulk material producers, and solid waste recycling facilities. Specialty balers are sold worldwide, including
Europe, the Far East, and South America to manufacturers of rubber and polymers, plastic recycling facilities, paper recycling
facilities, textile mills and power generating facilities. During fiscal 2018, foreign sales amounted to $687,407 or approximately
6% of the Company’s net sales while in fiscal 2017, foreign sales amounted to $2,077,036, approximately 19% of the Company’s
net sales. In fiscal 2018 and 2017, the Company had no significant sales to any one foreign country.
During
fiscal 2018 and fiscal 2017, IBC had sales to more than 300 customers. In fiscal 2018, three customers accounted for 11.8%, 11.2%
and 9.0% of total net sales, respectively, while in fiscal 2017, three customers accounted for 17.9%, 11.4% and 8.0% of net sales,
respectively.
The
Company builds only a small quantity of balers for its inventory and generally builds based on firm sales orders. The Company's
open sales orders at October 31, 2018 were $2,300,000 and at October 31, 2017 were $3,450,000. The Company generally delivers
its orders within four (4) months of the date booked.
Competition
The
potential market for the Company's balers is nationwide and overseas, but the majority of the Company’s general purpose
baler sales are in the United States. The Company competes in these markets with approximately 20 companies, none of which are
believed to be dominant, but some of which may have significantly greater sales and financial resources than the Company. The
Company is able to compete with these companies due to its reputation in the market place, its ability to service the balers it
manufactures and sells, as well as its ability to custom design balers to a customer's particular needs. The Company experiences
intense competition with respect to its lower priced or general purpose balers, based upon price, including freight, and based
on performance. The Company experiences less competition with respect to its specialized baler equipment, such as synthetic rubber,
scrap metal, and textile balers.
Regulation
Machinery,
such as the Company's balers, is subject to both federal and state regulation relating to safe design and operation. The Company
complies with design requirements and its balers include interlocks to prevent operation while the loading door is open, and also
includes required printed safety warnings.
Research
and Development
The
Company has the broadest line of products in the baler industry and continues to provide its customers with new products and product
improvements. The Company invests a minimal amount on general research and development of new products.
Compliance
with Environmental Laws
The
Company generally believes that it has complied with and is in compliance, with all federal, state, and local environmental laws.
Employees
As
of October 31, 2018, the Company employed 57 full-time employees as follows: 4 in management and supervision: 9 in sales and service;
34 in manufacturing; 6 in engineering; and, 4 in administration.
Available
Information
The
Company is a reporting company, as that term is defined under the Securities Acts, and therefore, files reports, including, Quarterly
Reports on Form 10-Q and Annual Reports on Form 10-K and other information with the Securities and Exchange Commission (the “Commission”).
In addition, the Company will provide, without charge to its stockholders, upon written or oral request by such stockholder, a
copy of any information referred to herein that is incorporated by reference except exhibits to such information that are incorporated
by reference unless the exhibits are themselves specifically incorporated by reference. All such requests should be directed to
William E. Nielsen, at International Baler Corp., 5400 Rio Grande Avenue, Jacksonville, Florida 32254, telephone number (904)
358-3812.
The
Company is an electronic filer. The Commission maintains a web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the Commission, including all of the Company’s filings
with the Commission. The address of such site is (http://www.sec.gov
)
.
The
Company’s website is located at http://www.intl-baler.com. Under the “Corporate Information” section of the
website, you may access, free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, Section 16 filings (Form 3, 4 and 5) and any amendments to those reports as reasonably practicable after
the Company electronically files such reports with the SEC. The information contained on the Company’s website is not part
of this Report or any other report filed with the SEC.
ITEM
2. PROPERTIES
IBC
is the owner of the buildings and property located at 5400 Rio Grande Avenue, Jacksonville, Florida. The building contains approximately
62,000 square feet and is situated on eight (8) acres. IBC manufactures all of the Company's products at this location. The property
has no mortgage. However, the Company’s primary lender, First Merchants Bank of Muncie, Indiana, has a security interest
in the property as part of the collateral for the line of credit which it provides to the Company. See Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
ITEM
3. LEGAL PROCEEDINGS
To
the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against
the Company which would have a result materially adverse to the Company. To the knowledge of management, no director, executive
officer or affiliate of the Company or owner of record or beneficially owned interest of more than 5% of the Company’s common
stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.
Total
legal fees expensed in fiscal 2018 and 2017 were $2,545 and $6,034, respectively.
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 15, 2015. The plaintiff is Star Insurance Company. The Company’s insurer has retained an attorney and has begun
the discovery process. The Company believes its exposure is a range of $0 to $25,000, the amount of the Company’s deductible
on its insurance policy. Accordingly, the Company accrued $25,000 during the six months ended April 30, 2018.
In
December 2018 the Company discovered an employee theft of Company inventory. At the current time the Company has not fully determined
the extent of the theft. Our estimate is that the value of the stolen items was between $100,000 and $200,000. The Company carries
Crime Insurance which has an upper limit of $1,000,000 and a deductible of $25,000.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The
Company's stock is presently traded on the OTC Electronic Bulletin Board of NASDAQ under the symbol IBAL. As of October 31, 2018,
the number of shareholders of record of the Company's Common Stock was approximately 400, and management believes that there are
approximately 500 beneficial owners of the Company’s common stock.
The
range of high and low bid quotations for the Company's common stock during the fiscal years ended October 31, 2018 and 2017, are
set forth below.
Fiscal
Year Ended
|
|
|
|
|
October
31, 2018
|
|
High
|
|
Low
|
First
Quarter
|
|
$
|
2.09
|
|
|
$
|
2.00
|
|
Second
Quarter
|
|
|
2.10
|
|
|
|
2.00
|
|
Third
Quarter
|
|
|
2.10
|
|
|
|
2.00
|
|
Fourth
Quarter
|
|
|
2.10
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended
|
|
|
|
|
|
|
|
|
October
31, 2017
|
|
|
High
|
|
|
|
Low
|
|
First
Quarter
|
|
$
|
2.17
|
|
|
$
|
2.04
|
|
Second
Quarter
|
|
|
2.14
|
|
|
|
1.80
|
|
Third
Quarter
|
|
|
2.05
|
|
|
|
1.85
|
|
Fourth
Quarter
|
|
|
2.08
|
|
|
|
1.86
|
|
The
Company has paid no dividends since its inception. Other than the requirement of the Delaware Corporation law that dividends be
paid out of capital surplus only and that the declaration and payment of a dividend not render the Company insolvent, there are
no restrictions on the Company's present or future ability to pay dividends.
The
payment by the Company of dividends, if any, in the future, rests within the discretion of its Board of Directors and will depend,
among other things, upon the Company's earnings, its capital requirements, its financial condition and other relevant factors.
Recent
Sales of Unregistered Securities
During
the past two years ended October 31, 2018, the Company has not sold any unregistered securities.
Purchases
of Equity Securities
During
the fiscal year ended October 31, 2018, neither the Company, nor anyone on its behalf, repurchased any of the Company securities.
Securities
authorized for issuance under equity compensation plans
None.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This
“Management’s Discussion and Analysis” contains forward-looking statements within the meaning of Section 21B
of the Securities and Exchange Act of 1934, as amended. These forward-looking statements represent the Company’s present
expectations or beliefs concerning future events on certain assumptions which are subject to risks and uncertainties, including,
but not limited to, changes in general economic conditions and changing competition which could cause actual results to differ
materially from those indicated.
Results
of Operations
For
the fiscal year ending October 31, 2018, net sales were $11,113,982 compared to $10,494,941 in fiscal 2017, an increase of 5.9%.
The increase in net sales was the result of higher shipments of auto-tie balers, twenty in fiscal 2018 versus eleven in fiscal
2017. These higher net sales were partially offset by lower two-ram baler sales, six in fiscal 2018 versus nine in fiscal 2017.
Gross
profit was $1,561,674 in fiscal 2018 compared to $1,253,506 in the prior fiscal year due to higher shipments. The Company had
net income of $310,229 in fiscal 2018 compared to net income of $73,360 in fiscal 2017.
The
Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into United States tax law on December 22, 2017. The Act makes
significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, and
changes in business-related exclusions, and deductions and credits. As a result, the Company recorded a reduction of net
deferred income tax assets of approximately $10,000 during the first quarter of our fiscal year ending October 31, 2018.
Liquidity
and Capital Resources
The
Company’s net working capital at October 31, 2018 was $7,851,219 as compared to $7,513,027 at October 31, 2017.
Average
Days Sales Outstanding (DSO) in fiscal 2018 was 20.6 days as compared to 28.8 days in fiscal 2017. DSO is calculated by dividing
the total of the month-end net accounts receivable balances for the period by twelve, and dividing that result by the average
day’s sales for the period (period sales ÷ 365).
The
Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2018.
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, 2019. The line of credit had no outstanding
balance at October 31, 2018 and at October 31, 2017.
In
fiscal 2018 the Company made additions of $131,643 to its buildings and manufacturing equipment, compared to additions of $30,452
in fiscal 2017. There are no unusual or infrequent events or transactions or significant economic changes which materially affect
the amount of reported income. The Company believes that its cash, line of credit, and results of operations are sufficient to
fund future operations.
The
Company is unaware of any events or uncertainties which are reasonably likely to have a material impact on the Company’s
short-term or long-term liquidity or the net sales, or net income. The Company has no known or anticipated significant elements
of income or loss that do not arise from the Company’s operations.
Off
Balance Sheet Arrangements
The
Company has no off balance sheet arrangements.
Inflation
The
costs of the Company are subject to the general inflationary trends existing in the general economy. The Company believes that
expected pricing for its equipment will be able to include sufficient increases to offset any increase in costs due to inflation.
Critical
Accounting Policies and Estimates
This
discussion and analysis of financial condition and results of operations is based on our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, as well as related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing
basis and we base our estimates on historical experience and various other assumptions we deem reasonable to the situation. These
estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Changes in our estimates could materially impact our results of operations and financial
condition in any particular period.
We
consider our critical accounting policies and estimates to be as follows based on the high degree of judgment or complexity in
their application:
Revenue
Recognition
The
Company recognizes revenue when finished products and/or parts are shipped and the customer takes ownership and assumes the risk
of loss. Baler revenues are based on established prices by type and model. Revenue from installation services is recognized on
completion of the service. The Company recognizes revenue from repair services in the period in which the service is provided.
Standard service fee prices are established depending on baler classification and estimated time. The timing of shipments and
installation services have an impact on the recording of revenue in a period.
Allowance
for Doubtful Accounts
The
Company maintains allowances for doubtful accounts for estimated losses on trade receivables resulting from the inability to collect
outstanding accounts due from its customers. The allowances include specific amounts for disputed, troubled and aged accounts
using current knowledge of particular customer credit worthiness and general allowances based on historical collection experience,
current economic trends, credit worthiness of customers and changes in customer payment terms.
Management
believes the estimates used in determining the allowance for doubtful accounts are critical accounting estimates because changes
in credit worthiness and economic conditions, including bankruptcies, could have a material impact on operating results.
The
Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote.
Inventory
Allowance
The
Company analyzes inventory for excess or slow moving inventory. The Company reviews inventory for obsolescence on a regular basis.
The allowance is estimated based on factors such as historical trends, current market conditions and management’s assessment
of when the inventory would likely be sold and the quantities and prices at which the inventory would likely be sold in the normal
course of business. Changes in product specifications, customer product preferences or the loss of a customer could result in
unanticipated impairment in net realizable value that may have a material impact on cost of goods sold, gross margin and net income.
Obsolete or damaged inventory is disposed of or written down to net realizable value on a quarterly basis.
Additional
adjustments, if necessary, are made based on management’s specific review of inventory on-hand. Management believes the
estimates used in determining the allowance for excess and slow moving inventory are critical accounting estimates as changes
in the estimates could have a material impact on net income and the estimates involve a high degree of judgment.
Warranty
Allowance
The
Company warranties 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 a service plan for other required repairs and maintenance. The Company maintains an
accrued liability for expected warranty claims. The warranty allowance considers warranty costs and requires management estimates
of baler performance based on the quantity and type of balers currently under warranty and known potential warranty issues for
these balers. Changes in the warranty estimate could impact operating results.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. There were no valuation allowances on the deferred tax assets at October 31, 2018
and 2017 as management believes it will fully utilize them. The Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained. There were no accruals for uncertain tax positions at October 31,
2018 or 2017.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements and supplementary data commence on page F-1.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM
9A. CONTROLS AND PROCEDURES
Disclosure
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 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 the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls
and procedures, 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 necessarily is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures. As of the end of the period covered by this report,
and under the supervision and with the participation of management, including its CEO and CFO, management evaluated the effectiveness
of the design and operation of these 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 not effective due to
the incident of employee theft reported in this 10-K, Part I Item 3.
Management
considers the cause of this theft event a material weakness in its controls and procedures. In order to remediate this material
weakness and further strengthen the controls surrounding inventory loss due to theft, management has initiated or enhanced the
following procedures:
•
|
|
Segregation
of duties to initiate purchase orders, receive inventory items, and make shipments
will be strengthened.
|
•
|
|
Purchase
orders and inventory receipts will be reviewed and approved by a purchasing manager.
|
•
|
|
Shipping
records will be timely reviewed to verify that all shipments are being made to approved
customers of the Company.
|
•
|
|
System
access to adjust inventory records will be more strictly controlled.
|
•
|
|
Access
to the Company’s physical inventory will be strengthened.
|
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or
detected on a timely basis. The material weakness in our internal control over financial reporting was a result of not designing
effective controls over purchasing and the access to physical inventory and certain inventory records. Except for this material
weakness, management has concluded that the financial statements in this Annual Report on Form 10-K fairly present, in all
material respects, the Company’s financial position, results of operations and cash flows for the fiscal years ended October
31, 2018 and 2017.
As
part of a continuing effort to improve the Company’s business processes management is evaluating its internal controls and
may update certain controls to accommodate any modifications to its business processes or accounting procedures.
Internal
Control over Financial Reporting
(a)
Management’s Annual Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining effective internal controls over financial reporting,
as such terms is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal
control over financial reporting is a process designed 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.
The
Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect
on the Company’s financial statements.
Management,
with the participation of the Company’s principal executive and principal financial officer, assessed the effectiveness
of the Company’s internal control over financial reporting as of October 31, 2018. This assessment was performed using the
criteria established under the Internal Control-Integrated Framework established by the Committee of Sponsoring Organization of
the Treadway Commission (“COSO”).
Internal
control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its
inherent limitations, including the possibility of human error or circumvention or overriding of internal control. Accordingly,
even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement
preparation and reporting and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Based
on the assessment performed using the criteria established by COSO, management has concluded that there was a material weakness
surrounding the control of purchasing and access to certain Company inventory and inventory records and due to this material weakness
the Company did not maintain effective internal control over financial reporting as of and for the year ended October 31, 2018.
While the material weakness resulted in a loss due to theft, it did not result in any material misstatements to the Company’s
financial statements or disclosures for any interim periods during, or for the fiscal year 2018 or 2017. Management has implemented
the actions mentioned above to ensure the Company has effective controls and procedures.
This
annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
(b)
Changes in Internal Control over Financial Reporting
During
the year ended October 31, 2018, except as described above there have not been any changes in the Company’s internal controls
that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
ITEM
9B. OTHER INFORMATION
On
January 10, 2017 Roger Griffin resigned as President, Chief Executive Officer and Director of International Baler Corporation.
Mr. Griffin resigned in order to pursue other interests. The Board of Directors named William E. Nielsen, the Company’s
Chief Financial Officer, to the position of President and Chief Executive Officer. Mr. Nielsen has been the Company’s Chief
Financial Officer since 1994.
On
October 1, 2018 the Board of Directors of International Baler Corporation named Victor W. Biazis President and Chief Executive
Officer of the Company. Mr. Nielsen remains the Chief Financial Officer of the Company.
On
November 23, 2018, Lealand E. Boren, a Director of the Company, passed away. Mr. Boren’s estate is the largest shareholder
of the Company.
PART
III
ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification
of Directors and Officers
The
executive officers and directors of the Company are as follows:
Name
|
|
Age
|
|
Positions
Held
|
|
Date
of Initial Election or Designation
|
Victor
W. Biazis
5400
Rio Grande Avenue
Jacksonville,
FL 32254
|
|
|
60
|
|
|
President
and CHief Executive Officer
|
|
10/01/2018
|
Lael
E. Boren
1909
S. Main Street
Upland,
IN 46989
|
|
|
50
|
|
|
Director
|
|
04/15/2011
|
Leland
E. Boren
1909
S. Main Street
Upland,
IN 46989
|
|
|
95
|
|
|
Director
|
|
03/09/2005
|
Ronald
L. McDaniel
Western-Cullen-Hayes,
Inc. Chairman of the Board
2700
West 36
th
Place
Chicago,
IL 60632
|
|
|
79
|
|
|
Director
Chairman of the Board
|
|
05/16/2006
|
William
E. Nielsen
5400
Rio Grande Ave. Chief Financial Officer 6/14/94
Jacksonville,
FL 32254
|
|
|
71
|
|
|
Director
Chief Financial Officer
|
|
11/20/1997
06/14/1994
|
John
J. Martorana
5148
Hanover Lane
Lakeland,
FL 33817
|
|
|
68
|
|
|
Director
|
|
01/05/2009
|
Martha
R. Songer
1909
S. Main Street
Upland,
IN 46989
|
|
|
62
|
|
|
Director
|
|
01/30/2012
|
The
Board of Directors is divided into three (3) classes of directors ("Class I", "Class II", and "Class
III"), with each class having as nearly the same number of directors as practicable. Stockholders elect such class of directors,
Class I, Class II, or Class III, as the case may be, to succeed such class directors whose terms are expiring, for a three (3)
year term, and such class of directors shall serve until the successors are elected and qualify. Officers of the Company serve
at the pleasure of the Board of Directors.
During
fiscal 2018 the Board of Directors met one time.
There
are no family relationships between executive officers or directors of the Company except that Lael E. Boren is the son of Leland
E. Boren.
Except
as noted above, there is no understanding or arrangement between any director or any other persons pursuant to which such individual
was or is to be selected as a director or nominee of the Company.
Background
of Executive Officers and Directors
The
following is a brief account of the experience, during the past five years, of each director and executive officer of the Company:
Victor
W. Biazis is the President & CEO. He was appointed on Oct. 1, 2018. He has held various Senior Management and Executive roles
in his career. He was with H.B. Fuller from 1981 to 2005, a Global Adhesive Supplier based in St. Paul, MN. From 2000 to 2005,
he was a General Manager for the North America Packaging Adhesive Business Unit of H.B. Fuller. He then moved on and served as
the President and Regional CEO for Wisdom Adhesives Global Group, based in Elgin, IL, from 2006 to 2011. Most recently, from 2011
to 2018, Mr. Biazis, was President and CEO of Coastal Industrial Products. Mr. Biazis received a Bachelor Degree in Political
Science from Southeastern Louisiana University in 1981.
Leland
E. Boren is the Chairman, Chief Executive Officer and President of Avis Industrial Corporation located in Upland, Indiana. He
is also President and CEO of PHD, Inc., Ft. Wayne, Indiana and has held this position since 2010. From 1945 through 1971, Mr.
Boren was employed by The Pierce Company (formerly The Pierce Governor Company) in various capacities. He became President of
The Pierce Governor Company in 1958. The Pierce Company merged with Avis Industrial Corporation in 1971 and Mr. Boren became President
of Avis at that time.
Ronald
L. McDaniel has been president of Western-Cullen-Hayes, Inc. since 1980. He was Vice President and General Manager of Western-Cullen-Hayes
from 1975 to 1980. From 1957 to 1975, Mr. McDaniel worked for Western-Cullen-Hayes and Burro Crane, an affiliated company, in
various capacities including division controller. Mr. McDaniel has a bachelor’s degree from the University of Dayton and
an MBA from the University of Chicago.
William
E. Nielsen joined the Company in June 1994 as its Chief Financial Officer. He was elected President and Chief Executive Officer
on January 10, 2017. Prior to joining the Company, acted as a financial consultant to Fletcher Barnum Inc., a privately held manufacturing
concern, from October 1993 through June 1994. From 1980 through July 1993, he was the Vice President, Administration and Finance
at Unison Industries, Inc. Mr. Nielsen received a BBA in Finance and an M.B.A. at Western Illinois University in 1969 and 1970,
respectively.
John
J. Martorana has been a consultant to several divisions of Wastequip, Inc. since 2007. Mr. Martorana was the President of Wastequip
of Florida from 1994 to 2007 after joining that company in 1991 as Vice President. From 1984 to 1991 he was responsible for sales
and steel purchasing for Industrial Refuse Sales Inc., a family owned business which was sold to Wastequip, Inc. prior to joining
Industrial Refuse Sales Mr. Martorana worked in the steel industry. He received a BS Degree in Education from Butler University
in 1972.
Lael
E. Boren has served as general manager and president of various organizations including Badger Equipment Company and The Pierce
Company. Prior to that, Mr. Boren owned an electronics business in Muncie and Marion, Indiana. He received a Bachelor’s
of General Studies from Ball State University in 2014. Mr. Boren is the son of Leland E. Boren, also a director of the company.
Martha
R. Songer is Vice President and Assistant to the President at Avis Industrial Corporation in Upland, Indiana and has been in this
position since 2012. Prior to that Ms. Songer was Alumni Director at Taylor University also in Upland, Indiana. Ms. Songer received
a Bachelor of Science from Taylor University in 1978 and a Master of Science in Management in 2002 from Indiana Wesleyan University.
Involvement
in Certain Legal Proceedings
To
the knowledge of the Company’s management, during the past five years, no director, person nominated to become a director
or an executive officer of the Company:
(1)
|
|
Filed
a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver,
fiscal agent or similar officer appointed by a court for the business or property of
such person, or any partnership in which he or she was a general partner at or within
two years before the time of such filing, or any corporation or business association
of which he or she was an executive officer at or within two years before the time of
such filing;
|
(2)
|
|
Was
convicted in a criminal proceeding or named subject of pending criminal proceeding (excluding
traffic violations and other minor offenses);
|
(3)
|
|
Was
the subject of any order, judgment, or decree not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily enjoining
him or her from or otherwise limiting his or her involvement in any type of business,
securities, or banking activities;
|
(4)
|
|
Was
found by a court of competent jurisdiction in a civil action by the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated any Federal or
State Securities laws, and the judgment in such civil action of finding by the Securities
and Exchange Commission has not been subsequently reversed, suspended, or vacated.
|
Section
16 (a) Beneficial Ownership Reporting Compliance
In
fiscal 2018, none of the Company’s officers, directors, and beneficial owners of more than ten percent of the company’s
common stock were delinquent in filing one of their Form 3, 4, and 5 reports.
Code
of Ethics
The
Company has adopted a code of business conduct and ethics for directors, officers (including the Company’s principal executive
officer, principal financial officer and controller) and employees, known as the Standards of Business Conduct. The Standards
of Business Conduct are available on the Company’s website at
http://www.intl-baler.com
. The Company intends to disclose
any Amendments to its Code of Ethics and any waiver from a provision of the Code of Ethics granted to the Company’s Chief
Executive Officer, Chief Financial Officer, or other persons performing similar functions, on the Company’s website within
five business days following such amendment or waiver. Stockholders may request a free copy of the Standards of Business Conduct
from:
International
Baler Corporation
Attention:
William E. Nielsen
5400
Rio Grande Avenue
Jacksonville,
Florida 32254
(904)358-3812
Committees
The
Company’s Board of Directors consists of six members, two of whom the Board has determined are independent, Ronald McDaniel
and John Martorana. The Company has sought and continues to seek appropriate individuals to serve on the Board of Directors who
meet the requirements necessary to qualify as independent directors to serve on the Company’s Board of Directors.
Ronald
McDaniel and Lael Boren are members of Board’s Audit Committee. Mr. McDaniel serves as the audit committee’s “financial
expert” as that term is defined by applicable Securities and Exchange Commission (“SEC”) regulations. Mr. McDaniel’s
qualifications for this position are based upon his educational background and work experience as set forth above. The Company’s
Audit Committee Charter is posted on the Company’s website.
The
Company does not have a standing nominating committee or a nominating committee charter. However, the full Board of Directors
performs the functions of a nominating committee. The Board identifies the candidates for Board membership. In identifying candidates,
the Board will seek recommendations from existing Board members, executive officers of the Company and all persons who own more
than five percent (5%) of the Company’s outstanding stock. The Board has no stated specific minimum qualifications that
must be met by a candidate for a position on the Board of Directors. The Board will consider a variety of factors in evaluating
the qualifications of a candidate including the candidate’s professional experience, educational background, knowledge of
the Company’s business and personal qualities. The Board may, when appropriate, retain an executive search firm and other
advisors to assist it in identifying candidates for the Board. In addition, the Board will consider any candidates that may have
been recommended by any of the Company’s stockholders who have made those recommendations in accordance with the procedures
described below under the heading “Stockholders’ Proposals.” In addition, such stockholder recommendations must
be accompanied by (1) such information about each prospective director nominee as would have been required to be included in a
proxy statement filed pursuant to the rules of the Securities and Exchange Commission had the prospective director nominee been
nominated by the Board of Directors and (2) that the prospective director nominee has consented to be named, if nominated, as
a nominee and, if elected, to serve as a director.
ITEM
11. EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
The
objective of the Company’s compensation program is to attract and retain qualified and talented professional individuals
to perform the duties of the Company’s executive offices. The Company’s compensation program is designed to fairly
reward the Company’s executive officers for their overall performance in the management of the affairs of the Company. The
measurement of successful performance has significant elements of subjective judgment in view of the lack of any directly comparable
single element or group of elements to which the Company and its performance may be readily compared from time to time.
The
elements of compensation of the Company’s compensation programs include salary, health insurance, stock options, and in
certain circumstances the award of a cash bonus. As of the present time, the Company compensation plan does not include any defined
benefit retirement plan; any social club memberships or dues or any payments for housing, cars, boats, or other property of any
kind to any person. The Company has not entered into any employment contracts with its executive officers nor any contracts for
compensation to any person in the event of a change in control of the Company. The Company pays no other elements of compensation
to its executive officers. The relatively small size of the Company in comparison to other entities presents the Company with
additional risks in meeting its objectives of attracting and retaining qualified and talented professional individuals.
The
salary component of the compensation is most important and the Company attempts to be competitive with what it believes to be
the compensation of other companies of similar size and scope of operations. To date the Company has not engaged the services
of a compensation review consultant or service in view of the cost of such services compared to the size and revenues of the Company.
The award of a bonus upon review of Company performance provides an additional incentive. The Company determines the amount for
each element to pay by reviewing annually the compensation levels of the Company’s executive officers and determining from
the performance of the Company during that time since the last review what an appropriate compensation level may be during the
upcoming annual period. The Company has no existing formula for determination of the salary, stock options, or bonus elements
of compensation.
Executive
Officer Compensation
The
following table sets forth a summary of all compensation awarded to, earned by or paid to, the Company's Chief Executive Officer,
Chief Financial Officer and each of the Company's executive officers whose compensation exceeded $100,000 per annum for services
rendered in all capacities to the Company and its subsidiaries during fiscal years ended October 31, 2018 and 2017:
SUMMARY
COMPENSATION TABLE
Annual
Compensation Long Term Awards
NAME
AND PRINCIPAL POSITION
|
|
YEAR
|
|
SALARY
($)
|
|
BONUS
($)
|
|
OTHER
ANNUAL COMPENSATION ($)
|
|
NUMBER
OF OPTIONS
|
|
ALL
OTHER COMPENSATION
|
|
TOTAL
COMPENSATION
|
Victor
W. Biazis
President
& CEO
|
|
|
2018
|
|
|
|
8,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,500
|
|
William
E Nielsen
Chief Financial Officer
|
|
|
2018
2017
|
|
|
|
120,000
120,000
|
|
|
|
0
0
|
|
|
|
0
0
|
|
|
|
0
0
|
|
|
|
0
0
|
|
|
|
120,000
120,000
|
|
Outstanding
Equity Awards at Fiscal Year-End
|
Option
Awards
|
Stock
Awards
|
Name
(a)
|
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
(b)
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
(c)
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
(d)
|
|
|
Option
Exercise Price
($)
(e)
|
|
|
Option
Expiration
Date
(f)
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
(g)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
(#)
(h)
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not
Vested
(#)
(i)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
(j)
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
of the Company’s other Executive Officers earned compensation in fiscal 2018 and 2017 in excess of $100,000 for services
rendered to the Company in any capacity.
Option
Grants and Exercises in Last Fiscal Year
No
options were granted during fiscal 2018 to the Company's Chief Executive Officer or any of the Company's most highly compensated
executive officers whose compensation exceeded $100,000 for fiscal 2018.
Compensation
of Directors
The
Board of Directors of the Company compensated non-employee directors $500 per month, together with direct out-of-pocket expenses
incurred to attend meetings.
Members
of the Board of Directors may also be requested to perform consulting or other professional services for the Company from time
to time. The Board of Directors has reserved to itself the right to review all directors' claims for compensation on an ad hoc
basis.
Directors
who are on the Company’s Audit, Compensation, and Nominating Committees do not receive any consulting, advisory or compensatory
fees from the Company. However, such Board members may receive fees from the Company for their services on those committees.
Director
Compensation for Fiscal 2018
|
Name
|
|
Fees
Earned or Paid
in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non
Equity
Incentive Plan
Compensation
($)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
|
All
Other Compensation
($)
|
|
Total
($)
|
Ronald
L. McDaniel
|
|
|
6,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,000
|
|
Lael
E. Boren
|
|
|
6,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,000
|
|
Leland
Boren
|
|
|
6,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,000
|
|
John
J. Martorana
|
|
|
6,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,000
|
|
Martha
R. Songer
|
|
|
6,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,000
|
|
Employment
Contracts
The
Company does not have employment contracts with the Chief Executive Officer or any other member of management.
Compensation
Committee Interlocks and Insider Participation
There
are no interlocking relationships between any member of the Company's Compensation Committee and any member of the compensation
committee of any other company, nor has any such interlocking relationship existed in the past. No member of the Compensation
Committee is or was formerly an officer or an employee of the Company.
Compensation
Committee Report
The
Compensation Committee reviews with management the Compensation Discussion & Analysis section of the Company’s 2018
Form 10-K, Item 11, and Proxy Statement. Based on its review and discussions with management the Compensation Committee recommends
to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for
2018 and in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2018.
The
Compensation Committee
Ronald
L. McDaniel
John
J. Martorana
Lael
E. Boren
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information with respect to the ownership of the Company's Common Stock as of December 31,
2018 by (i) those persons known by the Company to be the beneficial owners of more than 5% of the total number of outstanding
shares of Common Stock, (ii) each director and executive officer, and (iii) all officers and directors as a group as of December
31, 2018 with these computations based on 5,183,895 shares of common stock being outstanding at that time.
NAME
AND ADDRESS OF BENEFICIAL
|
|
TITLE
HELD
|
|
AMOUNT
OF BENEFICIAL OWNERSHIP
1
|
|
APPROXIMATE
PERCENT OF CLASS
|
Victor
W. Biazis
5400
Rio Grande Avenue
Jacksonville,
Florida 32254
|
|
President
and CHief Executive Officer
|
|
|
None
|
|
|
|
0
|
|
Leland
E. Boren Estate
1909
S. Main Street
Upland,
IN 46989
|
|
Director
|
|
|
4,205,158
2
|
|
|
|
81.1
|
%
|
John
Martorana
5148
Hanover Lane
Lakeland,
FL 33817
|
|
Director
|
|
|
20,000
|
|
|
|
0.4
|
%
|
Ronald
L. McDaniel
Western-Cullen-Hayes,
Inc.
2700
W. 36
th
Place
Chicago,
IL 60632
|
|
Director
|
|
|
None
|
|
|
|
0
|
|
William
E. Nielsen
5400
Rio Grande Avenue
Jacksonville,
FL 32254
|
|
Director
Chief Financial Officer
|
|
|
None
|
|
|
|
0
|
|
Lael
E. Boren
1909
S Main Street
Upland,
IN 46989
|
|
Director
|
|
|
2,000
|
|
|
|
0.0
|
%
|
Martha
R. Songer
1909
S. Main Street
Upland,
IN 46989
|
|
Director
|
|
|
2,000
|
|
|
|
0.0
|
%
|
International
Baler Corporation
Profit
Sharing Trust
5400
Rio Grande Avenue
Jacksonville,
FL 32254
|
|
Stockholder
|
|
|
118,362
3
|
|
|
|
2.3
|
%
|
All
Officers and Directors
as
a Group (4 persons)
|
|
|
|
|
4,347,520
4
|
|
|
|
83.9
|
%
|
1
Unless otherwise stated, all shares of common stock are directly held with sole voting power and dispositive power.
2
Consists
of 2,633,896 shares held by the Estate of Leland E. Boren and 1,571,262 shares owned by Avis Industrial Corporation.
3
Employees’ Profit Sharing Trust of which William Nielsen is Trustee.
4
Consists of 4,229,158 shares held directly and 118,362 shares held by International Baler Corporation Employee Profit Sharing
Trust.
Changes
In Control
To
the knowledge of the Company’s management, there are no present arrangements or pledges of the Company’s securities
which may result in a change in control of the Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions
with Management and Others
Leland
E. Boren, shareholder and director of the Company, is the owner of Avis Industrial Corporation (Avis). Mr. Boren controls over
50% 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 fiscal years ended October 31, 2018 and 2017.The
Company had no sales to The American Baler Company in fiscal years ended October 31, 2018 and 2017.The Company sold five closed
door horizontal balers and one conveyor to Harris Waste Management for $295,032 in fiscal 2018 and had no sales to Harris Waste
Management in the fiscal year ended October 31, 2017.
Indebtedness
of Management
No
officer, director or security holder known to the Company to own of record or beneficially more than 5% of the Company's common
stock or any member of the immediate family of any of the foregoing persons is indebted to the Company.
Parent
of the Issuer
The
Company has no parent.
Independence
of Directors
Rule
4350 (c) (1) of The Nasdaq Stock Market rules requires that a majority of the members of the Company’s Board of Directors
be independent in that they are not officers or employees of the Company and are free of any relationship that would interfere
with the exercise of their independent judgment.
The
Board of Directors has determined that three of the Company’s seven Directors, Ronald L. McDaniel, and John Martorana are
independent as defined by the listing standards of the Nasdaq Stock Market Rules, Section 10A(m)(3) of the Securities Exchange
Act of 1934 and the rules and regulations of the Securities and Exchange Commission.
However,
Rule 4350(c) (5) provides an exemption from the requirement that a majority of the Company’s Directors be independent if
the Company is considered a “controlled company”. A controlled company is defined as a company of which more than
50% of the voting power is held by an individual, a group, the Company’s independent registered public accounting firm,
or another company. As Leland E. Boren, director, owns more than 50% of the Company’s common stock, the Company is considered
a “controlled company” under the applicable rules of The Nasdaq Stock Market and as such is exempt from certain of
the corporate governance rules of The Nasdaq Stock Market, such as the requirement that the board of directors consist of a majority
of independent directors.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table presents the fees for professional services rendered by The Griggs Group PA (dba Pivot CPAs) for
the
audit of the Company’s annual financial statements for the years ended October 31, 2018 and 2017:
Fee
Category
|
|
2018
|
|
2017
|
Audit
Fees
|
|
$
|
59,400
|
|
|
$
|
58,750
|
|
Audit-Related
Fees
|
|
|
0
|
|
|
|
0
|
|
Tax
Fees
|
|
|
10,000
|
|
|
|
10,000
|
|
All
Other Fees
|
|
|
0
|
|
|
|
0
|
|
Total
Fees
|
|
$
|
69,400
|
|
|
$
|
68,750
|
|
Audit
fees include fees related to the services rendered in connection with the annual audit of the Company’s financial statements,
the quarterly reviews of the Company’s quarterly reports on Form 10-Q and the reviews of and other services related to registration
statements and other offering memoranda.
Audit-related
fees are for assurance and related services by the independent registered public accounting firm that are reasonably related to
the performance of the audit or review of the Company’s financial statements.
Tax
Fees include (i) tax compliance, (ii) tax advice, (iii) tax planning and (iv) tax reporting.
All
Other Fees includes fees for all other services provided by the principal accountants not covered in the other categories.
All
of the 2018 services described above were approved by the Audit Committee in accordance with the SEC rule that requires audit
committee pre-approval of audit and non-audit services provided by the Company’s independent registered public accounting
firm. The Audit Committee has considered whether the provisions of such services, including non-audit services, by Pivot CPAs
is compatible with maintaining Pivot CPAs’ independence and has concluded that it is.
ITEM
15. EXHIBITS
The
Following Documents are filed as Part of this Report
1.
Financial Statements:
|
Reports
of Independent Registered Public Accounting Firms
|
Balance
Sheets
|
Statements
of Operations
|
Statements
of Stockholders’ Equity
|
Statements
of Cash Flows
|
Notes
to Financial Statements
|
|
2.
Exhibits
|
|
The
following exhibits are filed with, or incorporated by reference into this report.
|
The
following exhibits are filed with, or incorporated by reference into this report.
Exhibit
Number
|
Description
|
2.1
|
Agreement
of Merger between International Baler Corporation and IBC Merger Corporation dated June
24, 1997 (Incorporated by reference to Exhibit 10.39 to Company’s Current Report
on Form 8-K, Date of Report June 27, 1997[“Report on Form 8-K June 27, 1997”]).
|
2.2
|
Certificate
of Merger of International Baler Corporation into IBC Merger Corporation (Incorporated
by reference to Exhibit 10.39.1 to Report on Form 8-K June 27, 1997).
|
2.3
|
Certificate
of Merger merging Consolidated Baling Machine Company, Inc. and Florida Waste Systems,
Inc. Into International Baler Corporation filed July 30, 2004.
|
3.1
|
Articles
of Incorporation and by-laws of Waste Technology Corp. and amendments (Incorporated by
reference to the Company’s Registration Statement on Form S-18 filed in April,
1985, Registration No. 2-97045[the “Statement on Form S-18"])
|
3.2
|
Certificate
of Incorporation of International Baler Corporation f/k/a National Compactor & Technology
Systems, Inc. and all amendments thereto (Incorporated by reference to Exhibit 3.3 to
Form 8 Amendment No.1 to the Company’s Annual Report on Form 10-K for the year
ended October 31, 1989[“Amendment No. 1 to 1989 Form 10-K”]).
|
3.3
|
By-laws
of International Baler Corporation (Incorporated by reference to Exhibit 3.4 to Amendment No. 1 to 1989 Form 10-K).
|
3.4
|
Certificate
of Incorporation of Consolidated Baling Machine Co., Inc. f/k/a Solid Waste Recovery
Test Center, Inc. and all amendments thereto (Incorporated by reference to Exhibit 3.5
to Amendment No. 1 to 1989 Form 10-K).
|
3.5
|
By-laws
of Consolidated Baling Machine Co., Inc. (Incorporated by reference to Exhibit 3.6 to
Amendment No. 1 to 1989 Form 10-K).
|
3.7
|
Certificate
of Amendment to Certificate of Incorporation of Waste Technology Corp. Filed on November
4, 1991(Incorporated by reference to Exhibit 3.1.1 to Company’s Annual Report on
Form 10-K for the year ended October 31, 1991[the “1991 Form 10-K”]
|
3.8
|
Certificate
of Amendment to Certificate of Incorporation of Waste Technology Corp. Filed on November
21 1991(Incorporated by reference to Exhibit 3.1.2 to Company’s 1991 Form 10-K).
|
3.9
|
Revised
and restated by-laws of Waste Technology Corp. (Incorporated by reference to Exhibit
3.2 to Company’s 1991 Form 10-K).
|
3.10
|
Amendment
to revised and restated by-laws of Waste Technology Corp. (Incorporated by reference
to Exhibit 3.2.1 to Company’s 1991 Form 10-K).
|
3.11
|
Certificate
of Incorporation of Waste Tech Real Estate Corp. (Incorporated by reference to Exhibit
3.7 to Company’s Annual Report on Form 10-K for year ended October 31, 1990).
|
4.1
|
1995
Stock Option Plan (Incorporated by reference to Exhibit 4.1 to Annual Report on Form
10-K for the year ended October 31, 1995).
|
10.1
|
Agreement
between the Company and International Baler Corp. dated September 8, 1986, relating to
acquisition of assets and stock (Incorporated by reference to Exhibit 10.1 to Statement
on Form S-18).
|
10.2
|
Agreement
dated February 3, 1987, between the Company and N. J. Cavagnaro & Sons and Machine
Corp., Nicholas J. Cavagnaro Jr., George L. Cavagnaro, and Pauline L. Cavagnaro together
with the exhibits annexed thereto for the acquisition of N. J. Cavagnaro & Sons Machine
Corp. (Incorporated by reference to Exhibit 10.2 to Company’s Annual Report on
Form 10-K for the year ended October 31, 1987 [the “1987 Form 10-K”]).
|
10.3
|
Waste
Technology Corp. Profit Sharing Plan including Agreement of Trust (Incorporated by reference
to Exhibit 10.7 to Report on Form 8-K June 1, 1989).
|
10.4
|
Form
of Deferred Compensation Agreement for Ted C. Flood (Incorporated by reference to Exhibit 10.25 to the Company’s Annual
Report on Form 10K for the year ended October 31, 1991).
|
10.5
|
Agreement
between International Baler Corporation and Ted C. Flood dated as December 29, 1995 (Incorporated
by reference to Exhibit 10.38 to the Company’s Annual report on Form 10-KSB for
the year ended October 31, 1996 [the “1996 Form 10-KSB”]).
|
10.6
|
Promissory
Note made by Ted C. Flood to the order of International Baler Corporation dated December
29, 1995 (Incorporated by reference to Exhibit 10.38.1 to the 1996 Form 10-KSB).
|
10.7
|
Promissory
Note made by Ted C. Flood to the order of Waste Technology Corp. dated April 5, 1996
(Incorporated by reference to Exhibit 10.38.2 to the 1996 Form 10-KSB).
|
10.8
|
Promissory
Note made by Ted C. Flood to the order of Waste Technology Corp. dated October 5, 1996(Incorporated
by reference to Exhibit 10.38.3 to the 1996 Form 10-KSB).
|
14
|
Code
of Ethics (Incorporated by reference to Exhibit 14 to the Company’s Annual Report
on Form 10-KSB for the year ended October 31, 2003).
|
31*
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
|
32*
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
*
Exhibit filed with this Report.
SIGNATURES
In
accordance with Section 13 or 15 (d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
INTERNATIONAL
BALER CORPORATION
|
|
|
(Registrant)
|
|
|
|
|
By:
|
/s/
Victor W. Biazis
|
|
|
Victor
W. Biazis
|
|
|
Chief
Executive Officer
|
|
|
|
|
Dated:
|
January
28, 2019
|
In
accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in
their capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Ronald L. McDaniel
|
|
Director
|
|
January
28, 2019
|
Ronald
L. McDaniel
|
|
Chairman
of the Board
|
|
|
|
|
|
|
|
/s/
Lael Boren
|
|
Director
|
|
January
28, 2019
|
Lael
E. Boren
|
|
|
|
|
|
|
|
|
|
/s/
William E. Nielsen
|
|
Director
|
|
January
28, 2019
|
William
E. Nielsen
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
/s/
John J. Martorana
|
|
Director
|
|
January
28, 2019
|
John
J. Martorana
|
|
|
|
|
|
|
|
|
|
/s/
Martha R. Songer
|
|
Director
|
|
January
28, 2019
|
Martha
R. Songer
|
|
|
|
|
INTERNATIONAL
BALER CORPORATION
FINANCIAL
STATEMENTS
OCTOBER
31, 2018 AND 2017
(With
Report of Independent Registered Public Accounting Firm Thereon)
Report
of Independent Registered Public Accounting Firm
Board
of Directors and Stockholders
International
Baler Corporation
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of International Baler Corporation (the “Company”) as of October 31,
2018 and 2017 and the related statements of income, stockholders’ equity, and cash flows for the years then ended and the
related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of October 31, 2018 and 2017 and the results of its
operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Pivot CPAs
We
have served as the Company's auditor since 2011
Ponte
Vedra Beach, Florida
January
28, 2019
INTERNATIONAL
BALER CORPORATION
|
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
31, 2018
|
|
|
|
October
31, 2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,733,510
|
|
|
$
|
4,541,767
|
|
Accounts
receivable, net of allowance for doubtful accounts of $15,000 at October 31, 2018 and at October 31, 2017
|
|
|
556,666
|
|
|
|
909,784
|
|
Inventories
|
|
|
4,257,085
|
|
|
|
4,429,648
|
|
Prepaid
expense and other current assets
|
|
|
166,604
|
|
|
|
105,935
|
|
Income
taxes receivable
|
|
|
—
|
|
|
|
126,886
|
|
Total
current assets
|
|
|
9,713,865
|
|
|
|
10,114,020
|
|
Property,
plant and equipment, at cost:
|
|
|
4,092,153
|
|
|
|
3,960,510
|
|
Less:
accumulated depreciation
|
|
|
2,821,448
|
|
|
|
2,637,818
|
|
Net
property, plant and equipment
|
|
|
1,270,705
|
|
|
|
1,322,692
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
61,494
|
|
|
|
37,348
|
|
Total
other assets
|
|
|
61,494
|
|
|
|
37,348
|
|
TOTAL
ASSETS
|
|
$
|
11,046,064
|
|
|
$
|
11,474,060
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
581,651
|
|
|
$
|
765,019
|
|
Accrued
liabilities
|
|
|
386,416
|
|
|
|
355,016
|
|
Customer
deposits
|
|
|
894,579
|
|
|
|
1,480,836
|
|
Total
current liabilities
|
|
|
1,862,646
|
|
|
|
2,600,871
|
|
Total
liabilities
|
|
|
1,862,646
|
|
|
|
2,600,871
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
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 at October 31, 2018 and October 31, 2017
|
|
|
64,299
|
|
|
|
64,299
|
|
Additional
paid-in capital
|
|
|
6,419,687
|
|
|
|
6,419,687
|
|
Retained
earnings
|
|
|
3,380,842
|
|
|
|
3,070,613
|
|
|
|
|
9,864,828
|
|
|
|
9,554,599
|
|
Less:Treasury
stock, 1,245,980 shares, at cost
|
|
|
(681,410
|
)
|
|
|
(681,410
|
)
|
Total
stockholders' equity
|
|
|
9,183,418
|
|
|
|
8,873,189
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
11,046,064
|
|
|
$
|
11,474,060
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
INTERNATIONAL
BALER CORPORATION
|
STATEMENTS
OF INCOME
|
YEARS
ENDED OCTOBER 31, 2018 AND 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
Net
sales:
|
|
|
|
|
|
Equipment
|
$
|
8,081,671
|
|
$
|
7,856,922
|
Parts
and service
|
|
3,032,311
|
|
|
2,638,019
|
Total
net sales
|
|
11,113,982
|
|
|
10,494,941
|
|
|
|
|
|
|
Cost
of sales
|
|
9,552,308
|
|
|
9,241,435
|
Gross
profit
|
|
1,561,674
|
|
|
1,253,506
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
Selling
expense
|
|
470,084
|
|
|
448,292
|
Administrative
expense
|
|
683,886
|
|
|
693,510
|
Total
operating expense
|
|
1,153,970
|
|
|
1,141,802
|
Operating
income
|
|
407,704
|
|
|
111,704
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
Interest
income
|
|
6,105
|
|
|
5,198
|
Total
other income
|
|
6,105
|
|
|
5,198
|
|
|
|
|
|
|
Income
before income taxes
|
|
413,809
|
|
|
116,902
|
Income
tax provision
|
|
103,580
|
|
|
43,542
|
Net
income
|
$
|
310,229
|
|
$
|
73,360
|
|
|
|
|
|
|
Income
per share, basic and diluted
|
$
|
0.06
|
|
$
|
0.01
|
Weighted
average number of shares outstanding
|
|
5,183,895
|
|
|
5,183,895
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
INTERNATIONAL
BALER CORPORATION
|
STATEMENTS
OF STOCKHOLDERS’ EQUITY
|
FOR
THE YEARS ENDED OCTOBER 31, 2018 AND 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
NUMBER
OF SHARES ISSUED
|
|
|
|
PAR
VALUE
|
|
|
|
ADDITIONAL
PAID-IN CAPITAL
|
|
|
|
RETAINED
EARNINGS (DEFICIT)
|
|
|
|
NUMBER
OF SHARES
|
|
|
|
COST
|
|
|
|
TOTAL
STOCKHOLDERS’
EQUITY
|
|
Balance
at November 1, 2016
|
|
|
6,429,875
|
|
|
$
|
64,299
|
|
|
$
|
6,419,687
|
|
|
$
|
2,997,253
|
|
|
|
1,245,980
|
|
|
$
|
(681,410
|
)
|
|
$
|
8,799,829
|
|
Net
Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,360
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,360
|
|
Balance
at October 31, 2017
|
|
|
6,429,875
|
|
|
|
64,299
|
|
|
|
6,419,687
|
|
|
|
3,070,613
|
|
|
|
1,245,980
|
|
|
|
(681,410
|
)
|
|
|
8,873,189
|
|
Net
Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
310,229
|
|
|
|
—
|
|
|
|
—
|
|
|
|
310,229
|
|
Balance
at October 31, 2018
|
|
|
6,429,875
|
|
|
$
|
64,299
|
|
|
$
|
6,419,687
|
|
|
$
|
3,380,842
|
|
|
|
1,245,980
|
|
|
$
|
(681,410
|
)
|
|
$
|
9,183,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
|
INTERNATIONAL
BALER CORPORATION
|
STATEMENTS
OF CASH FLOWS
|
YEARS
ENDED OCTOBER 31, 2018 AND 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Cash
flow from operating activities:
|
|
|
|
|
Net
income
|
$
|
310,229
|
$
|
73,360
|
Adjustments
to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
Depreciation
and amortization
|
|
183,630
|
|
188,587
|
Deferred
income tax
|
|
(24,146)
|
|
(1,629)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
|
353,118
|
|
(27,787)
|
Inventories
|
|
172,563
|
|
(590,533)
|
Prepaid
expenses and other assets
|
|
(60,669)
|
|
51,282
|
Income
taxes receivable
|
|
126,886
|
|
64,417
|
Accounts
payable
|
|
(183,368)
|
|
374,911
|
Accrued
liabilities
|
|
31,400
|
|
78,299
|
Customer
deposits
|
|
(586,257)
|
|
1,331,512
|
Net
cash provided by operating activities
|
|
323,386
|
|
1,542,419
|
Cash
flows from investing activities:
|
|
|
|
|
Purchases
of property and equipment
|
|
(131,643)
|
|
(30,452)
|
Redemptions
of certificates of deposit
|
|
-
|
|
310,463
|
Net
cash (used in) provided by investing activities
|
|
(131,643)
|
|
280,011
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
191,743
|
|
1,822,430
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
4,541,767
|
|
2,719,337
|
Cash
and cash equivalents at end of year
|
$
|
4,733,510
|
$
|
4,541,767
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
Cash
paid during year for:
|
|
|
|
|
Interest
|
$
|
-
|
$
|
-
|
Income
taxes
|
|
145,000
|
|
20,000
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
(1)
Nature of Business
International
Baler Corporation (the “Company”) is a manufacturer of baling equipment which utilizes technical, hydraulic and electrical
mechanisms 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 to meet specific customer requirements.
The
Company’s customers include recycling facilities, paper mills, textile mills, and the companies which generate the materials
for baling and recycling.
(2)
Summary of Significant Accounting Policies
(a)
Use
of Estimates
The
preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, valuation of deferred
tax assets, valuation of inventory, and estimates for warranty claims. Actual results could differ from those estimates.
(b)
Cash and Cash Equivalents
The
Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
(c)
Accounts Receivable and 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. In addition, past due balances
are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote.
(d) Inventories
Inventories
are stated at the lower of cost or market. 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.
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
(e) Property,
Plant, and Equipment
Property,
plant and equipment are stated at cost net of accumulated depreciation. The cost of property, plant, and equipment is depreciated
over the estimated useful lives of the related assets. Depreciation is computed primarily using the straight-line method over
the estimated lives of 5-20 years for machinery and equipment and 31-40 years for buildings.
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed of by sale are reported at the lower of the carrying amount or
fair value less costs to sell, and depreciation ceases.
(f) Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
The
Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit. The second step is to estimate and measure the tax benefit as the largest amount that is
more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts,
as the amounts rely upon the determination of the probability of various possible outcomes. The Company reevaluates these uncertain
tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances,
changes in tax law and expiration of statutes of limitations, effectively settled issues under audit, and audit activity. Such
a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
The
Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and administrative
expenses.
(g) Revenue
Recognition
The Company recognizes revenue when
finished products and/or parts are shipped and the customer takes ownership and assumes the risk of loss. Revenue
from installation services is recognized on completion of the service. The Company recognizes revenue from repair services in
the period in which the service is provided. The Company has not sold or leased equipment on any extended contract basis and has
no plans to do so.
Revenues
from product sales are recognized when ownership is transferred to the customer, which includes not only the passage of title,
but also the transfer of the risk of loss related to the product. At this point, the sales price is fixed and determinable, and
we are reasonably assured of the collectibility of the accounts receivable. The majority of our sales are shipped FOB shipping
point and revenue is therefore recognized when the goods are shipped to the customer. For sales that are shipped FOB destination
point, we do not recognize the revenue until the goods are received by the customer. Shipping and handling charges billed to our
customers are included in net revenue and the related costs are included in cost of goods sold. Revenues are reported on a net
sales basis, which is computed by deducting product returns, discounts and estimated returns and allowances. Sales tax collected
from customers and remitted to various government agencies are presented on a net basis (excluded from revenues) in the statements
of income.
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
(h) 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 type of balers
currently under warranty, and known warranty issues.
Following
is a tabular reconciliation of the changes in the warranty accrual:
|
|
2018
|
|
2017
|
Beginning
balance
|
|
$
|
70,000
|
|
|
$
|
65,000
|
|
Warranty
service provided
|
|
|
(102,359
|
)
|
|
|
(236,314
|
)
|
New
product warranties
|
|
|
80,817
|
|
|
|
235,708
|
|
Changes
to pre-existing warranty accruals
|
|
|
31,542
|
|
|
|
5,606
|
|
Ending
balance
|
|
$
|
80,000
|
|
|
$
|
70,000
|
|
(i) Earnings
Per Share
Basic
earnings per share is calculated using the weighted average number of common shares outstanding during each year. Diluted earnings
per share includes the net number of shares that would be issued upon the exercise of stock options using the treasury stock method.
Options are not considered in loss years as they would be anti-dilutive. There were no stock options outstanding for the years
ended October 31, 2018 and 2017, respectively.
(j) Business
Reporting Segments
The
Company operates in one segment based on the information monitored by the Company’s operating decision makers to manage
the business.
(k) 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.
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
(l) Recent
Accounting Pronouncements
Recently
Adopted Accounting Pronouncements
:
In
July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2015-11,
Simplifying the Measurement of Inventory
, ("ASU 2015-11"). This guidance requires an entity
to measure inventory at the lower of cost and net realizable value. Previously, we measured inventory at the lower of cost or
market. ASU 2015-11 replaces market with net realizable value. Net realizable value is the estimated selling price in the ordinary
course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 requires
prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016, and interim periods within
those years. ASU 2015-11 was adopted in our fiscal year beginning November 1, 2017. The adoption of this standard did not have
a material impact on our financial statements.
In
March 2018, the FASB issued ASU 2018-05,
Income Taxes (Topic 740), Amendment to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118 (SEC Update)
, ("ASU-2015-05"). ASU 2018-05 amends certain Securities and Exchange Commission (“SEC”)
guidance under Topic 740 related to the Tax Cuts and Jobs Act of 2017. It also adds guidance to the FASB Accounting Standards
Codification that answers questions regarding how certain income tax effects from the Tax Cuts and Jobs Act of 2017 should be
applied to companies’ financial statements. The guidance lists which financial statement disclosures are required under
a measurement period approach. ASU 2018-05 was effective immediately and we have made the disclosures required by ASU 2018-05
in Note 8 —Income Taxes.
Recently
Issued Accounting Pronouncements Not Yet Adopted:
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, ("ASU 2014-09"). This
new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised
goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes
effective. ASU 2014-09 is effective for annual periods beginning after December 15, 2017, for public business entities and permits
the use of either the retrospective or cumulative effect transition method. Early application is permitted only for annual reporting
periods beginning after December 15, 2016. ASU 2014-09 will therefore be effective in our fiscal year beginning November 1, 2018.
We have evaluated the new standard against our existing accounting policies and practices, including reviewing standard purchase
orders, invoices, shipping terms, and reviewing contracts with customers. We expect that revenue for our primary revenue streams
will be recognized at the point in time which is similar to how it is currently. We have not identified any information that would
indicate that the new guidance will have a material impact on our financial statements. While we are substantially complete with
the process of evaluating the impacts that will result from the new guidance, our assessment will be finalized during our first
quarter of fiscal year 2019. We expect to have enhanced disclosures related to disaggregation of revenue sources and accounting
policies beginning fiscal year 2019. Additionally, we will have changes to our balance sheets that may include presentation of
allowances for sales incentive programs, discounts, markdowns, chargebacks, and returns as accrued liabilities rather than as
a reduction to accounts receivable, and the presentation of estimated cost of inventory associated with the allowance for sales
returns within other current assets rather than as a component of inventory. We will adopt the new standard in the first quarter
of 2019 using the modified retrospective transition method.
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 will therefore be effective in our fiscal year beginning November 1, 2019. We are evaluating the effect
that ASU 2016-02 will have on our financial statements and related disclosures, however, we do not expect it to be material as
we are not party to a significant number of leases. The Company has not yet selected a transition method.
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
(3) Related
Party Transactions
Leland
E. Boren, a shareholder and director of the Company, is the owner of Avis Industrial Corporation (Avis). Mr. Boren controls over
50% 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., 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 independent
of each other. The Company had no purchases from these companies in the fiscal years ended October 31,2018 and 2017. The Company
had no sales to The American Baler Company in the fiscal years ended October 31, 2018 and 2017. The Company sold five closed door
horizontal balers and one conveyor to Harris Waste Management for $295,032 in fiscal 2018 and had no sales to Harris Waste Management
in the fiscal year ended October 31, 2017.
(4) Inventories
Inventories
consisted of the following:
|
|
2018
|
|
2017
|
Raw
materials
|
|
$
|
1,901,707
|
|
|
$
|
2,287,901
|
|
Work
in process
|
|
|
2,166,663
|
|
|
|
1,966,519
|
|
Finished
goods
|
|
|
188,715
|
|
|
|
175,228
|
|
|
|
$
|
4,257,085
|
|
|
$
|
4,429,648
|
|
(5) Property,
Plant, and Equipment
The
following is a summary of property, plant, and equipment, at cost, less accumulated depreciation and amortization:
|
|
2018
|
|
2017
|
Land
|
|
$
|
82,304
|
|
|
$
|
82,304
|
|
Building
and improvements
|
|
|
1,300,282
|
|
|
|
1,225,189
|
|
Machinery
and equipment
|
|
|
2,528,540
|
|
|
|
2,456,564
|
|
Vehicles
|
|
|
174,764
|
|
|
|
150,975
|
|
Construction
In progress
|
|
|
6,263
|
|
|
|
45,478
|
|
|
|
|
4,092,153
|
|
|
|
3,930,058
|
|
Less
accumulated depreciation
|
|
|
2,821,448
|
|
|
|
2,637,818
|
|
|
|
$
|
1,270,705
|
|
|
$
|
1,322,692
|
|
Depreciation
expense was $183,630 and $188,587 during the years ended October 31, 2018 and 2017, respectively.
(6)
Debt
The
Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2018.
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, 2019. The line of credit had no outstanding
balance at October 31, 2018 and at October 31, 2017.
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
(7) Commitments
and Contingencies
The
Company in the ordinary course of business, is subject to claims and from time to time is named as a defendant in legal proceedings
relating to the operations of its business, including the sale 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 has retained an attorney and has begun
the discovery process. The Company believes its exposure is $25,000, the amount of the Company’s deductible on its insurance
policy. Accordingly, the Company accrued $25,000 during the six months ended April 30, 2018.
In
December 2018 the Company discovered an employee theft of Company property. At the date of this report the Company has not fully
determined the extent of the theft. Our estimate is that the value of the stolen items was between $100,000 and $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.
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
(8) Income
Taxes
Income
tax provision attributable to income from continuing operations consists of:
|
|
2018
|
|
2017
|
Current
income tax (benefit) provision:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
112,510
|
|
|
$
|
41,245
|
|
State
|
|
|
15,217
|
|
|
|
3,926
|
|
|
|
|
127,727
|
|
|
|
45,171
|
|
Deferred
income tax (benefit) provision:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(21,270
|
)
|
|
|
(1,491
|
)
|
State
|
|
|
(2,877
|
)
|
|
|
(138
|
)
|
|
|
|
(24,147
|
)
|
|
|
(1,629
|
)
|
Income
tax (benefit) provision
|
|
$
|
103,580
|
|
|
$
|
43,542
|
|
The
differences between income taxes as provided at the federal statutory tax rate of 34% and 21% and the Company’s actual income
taxes are as follows:
|
|
2018
|
|
2017
|
Expected
federal income tax expense at Statutory rate
|
|
$
|
96,582
|
|
|
$
|
39,747
|
|
State
income tax expense, net of federa income tax effect
|
|
|
9,981
|
|
|
|
2,441
|
|
Non-deductible
items and perm. differences
|
|
|
9,511
|
|
|
|
1,354
|
|
DPAD
adjustments/R&D credit
|
|
|
(12,494
|
)
|
|
|
—
|
|
Income
tax provision
|
|
$
|
103,580
|
|
|
$
|
43,542
|
|
Tax
assets are recognized in the balance sheet if it is more likely than not that they will be realized on future tax returns. As
of October 31, 2018 and 2017, the net deferred tax assets were $61,494 and $37,348 respectively. The Company determined it is
more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax
assets of October 31, 2018 and 2017 and no valuation allowance is deemed necessary. The realization of deferred tax assets will
depend on the Company’s ability to continue to generate taxable income in the future.
INTERNATIONAL
BALER CORPORATION
|
Notes
to Financial Statements
|
October
31, 2018 and 2017
|
The
significant components of the net deferred income taxes at October 31, 2018 and 2017 are as follows:
|
|
2018
|
|
2017
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
Inventory
reserve
|
|
$
|
69,081
|
|
|
$
|
84,646
|
|
Other
reserves and allowances
|
|
|
65,538
|
|
|
|
54,516
|
|
Capitalized
inventory costs
|
|
|
49,777
|
|
|
|
76,988
|
|
Total
deferred tax assets
|
|
|
184,396
|
|
|
|
216,150
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
122,898
|
|
|
|
178,802
|
|
Net
deferred income taxes
|
|
$
|
61,494
|
|
|
$
|
37,348
|
|
For
the years ended October 31, 2018 and 2017, the Company did not have any unrecognized tax benefits or obligations as a result of
tax positions taken during a prior period or during the current period. No interest or penalties have been recorded as a result
of tax uncertainties. Our evaluation was performed for the tax years ended October 31, 2014 through October 31, 2018, the tax
years which remain subject to examination by tax jurisdictions as of October 31, 2018.
The
Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into United States tax law on December 22, 2017. The Act makes
significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, and
changes in business-related exclusions, and deductions and credits. As a result, the Company recorded a reduction of net deferred
income tax assets of approximately $10,000 during the first quarter of our fiscal year ending October 31, 2018.
(9) Employee
Benefit Plan
The
Company has a defined contribution plan and profit sharing program for its employees. The Company made no contributions to the
plan during the years ended October 31, 2018 and 2017.
(10) Business
and Credit Concentrations
Export
sales were approximately 6% and 19% of net sales for the years ended October 31, 2018 and 2017, respectively. The principal international
markets served by the Company, include Canada, China, Mexico, United Kingdom, India, Korea, Japan, Russia, Saudi Arabia, Singapore,
and Brazil. In fiscal 2018, three customers accounted for 11.8%, 11.2% and 9.0% of net sales, respectively, while in fiscal 2017,
three customers accounted for 17.9%, 11.4% and 8.0% of net sales, respectively. Three customers accounted for 30.0%, 15.6%, and
7.5% respectively, of the Company’s accounts receivable at October 31, 2018 and three customers accounted for 57.8%, 14.3%,
and 6.6%, respectively, of the Company accounts receivable at October 31, 2017.
The
Company had cash deposits in banks of $4,239,625 above the FDIC insured limit of $250,000 per bank at October 31, 2018.