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2023



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2023

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from _______________ to ________________

 

Commission file number 1-14105

 


 

AVALON HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

 

Ohio

34-1863889

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

   

One American Way, Warren, Ohio

44484-5555

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (330) 856-8800

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value

AWX

NYSE American

 

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐   

Accelerated filer ☐   

Non-accelerated filer ☐ 

Smaller reporting company    

Emerging Growth Company     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ☑

 

The registrant had 3,287,647 shares of its Class A Common Stock and 611,784 shares of its Class B Common Stock outstanding as of August 11, 2023.



 

 

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

Page

PART I. FINANCIAL INFORMATION  

 
   

Item 1.    Financial Statements  

 
   

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited) 

1

   

Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022 (Unaudited)

2

   

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended June 30, 2023 and 2022 (Unaudited)

3

   

Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2023 and 2022 (Unaudited)

4

   

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (Unaudited)

                   5

   

Notes to Unaudited Condensed Consolidated Financial Statements

6

   

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

   

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

37

   

Item 4.    Controls and Procedures

37

   

PART II. OTHER INFORMATION

 
   

Item 1.    Legal Proceedings

   38

   

Item 2.    Changes in Securities and Use of Proceeds

38

   

Item 3.    Defaults upon Senior Securities

38

   

Item 4.    Mine Safety Disclosures

38

   

Item 5.    Other Information

38

   

Item 6.    Exhibits and Reports on Form 8-K

38

   

SIGNATURE

40

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 
Net operating revenues:                                

Waste management services

  $ 10,298     $ 10,717     $ 22,950     $ 20,056  

Food, beverage and merchandise sales

    3,995       3,563       5,968       5,228  

Other golf and related operations

    6,328       5,242       10,077       8,547  

Total golf and related operations

    10,323       8,805       16,045       13,775  

Total net operating revenues

    20,621       19,522       38,995       33,831  
                                 
Costs and expenses:                                

Waste management services operating costs

    8,224       8,492       18,604       16,070  

Cost of food, beverage and merchandise

    1,811       1,525       2,834       2,273  

Golf and related operations operating costs

    6,987       5,731       11,823       9,786  

Depreciation and amortization expense

    955       842       1,895       1,671  

Selling, general and administrative expenses

    2,501       2,340       5,030       4,605  

Operating income (loss)

    143       592       (1,191 )     (574 )
                                 
Other income (expense):                                

Interest expense

    (529 )     (274 )     (1,044 )     (552 )

Other income, net

    205       119       286       183  

Income (loss) before income taxes

    (181 )     437       (1,949 )     (943 )
                                 

Provision for income taxes

    23       33       54       53  

Net income (loss)

    (204 )     404       (2,003 )     (996 )
                                 

Less net loss attributable to non-controlling interest in subsidiaries

    (52 )     (80 )     (174 )     (218 )

Net income (loss) attributable to Avalon Holdings Corporation common shareholders

  $ (152 )   $ 484     $ (1,829 )   $ (778 )
                                 

Income (loss) per share attributable to Avalon Holdings Corporation common shareholders:

                         

Basic net income (loss) per share

  $ (0.04 )   $ 0.12     $ (0.47 )   $ (0.20 )

Diluted net income (loss) per share

  $ (0.04 )   $ 0.12     $ (0.47 )   $ (0.20 )
                                 

Weighted average shares outstanding - basic

    3,899       3,899       3,899       3,899  

Weighted average shares outstanding - diluted

    3,899       3,922       3,899       3,899  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

1

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except per share amounts)         

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Assets

               
Current Assets:                

Cash and cash equivalents

  $ 2,217     $ 1,624  

Accounts receivable, less allowance for credit losses

    11,081       11,127  

Unbilled membership dues receivable

    1,083       599  

Inventories

    1,830       1,461  

Prepaid expenses

    1,046       1,172  

Other current assets

    15       105  

Total current assets

    17,272       16,088  
                 

Property and equipment, net

    57,112       56,805  

Property and equipment under finance leases, net

    5,187       5,001  

Operating lease right-of-use assets

    1,294       1,386  

Restricted cash

    10,450       10,426  

Noncurrent deferred tax asset

    8       8  

Other assets, net

    34       36  

Total assets

  $ 91,357     $ 89,750  
                 
Liabilities and Equity                
Current liabilities:                

Current portion of long-term debt

  $ 520     $ 503  

Current portion of obligations under finance leases

    139       115  

Current portion of obligations under operating leases

    423       424  

Accounts payable

    11,614       10,995  

Accrued payroll and other compensation

    1,171       989  

Accrued income taxes

    91       103  

Other accrued taxes

    507       540  

Deferred membership dues revenue

    5,737       3,643  

Other liabilities and accrued expenses

    1,891       1,544  

Total current liabilities

    22,093       18,856  
                 

Long-term debt, net of current portion

    29,489       29,758  

Line of credit

    2,200       1,550  

Obligations under finance leases, net of current portion

    463       381  

Obligations under operating leases, net of current portion

    871       962  

Asset retirement obligation

    100       100  
                 
Equity:                
Avalon Holdings Corporation Shareholders' Equity:                

Class A Common Stock, $.01 par value

    33       33  

Class B Common Stock, $.01 par value

    6       6  

Paid-in capital

    59,206       59,205  

Accumulated deficit

    (22,583 )     (20,754 )

Total Avalon Holdings Corporation Shareholders' Equity

    36,662       38,490  

Non-controlling interest in subsidiaries

    (521 )     (347 )

Total equity

    36,141       38,143  

Total liabilities and equity

  $ 91,357     $ 89,750  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholders Equity (Unaudited)

(in thousands, except for share data)

 

   

For the Three Months Ended June 30, 2023

 
                                                                         
                                                   

Total

                 
   

Common Stock

                   

Avalon

   

Non-controlling

         
   

Shares

   

Amount

   

Paid-in

   

Accumulated

   

Shareholders'

   

Interest in

         
   

Class A

   

Class B

   

Class A

   

Class B

   

Capital

   

Deficit

   

Equity

   

Subsidiaries

   

Total

 
                                                                         

Balance at April 1, 2023

    3,287,647       611,784     $ 33     $ 6     $ 59,206     $ (22,431 )   $ 36,814     $ (469 )   $ 36,345  
                                                                         
                                                                         

Net loss

    -       -       -       -       -       (152 )     (152 )     (52 )     (204 )
                                                                         

Balance at June 30, 2023

    3,287,647       611,784     $ 33     $ 6     $ 59,206     $ (22,583 )   $ 36,662     $ (521 )   $ 36,141  

 

 

   

For the Three Months Ended June 30, 2022

 
                                                                         
                                                   

Total

                 
   

Common Stock

                   

Avalon

   

Non-controlling

         
   

Shares

   

Amount

   

Paid-in

   

Accumulated

   

Shareholders'

   

Interest in

         
   

Class A

   

Class B

   

Class A

   

Class B

   

Capital

   

Deficit

   

Equity

   

Subsidiary

   

Total

 
                                                                         

Balance at April 1, 2022

    3,287,647       611,784     $ 33     $ 6     $ 59,202     $ (21,433 )   $ 37,808     $ (88 )   $ 37,720  
                                                                         

Stock options - compensation costs

    -       -       -       -       1       -       1       -       1  
                                                                         

Net income (loss)

    -       -       -       -       -       484       484       (80 )     404  
                                                                         

Balance at June 30, 2022

    3,287,647       611,784     $ 33     $ 6     $ 59,203     $ (20,949 )   $ 38,293     $ (168 )   $ 38,125  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholders Equity (Unaudited)

(in thousands, except for share data)

 

   

For the Six Months Ended June 30, 2023

 
                                                                         
                                                   

Total

                 
   

Common Stock

                   

Avalon

   

Non-controlling

         
   

Shares

   

Amount

   

Paid-in

   

Accumulated

   

Shareholders'

   

Interest in

         
   

Class A

   

Class B

   

Class A

   

Class B

   

Capital

   

Deficit

   

Equity

   

Subsidiaries

   

Total

 
                                                                         

Balance at January 1, 2023

    3,287,647       611,784     $ 33     $ 6     $ 59,205     $ (20,754 )   $ 38,490     $ (347 )   $ 38,143  
                                                                         

Stock options - compensation costs

    -       -       -       -       1       -       1       -       1  
                                                                         

Net loss

    -       -       -       -       -       (1,829 )     (1,829 )     (174 )     (2,003 )
                                                                         

Balance at June 30, 2023

    3,287,647       611,784     $ 33     $ 6     $ 59,206     $ (22,583 )   $ 36,662     $ (521 )   $ 36,141  

 

 

   

For the Six Months Ended June 30, 2023

 
                                                                         
                                                   

Total

                 
   

Common Stock

                   

Avalon

   

Non-controlling

         
   

Shares

   

Amount

   

Paid-in

   

Accumulated

   

Shareholders'

   

Interest in

         
   

Class A

   

Class B

   

Class A

   

Class B

   

Capital

   

Deficit

   

Equity

   

Subsidiaries

   

Total

 
                                                                         

Balance at January 1, 2022

    3,287,647       611,784     $ 33     $ 6     $ 59,201     $ (20,171 )   $ 39,069     $ (92 )   $ 38,977  
                                                                         

Stock options - compensation costs

    -       -       -       -       2       -       2       -       2  
                                                                         

Investment in subsidiary from accredited investor

    -       -       -       -       -       -       -       142       142  
                                                                         

Net loss

    -       -       -       -       -       (778 )     (778 )     (218 )     (996 )
                                                                         

Balance at June 30, 2022

    3,287,647       611,784     $ 33     $ 6     $ 59,203     $ (20,949 )   $ 38,293     $ (168 )   $ 38,125  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

   

Six Months Ended June 30,

 
   

2023

   

2022

 
                 
Cash flows from operating activities:                

Net loss

  $ (2,003 )   $ (996 )
Reconciliation of net income (loss) to cash provided by operating activities:                

Depreciation and amortization expense

    1,895       1,671  

Amortization of debt issuance costs

    25       21  

Compensation costs - stock options

    1       2  

Provision for losses on accounts receivable

    10       6  
Change in operating assets and liabilities:                

Accounts receivable

    36       (527 )

Unbilled membership dues receivable

    (484 )     (567 )

Inventories

    (369 )     (425 )

Prepaid expenses

    126       57  

Other assets, net

    91       11  

Accounts payable

    595       (349 )

Accrued payroll and other compensation

    182       932  

Accrued income taxes

    (12 )     28  

Other accrued taxes

    (33 )     (200 )

Deferred membership dues revenue

    2,094       2,419  

Other liabilities and accrued expenses

    347       36  

Net cash provided by operating activities

    2,501       2,119  
                 
Cash flows from investing activities:                

Capital expenditures

    (2,210 )     (3,304 )

Net cash used in investing activities

    (2,210 )     (3,304 )
                 
Cash flows from financing activities:                

Proceeds from subsidiary private placement offering

    -       142  

Borrowings under line of credit facility

    650       -  

Principal payments on term loan facilities

    (277 )     (577 )

Principal payments on finance lease obligations

    (47 )     (63 )

Net cash used in financing activities

    326       (498 )
                 

Increase (decrease) in cash, cash equivalents and restricted cash

    617       (1,683 )

Cash, cash equivalents and restricted cash at beginning of period

    12,050       4,950  

Cash, cash equivalents and restricted cash at end of period

  $ 12,667     $ 3,267  
                 
Supplemental disclosure of cash flow information:                
                 
Significant non-cash operating and investing activities:                

Capital expenditures included in accounts payable

  $ 24     $ 1,139  
Significant non-cash investing and financing activities:                

Operating lease right-of-use assets in exchange for lease obligations

  $ 47     $ 31  
Finance lease obligation incurred   $ 154     $ -  
                 

Cash paid during the period for interest

  $ 1,008     $ 525  

Cash paid during the period for income taxes

  $ 66     $ 25  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2023

 

 

 

Note 1. Description of Business

 

Avalon Holdings Corporation (“Avalon” or the “Company”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). On June 17, 1998, AWS distributed, as a special dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis.

 

Avalon provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets, captive landfill management services and salt water injection well operations. In addition, Avalon owns Avalon Resorts and Clubs, Inc. (“ARCI”), which includes the operation and management of four golf courses and associated clubhouses, athletic and fitness centers, tennis courts, salon and spa services, dining and banquet facilities and a travel agency. ARCI also owns and operates a hotel and its related resort amenities including dining, banquet and conference facilities, salon and spa services, fitness center, outdoor resort pool, Roman Bath, indoor junior Olympic size swimming pool and tennis courts.

 

 

Note 2. Basis of Presentation

 

The unaudited condensed consolidated financial statements of Avalon and related notes included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted consistent with such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in Avalon’s 2022 Annual Report to Shareholders.

 

The unaudited condensed consolidated financial statements include the accounts of Avalon, its wholly owned subsidiaries and those companies in which Avalon has managerial control. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of Avalon as of June 30, 2023, and the results of its operations and cash flows for the interim periods presented.

 

The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year.

 

The condensed consolidated financial statements presented herein reflect our current estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods presented.

 

 

Note 3. Recent Accounting Pronouncements

 

As of June 30, 2023, there were several new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s condensed consolidated financial statements.

 

 

Note 4. Cash, Cash Equivalents and Restricted Cash

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents for purposes of the Condensed Consolidated Balance Sheets. Avalon maintains its cash balances in various financial institutions. These balances may, at times, exceed federal insured limits. Avalon has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to its cash and cash equivalents.

 

6

 

Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash on the Condensed Consolidated Balance Sheets. Restricted cash consists of loan proceeds deposited into a project fund account to fund costs associated with the renovation and expansion of The Grand Resort and Avalon Field Club at New Castle in accordance with the provisions of the loan and security agreement (See Note 9).

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows. Cash, cash equivalents and restricted cash consist of the following at June 30, 2023 and December 31, 2022 (in thousands):

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Cash and cash equivalents

  $ 2,217     $ 1,624  

Restricted cash

    10,450       10,426  

Cash, cash equivalents and restricted cash

  $ 12,667     $ 12,050  

 

 

Note 5. Revenues

 

Revenue Recognition

 

The Company identifies a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when obligations under the terms of the contract with our customer are satisfied; generally this occurs with the transfer of control of the good or service to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company does not incur incremental costs to obtain contracts or costs to fulfill contracts that meet the criteria for capitalization. In addition, the Company does not have material significant payment terms as payment is received at or shortly after the point of sale.

 

Waste Management Services

 

Avalon’s waste management services provide hazardous and nonhazardous waste brokerage and management services, captive landfill management services and salt water injection well operations. Waste management services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets.

 

Avalon’s waste brokerage and management business assists customers with managing and disposing of wastes at approved treatment and disposal sites based upon a customer’s needs. Avalon provides a service to its customers whereby Avalon, arranges for, and accepts responsibility for the removal, transportation and disposal of waste on behalf of the customer.

 

Avalon’s landfill management business provides technical and operational services to customers owning captive disposal facilities. A captive disposal facility only disposes of waste generated by the owner of such facility. The Company provides turnkey services, including daily operations, facilities management and management reporting for its customers. Currently, Avalon manages one captive disposal facility located in Ohio. The net operating revenues of the captive landfill operations are almost entirely dependent upon the volume of waste generated by the owner of the landfill for whom Avalon manages the facility.

 

Avalon is a minority owner with managerial control over two salt water injection wells and its associated facility. Operations of the salt water injection wells have been suspended in accordance with the Chief of the Division of Oil and Gas Resources Management order (See Note 15). Due to the suspension of the salt water injection wells, there were no operating revenues for the three and six months ended June 30, 2023 and 2022.

 

For the three months ended June 30, 2023 and 2022, the net operating revenues related to waste management services represented approximately 50% and 55%, respectively, of Avalon’s total consolidated net operating revenues. Net operating revenues related to waste management services represented approximately 59% of Avalon’s total consolidated net operating revenues for the six months ended June 30, 2023 and 2022. For the six months ended June 30, 2023, two customers accounted for 25% of the waste management services segment’s net operating revenues to external customers and 14% of the consolidated net operating revenues. For the six months ended June 30, 2022, one customer accounted for 10% of the waste management services segment’s net operating revenues to external customers and 6% of the consolidated net operating revenues.

 

7

 

For our waste management services contracts, the customer contracts with us to provide a series of distinct waste management services over time which integrates a set of tasks (i.e. removal, transportation and disposal of waste) into a single project. Avalon provides substantially the same service over time and the same method is used to measure the Company’s progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. The series of distinct waste management services, which are the same over time, meets the series provision criteria, and as such, the Company treats that series as a single performance obligation. The Company allocates the transaction price to the single performance obligation and recognizes revenue by applying a single measure of progress to that performance obligation. Avalon transfers control of the service over time and, therefore, satisfies the performance obligation and recognizes the revenue over time as the customer simultaneously receives and consumes the benefits provided by Avalon’s performance as we perform.

 

In addition, as the promise to provide services qualifies as a series accounted for as a single performance obligation, the Company applied the practical expedient guidance that allows an entity that is recognizing revenue over time by using an output method to recognize revenue equal to the amount that the entity has the right to invoice if the invoiced amount corresponds directly to the value transferred to the customer. The Company applied the standard's practical expedient that permits the omission of disclosures relating to unsatisfied performance obligations as most of the Company’s waste management service contracts (i) have an original expected length of one year or less and (ii) the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.

 

Avalon evaluated whether we are the principal (i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). Avalon reports waste management services on a gross basis, that is, amounts billed to our customers are recorded as revenues, and amounts paid to vendors for providing those services are recorded as operating costs. As principal, Avalon is primarily responsible for fulfilling the promise to provide waste management services for the customer. Avalon accepts credit risk in the event of nonpayment by the customer and is obligated to pay vendors who provide the service regardless of whether the customer pays the Company. Avalon does have a level of discretion in establishing the pricing for its service.

 

Our payment terms vary by the type and location of our customer and the service offered. Avalon does not have any financing arrangements with its customers. The term between invoicing and when payment is due is not significant.

 

The Company assesses each contract amendment individually. Typically, amendments made to our contracts do not materially change the terms of the agreement or performance obligation of the Company. The Company accounts for such contract amendments as if it were part of the existing contract as the material terms contained in the contract do not change. In cases where Avalon views there is a material change in the terms of the agreement, the Company will reevaluate and determine if the contract should be viewed as an entirely new contract, replacement contract or a continuation of the existing contract.

 

Consideration promised in our waste management contracts do not typically include material variable amounts such as discounts, rebates, refunds, credits, price concessions, incentives, penalties or other such items, and, as such, no estimate is made by the Company for such items.

 

Golf and Related Operations

 

Avalon’s golf and related operations include the operation and management of four golf courses and associated clubhouses, recreation and fitness centers, tennis courts, salon and spa services, dining and banquet facilities and a travel agency. The golf and related operations also include the operation of a hotel and its related amenities including dining, banquet and conference facilities, fitness center, indoor junior Olympic size swimming pool and tennis courts. Revenues for the golf and related operations consists primarily of food, beverage and merchandise sales, membership dues, greens fees and associated cart rentals, room rentals, fitness activities, salon and spa services. Due to adverse weather conditions, net operating revenues relating to the golf courses, which are located in northeast Ohio and western Pennsylvania, were minimal during the first three months of 2023 and 2022.

 

For the three months ended June 30, 2023 and 2022, the net operating revenues related to the golf and related operations represented approximately 50% and 45%, respectively, of Avalon’s total consolidated net operating revenues. For the six months ended June 30, 2023 and 2022, the net operating revenues related to the golf and related operations represented approximately 41% for both periods of Avalon’s total consolidated net operating revenues. For both the six months ended June 30, 2023 and 2022, no one customer individually accounted for 10% or more of Avalon’s golf and related operations segment revenues.

 

8

 

For Avalon’s golf and related operations, the Avalon Golf and Country Club offers membership packages for use of the country club facilities and its related amenities. Membership agreements are a one year noncancellable commitment and pricing varies based on the membership type selected by the customer. Based on the terms and conditions of the membership contract, resignations received within the membership period do not relieve the member of their annual commitment. Memberships automatically renew on the member’s anniversary date unless the member resigns for the upcoming membership period prior to the renewal date.

 

Membership for the Avalon Golf and Country Club does not contain up-front initiation fees or require monthly minimum spending at the facilities. Annual membership dues do not cover the cost of food, beverage or any other ancillary paid services which are made available to the member nor do they typically provide for discounts on these goods or services. Members have no obligation to purchase or utilize any of these additional goods or services. Avalon is not required to provide such goods or services unless requested and paid for at the point of sale by the member.

 

Under the terms of the contract, Avalon will provide unlimited use and access to the country club facilities. Avalon’s performance obligation in the contract is the “stand ready obligation” to provide access to these facilities for the member for the entire membership term. Avalon providing the “stand ready obligation” for use of the facilities to the member over the entire term of the membership agreement represents a single performance obligation of which Avalon expects the member to receive and consume the benefits of its obligation throughout the membership term, and as such, the Company recognizes membership dues on a straight line basis over the term of the contract. The Company applied the standard's practical expedient that permits the omission of disclosures relating to unsatisfied performance obligations for contracts with an original expected length of one year or less as Avalon Golf and Country Club membership agreements are one year in length.

 

For our hotel operations, Avalon’s performance obligation is to provide lodging facilities. The separate components of providing these services (hotel room, toiletry items, housekeeping, and amenities) are not distinct within the context of the contract as they are all highly dependent and interrelated as part of the obligation to provide the lodging facility. Room sales are driven by a fixed fee charged to a hotel guest to stay at The Grand Resort for an agreed upon period. The Company agrees to provide a room to the hotel guest for a specified time period for that agreed-upon rate. Our hotel room reservations are performance obligations satisfied over time as the hotel guest simultaneously receives and consumes the benefits provided by the hotel. For performance obligations satisfied over time, our hotel operations measure the progress toward complete satisfaction of the performance obligation and recognize revenue proportionately over the course of the customer’s stay.

 

For food, beverage, and merchandise sales, greens fees and associated cart rental, fitness activities, salon and spa services and other ancillary services, the transaction price is the set price charged by the Company for those goods or services. Upon purchase of the good or service, the Company transfers control of the good or service to the customer and the customer immediately consumes the benefits of the Company’s performance and, as such, we recognize revenue at the point of sale. Amounts paid in advance, such as deposits on overnight lodging or for banquet or conferences facilities, are recorded as a liability until the goods or services are provided to the customer (see Contract Liabilities below).

 

9

 

The following table presents our net operating revenues disaggregated by revenue source for the three and six months ended June 30, 2023 and 2022 (in thousands). Sales and other taxes are excluded from revenues.

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Waste management and brokerage services

  $ 9,427     $ 10,028     $ 21,299     $ 18,754  

Captive landfill management operations

    871       689       1,651       1,302  

Total waste management services revenues

    10,298       10,717       22,950       20,056  

Food, beverage and merchandise sales

    3,995       3,563       5,968       5,228  

Membership dues revenue

    1,833       1,794       3,680       3,508  

Room rental revenue

    1,768       1,469       2,642       2,204  

Greens fees and cart rental revenue

    1,186       950       1,242       1,005  

Salon and spa services

    883       478       1,483       886  

Fitness and tennis lesson revenue

    91       111       245       249  

Other revenue

    567       440       785       695  

Total golf and related operations revenue

    10,323       8,805       16,045       13,775  

Total net operating revenues

  $ 20,621     $ 19,522     $ 38,995     $ 33,831  

 

Avalon does not have operations located outside the United States and, accordingly, geographical revenue information is not presented.

 

Receivables, Net

 

Receivables, net, include amounts billed and currently due from customers. The amounts due are stated at their net realizable value. At June 30, 2023 and December 31, 2022, accounts receivable, net, related to our waste management services segment were approximately $8.7 million and $10 million, respectively. At June 30, 2023, two customers accounted for approximately 18% of the waste management services segment’s receivables and 14% of the consolidated receivables. At December 31, 2022, one customer accounted for approximately 18% of the waste management services segment’s receivables and 16% of the consolidated receivables. Accounts receivable, net, related to our golf and related operations segment were approximately $2.3 million and $1.1 million at June 30, 2023 and December 31, 2022, respectively. No one customer of the golf and related operations segment accounted for 10% or more of Avalon’s golf and related operations segment or consolidated net receivables at June 30, 2023 or December 31, 2022.

 

The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. Customer accounts that are outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous accounts receivable loss history, the customer’s current ability to pay its obligation to Avalon and the condition of the general economy and the industry as a whole. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for credit losses, or to income, as appropriate under the circumstances. Allowance for credit losses was approximately $0.3 million at both June 30, 2023 and December 31, 2022.

 

The following table presents changes in our allowance for credit losses during the three and six months ended June 30, 2023 and 2022 (in thousands):

 

           

Provision

   

Write-offs

         
   

Balance at

   

for Credit

   

less

   

Balance at

 
   

Beginning of Period

   

Losses

   

Recoveries

   

End of Period

 

Allowance for credit losses

                               

Three months ended June 30, 2023

  $ 251     $ 7     $ (11 )   $ 247  

Three months ended June 30, 2022

  $ 255     $ 5     $ (4 )   $ 256  
                                 

Six months ended June 30, 2023

  $ 260     $ 10     $ (23 )   $ 247  

Six months ended June 30, 2022

  $ 265     $ 6     $ (15 )   $ 256  

 

10

 

Contract Assets

 

Contract assets include unbilled membership dues receivables related to the Avalon Golf and Country Club for the customers membership commitment which are billed on a monthly basis over the course of the annual agreement. Such amounts are stated at their net realizable value. Contract assets related to unbilled membership dues are classified as current as revenue related to such agreements is recognized within the annual membership period. Unbilled membership receivables in our Condensed Consolidated Balance Sheets were approximately $1.1 million at June 30, 2023 and $0.6 million at December 31, 2022.

 

The following table presents changes in our contract assets during the three and six months ended June 30, 2023 and 2022 (in thousands):

 

           

Unbilled

                 
   

Balance at

   

Membership

           

Balance at

 
   

Beginning of Period

   

Dues

   

Billings

   

End of Period

 

Contract Assets:

                               

Unbilled membership dues receivable

                               

Three months ended June 30, 2023

  $ 747     $ 849     $ (513 )   $ 1,083  

Three months ended June 30, 2022

  $ 760     $ 965     $ (580 )   $ 1,145  
                                 

Six months ended June 30, 2023

  $ 599     $ 1,470     $ (986 )   $ 1,083  

Six months ended June 30, 2022

  $ 578     $ 1,605     $ (1,038 )   $ 1,145  

 

Contract Liabilities

 

Contract liabilities include unrecognized or deferred revenues relating to membership dues and customer advance deposits. We record deferred revenue when cash payments are received in advance of satisfying our performance obligation. We classify deferred membership dues revenue as current based on the timing of when we expect to recognize revenue for the membership commitment based on the Company satisfying the stand ready performance obligation throughout the annual membership period. The unrecognized or deferred revenues related to membership dues in our Condensed Consolidated Balance Sheets were approximately $5.7 million at June 30, 2023 and $3.6 million at December 31, 2022, respectively.

 

Customer advance deposits are recorded as a liability until the goods or services are provided to the customer. Generally, customer advances, and corresponding performance obligation are satisfied within 12 months of the date of receipt of advance payment. The unrecognized revenues related to customer advance deposits are recorded in “Other liabilities and accrued expenses” in our Condensed Consolidated Balance Sheets. Customer advance deposits were approximately $1.1 million at June 30, 2023 and $1.0 million at December 31, 2022.

 

The following table presents changes in our contract liabilities during the three and six months ended June 30, 2023 and 2022 (in thousands):

 

   

Balance at

           

Revenue

   

Balance at

 
   

Beginning of Period

   

Billings

   

Recognized

   

End of Period

 

Contract Liabilities:

                               

Deferred membership dues revenue

                               

Three months ended June 30, 2023

  $ 4,900     $ 2,671     $ (1,834 )   $ 5,737  

Three months ended June 30, 2022

  $ 4,943     $ 2,633     $ (1,794 )   $ 5,782  
                                 

Six months ended June 30, 2023

  $ 3,643     $ 5,775     $ (3,681 )   $ 5,737  

Six months ended June 30, 2022

  $ 3,363     $ 5,927     $ (3,508 )   $ 5,782  
                                 

Customer advance deposits

                               

Three months ended June 30, 2023

  $ 1,082     $ 1,115     $ (1,048 )   $ 1,149  

Three months ended June 30, 2022

  $ 920     $ 915     $ (843 )   $ 992  
                                 

Six months ended June 30, 2023

  $ 965     $ 1,820     $ (1,636 )   $ 1,149  

Six months ended June 30, 2022

  $ 795     $ 1,303     $ (1,106 )   $ 992  

 

11

 

 

Note 6. Property and Equipment

 

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from 10 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office furniture and equipment.

 

Major additions and improvements are charged to the property and equipment accounts while replacements, maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the year of disposal.

 

Property and equipment at June 30, 2023 and December 31, 2022 consists of the following (in thousands):

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Land and land improvements

  $ 16,809     $ 16,764  

Buildings and improvements

    53,592       52,974  

Machinery and equipment

    9,225       8,567  

Office furniture and fixtures

    10,233       9,638  

Vehicles

    896       865  

Construction in progress

    10       11  
      90,765       88,819  

Less accumulated depreciation and amortization

    (33,653 )     (32,014 )

Property and equipment, net

  $ 57,112     $ 56,805  

 

At June 30, 2023, the Company did not have any significant fixed contractual commitments for construction projects.

 

Avalon reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, Avalon would determine whether the estimated undiscounted sum of the future cash flows of such assets and their eventual disposition is less than its carrying amount. If less, an impairment loss would be recognized if, and to the extent that the carrying amount of such assets exceeds their respective fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows. During the first six months of 2023 and 2022, no triggering events were present.

 

 

Note 7. Leases

 

Operating Leases

 

Avalon leases golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Grand Resort and office copiers under operating leases. Our operating leases have remaining lease terms ranging from less than 2.5 years to 5.0 years. The weighted average remaining lease term on operating leases was approximately 3.4 years at June 30, 2023.

 

During the first six months of 2023 and 2022, the Company entered into a new operating lease agreement for golf carts and golf cart GPS equipment. During the first six months of 2023 and 2022, the Company recorded operating lease right-of-use assets and corresponding obligations under the operating leases of approximately $64,000 and $31,000, respectively.

 

12

 

Leased property and associated obligations under operating leases at June 30, 2023 and December 31, 2022 consists of the following (in thousands):

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Operating lease right-of-use assets

  $ 1,294     $ 1,386  
                 

Current portion of obligations under operating leases

  $ 423     $ 424  

Long-term portion of obligations under operating leases

    871       962  

Total obligations under operating leases

  $ 1,294     $ 1,386  

 

The weighted average discount rate on operating leases was 5.12% at June 30, 2023 and 5.0% at December 31, 2022.

 

Finance Leases

 

In November 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all its remaining renewal options. At June 30, 2023 there were approximately 30.3 years remaining on the golf course and related facilities finance lease.

 

In addition, the golf and related operations also entered into lease agreements for vehicles, golf course maintenance and restaurant equipment and the captive landfill operations entered into lease agreements for equipment which were determined to be finance leases. At June 30, 2023, the vehicles, golf course maintenance and restaurant equipment and the landfill operations equipment have remaining lease terms ranging from less than 1 year to 4.3 years. The weighted average remaining lease term on the vehicles and equipment leases was approximately 3.0 years at June 30, 2023.

 

Leased property and associated obligations under finance leases at June 30, 2023 and December 31, 2022 consists of the following (in thousands):

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Leased property under finance leases

  $ 12,437     $ 12,004  

Less accumulated amortization

    (7,250 )     (7,003 )

Leased property under finace leases, net

  $ 5,187     $ 5,001  
                 

Current portion of obligations under finance leases

  $ 139     $ 115  

Long-term portion of obligations under finance leases

    463       381  

Total obligations under finance leases

  $ 602     $ 496  

 

The weighted average discount rate on finance leases was 5.6% at June 30, 2023 and 5.2% at December 31, 2022.

 

For the three and six months ended June 30, 2023 and 2022, components of lease expense were as follows (in thousands):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 
Operating lease cost:                                

Rental expense

  $ 294     $ 237     $ 368     $ 347  
                                 
Finance lease cost:                                

Depreciation expense

  $ 122     $ 127     $ 250     $ 254  

Interest expense

    8       8       15       17  

Total finance lease cost

  $ 130     $ 135     $ 265     $ 271  

 

13

 

For the twelve months ending June 30, future commitments under long-term, operating and finance leases are as follows (in thousands):

 

   

Finance

   

Operating

   

Total

 

2024

  $ 170     $ 487     $ 657  

2025

    159       393       552  

2026

    75       311       386  

2027

    67       165       232  

2028

    40       65       105  

Thereafter

    375       -       375  

Total lease payments

    886       1,421       2,307  

Less: imputed interest

    284       127       411  

Total

    602       1,294       1,896  

Less: current portion of obligations under leases

    139       423       562  

Long-term portion of obligations under leases

  $ 463     $ 871     $ 1,334  

 

 

Note 8. Basic and Diluted Net Income (Loss) per Share

 

Basic net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing the net income (loss) by the weighted average number of common shares outstanding. For both the three and six months ended June 30, 2023 and 2022, the weighted average number of common shares outstanding was 3,899,431.

 

Diluted net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus any weighted common equivalent shares determined to be outstanding during the period using the treasury method. The weighted common equivalent shares included in the calculation are related to stock options granted by Avalon where the weighted average market price of Avalon’s common stock for the period presented is greater than the option exercise price of the stock option.

 

For the three months ended June 30, 2023, the diluted weighted average number of shares outstanding was 3,904,604. For the six months ended June 30, 2023, the diluted per share amount reported is equal to the basic per share amount because Avalon was in a net loss position and as a result, such dilution would be considered anti-dilutive. The diluted per share for the six months ended June 30, 2022 was equal to the total basic per share amount. Assuming dilution, the weighted average number of common shares outstanding for the six months ended June 30, 2023 was 3,902,003.

 

For the three and six months ended June 30, 2022, the diluted weighted average number of shares outstanding was 3,921,656 and 3,923,213, respectively.

 

 

Note 9. Term Loans and Line of Credit Agreements

 

2022 Term Loan Agreement

 

On August 5, 2022, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “2022 Term Loan Agreement”) with Laurel Capital Corporation which provided for a $31.0 million term loan. At closing, $20.2 million of the proceeds were used to pay off and refinance amounts outstanding and associated interest under our 2019 Term Loan Agreement with Laurel Capital Corporation and $0.4 million of the proceeds were utilized to pay transaction costs. The remaining proceeds of approximately $10.4 million were deposited into a project fund account for which those proceeds are to fund future costs of renovating and expanding both The Grand Resort and Avalon Field Club at New Castle. At both June 30, 2023 and December 31, 2022, loan proceeds of $10.5 million are presented in the Condensed Consolidated Balance Sheets as “Restricted cash.” The 2019 Term Loan Agreement was terminated in conjunction with the 2022 Term Loan Agreement.

 

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The 2022 Term Loan Agreement is payable in 119 equal monthly installments of principal and interest based on a twenty-five (25) year maturity schedule which commenced September 5, 2022 followed by one final balloon payment of all remaining principal, interest and fees due on the maturity date of August 5, 2032. Upon request by Avalon, project fund proceeds can be utilized to pay debt service. Borrowings under the 2022 Term Loan Agreement bear interest at a fixed rate of 6.00% until the seventh anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 6.00% per annum or (b) the sum of the three year treasury rate on the date two (2) business days prior to the reset date plus 3.40%, provided that the applicable rate shall in no event exceed 8.50% per annum.

 

Avalon has the right to prepay the amount outstanding under the 2022 Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is six percent (6%) on any prepayment in the first five years; four percent (4%) on any prepayment in the sixth and seventh year; three percent (3%) on any prepayment in the eighth and ninth year; and two percent (2%) on any prepayment in the tenth year.

 

Borrowings under the 2022 Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The 2022 Term Loan Agreement contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year, commencing December 31, 2023. The 2022 Term Loan also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the 2022 Term Loan Agreement covenants at June 30, 2023 and December 31, 2022.

 

The Company capitalized approximately $0.6 million of debt issuance costs in connection with the 2022 Term Loan Agreement in accordance with ASC Subtopic 470-50, Debt-Modifications and Extinguishments. The Company is amortizing these costs over the life of the 2022 Term Loan Agreement. In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, these costs are presented in the Condensed Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability.

 

Line of Credit Agreement

 

On May 31, 2018, Avalon entered into a business loan agreement with Premier Bank (formerly Home Savings Bank), (the “Line of Credit Agreement”) which provides for a line of credit of up to $5.0 million. On July 22, 2022, the Company amended the Line of Credit Agreement to extend the maturity date to July 31, 2024. Under the Line of Credit Agreement, borrowings in excess of $1.0 million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement.

 

At June 30, 2023 and December 31, 2022, approximately $2.2 million and $1.6 million, respectively, was outstanding under the Line of Credit Agreement. At June 30, 2023 and December 31, 2022, approximately $2.8 million and $3.4 million, respectively was available under the Line of Credit Agreement. Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At June 30, 2023, the interest rate on the Line of Credit Agreement was 8.50%.

 

Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year. The Line of Credit Agreement also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the Line of Credit Agreements covenants at June 30, 2023 and December 31, 2022.

 

During the three months ended June 30, 2023 and 2022, the weighted average interest rate on outstanding borrowings was 6.16% and 5.00%, respectively.

 

Obligations under the Company’s debt agreements at June 30, 2023 and December 31, 2022 consist of the following (in thousands):

 

   

June 30, 2023

 
   

Gross Amount

   

Debt Issuance Costs

   

Net Amount

 

Term Loan Agreement

  $ 30,543     $ (534 )   $ 30,009  

Less current portion

    580       (60 )     520  

Long-term debt

  $ 29,963     $ (474 )   $ 29,489  

 

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    December 31, 2022  
   

Gross Amount

   

Debt Issuance Costs

   

Net Amount

 

Term Loan Agreement

  $ 30,820     $ (559 )   $ 30,261