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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-K
(Mark one)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended OCTOBER 31, 2009 or
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.
Commission File No. 0-14443
INTERNATIONAL BALER CORPORATION
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(Name of registrant as specified in its charter)
DELAWARE 13-2842053
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 RIO GRANDE AVENUE, JACKSONVILLE, FLORIDA 32254
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(904) 358-3812
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE PER SHARE.
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined by Rule 405 of the Securities Act. Yes [_] No [X]
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 [X]
Indicate by check mark whether the registrant (1) 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 [X] 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 Regulations S-T
(ss.232.405 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 [_]
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Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation SK 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. [_]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [_] Accelerated Filer [_]
Non-accelerated Filer [_] Smaller Reporting Company [X]
(Do not check if a Smaller Reporting Company)
Indicate by checkmark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
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, 2009 closing price $0.40): $855,541
State the number of shares outstanding of the registrant's $.001 par value
common stock as of the close of business on the latest practicable date (January
15, 2010): 4,933,895
Documents incorporated by reference: None.
TABLE OF CONTENTS
Page
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PART I
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Item 1. Business.................................................... 2
Item 2 Properties ................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II
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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................. 12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................. 12
Item 9A(T) Controls and Procedures..................................... 13
Item 9B. Other Information........................................... 14
PART III
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Item 10. Directors and Executive Officers and Corporate Governance... 15
Item 11. Executive Compensation...................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 22
Item 13. Certain Relationships and Related Transactions, and
Director Independence....................................... 24
Item 14. Principal Accountant Fees and Services...................... 25
PART IV
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Item 15. Exhibits, Financial Statement and Schedules................. 26
SIGNATURES.................................................................. 29
PART I
ITEM 1. BUSINESS
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.
Waste Technology 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. 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 low cost handling, shipping,
disposal, storage, and/or bulk sales for recycling. Materials commonly baled
include scrap metal, corrugated boxes, newsprint, cans, plastic bottles, and
other solid waste. More sophisticated applications include baling of textile
waste and rubber.
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).
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 2,000 pounds and range in price
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from approximately $5,000 to $400,000. General purpose baler sales constituted
approximately 70% and 66% of net sales for the fiscal years ended October 31,
2009 and 2008, respectively.
Specialty Balers
Specialty balers are designed for specific applications which require
modifications of the general baler configuration.
The scrap metal baler is designed to form a bale, referred to as a scrap metal
"briquette" of specified size and weight. 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 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 $4,000 to $300,000, and are
less exposed to competitive pressures than are general purpose balers. Specialty
baler sales constituted approximately 11% and 21% of net sales for the fiscal
years ended October 31, 2009 and 2008, 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. At the present time, accessory equipment does not
represent a significant percentage of net sales.
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 delay 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 balance, consisting of
customized equipment, turns over in 3 to 6 months. IBC's business is not
seasonal.
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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.
Most of the sales of IBC are made by its sales force of four (4) 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 30% of net 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 2009, foreign sales amounted to $1,388,000 or approximately 21% of
consolidated sales. In fiscal 2008, foreign sales amounted to $3,114,000,
approximately 24% of the Company's net sales.
During fiscal 2009 and fiscal 2008, IBC had sales to more than 600 customers. In
fiscal 2009, two customers accounted for 14.5% and 10.2% of total 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, 2009 were $1,685,000 and at October 31, 2008 were $2,414,000. The
Company generally delivers its orders within four (4) months of the date booked.
Warranties and Service
IBC typically warranties its products for one year from the date of sale as to
materials 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 16% and 11% of the Company's consolidated net sales
for fiscal 2009 and 2008, respectively.
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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 include 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 believes that it has complied with and is in compliance, with all
Federal, State, and Local environmental laws. The Company's expenditures to
remain in compliance are considered to be minimal.
Employees
As of October 31, 2009, the Company employed 35 persons as follows: 4 in
management and supervision; 7 in sales and service; 19 in manufacturing; and, 5
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
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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 Guaranty Bank & Trust Company, has a security interest in
the property as part of the collateral for the line of credit and promissory
note which it provides to the Company. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The Company has completed the preliminary planning for a potential plant
expansion of approximately 30,000 square feet of manufacturing space. Initial
estimates indicate that this project would require an investment of
approximately $2,000,000. The Company has not contracted to go forward with this
plant expansion and at the current time has abandoned its plan to proceed with
this project. The Company's buildings and property are well maintained and are
adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceeding. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter ending October 31, 2009.
6
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.OB. As of October 31, 2009, the number of
shareholders of record of the Company's Common Stock was approximately 500, and
management believes that there are approximately 1,000 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, 2009 and 2008, are set forth below.
Fiscal Year Ended
October 31, 2009 High Low
First Quarter $ 1.80 $ 0.25
Second Quarter 0.81 0.35
Third Quarter 0.80 0.20
Fourth Quarter 1.01 0.30
Fiscal Year Ended
October 31, 2008 High Low
First Quarter $ 1.35 $ 0.95
Second Quarter 2.05 1.17
Third Quarter 2.20 1.44
Fourth Quarter 2.01 1.05
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. By reason of the Company's present financial status and
its contemplated financial requirements, the Company does not anticipate paying
any dividends on its common stock during the foreseeable future, but intends to
retain any earnings for future expansion of its business.
Recent Sales of Unregistered Securities
During the past two years ended October 31, 2009, the Company has not sold any
unregistered securities.
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Purchases of Equity Securities
During the fiscal year ended October 31, 2009, 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
Results of Operations
For the fiscal year ending October 31, 2009, net sales were $6,594,210 compared
to $12,768,868 in fiscal 2008, a decrease of 48.4%. The decrease in net sales
was the result of lower shipments in fiscal 2009 reflecting the deteriorated
market conditions and lower commodity prices for recycled materials compared to
the prior year. In fiscal 2009 unit sales of every type of baler and sales in
ever market area of the company's business was lower than the prior fiscal year.
The Company had a pre-tax loss of $298,492 in fiscal 2009, compared to pre-tax
income of $1,399,722 in fiscal 2008. The net loss in fiscal 2009 was $183,206
versus net income of $2,055,282 in fiscal 2008. In fiscal 2008 net income
included the release of $1,190,283 of the valuation allowance against
accumulated deferred tax assets. The lower income was the result of the lower
shipments in the current fiscal year. Gross profit margins declined from 22.6%
in fiscal 2008 to 15.2% in 2009. Gross profit margins were negatively impacted
by the lower sales resulting in lower absorption of fixed manufacturing costs.
Warranty expense decreased from $231,875 in fiscal 2008 to $132,128 in 2009. The
Company made significant reductions in manufacturing personnel during fiscal
2009.
Selling and administrative expenses decreased by $240,725, a decrease of 15.5%.
This decrease was the result of lower salary costs and reductions in various
other expenditures due to the economic conditions in 2009.
Liquidity and Capital Resources
The Company's working capital at October 31, 2009 was $3,083,889 as compared to
$3,449,519 at October 31, 2008. The decrease in net working capital was
primarily due to the operating results in 2009, the economic slowdown, and the
reclassification of a portion of our deferred income tax asset to non-current
assets. The deferred income tax reclassification was made due to the current
economic conditions and our expectation of when we would generate taxable income
to utilize the NOL carryforward. The decrease in cash was primarily the result
of decreases in customer deposits, accrued liabilities, and accounts payable
partially offset by a decrease in accounts receivable and inventory. These
reductions in account balances are directly related to the downturn in economic
conditions and lower sales order backlog. The Company currently believes that it
will have sufficient cash flow to be able to make the balance of all installment
payments and fund other operating activities for the next twelve months.
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Average days sales outstanding (DSO) in fiscal 2009 were 37.8 days as compared
to 29.8 days in fiscal 2008. 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 days sales for the period (period sales /
365).
In February 2007, the Company entered in to a $202,722 term loan agreement with
First Guaranty Bank. The balance of this loan was $134,969 at January 31, 2009.
In March 2009, the Company paid off the remaining balance of $131,769.
In March 2007, the Company had its $500,000 line of credit agreement with First
Guaranty Bank and Trust of Jacksonville increased to $1,000,000. The line of
credit allows the Company to borrow against the Company's assets. The line of
credit bears interest at the prime rate plus one-half percent and has a
remaining term of three months to March 2010. The Company is in the process of
renewing its line of credit, however, a positive outcome cannot be assured. The
line of credit had an outstanding balance of $2,654 and $5,694 at October 31,
2009 and 2008, respectively. The unused line of credit was $997,346 at October
31, 2009.
At the current time, our line of credit continues to be available and we have
not had any issues obtaining additional funds from the lender. In the event that
the Company's line of credit would not be available, we would pursue a line of
credit from other sources, and take steps to minimize expenditures, such as
delaying capital expenditures and reducing overhead costs.
The Company has a certificate of deposit which is security for a letter of
credit with Wachovia Bank of $224,100 which expires on July 31, 2010.
The Company made additions to its manufacturing equipment of $56,316 and
improvements to its buildings of $69,275 in fiscal 2009. As stated previously,
(see Item 2) the Company has abandoned a potential plant expansion of
approximately 30,000 square feet of manufacturing space. The value of the plans
and architectural drawings for the plant expansion, $63,750, was written-off in
the fourth quarter of fiscal 2009. Other than as set forth above, 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.
9
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. During fiscal 2008, the Company experienced substantial
increases in steel prices, a major component of its products, and the Company
was able to increase prices to cover the additional cost.
Critical Accounting Policies and Estimates
This discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. 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:
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 estimates of specific amounts for
those accounts that are likely to be uncollectible, such as bankruptcies, and
general allowances for those accounts that management currently believes to be
collectible but may later become uncollectible. 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 estimates used to determine the allowances for doubtful accounts are based
on historical collection experience, current economic trends, credit-worthiness
of customers, and changes in customer payment terms. The Company reviews its
allowance for doubtful accounts monthly. 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.
Inventory Allowance
The Company maintains an allowance for excess or slow moving inventory based on
the expectation that this inventory will become obsolete or unusable within a
reasonable time period. Company personnel review the
10
potential usage of inventory components on a regular basis and all inventory is
reviewed annually. 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 for both segments
could have a material impact on net income and the estimates involve a high
degree of judgment.
Warranty Allowance
The Company warrants its products for one (1) year from the date of sale as to
materials and six (6) months as to labor, and offers a service plan for other
required repairs and maintenance. Warranty parts shipments and warranty service
repairs are expensed as they occur and the Company maintains an accrued
liability for expected warranty claims. The warranty allowance is based on
historical warranty costs, the amount of prior year shipments, and known
potential warranty issues.
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 $759,246 of deferred tax assets at
October 31, 2009 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, 2009 or 2008.
Recently Issued Accounting Pronouncements
In May 2009, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Codification No. 855, Subsequent Events. This guidance establishes
general standards of accounting for and, disclosure of, events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. It sets forth (i) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, (ii)
11
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (iii) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The guidance is effective for interim or
annual financial periods ending after June 15, 2009 and was adopted with no
material effect on the Company's statement of financial condition or results of
operations. Applicable disclosures have been provided in note 2 to our financial
statements.
In June 2009, the FASB issued Accounting Standards Codification No. 105-10, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles ("ASC 105-10"). This guidance establishes the FASB
Accounting Standards Codification (the "Codification") as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates ("ASUs"). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide
background information about the guidance and provide the basis for conclusions
on the change(s) in the Codification. References made to FASB guidance
throughout this document have been updated for the Codification.
In October 2009, the FASB issued Accounting Standards Codification Topic No.
605, Multiple-Deliverable Revenue Arrangements. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable and
expands the disclosures required for multiple-deliverable revenue arrangements.
This guidance is effective for revenue arrangements that are entered into or are
materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The Company is currently evaluating the impact of
adopting this guidance on its results of operations and financial position.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data commence on page F-1.
12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A(T). 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 and Chief Financial
Officer, 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 Chief
Executive Officer and Chief Financial Officer, management evaluated the
effectiveness of the design and operation of these disclosure controls and
procedures. Based on this evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective.
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
13
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 officers, assessed the effectiveness of the Company's
internal control over financial reporting as of October 31, 2009. 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 the Company maintained effective internal control
over financial reporting as of October 31, 2009.
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, 2009, 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
At a Board of Directors meeting held on January 5, 2009 the Board of Directors
named Mr. John J. Martorana to the Board of Directors of the Company. Most
recently Mr. 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 the 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
graduated from Butler University, Indianapolis, Indiana in 1972.
14
On March 16, 2009, the Company announced that the Company's subsidiary,
International Baler Corporation, was merged into Waste Technology Corporation,
and that the name of the Company was changed from Waste Technology Corporation
to International Baler Corporation. The stock trading symbol changed from
WTEK.OB to IBAL.OB. No vote of the Company's stockholders is necessary in
connection with these changes as they were effectuated pursuant to a merger of
the Company's 100% wholly-owned subsidiary, International Baler Corporation with
and into the Company pursuant to Section 253 of the General Corporation Law of
the State of Delaware.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Officers
The current executive officers and directors of the Company are as follows:
DATE OF INITIAL
NAME AGE POSITIONS HELD ELECTION OR DESIGNATION
- ---- --- -------------- -----------------------
Roger Griffin 48 Director 4/21/08
5400 Rio Grande Ave. President &
Jacksonville, FL 32254 Chief Executive Officer
LaRita R. Boren 73 Director 3/09/05
9628 E. 900 S.
Upland, IN 46989
Leland E. Boren 86 Director 3/09/05
9628 E. 900 S.
Upland, IN 46989
Ronald L. McDaniel 70 Director 5/16/06
2700 West 36th Place Chairman of the Board
Chicago, IL 60632
William E. Nielsen 62 Director 11/20/97
5400 Rio Grande Ave. Chief Financial Officer 6/14/94
Jacksonville, FL 32254
Matthew M. Price 42 Director 5/11/07
2700 Market Tower
10 West Market Street
Indianapolis, IN 46204
David B. Wilhelmy 55 Vice President Sales 9/01/02
5400 Rio Grande Ave. and Marketing
Jacksonville, FL 32254
John J. Martorana 59 Director 1/5/09
5148 Hanover Lane
Lakeland, FL 33817
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
15
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 2009 the Board of Directors met three times.
There are no family relationships between executive officers or directors of the
Company except that LaRita Boren and Leland E. Boren are husband and wife.
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:
Roger Griffin joined the Company in February 2008 as President and Chief
Executive Officer. Previously, Mr. Griffin was Vice President of Operations at
Schaefer Interstate Railing in Salisbury, NC. Prior to that Mr. Griffin spent
several years with Metaldyne which acquired the Whitsett, NC plant of Dana
Corporation and before that he spent eleven years in management with Dana
Corporation at their Whitsett, NC and Jonesboro, AR facilities.
LaRita R. Boren is the Executive Director of Avis Industrial Corporation. She
has served as a member of the Board of Directors of Avis since 1979 and as
Vice-President from 1986 until April, 2006, when she was elected Executive
Director. She is also on the Board of Directors of The Boren Foundation, Inc.,
Citizens Plaza Building, LLC, Citizens Travel Agency, The Heartland Film
Festival, Lyford Cay Foundation Inc., J.M. Music, Inc., Taylor University,
LeLaLo Foundation, Inc., and Spring Hill Music Group, Inc. Mrs. Boren received a
Bachelors of Science degree from Oklahoma State University in 1957. She has an
honorary Doctor of Business Management degree from Indiana Wesleyan University
and a Doctor of Humane Letters degree from Taylor University. Mrs. Boren has
been married to Leland E. Boren, also a Director of Avis Industrial Corporation
since 1958.
Leland E. Boren is the Chairman, Chief Executive Officer and President of Avis
Industrial Corporation located in Upland, Indiana. 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. Mr. Boren has been married to
LaRita R. Boren, who is also a Director of Avis Industrial Corporation since
1958.
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
16
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 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.
David B. Wilhelmy prior to joining the Company, Mr. Wilhelmy was Vice
President/Sales and Acquisitions for Consolidated Packaging Systems, a joint
venture with Gryphon Investors to consolidate the packaging systems distribution
industry, from January 2000 through August 2002. Mr. Wilhelmy was the Southeast
Regional Vice President of Sales and Marketing for Packaging for Unisource
Distribution Company from 1993 to 2000. Mr. Wilhelmy received a Bachelor Degree
in Business Administration from Madison University.
Matthew M. Price is an attorney with the law firm of Bingham McHale LLP since
1993. Mr. Price received a BA degree from Wabash Collage in 1990 and a J.D. from
Indiana University School of Law in 1993. Mr. Price is a member of the American
Bar Association, Indiana State Bar Association and the Indianapolis Bar
Association. Mr. Price is a member of his law firm's manufacturing industry
team, and his practice focus is on issues relating primarily to manufacturers.
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 graduated
from Butler University in 1972.
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;
17
(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 2008, 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
of any 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 seven members, three of whom the
Board has determined are independent, Ronald McDaniel, Matthew Price 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, Matthew Price and LaRita Boren are members of Board's Audit
18
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.
LaRita Boren and Matthew Price are members of the nominating committee. In
identifying Board candidates, the committee 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 Company's procedures described
in the Company's last notice of annual meeting and proxy statement (the
"Notice"). There have been no changes to those procedures since the mailing of
the Notice. In addition, such stockholder recommendation 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
SEC 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.
19
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
$100,000 per annum for services rendered in all capacities to the Company and
its subsidiaries during fiscal years ended October 31, 2009 and 2008:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM AWARDS
- -------------------- ---- ------- ------- ------------ --------- ------------ ------------
OTHER ANNUAL
NAME AND YEAR SALARY BONUS COMPENSATION NUMBER OF ALL OTHER TOTAL
PRINCIPAL POSITION ($) ($) ($) OPTIONS COMPENSATION COMPENSATION
- -------------------- ---- ------- ------- ------------ --------- ------------ ------------
Roger Griffin 2009 126,128 -0- -0- -0- -0- 126,500
President & CEO 2008 91,500 50,000 -0- -0- -0- 141,500
William E. Nielsen 2009 127,424 -0- -0- -0- -0- 127,424
Chief Financial 2008 133,302 22,000 -0- -0- -0- 155,302
Officer
David B. Wilhelmy 2009 125,524 -0- -0- -0- -0- 125,524
Vice President Sales 2008 132,305 22,000 -0- -0- -0- 154,305
and Marketing
Greg Kirkpatrick
Acting President(1) 2008 29,475 -0- -0- -0- -0- 29,475
- -------------------- ---- ------- ------- ------------ --------- ------------ ------------
__________________________
1. Greg Kirkpatrick was acting President from September 18, 2007
to December 19, 2007.
20
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
- ------------------------------------------------------------------------------------------------------------------------------------
Option Awards Stock Awards
- ------------------------------------------------------------------------------------------------------------------------------------
Name Number of Number of Equity Option Option Number of Market Value Equity Equity
Securities Securities Incentive Exercise Expiration Shares or of Shares or Incentive Incentive
Underlying Underlying Plan Price Date Units of Units of Plan Awards: Plan Awards:
Unexercised Unexercised Awards: ($) Stock That Stock That Number of Market or
Options Options Number of Have Not Have Not Unearned Payout
(#) (#) Securities Vested Vested Shares, Units Value of
Exercisable Unexercisable Underlying (#) (#) or Other Unearned
Unexercised Rights That Shares, Units
Unearned Have or Other
Options Not Vested Rights That
(#) Have Not
(#) Vested
(#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
- ------------------------------------------------------------------------------------------------------------------------------------
William E. 250,000 -0- -0- $0.30 2/7/2012 -0- -0- -0- -0-
Nielsen
Chief
Financial
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
None of the Company's other Executive Officers earned compensation in fiscal
2009 and 2008 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 or exercised during fiscal 2009 by the Company's Chief
Executive Officer or any of the Company's most highly compensated executive
officers whose compensation exceeded $100,000 for Fiscal 2009.
Compensation of Directors
The Board of Directors of the Company has resolved to compensate non-employee
directors $1,000 per month, together with direct out-of-pocket expenses incurred
to attend meetings. In April 2009, the Board of Directors voted to suspend these
director payments until economic conditions improve.
Members of the Board of Directors may also be requested to perform consulting or
other professional services for the Company from time to time. The Board of
Directors has reserved to itself the right to review all directors' claims for
compensation on an ad hoc basis.
Directors who are on the Company's Audit, Compensation, and Nominating
Committees do not receive any consulting, advisory or compensatory fees from the
Company. However, such Board members may receive fees from the Company for their
services on those committees.
21
- -------------------------------------------------------------------------------------------------------------------
DIRECTOR COMPENSATION FOR FISCAL 2009
- -------------------------------------------------------------------------------------------------------------------
Name Fees Earned Stock Option Non Change in All Other Total
or Paid Awards Awards Equity Pension Value Compensation
in Cash Incentive and Nonqualified
Plan Deferred
Compensation Compensation
Earnings
($) ($) ($) ($) ($) ($) ($)
- ------------------ ----------- ----------- ----------- ------------ ---------------- ------------ ----------
Ronald L. McDaniel 4,000 -0- -0- -0- -0- -0- 4,000
- ------------------ ----------- ----------- ----------- ------------ ---------------- ------------ ----------
Matthew M. Price 4,000 -0- -0- -0- -0- -0- 4,000
- ------------------ ----------- ----------- ----------- ------------ ---------------- ------------ ----------
LaRits Boren 4,000 -0- -0- -0- -0- -0- 4,000
- ------------------ ----------- ----------- ----------- ------------ ---------------- ------------ ----------
Leland Boren 4,000 -0- -0- -0- -0- -0- 4,000
- ------------------ ----------- ----------- ----------- ------------ ---------------- ------------ ----------
John Martorana 3,000 -0- -0- -0- -0- -0- 3,000
- ------------------ ----------- ----------- ----------- ------------ ---------------- ------------ ----------
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 2009 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 2009 and in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2009.
The Compensation Committee
LaRita Boren
Ronald L. McDaniel
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, 2009 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, 2009 with
these computations based on 4,933,895 shares of common stock being outstanding
at that time.
22
AMOUNT OF APPROXIMATE
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER TITLE HELD OWNERSHIP(1) OF CLASS
Roger Griffin President None -0-
5400 Rio Grande Ave. & CEO
Jacksonville, FL 32254
LaRita R. Boren Director 2,423,853 46.8%
9628 E. 900 S.
Upland, IN 46989
Leland E. Boren Director 220,768 4.3%
9628 E. 900 S.
Upland, IN 46989
John Martorana Director None -0-
5148 Hanover Lane
Lakeland, FL 33817
Ronald L. McDaniel Director None -0-
Western-Cullen-Hayes, Inc.
2700 W. 36th Place
Chicago, IL 60632
William E. Nielsen Director 250,000(2) 4.8%
5400 Rio Grande Avenue Chief Financial
Jacksonville, FL 32254 Officer
Matthew M. Price Director None -0-
Bingham McHale LLP
10 West Market Street
Indianapolis, IN 46204
Alexander C. Toppan Stockholder 569,731(3) 11.5%
40 Spectacle Ridge Road
South Kent, CT 06785
David B. Wilhelmy Director None -0-
5400 Rio Grande Avenue Vice President Sales
Jacksonville, FL 32254 and Marketing
International Baler Corporation Stockholder 150,421(4) 2.9%
Profit Sharing Trust
5400 Rio Grande Avenue
Jacksonville, FL 32254
All Officers and Directors 3,045,042(5) 58.7%
as a Group (4 persons)
________________
(1) Unless otherwise stated, all shares of common stock are directly held with
sole voting power and dispositive power.
(2) Consists of fully exercisable options to purchase 250,000 shares.
(3) Shares are held in joint tenancy with his wife, Mary Anne T. Toppan.
(4) Employees' Profit Sharing Trust of which William Nielsen is Trustee.
(5) Consists of 2,644,621 shares held directly; fully exercisable options to
purchase 250,000 shares; and 150,421 shares held by International Baler
Corporation Employee Profit Sharing Trust.
23
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
LaRita R.Boren and Leland E. Boren, both, shareholders and directors of the
Company, are the owners of Avis Industrial Corporation (Avis). Together the
Borens own 53.6% of the outstanding shares of the Company. Avis owns 100% of The
American Baler Company, a competitor of the Company's wholly-owned subsidiary,
IBC. These baler companies operate completely independent of each other.
The Company had no equipment sales to American Baler Company the fiscal year
ending October 31, 2009 and $224,440 in fiscal 2008. These sales included types
of products American Baler does not manufacture. These sales were made under the
Company's normal dealer discount schedule. IBC purchased no equipment from
American Baler.
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 and three of the Company's eight
Directors, Ronald L. McDaniel, Matthew M. Price 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.
LaRita Boren and Leland E. Boren, who are husband and wife and members of the
Company's Board of Directors, have a verbal agreement or
24
understanding to vote their shares in a like manner. As Mr. and Mrs. Boren
together beneficially own more than 50% of the outstanding shares 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 audit services rendered
by KPMG LLP for the audit of the Company's annual consolidated financial
statements for the fiscal years ended October 31, 2009 and 2008, and fees for
other services rendered by KPMG LLP during those periods:
Fee Category Fiscal 2009 Fiscal 2008
Audit Fees $ 70,000 $ 70,000
Audit-Related Fees 0 0
Tax Fees $ 11,000 11,000
All Other Fees 0 0
Total Fees $ 81,000 $ 81,000
Audit fees include fees related to the services rendered in connection with the
annual audit of the Company's consolidated 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 such as litigation support, etc.
All of the 2009 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 KPMG LLP is compatible with
maintaining KPMG LLP's independence and has concluded that it is.
25
ITEM 15. EXHIBITS
The Following Documents are Filed as Part of this Report
1. Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Exhibits
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).
26
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"]).
27
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.
28
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/ D. Roger Griffin
----------------------------
Chief Executive Officer
Dated: January 27, 2010
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 27, 2010
- ---------------------- Chairman of the Board
Ronald L. McDaniel
/s/ D. Roger Griffin Director January 27, 2010
- ---------------------- President and Chief
D. Roger Griffin Executive Officer
/s/ LaRita Boren Director January 27, 2010
- ----------------------
LaRita Boren
/s/ Leland E. Boren Director January 27, 2010
- ----------------------
Leland E. Boren
/s/ William E. Nielsen Director January 27, 2010
- ---------------------- Chief Financial Officer
William E. Nielsen
/s/ Matthew M. Price Director January 27, 2010
- ----------------------
Matthew M. Price
/s/ John J. Martorana Director January 27, 2010
- ----------------------
John J. Martorana
29
INTERNATIONAL BALER CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2009 AND 2008
(WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THEREON)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
International Baler Corporation:
We have audited the accompanying consolidated balance sheets of International
Baler Corp. (the Company) as of October 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International Baler
Corporation as of October 31, 2009 and 2008, and the results of their operations
and their cash flows for the years then ended in conformity with U.S. generally
accepted accounting principles.
KPMG LLP
January 27, 2010
Jacksonville, Florida
Certified Pubic Accountants
F - 1
INTERNATIONAL BALER CORPORATION
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2009 AND 2008
OCTOBER 31, OCTOBER 31,
2009 2008
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,609,305 $ 2,245,930
Restricted cash 224,100 --
Accounts receivable, net of allowance for doubtful accounts
of $88,870 and $20,000 in 2009 and 2008, respectively 619,383 1,152,270
Inventories 1,145,998 1,734,261
Prepaid expense and other current assets 80,506 81,476
Deferred income taxes 336,735 529,465
------------ ------------
Total current assets 4,016,027 5,743,402
Property, plant and equipment, at cost: 2,405,585 2,343,743
Less: accumulated depreciation 1,534,652 1,437,405
------------ ------------
Net property, plant and equipment 870,933 906,338
Other assets:
Restricted cash -- 224,100
Other assets 4,906 16,064
Due from former Director 28,875 40,702
Deferred income taxes 422,511 114,495
------------ ------------
Total other assets 456,292 395,361
TOTAL ASSETS $ 5,343,252 $ 7,045,101
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving promissory note $ 2,654 $ 5,654
Current maturities of long term debt -- 39,109
Accounts payable 234,678 553,268
Accrued liabilities 276,608 404,177
Accrued payroll and commissions 15,758 295,402
Current portion of deferred compensation 67,000 67,000
Customer deposits 335,440 929,273
------------ ------------
Total current liabilities 932,138 2,293,883
Long term debt -- 105,324
Deferred compensation, net of current portion 132,067 183,641
------------ ------------
Total liabilities 1,064,205 2,582,848
Stockholders' equity:
Preferred stock, par value $.0001,
10,000,000 shares authorized, none issued -- --
Common stock, par value $.01,
25,000,000 shares authorized; 6,179,875
shares issued in 2009 and 2008 61,799 61,799
Additional paid-in capital 6,347,187 6,347,187
Accumulated deficit (1,448,529) (1,265,323)
------------ ------------
4,960,457 5,143,663
Less: Treasury stock, 1,245,980 shares
in 2009 and 2008, at cost (681,410) (681,410)
------------ ------------
Total stockholders' equity 4,279,047 4,462,253
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,343,252 $ 7,045,101
============ ============
See accompanying notes to consolidated financial statements.
F - 2
INTERNATIONAL BALER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2009 AND 2008
2009 2008
------------ ------------
Net Sales:
Equipment $ 5,343,298 $ 11,335,565
Parts and Service 1,250,912 1,433,303
------------ ------------
Total Net Sales 6,594,210 12,768,868
Cost of Sales 5,591,368 9,879,182
------------ ------------
Gross Profit 1,002,842 2,889,686
Operating Expense:
Selling Expense 493,809 573,806
Administrative Expense 813,607 974,335
------------ ------------
Total Operating Expense 1,307,416 1,548,141
Operating Income (Loss) (304,574) 1,341,545
Other Income (Expense):
Interest Income 21,095 36,462
Interest Expense (15,064) (22,928)
Other Income 51 44,643
------------ ------------
Total Other Income 6,082 58,177
Income (Loss) Before Income Taxes (298,492) 1,399,722
Income Tax Provision (Benefit) (115,286) (655,560)
------------ ------------
Net Income (Loss) $ (183,206) $ 2,055,282
============ ============
Basic (Loss) Income per share $ (0.04) $ 0.42
Diluted (Loss) Income per share (0.04) 0.40
Weighted average number of shares outstanding - Basic 4,933,895 4,933,895
- Diluted 4,933,895 5,136,125
See accompanying notes to consolidated financial statements.
F - 3
INTERNATIONAL BALER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 2009 AND 2008
COMMON STOCK TREASURY STOCK
--------------------------- ---------------------------
NUMBER ADDITIONAL NUMBER TOTAL
OF SHARES PAR PAID-IN ACCUMULATED OF STOCKHOLDERS'
ISSUED VALUE CAPITAL DEFICIT SHARES COST EQUITY
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at October 31, 2007 6,179,875 61,799 6,347,187 (3,320,605) 1,245,980 (681,410) 2,406,971
Net Income -0- -0- -0- 2,055,282 -0- -0- 2,055,282
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at October 31, 2008 6,179,875 $ 61,799 $ 6,347,187 $ (1,265,323) 1,245,980 $ (681,410) $ 4,462,253
Net Loss -0- -0- -0- (183,206) -0- -0- (183,206)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at October 31, 2009 6,179,875 $ 61,799 $ 6,347,187 $ (1,448,529) 1,245,980 $ (681,410) $ 4,279,047
============ ============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F - 4
INTERNATIONAL BALER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2009 AND 2008
2009 2008
------------ ------------
Cash flow from operating activities:
Net income (Loss) $ (183,206) $ 2,055,282
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 107,405 99,648
Abandonment of long lived assets 63,750
Gain on sale of equipment -- (7,600)
Provision for doubtful accounts, net of recoveries 68,870 (20,000)
Deferred income taxes (115,286) (643,960)
Changes in operating assets and liabilities:
Accounts receivable 464,017 (550,384)
Inventories 588,263 470,899
Prepaid expenses and other assets 1,970 (21,588)
Accounts payable (318,590) (221,104)
Accrued liabilities, payroll, commissions and deferred compensation (458,787) 32,201
Customer deposits (593,833) 9,518
------------ ------------
Net cash (used in) provided by operating activities (375,427) 1,202,912
Cash flows from investing activities:
Proceeds from notes receivable from former Director 11,827 11,140
Proceeds from sale of equipment -- 7,600
Purchase of property and equipment (125,592) (204,572)
------------ ------------
Net cash used in investing activities (113,765) (185,832)
Cash flows from financing activities:
Net payments on the revolving promissory note (3,000) --
Repayments of long term debt (144,433) (35,932)
------------ ------------
Net cash used in financing activities (147,433) (35,932)
Net (decrease) increase in cash and cash equivalents (636,625) 981,148
Cash and cash equivalents at beginning of year 2,245,930 1,264,782
------------ ------------
Cash and cash equivalents at end of year $ 1,609,305 $ 2,245,930
============ ============
Supplemental disclosure of cash flow information: Cash paid during year for:
Interest $ 4,906 $ 14,132
Income taxes 5,000 24,100
See accompanying notes to consolidated financial statements.
F - 5
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
(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. The Company sells its products worldwide with 20% to 35% of its
annual net sales outside the United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of International Baler Corporation, formerly Waste Technology
Corporation and its wholly owned subsidiary. Significant intercompany
balances and transactions have been eliminated in consolidation.
(B) USE OF ESTIMATES
The preparation of the financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated 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.
(C) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash on hand, bank demand accounts and money
market accounts having original maturities of less than three months.
(D) RESTRICTED CASH
Restricted cash consist of a money market account that is the security
for a letter of credit. This letter of credit expires on July 31,
2010.
(E) ACCOUNTS RECEIVABLE & ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount and do
not bear interest. Amounts collected on trade accounts receivable are
included in net cash provided by operating activities in the
consolidated statements of cash
F - 6
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
flows. 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. 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.
(F) 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 includes direct
materials, direct and indirect labor, and overhead. The Company
reduces inventory values for excess or slow moving inventory based on
the expectation that this inventory will become obsolete or unusable
within a reasonable time period. Company personnel review the
potential usage of inventory and inventory components on a regular
basis.
(G) PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. The cost of
property, plant, and equipment is depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the
double-declining balance and straight-line methods 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.
(H) 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.
F - 7
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
The Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the
change in judgement occurs.
The Company records interest related to unrecognized tax benefits in
interest expense and penalties in selling, general, and administrative
expenses.
(I) 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.
(J) WARRANTIES AND SERVICE
The Company typically warrants its products for one (1) year from the
date of sale as to materials 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. Warranty parts shipments and
warranty service repairs are expensed as they occur and 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 for the periods:
2009 2008
---------- ----------
Beginning balance $ 76,059 $ 58,059
Warranty services provided (132,128) (231,875)
Warranties issued 106,865 226,694
Changes to preexisting warranty accruals 4,263 23,181
---------- ----------
Ending balance $ 55,059 $ 76,059
========== ==========
(K) 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. The
dilutive impact of options outstanding was no shares and 202,230
shares for the years ending October 31, 2009 and 2008.
(L) STOCK-BASED COMPENSATION
The Company recognizes all stock-based compensation as an expense in
the financial statements measured at the fair value of the award. In
June 2002, the Company granted 250,000 nonqualified stock options to
purchase shares of the
F - 8
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
Company's common stock. These options, which vested immediately, have
an exercise price of $0.30 and a term of 10 years. The options or
shares purchased thereunder may be registered pursuant to the
Securities Act of 1933. The Company has no remaining authorized shares
available for grant under existing stock option plans. As of October
31, 2009, the Company has no options outstanding to grant under
previously authorized plans and no options were issued during the
years ended October 31, 2009 or 2008. The outstanding stock options at
October 31, 2008 have a remaining contractual term of 3 years. As all
options are fully vested, there is no impact to net income for the
years ended October 31, 2009 and 2008.
There were no stock options exercised during the years ended October
31, 2009 and 2008.
(M) BUSINESS REPORTING SEGMENTS
Based on the information monitored by the Company's operating decision
makers to manage the business, the Company has identified that its
operations are within one reportable segment. Accordingly, financial
information on separate segments is omitted because, apart from the
principal business of manufacturing baling machines, the Company has
no other reportable segments.
(N) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, accrued liabilities, revolving promissory note, and
customer deposits, approximate their fair value due to the short-term
nature of these assets and liabilities. The term loan and the carrying
amount of deferred compensation approximates fair value, based on
current rates available to the Company for loans with similar
maturities.
(O) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification Topic No. 855, Subsequent Events.
This guidance establishes general standards of accounting for and,
disclosure of, events that occur after the balance sheet date but
before financial statements are issued or are available to be issued.
It sets forth (i) the period after the balance sheet date during which
management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in
the financial statements, (ii) the circumstances under which an entity
should recognize events or transactions occurring after the balance
sheet date in its financial statements and (iii) the disclosures that
an entity should make about events or transactions that occurred after
the balance sheet date. The guidance is effective for interim or
annual financial periods ending after June 15, 2009 and was adopted
with no material effect on the Company's statement of financial
condition or results of operations. Applicable disclosures have been
provided in section (p) below.
In June 2009, the FASB issued Accounting Standards Codification Topic
No. 105-10, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles ("ASC 105-10").
This guidance
F - 9
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
establishes the FASB Accounting Standards Codification (the
"Codification") as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with U.S. GAAP.
Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC
registrants. All guidance contained in the Codification carries an
equal level of authority. The Codification superseded all existing
non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging
Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates ("ASUs"). The FASB will not consider ASUs as
authoritative in their own right. ASUs will serve only to update the
Codification, provide background information about the guidance and
provide the basis for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this
document have been updated for the Codification.
In October 2009, the FASB issued Accounting Standards Codification
Topic No. 605, Multiple-Deliverable Revenue Arrangements. This
guidance establishes a selling price hierarchy for determining the
selling price of a deliverable and expands the disclosures required
for multiple-deliverable revenue arrangements. This guidance is
effective for revenue arrangements that are entered into or are
materially modified in fiscal years beginning on or after June 15,
2010, with early adoption permitted. The Company is currently
evaluating the impact of adopting this guidance on its results of
operations and financial position.
(P) SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after
October 31, 2009 up through January 27, 2010, the date the Company
issued these financial statements.
(3) RELATED PARTY TRANSACTIONS
The Company has a note receivable from the former president and director
totaling $43,713 and $55,540 at October 31, 2009 and 2008, respectively.
Interest accrues at the rate of 6% per annum.
The Company has a deferred compensation agreement with the former president
and director of the Company for deferred compensation payments. The Company
will make deferred compensation payments with a present value of $199,067,
payable over the next five years. A portion of the deferred compensation
payments will be used to repay the outstanding note receivable discussed
above.
The consolidated statements of operations includes interest income on a
previous officer and director note receivable of $3,011 and $3,698 for 2009
and 2008, respectively.
LaRita Boren and Leland E. Boren, both shareholders and directors of the
Company, are the owners of Avis Industrial Corporation (Avis). Together the
Borens own 53.6% of the outstanding shares of the Company. Avis owns 100%
of American Baler Company, a competitor of the Company's International
Baler Corporation. These baler companies operate independent of each other.
F - 10
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
The Company had no equipment sales to American Baler Corporation in the
fiscal year ending October 31, 2009 and $224,440 in fiscal 2008. These
sales included types of products American Baler does not manufacture. These
sales were made under the Company's normal dealer discount schedule.
International Baler Corporation purchased no equipment or services from
American Baler.
(4) INVENTORIES
Inventories consisted of the following:
2009 2008
---------- ----------
Raw Materials $ 694,557 $ 745,830
Work in Process 356,140 716,949
Finished Products 95,301 271,842
---------- ----------
$1,145,998 $1,734,261
========== ==========
(5) PROPERTY, PLANT, AND EQUIPMENT
The following is a summary of property, plant, and equipment, at cost, less
accumulated depreciation and amortization:
2009 2008
---------- ----------
Land $ 82,304 $ 82,304
Building and Improvements 982,096 864,758
Machinery and Equipment 1,286,319 1,230,003
Vehicles 54,866 54,866
Construction in Progress -- 111,812
---------- ----------
2,405,585 2,343,743
Less accumulated depreciation 1,534,652 1,437,405
---------- ----------
$ 870,933 $ 906,338
========== ==========
Depreciation expense was $97,247 and $90,852 in 2009 and 2008,
respectively. During 2009, the Company abandoned plans to expand
their production facilities and as a result, recorded a loss on the
write-off of certain construction in progress totaling $63,750.
(6) DEBT
In February 2007 the Company entered into a $202,722 term loan agreement
with First Guaranty Bank. This loan was for a period of five years with a
fixed rate of interest of 8.5% and monthly payments of $4,172 which
includes principal and interest. In March 2009 the Company paid off the
remaining balance of $131,769.
In March 2007, the Company had its $500,000 line of credit agreement with
First Guaranty Bank and Trust Company of Jacksonville increased to
$1,000,000. The line of credit allows the Company to borrow against the
Company's property, plant and equipment. The line of credit bears interest
at the prime rate plus one-half
F - 11
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
percent (0.5%) and has a term of three years expiring in March 2010. The
line of credit had an outstanding balance of $2,654 and $5,654 at October
31, 2009 and 2008, respectively, and the unused line of credit was $997,346
at October 31, 2009.
(7) COMMITMENTS AND CONTINGENCIES
The Company in the ordinary course of business, is subject to claims made
under, and from time to time are named as defendants 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
consolidated 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 consolidated financial position, results of operations, or
liquidity.
At October 31, 2009, the Company had a letter of credit totaling $224,100
issued for warranty guarantees, which is secured by restricted cash.
(8) INCOME TAXES
Income tax benefit attributable to income from continuing operations
consists of:
2009 2008
---------- ----------
Current income tax benefit:
Federal $ -- $ (11,600)
State -- --
---------- ----------
-- (11,600)
Deferred income tax benefit:
Federal (104,451) (581,840)
State (10,835) (62,120)
---------- ----------
Income tax benefit (115,286) (643,960)
---------- ----------
$ (115,286) $ (655,560)
========== ==========
The differences between income taxes as provided at the federal statutory
tax rate of 34% and the Company's actual income taxes are as follows:
2009 2008
---------- ----------
Expected federal income tax
(benefit)/expense at statutory rate $ (101,487) $ 475,905
State income tax (benefit)/expense,
net federal income tax effect (10,835) 50,810
Other - meals and entertainment 2,303 10,910
Change in valuation allowance -- (1,190,283)
Other (5,267) (20,392)
Alternative Minimum Tax -- 17,490
---------- ----------
Income tax benefit $ (115,286) $ (655,560)
========== ==========
F - 12
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
Tax assets are recognized in the balance sheet if it is more likely than
not that they will be realized on future tax returns. Through the first
quarter of 2008, a full valuation allowance against accumulated deferred
tax assets was provided, reflecting the uncertainty associated with future
profitability. In the second quarter of 2008 the valuation allowance
previously established against deferred tax assets was reassessed. Factors
considered included, historical results of operations, volatility of the
economic conditions and projected earnings based on current operations.
Based on this evidence, it is more likely than not that a portion of the
deferred tax assets would be realized. Accordingly, $1,190,283 of the
valuation allowance was reversed which resulted in an income tax benefit of
$655,560 during the year ended October 31, 2008. However, if it is
determined that all or part of the deferred tax assets will not be used in
the future, an adjustment to the deferred tax assets would be charged
against net income in the period such determination is made. As of October
31, 2009, the net deferred tax assets were $759,246. The realization of
deferred tax assets will depend on the Company's ability to continue to
generate taxable income in the future.
The significant components of the net deferred income taxes at October 31,
2009 and 2008 are as follows:
2009 2008
---------- ----------
Deferred tax assets
Reserves and allowance $ 260,852 $ 283,284
Section 263A 9,584 --
Alternative minimum tax credit carryforwards 37,685 52,192
Net operating loss carryforwards 465,330 315,284
---------- ----------
Total deferred tax assets 773,451 650,760
Deferred tax liabilities
Property, plant, and equipment (14,205) (6,800)
---------- ----------
Total gross deferred tax liabilities (14,205) (6,800)
Net deferred income taxes $ 759,246 $ 643,960
========== ==========
Net federal operating loss carryforwards for income tax purposes are
$1,236,592 and expire in years 2019 through 2029. The Company has an
alternative minimum tax credit carryforward of $37,685.
For the year ended October 31, 2009, we did not have any unrecognized tax
benefits 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, 2005 through October 31, 2009, the tax years which remain
subject to examination by tax jurisdictions as of October 31, 2009.
(9) STOCK OPTIONS
In June 2002, the Company granted 250,000 nonqualified stock options to
purchase shares of the Company's common stock. These options, which vested
immediately, have an exercise price of $0.30 and a term of 10 years. The
options or shares purchased thereunder may be registered pursuant to the
Securities Act of 1933. The Company
F - 13
INTERNATIONAL BALER CORPORATION
Notes to Consolidated Financial Statements
October 31, 2009 and 2008
has no remaining authorized shares available for grant under existing stock
option plans. As of October 31, 2009, the Company has no remaining options
to grant under previously authorized plans. The outstanding stock options
at October 31, 2009 have a remaining contractual term of 3 years.
(10) EMPLOYEES' BENEFIT PLAN
The Company has a defined contribution plan and profit sharing program for
its employees. The Company made no contributions to the plan in 2009 or
2008.
(11) BUSINESS AND CREDIT CONCENTRATIONS
Export sales were approximately 21% and 24% for the years ended October 31,
2009 and 2008, respectively. The principal international markets served by
the Company, include Canada, China, Mexico, United Kingdom, India, Korea,
Japan, Russia, and Brazil. In 2009, two customers accounted for 14.5% and
10.2% of net sales, respectively.
F - 14