This "Management's Discussion and Analysis" contains forward-looking statements within the meaning of Section 21B of the Securities and Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events on certain assumptions which are subject to risks and uncertainties, including, but not limited to, changes in general economic conditions and changing competition which could cause actual results to differ materially from those indicated.





Results of Operations

For the fiscal year ending October 31, 2019, net sales were $9,526,575 compared to $11,113,982 in fiscal 2018, a decrease of 14.3%. The lower net sales were the result of lower sales of auto-tie balers, ten in fiscal 2019 versus twenty in fiscal 2018. This was partially offset by higher sales of two-ram balers, eight in fiscal 2019 versus six in prior year. The Company's baler sales have been slowed due to lower prices of OCC (old corrugated cardboard) which have dropped from over $170 per ton in July 2017 to under $30 per ton in October 2019. Also, the activity in the rubber baler markets has slowed significantly in the last three years.

The Company had a loss from operations of $710,295 compared to operating income of $407,704 in the prior fiscal year. The lower operating income was the result of lower net sales and gross profit and higher selling and administrative expenses. Selling expenses were higher due to the addition of one sales person and higher advertising expenditures. Administrative expenses were higher due to the addition of a new president, a position which had been held by the Company's chief financial officer.

The Tax Cuts and Jobs Act of 2017 (the "Act") was signed into United States tax law on December 22, 2017. The Act makes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, and changes in business-related exclusions, and deductions and credits. As a result, the Company recorded a reduction of net deferred income tax assets of approximately $10,000 during the first quarter of our fiscal year ending October 31, 2018.

Liquidity and Capital Resources

The Company's net working capital at October 31, 2019 was $7,388,462 as compared to $7,851,219 at October 31, 2018.

Average Days Sales Outstanding (DSO) in fiscal 2019 was 24.1 days as compared to 20.6 days in fiscal 2018. DSO is calculated by dividing the total of the month-end net accounts receivable balances for the period by twelve, and dividing that result by the average day's sales for the period (period sales ÷ 365).

The Company has a $1,650,000 line of credit agreement with First Merchants Bank of Muncie, Indiana which was renewed on May 15, 2019. The line of credit allows the Company to borrow at an interest rate equal to the Wall Street Journal prime rate minus 0.95%, adjusting daily. The line of credit is secured by all assets of the Company and expires on May 15, 2020. The line of credit had no outstanding balance at October 31, 2019 and at October 31, 2018.

In fiscal 2019 the Company made additions of $244,580 to its buildings and manufacturing equipment, compared to additions of $131,643 in fiscal 2018. 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.





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The Company is unaware of any events or uncertainties which are reasonably likely to have a material impact on the Company's short-term or long-term liquidity or the net sales, or net income. The Company has no known or anticipated significant elements of income or loss that do not arise from the Company's operations.

Off Balance Sheet Arrangements

The Company has no off balance sheet arrangements.





Inflation

The costs of the Company are subject to the general inflationary trends existing in the general economy. The Company believes that expected pricing for its equipment will be able to include sufficient increases to offset any increase in costs due to inflation.

Critical Accounting Policies and Estimates

This discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we deem reasonable to the situation. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in our estimates could materially impact our results of operations and financial condition in any particular period.

We consider our critical accounting policies and estimates to be as follows based on the high degree of judgment or complexity in their application:





Revenue Recognition

The Company recognizes revenue when finished products and/or parts are shipped and the customer takes ownership and assumes the risk of loss. Baler revenues are based on established prices by type and model. Revenue from installation services is recognized on completion of the service. The Company recognizes revenue from repair services in the period in which the service is provided. Standard service fee prices are established depending on baler classification and estimated time. The timing of shipments and installation services have an impact on the recording of revenue in a period.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses on trade receivables resulting from the inability to collect outstanding accounts due from its customers. The allowances include specific amounts for disputed, troubled and aged accounts using current knowledge of particular customer credit worthiness and general allowances based on historical collection experience, current economic trends, credit worthiness of customers and changes in customer payment terms.

Management believes the estimates used in determining the allowance for doubtful accounts are critical accounting estimates because changes in credit worthiness and economic conditions, including bankruptcies, could have a material impact on operating results.

The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.





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Inventory Allowance

The Company analyzes inventory for excess or slow moving inventory. The Company reviews inventory for obsolescence on a regular basis. The allowance is estimated based on factors such as historical trends, current market conditions and management's assessment of when the inventory would likely be sold and the quantities and prices at which the inventory would likely be sold in the normal course of business. Changes in product specifications, customer product preferences or the loss of a customer could result in unanticipated impairment in net realizable value that may have a material impact on cost of goods sold, gross margin and net income. Obsolete or damaged inventory is disposed of or written down to net realizable value on a quarterly basis.

Additional adjustments, if necessary, are made based on management's specific review of inventory on-hand. Management believes the estimates used in determining the allowance for excess and slow moving inventory are critical accounting estimates as changes in the estimates could have a material impact on net income and the estimates involve a high degree of judgment.





Warranty Allowance

The Company warranties its products for one (1) year from the date of sale as to materials, three (3) years for structural damage, and six (6) months as to labor, and offers a service plan for other required repairs and maintenance. The Company maintains an accrued liability for expected warranty claims. The warranty allowance considers warranty costs and requires management estimates of baler performance based on the quantity and type of balers currently under warranty and known potential warranty issues for these balers. Changes in the warranty estimate could impact operating results.





Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. There were no valuation allowances on the deferred tax assets at October 31, 2019 and 2018 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, 2019 or 2018.

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