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2021



 

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, 2021

 

 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 2, 2021.



 

 

 

 

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, 2021 and 2020 (Unaudited) 

1

   

Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020 (Unaudited)

2

   

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended June 30, 2021 and 2020 (Unaudited)

      3

   

Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2021 and 2020 (Unaudited)

      4

   

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (Unaudited)

                   5

   

Notes to Unaudited Condensed Consolidated Financial Statements

6

   

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

25

   

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

39

   

Item 4.    Controls and Procedures

40

   
   

PART II. OTHER INFORMATION

 
   

Item 1.    Legal Proceedings

   41

   

Item 2.    Changes in Securities and Use of Proceeds

41

   

Item 3.    Defaults upon Senior Securities

41

   

Item 4.    Mine Safety Disclosures

41

   

Item 5.    Other Information

41

   

Item 6.    Exhibits and Reports on Form 8-K

41

   

SIGNATURE

42

 

i

 

 

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,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Net operating revenues:

                

Waste management services

 $8,685  $9,088  $19,835  $20,221 
                 

Food, beverage and merchandise sales

  3,283   1,361   4,624   2,396 

Other golf and related operations

  4,422   2,618   7,044   4,853 

Total golf and related operations

  7,705   3,979   11,668   7,249 

Total net operating revenues

  16,390   13,067   31,503   27,470 
                 

Costs and expenses:

                

Waste management services operating costs

  6,969   7,211   15,670   16,080 

Cost of food, beverage and merchandise

  1,348   564   1,941   1,092 

Golf and related operations operating costs

  4,743   2,875   7,664   5,507 

Depreciation and amortization expense

  767   712   1,531   1,411 

Selling, general and administrative expenses

  2,536   1,927   4,816   4,159 

Operating income (loss)

  27   (222)  (119)  (779)
                 

Other income (expense):

                

Interest expense

  (291)  (304)  (588)  (611)

Gain on debt extinguishment

  877   -   1,964   - 

Other income, net

  126   103   213   181 

Income (loss) before income taxes

  739   (423)  1,470   (1,209)
                 

Provision for income taxes

  15   24   58   68 

Net income (loss)

  724   (447)  1,412   (1,277)
                 

Less net loss attributable to non-controlling interest in subsidiary

  (18)  (12)  (46)  (29)

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

 $742  $(435) $1,458  $(1,248)
                 

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

             

Basic net income (loss) per share

 $0.19  $(0.11) $0.37  $(0.32)

Diluted net income (loss) per share

 $0.19  $(0.11) $0.37  $(0.32)
                 

Weighted average shares outstanding - basic

  3,899   3,875   3,899   3,875 

Weighted average shares outstanding - diluted

  3,929   3,875   3,937   3,875 

 

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,

 
  

2021

  

2020

 

Assets

        

Current Assets:

        

Cash and cash equivalents

 $4,451  $4,210 

Accounts receivable, less allowance for credit losses

  9,038   8,744 

Unbilled membership dues receivable

  1,102   585 

Inventories

  1,234   910 

Prepaid expenses

  766   730 

Other current assets

  51   80 

Total current assets

  16,642   15,259 
         

Property and equipment, net

  51,856   51,299 

Property and equipment under finance leases, net

  5,734   5,735 

Operating lease right-of-use assets

  1,588   1,728 

Restricted cash

  2,856   3,885 

Noncurrent deferred tax asset

  8   8 

Other assets, net

  36   36 

Total assets

 $78,720  $77,950 
         

Liabilities and Equity

        

Current liabilities:

        

Current portion of long-term debt

 $1,097  $1,594 

Current portion of obligations under finance leases

  271   333 

Current portion of obligations under operating leases

  552   529 

Accounts payable

  8,581   9,097 

Accrued payroll and other compensation

  1,324   809 

Accrued income taxes

  59   43 

Other accrued taxes

  376   461 

Deferred membership dues revenue

  5,376   3,196 

Other liabilities and accrued expenses

  1,118   1,121 

Total current liabilities

  18,754   17,183 
         

Long-term debt, net of current portion

  19,946   21,941 

Obligations under finance leases, net of current portion

  502   560 

Obligations under operating leases, net of current portion

  1,036   1,199 

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

  59,199   59,196 

Accumulated deficit

  (20,684)  (22,142)

Total Avalon Holdings Corporation Shareholders' Equity

  38,554   37,093 

Non-controlling interest in subsidiary

  (172)  (126)

Total equity

  38,382   36,967 

Total liabilities and equity

 $78,720  $77,950 

 

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, 2021

 
                                     
                          

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, 2021

  3,287,647   611,784  $33  $6  $59,197  $(21,426) $37,810  $(154) $37,656 
                                     

Stock options - compensation costs

  -   -   -   -   2   -   2   -   2 
                                     

Net income (loss)

  -   -   -   -   -   742   742   (18)  724 
                                     

Balance at June 30, 2021

  3,287,647   611,784  $33  $6  $59,199  $(20,684) $38,554  $(172) $38,382 

 

 

   

For the Three Months Ended June 30, 2020

 
                                                                         
                                                   

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, 2020

    3,263,647       611,784     $ 33     $ 6     $ 59,148     $ (22,969 )   $ 36,218     $ (83 )   $ 36,135  
                                                                         

Stock options - compensation costs

    -       -       -       -       2       -       2       -       2  
                                                                         

Net loss

    -       -       -       -       -       (435 )     (435 )     (12 )     (447 )
                                                                         

Balance at June 30, 2020

    3,263,647       611,784     $ 33     $ 6     $ 59,150     $ (23,404 )   $ 35,785     $ (95 )   $ 35,690  

 

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, 2021

 
                                                                         
                                                   

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 January 1, 2021

    3,287,647       611,784     $ 33     $ 6     $ 59,196     $ (22,142 )   $ 37,093     $ (126 )   $ 36,967  
                                                                         

Stock options - compensation costs

    -       -       -       -       3       -       3       -       3  
                                                                         

Net income (loss)

    -       -       -       -       -       1,458       1,458       (46 )     1,412  
                                                                         

Balance at June 30, 2021

    3,287,647       611,784     $ 33     $ 6     $ 59,199     $ (20,684 )   $ 38,554     $ (172 )   $ 38,382  

 

 

   

For the Six Months Ended June 30, 2020

 
                                                                         
                                                   

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 January 1, 2020

    3,263,647       611,784     $ 33     $ 6     $ 59,147     $ (22,156 )   $ 37,030     $ (66 )   $ 36,964  
                                                                         

Stock options - compensation costs

    -       -       -       -       3       -       3       -       3  
                                                                         

Net loss

    -       -       -       -       -       (1,248 )     (1,248 )     (29 )     (1,277 )
                                                                         

Balance at June 30, 2020

    3,263,647       611,784     $ 33     $ 6     $ 59,150     $ (23,404 )   $ 35,785     $ (95 )   $ 35,690  

 

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,

 
   

2021

   

2020

 
                 

Cash flows from operating activities:

               

Net income (loss)

  $ 1,412     $ (1,277 )

Reconciliation of net income (loss) to cash provided by operating activities:

               

Depreciation and amortization expense

    1,531       1,411  

Amortization of debt issuance costs

    21       21  

Compensation costs - stock options

    3       3  

Provision for losses on accounts receivable

    -       14  

(Gain) loss from disposal of equipment

    (3 )     3  

Gain on debt extinguishment

    (1,964 )     -  

Change in operating assets and liabilities:

               

Accounts receivable

    (294 )     4,186  

Unbilled membership dues receivable

    (517 )     (507 )

Inventories

    (324 )     (259 )

Prepaid expenses

    (36 )     166  

Other assets, net

    29       2  

Accounts payable

    (783 )     (3,303 )

Accrued payroll and other compensation

    515       91  

Accrued income taxes

    16       (52 )

Other accrued taxes

    (85 )     (182 )

Deferred membership dues revenue

    2,180       1,623  

Other liabilities and accrued expenses

    (3 )     80  

Net cash provided by operating activities

    1,698       2,020  
                 

Cash flows from investing activities:

               

Capital expenditures

    (1,820 )     (2,316 )

Proceeds from disposal of vehicle

    3       -  

Net cash used in investing activities

    (1,817 )     (2,316 )
                 

Cash flows from financing activities:

               

Proceeds under Paycheck Protection Program loans

    -       2,765  

Principal payments on term loan facilities

    (549 )     (522 )

Principal payments on finance lease obligations

    (120 )     (115 )

Net cash provided by (used in) financing activities

    (669 )     2,128  
                 

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

    (788 )     1,832  

Cash, cash equivalents and restricted cash at beginning of period

    8,095       8,631  

Cash, cash equivalents and restricted cash at end of period

  $ 7,307     $ 10,463  
                 

Supplemental disclosure of cash flow information:

               
                 

Significant non-cash operating and investing activities:

               

Capital expenditures included in accounts payable

  $ 267     $ 245  

Significant non-cash operating and financing activities:

               

Interest forgiven from Paycheck Protection Program loans

  $ 17     $ -  

Significant non-cash investing and financing activities:

               

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

  $ 67     $ 266  

Finance lease obligations incurred

  $ -     $ 391  
                 

Cash paid during the period for interest

  $ 574     $ 585  

Cash paid during the period for income taxes

  $ 42     $ 120  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 

 

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2021

 

 

 

 

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 2020 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, 2021, 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.

 

The coronavirus/COVID-19 pandemic (collectively referred to herein as "COVID-19") adversely impacted our financial position, results of operations, and cash flows during the six months ended June 30, 2020. As a result of the government mandates being subsequently lifted, the COVID-19 pandemic had a limited impact on our results of operations during the six months ended June 30, 2021. Due to the ongoing uncertainty of COVID-19, we cannot predict the future impact that the pandemic may have on our financial condition, results of operations or cash flows.

 

 

Note 3. COVID-19 Coronavirus Pandemic

 

In December 2019, a novel strain of coronavirus, COVID-19, emerged in Wuhan, Hubei Province, China. While initially concentrated in China, the outbreak spread to other countries and infections have been reported globally including in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 viral disease a pandemic. As a result, the federal and state governmental bodies began taking unprecedented measures to try and control the spread of the virus including the issuance of temporary stay at home orders, the temporary closing of non-essential businesses and in-house dining and restrictions on gatherings and events.

 

6

 

During the six months ended June 30, 2020, the various governmental orders that were issued to control the spread of COVID-19 adversely impacted our operations and related financial results. Our restaurants operated under government mandated occupancy restrictions for in-house dining. Food and beverages sales related to banquets and conferences were significantly lower as a result of restrictions placed on gatherings and events. In addition, in March 2020, the Company began experiencing a high level of room and event cancellations with some subsequent re-bookings for a future date.

 

Although the various government mandates impacting our business operations have currently been lifted, we may experience weakened demand in light of continued travel restrictions or warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty. The full extent of the impact of the COVID-19 pandemic on our operations and financial performance will depend on future developments, including the duration and spread of the pandemic and the impact of COVID-19 variants, all of which are uncertain and cannot be predicted at this time. Governmental bodies may continue to impose additional restrictions, which could include additional shutdowns, to stop the spread of infection. These additional restrictions would have a negative impact on our financial condition, results of operations and cash flows.

 

 

Note 4. Recent Accounting Pronouncements

 

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU 2020-04”) establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently evaluating the adoption of this pronouncement and does not expect the adoption to have an impact on the Company's financial position, results of operations or financial disclosures.

 

 

Note 5. 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.

 

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 10).

 

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, 2021 and December 31, 2020 (in thousands):

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 

Cash and cash equivalents

  $ 4,451     $ 4,210  

Restricted cash

    2,856       3,885  

Cash, cash equivalents and restricted cash

  $ 7,307     $ 8,095  

 

7

 

 

Note 6. 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 16). Due to the suspension of the salt water injection wells, there were no operating revenues for both the three and six months ended June 30, 2021 and 2020.

 

For the three months ended June 30, 2021 and 2020, the net operating revenues related to waste management services represented approximately 53% and 70%, respectively, of Avalon’s total consolidated net operating revenues. For the six months ended June 30, 2021 and 2020, the net operating revenues related to waste management services represented approximately 63% and 74%, respectively, of Avalon’s total consolidated net operating revenues. For the six months ended June 30, 2021, one customer accounted for 11% of the waste management services segment’s net operating revenues to external customers and 7% of the consolidated net operating revenues. For the six months ended June 30, 2020, no one customer individually accounted for 10% or more of Avalon’s waste management services segment revenues.

 

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.

 

8

 

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 2021 and 2020.

 

For the three months ended June 30, 2021 and 2020, the net operating revenues related to the golf and related operations represented approximately 47% and 30%, respectively, of Avalon’s total consolidated net operating revenues. For the six months ended June 30, 2021 and 2020, the net operating revenues related to the golf and related operations represented approximately 37% and 26%, respectively, of Avalon’s total consolidated net operating revenues. For both the six months ended June 30, 2021 and 2020, no one customer individually accounted for 10% or more of Avalon’s golf and related operations segment revenues.

 

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.

 

9

 

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).

 

The following table presents our net operating revenues disaggregated by revenue source for the three and six months ended June 30, 2021 and 2020 (in thousands). Sales and other taxes are excluded from revenues.

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Waste management and brokerage services

 $8,078  $8,501  $18,629  $19,026 

Captive landfill management operations

  607   587   1,206   1,195 

Total waste management services revenues

  8,685   9,088   19,835   20,221 

Food, beverage and merchandise sales

  3,283   1,361   4,624   2,396 

Membership dues revenue

  1,661   1,496   3,268   3,018 

Room rental revenue

  1,126   321   1,614   593 

Greens fees and cart rental revenue

  917   613   1,003   666 

Tennis lesson revenue

  92   24   224   141 

Other revenue

  626   164   935   435 

Total golf and related operations revenue

  7,705   3,979   11,668   7,249 

Total net operating revenues

 $16,390  $13,067  $31,503  $27,470 

 

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

 

10

 

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, 2021 and December 31, 2020, accounts receivable, net, related to our waste management services segment were approximately $7.1 million and $7.9 million, respectively. At June 30, 2021, one customer accounted for approximately 19% of the waste management services segment’s receivables and 15% of the consolidated receivables. At December 31, 2020 no one customer accounted for 10% or more of Avalon’s waste management services segment or consolidated net receivables. Accounts receivable, net, related to our golf and related operations segment were approximately $1.9 million and $0.8 million at June 30, 2021 and December 31, 2020, 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, 2021 or December 31, 2020.

 

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 June 30, 2021 and December 31, 2020.

 

The following table presents changes in our allowance for credit losses during the three and six months ended June 30, 2021 and 2020 (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, 2021

 $260  $6  $(16) $250 

Three months ended June 30, 2020

 $277  $9  $(15) $271 
                 

Six months ended June 30, 2021

 $265  $-  $(15) $250 

Six months ended June 30, 2020

 $275  $14  $(18) $271 

 

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, 2021 and $0.6 million at December 31, 2020.

 

The following table presents changes in our contract assets during the three and six months ended June 30, 2021 and 2020 (in thousands):

 

 

  

Balance at

  

Membership

      

Balance at

 
  

Beginning of Period

  

Dues

  

Billings

  

End of Period

 

Contract Assets:

                

Unbilled membership dues receivable

                

Three months ended June 30, 2021

 $701  $980  $(579) $1,102 

Three months ended June 30, 2020

 $813  $960  $(664) $1,109 
                 

Six months ended June 30, 2021

 $585  $1,565  $(1,048) $1,102 

Six months ended June 30, 2020

 $602  $1,645  $(1,138) $1,109 

 

11

 

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 $5.4 million at June 30, 2021 and $3.2 million at December 31, 2020, 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 $0.8 million at June 30, 2021 and $0.7 million at December 31, 2020.

 

The following table presents changes in our contract liabilities during the three and six months ended June 30, 2021 and 2020 (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, 2021

 $4,122  $2,915  $(1,661) $5,376 

Three months ended June 30, 2020

 $4,018  $2,254  $(1,496) $4,776 
                 

Six months ended June 30, 2021

 $3,196  $5,448  $(3,268) $5,376 

Six months ended June 30, 2020

 $3,153  $4,641  $(3,018) $4,776 
                 

Customer advance deposits

                

Three months ended June 30, 2021

 $752  $479  $(447) $784 

Three months ended June 30, 2020

 $630  $140  $(118) $652 
                 

Six months ended June 30, 2021

 $674  $711  $(601) $784 

Six months ended June 30, 2020

 $553  $395  $(296) $652 

 

 

Note 7. 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. Gains or losses resulting from the disposal of property and equipment are recorded in “Other income, net” in our Condensed Consolidated Statements of Operations.

 

12

 

Property and equipment at June 30, 2021 and December 31, 2020 consists of the following (in thousands):

 

  

June 30,

  

December 31,

 
  

2021

  

2020

 

Land and land improvements

 $15,256  $15,150 

Buildings and improvements

  47,899   47,026 

Machinery and equipment

  5,659   5,469 

Office furniture and fixtures

  8,436   8,000 

Vehicles

  661   677 

Construction in progress

  1,282   1,086 
   79,193   77,408 

Less accumulated depreciation and amortization

  (27,337)  (26,109)

Property and equipment, net

 $51,856  $51,299 

 

At June 30, 2021, 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 2021 and 2020, no triggering events were present.

 

 

Note 8. 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 1 year to 4.7 years. The weighted average remaining lease term on operating leases was approximately 3.4 years at June 30, 2021.

 

During the six months of 2021, the Company entered into new operating lease agreements for a facility and golf cart GPS equipment. The Company recorded operating lease right-of-use assets and corresponding obligations under the operating leases of approximately $67,000. During the first six months of 2020, the Company entered into a new operating lease agreement for hotel furniture. The Company recorded an operating lease right-of-use asset and corresponding obligation under the operating lease of approximately $266,000.

 

Leased property and associated obligations under operating leases at June 30, 2021 and December 31, 2020 consists of the following (in thousands):

 

  

June 30,

  

December 31,

 
  

2021

  

2020

 

Operating lease right-of-use assets

 $1,588  $1,728 
         

Current portion of obligations under operating leases

 $552  $529 

Long-term portion of obligations under operating leases

  1,036   1,199 

Total obligations under operating leases

 $1,588  $1,728 

 

The weighted average discount rate on operating leases was 4.7% at June 30, 2021 and December 31, 2020.

 

13

 

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, 2021 there were approximately 32.3 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, 2021, the vehicles, golf course maintenance and restaurant equipment and the landfill operations equipment have remaining lease terms ranging from less than 1 year to 3.9 years. The weighted average remaining lease term on the vehicles and equipment leases was approximately 2.7 years at June 30, 2021.

 

Leased property and associated obligations under finance leases at June 30, 2021 and December 31, 2020 consists of the following (in thousands):

 

  

June 30,

  

December 31,

 
  

2021

  

2020

 

Leased property under finance leases

 $12,391  $12,112 

Less accumulated amortization

  (6,657)  (6,377)

Leased property under finace leases, net

 $5,734  $5,735 
         

Current portion of obligations under finance leases

 $271  $333 

Long-term portion of obligations under finance leases

  502   560 

Total obligations under finance leases

 $773  $893 

 

The weighted average discount rate on finance leases was 4.8% at June 30, 2021 and 4.5% at December 31, 2020.

 

For the three and six months ended June 30, 2021 and 2020, components of lease expense were as follows (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Operating lease cost:

                

Rental expense

 $208  $196  $292  $285 
                 

Finance lease cost:

                

Depreciation expense

 $139  $137  $280  $268 

Interest expense

  11   10   24   21 

Total finance lease cost

 $150  $147  $304  $289 

 

14

 

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

 

  

Finance

  

Operating

  

Total

 

2022

 $302  $610  $912 

2023

  148   491   639 

2024

  109   332   441 

2025

  99   173   272 

2026

  15   102   117 

Thereafter

  405   -   405 

Total lease payments

  1,078   1,708   2,786 

Less imputed interest

  305   120   425 

Total

  773   1,588   2,361 

Less: current portion of obligations under leases

  271   552   823 

Long-term portion of obligations under leases

 $502  $1,036  $1,538 

 

 

Note 9. 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, 2021, the weighted average number of common shares outstanding was 3,899,431. For both the three and six months ended June 30, 2020, the weighted average number of common shares outstanding was 3,875,431.

 

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 and six months ended June 30, 2021, the diluted weighted average number of shares outstanding was 3,928,971 and 3,936,854, respectively.

 

For both the three and six months ended June 30, 2020, 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. Assuming dilution, the diluted per share amount is equal to the basic per share amount because the average market price of Avalon’s common shares during the period was less than the exercise price of the stock options outstanding.

 

 

Note 10. Term Loans and Line of Credit Agreements

 

New Term Loan Agreement

 

On December 20, 2019, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “New Term Loan Agreement”) with Laurel Capital Corporation which provided for a $23.0 million term loan. At closing, $13.8 million of the proceeds were used to pay off and refinance amounts outstanding under our then existing term loan and commercial mortgage agreements, $1.7 million of the proceeds were used to pay down the outstanding balance and associated interest on our existing line of credit agreement and $0.3 million of the proceeds were utilized to pay related transaction costs. The remaining proceeds of approximately $7.2 million were deposited into a project fund account for which those proceeds are required to fund future costs of renovating and expanding both The Grand Resort and Avalon Field Club at New Castle. At June 30, 2021 and December 31, 2020, loan proceeds of $2.9 million and $3.9 million, respectively, are presented in the Condensed Consolidated Balance Sheets as “Restricted cash.”

 

The then existing term loan and commercial mortgage agreements were terminated in conjunction with the New Term Loan Agreement.

 

15

 

The New Term Loan Agreement is payable in 119 equal monthly installments of principal and interest, based on a fifteen (15) year maturity schedule which commenced January 20, 2020 followed by one final balloon payment of all remaining principal, interest and fees due on the maturity date of December 20, 2029. Borrowings under the New Term Loan Agreement bear interest at a fixed rate of 5.00% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.00% per annum or (b) the sum of the five year treasury rate on the date two (2) business days prior to the reset date plus 3.60%, provided that the applicable rate shall in no event exceed 7.35% per annum.

 

Avalon has the right to prepay the amount outstanding under the New 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 five percent (5%) 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 New Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The New 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. The New Term Loan also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the New Term Loan Agreement covenants at June 30, 2021 and December 31, 2020.

 

The Company capitalized approximately $0.4 million of debt issuance costs in connection with the New Term Loan Agreement. The Company is amortizing these costs over the life of the New 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 August 5, 2020, the Company amended the Line of Credit Agreement to extend the maturity date to July 31, 2022. 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.

 

No amounts were drawn under the Line of Credit Agreement at June 30, 2021 and December 31, 2020. Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At June 30, 2021, the interest rate on the Line of Credit Agreement was 3.50%.

 

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, 2021 and December 31, 2020.

 

Paycheck Protection Program Loan

 

The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, qualified companies are eligible for a loan in an amount equal to the lesser of $10 million or 2.5 times the business’s average monthly payroll. Collateral or guarantor support is not required for the loan.

 

16

 

Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during, at the borrowers election, either an 8 or 24 week covered period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Under the Program, proceeds that are not forgiven convert to a loan bearing interest at a fixed rate of 1% payable, at the borrowers election, in either 18 or 54 equal monthly installments commencing 10 months after the end of their covered period.

 

In the second quarter of 2020, certain wholly-owned subsidiaries of Avalon entered into agreements and received a total of approximately $2.8 million in loans under the Program. The Company utilized the entire balance of the loan proceeds in accordance with the Program’s guidelines using the 24 week loan forgiveness period and subsequently applied for forgiveness with the Small Business Administration.

 

The Company accounted for the loans in accordance with ASC 470Debt. Under ASC 470, the debt will be derecognized when the debt is extinguished in accordance with the guidance in ASC 405-20, Liabilities: Extinguishments of Liabilities. Debt forgiven in accordance with the Program is recognized in the Condensed Consolidated Statements of Operations as a gain on debt extinguishment.

 

During the fourth quarter of 2020, approximately $0.8 million of the loans and $4,000 of associated interest were forgiven by the Small Business Administration. During the first quarter of 2021, approximately $1.1 million of the loans and $8,000 of associated interest were forgiven by the Small Business Administration and, during the second quarter of 2021, the remaining $0.9 million of the loans and $9,000 of associated interest were forgiven by the Small Business Administration.

 

During the three months ended June 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 4.92% and 4.67%, respectively. During the six months ended June 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 4.86% and 4.82%, respectively.

 

Obligations under the Company’s debt agreements at June 30, 2021 and December 31, 2020 consist of the following (in thousands):

 

  

June 30, 2021

 
  

Gross Amount

  

Debt Issuance Costs

  

Net Amount

 

Term Loan Agreement

 $21,395  $(352) $21,043 

Less current portion

  1,139   (42)  1,097 

Long-term debt

 $20,256  $(310) $19,946 

 

  

December 31, 2020

 
  

Gross Amount

  

Debt Issuance Costs

  

Net Amount

 

Term Loan Agreement

 $21,944  $(373) $21,571 

Paycheck Protection Program Loans

  1,964   -   1,964 

Total

  23,908   (373)  23,535 

Less current portion

  1,636   (42)  1,594 

Long-term debt

 $22,272  $(331) $21,941 

 

For the twelve months ending June 30, future maturities of long-term debt are as follows (in thousands):

 

2022

 $1,139 

2023

  1,197 

2024

  1,258 

2025

  1,323 

2026

  1,390 

Thereafter

  15,088 

Total

 $21,395 

 

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Note 11. Income Taxes

 

During the three months ended June 30, 2021, net income attributable to Avalon Holdings Corporation shareholders was $0.7 million compared to a net loss attributable to Avalon Holdings Corporation shareholders of $0.4 million during the three months ended June 30, 2020. During the six months ended June 30, 2021, net income attributable to Avalon Holdings Corporation shareholders was $1.5 million compared to a net loss attributable to Avalon Holdings Corporation shareholders of $1.2 million during the six months ended June 30, 2020. Avalon recorded a state income tax provision in both the three and six month periods ended June 30, 2021 and 2020, which was related entirely to the waste management and brokerage operations. Due to the recording of a full valuation allowance against the Company’s federal net deferred tax assets, the overall effective tax rate in both periods reflects taxes owed in certain U.S state jurisdictions. Avalon’s income tax on the income (loss) before taxes was offset by a change in the valuation allowance. A valuation allowance is provided when it is more likely than not that deferred tax assets relating to certain federal and state loss carryforwards will not be realized. Avalon continues to maintain a valuation allowance against the majority of its deferred tax amounts until it is evident that the deferred tax asset will be utilized in the future.

 

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryforwards generated in taxable years beginning after December 31, 2017, to offset 100% of taxable income for taxable years beginning before January 1, 2021, and 80% of taxable income in taxable years beginning after December 31, 2020. In addition, the CARES Act allows net operating losses incurred in taxable years beginning after December 31, 2017, and before January 1, 2021, to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The adoption of these provisions did not have a material impact on the Company’s financial position or results of operations.

 

On December 27, 2020, the Consolidated Appropriations Act, 2021 (the “Appropriations Act”) was enacted in response to the COVID-19 pandemic. The Appropriations Act, among other things, temporarily extends through December 31, 2025, certain expiring tax provisions, including look-through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations. Additionally, the Appropriations Act enacts new provisions and extends certain provisions originated within the CARES Act, including an extension of time for repayment of the deferred portion of employees’ payroll tax through December 31, 2021, and a temporary allowance for full deduction of certain business meals. Avalon has elected not to defer the employees’ portion of payroll tax. Management is currently evaluating the other provisions of the Appropriations Act, but at present time does not expect that the other provisions of the Appropriations Act would result in a material tax or cash benefit.

 

 

Note 12. Long-Term Incentive Plan

 

On March 14, 2019, the Board of Directors of Avalon approved the renewal of the expired 2009 Long-term Incentive Plan (the “2009 Plan”), which was set to expire in October of 2019. The 2009 Plan provides for the granting of options which are intended to be non-qualified stock options (“NQSO’s”) for federal income tax purposes except for those options designated as incentive stock options (“ISO’s”) which qualify under Section 422 of the Internal Revenue Code.

 

The name of the plan was changed to the 2019 Long-term Incentive Plan (“the Option Plan”) to reflect the year of approval. The Option Plan represents the renewal of the 2009 Plan which had 1,300,000 shares of Class A Common Stock available for stock options to employees and non-employee directors. The Option Plan has 1,300,000 shares available for stock options, less any shares of stock issued pursuant to options exercised under the 2009 Plan. The total number of shares under the Option Plan and the 2009 Plan will not exceed 1,300,000. Shares of stock covered by options granted pursuant to the 2009 Plan which terminate or expire prior to exercise or have been surrendered or canceled shall be available for further option grants under the Option Plan. On April 25, 2019, at the Annual Meeting of Shareholders, the shareholders approved the Option Plan.

 

The purpose of the Avalon Holdings Corporation 2019 Long-term Incentive Plan (the “Plan”) is (a) to improve individual employee performance by providing long-term incentives and rewards to employees of Avalon, (b) to assist Avalon in attracting, retaining and motivating employees and non-employee directors with experience and ability, and (c) to associate the interests of such employees and directors with those of the Avalon shareholders.

 

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NQSO’s may be granted with an exercise price which is not less than 100% of the fair market value of the Class A Common Stock on the date of grant. Options designated as ISO’s shall not be less than 110% of fair market value for employees who are ten percent shareholders and not less than 100% of fair market value for other employees. The Board of Directors may, from time to time in its discretion, grant options to one or more outside directors, subject to such terms and conditions as the Board of Directors may determine, provided that such terms and conditions are not inconsistent with other applicable provisions of the Option Plan. Options shall have a term of no longer than ten years from the date of grant; except that for an option designated as an ISO which is granted to a ten percent shareholder, the option shall have a term no longer than five years.

 

No option shall be exercisable prior to one year after its grant, unless otherwise provided by the Option Committee of the Board of Directors (but in no event before 6 months after its grant), and thereafter options shall become exercisable in installments, if any, as provided by the Option Committee. Options must be exercised for full shares of common stock. To the extent that options are not exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such options. No option may be exercised by an optionee after his or her termination of employment for any reason with Avalon or an affiliate, except in certain situations provided by the Option Plan.

 

The stock options, vest ratably over a five year period and have a contractual term of ten years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within three years following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended at the discretion of the Board of Directors.

 

The grant-date fair values of the stock option awards were estimated using the Monte Carlo Simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.

 

The grant date fair value of the underlying equity was determined to be equal to Avalon’s publicly traded stock price as of the grant dates times the sum of the Class A and Class B common shares outstanding.

 

The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the Company has had no historical exercising activity, prior to 2018, the simplified method was applied.  Because of the nature of the vesting described above, the options are separated into five blocks, with each block having its own vesting period and expected term. 

 

For stock option awards, the expected volatility was based on the observed historical volatility of Avalon common stock. There were no expected dividends and the risk-free interest rate was based on yield data for U. S. Treasury securities over a period consistent with the expected term.

 

In March 2021, unexercised options to purchase 190,000 shares previously granted under the 2009 Plan expired as the options were not exercised within ten years after the grant date. At June 30, 2021, options to purchase 90,000 shares have been granted under the 2009 Plan. Of these, 36,000 shares have been exercised, and options for 54,000 shares remain outstanding.

 

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The following table is a summary of the stock option activity during 2021:                                     

 

      

Weighted

  

Weighted

 
  

Number of

  

Average

  

Average

 
  

Options

  

Exercise

  

Fair Value at

 
  

Granted

  

Price

  

Grant Date

 

Outstanding at January 1, 2021

  244,000   2.66   1.03 

Options granted

  -   -   - 

Options exercised

  -   -   - 

Options expired

  (190,000)  2.89   1.20 

Options cancelled or forfeited

  -   -   - 

Outstanding at June 30, 2021

  54,000  $1.83  $0.43 

Options Vested

  54,000  $1.83  $0.43 

Exercisable at June 30, 2021

  -  $-  $- 

 

The stock options vest and become exercisable based upon achieving two critical metrics as follows:

1)    Contract Vesting Term: The stock options vest ratably over a five year period.

2)    The Avalon common stock price traded on a public stock exchange (NYSE Amex) must reach the predetermined vesting price within three years after the options become vested under the contractual vesting term.

 

The table below represents the period and predetermined stock price needed for vesting.

 

 

Begins

 

Ends

 

Predetermined

 
 

Vesting

 

Vesting

 

Vesting Price

 

Block 1

12 months after Grant Dates

 

48 months after Grant Dates

 $3.43 

Block 2

24 months after Grant Dates

 

60 months after Grant Dates

 $4.69 

Block 3

36 months after Grant Dates

 

72 months after Grant Dates

 $6.43 

Block 4

48 months after Grant Dates

 

84 months after Grant Dates

 $8.81 

Block 5

60 months after Grant Dates

 

96 months after Grant Dates

 $12.07 

 

Compensation costs were approximately $2,000 for both the three month periods ended June 30, 2021 and 2020, and $3,000 for both the six month periods ended June 30, 2021 and 2020, based upon the estimated grant date fair value calculations. As of June 30, 2021, there was approximately $10,000 of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.92 years.

 

 

Note 13. Legal Matters

 

In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those related to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, will have a material adverse effect on its liquidity, financial position or results of operations (See Note 16).

 

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Note 14. Business Segment Information

 

In determining the segment information, Avalon considered its operating and management structure and the types of information subject to regular review by its “chief operating decision maker.” Using the criteria of FASB ASC 280 Segment Reporting, Avalon’s reportable segments include waste management services and golf and related operations. Avalon accounts for intersegment net operating revenues as if the transactions were to third parties. The segment disclosures are presented on this basis for all periods presented.

 

Avalon’s primary business segment, the waste management services segment, provides hazardous and nonhazardous brokerage and management services to industrial, commercial, municipal and governmental customers, captive landfill management for an industrial customer and salt water injection well operations.

 

Avalon’s golf and related operations segment consists of four golf courses and associated clubhouses which provide dining and banquet facilities, a hotel which provides lodging and resort related amenities including dining, banquet and conference facilities, a multipurpose recreation center and a travel agency. Revenue for the golf and related operations segment consists primarily of membership dues, greens fees, cart rentals, room rentals, merchandise sales, tennis and fitness activities, salon and spa services and food and beverage sales.

 

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

 

For the six months ended June 30, 2021, one customer accounted for 11% of the waste management services segment’s net operating revenues to external customers and 7% of the consolidated net operating revenues. For the six months ended June 30, 2020, no one customer accounted for 10% of Avalon’s consolidated or reportable segment net operating revenues.

 

The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of significant accounting policies included in Avalon’s 2020 Annual Report to Shareholders. Avalon measures segment profit for internal reporting purposes as income (loss) before income taxes.

 

Business segment information including the reconciliation of segment income before taxes to income (loss) before taxes is as follows (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2021

  

2020

  

2021

  

2020

 

Net operating revenues from:

                

Waste management services:

                

External customer revenues

 $8,685  $9,088  $19,835  $20,221 

Intersegment revenues

  -   -   -   - 

Total waste management services

  8,685   9,088   19,835