2020 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 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 September 30, 2020 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition peri ...

2020 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 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, 2020 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period fr ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited condensed consolidated financial statements for the periods ended March 31, 2020 and 2019 [Condensed Consolidated Statements of Operations (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) The company reported a net loss of $830 thousand for Q1 2020, an increase from the prior year's loss of $653 thousand | Metric | March 31, 2020 (in thousands) | March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total net operating revenues | $14,403 | $14,608 | | Waste management services operating costs | $8,869 | $9,248 | | Operating loss | $(557) | $(518) | | Interest expense | $(307) | $(163) | | Net loss | $(830) | $(653) | | Net loss attributable to Avalon Holdings Corporation common shareholders | $(813) | $(638) | | Basic and diluted net loss per share | $(0.21) | $(0.16) | [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets decreased to $77.68 million as of March 31, 2020, driven by a reduction in restricted cash and accounts receivable | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total current assets | $15,162 | $15,610 | | Property and equipment, net | $49,740 | $48,978 | | Restricted cash | $5,523 | $7,185 | | Total assets | $77,676 | $79,164 | | Total current liabilities | $18,631 | $19,022 | | Long-term debt, net of current portion | $21,308 | $21,570 | | Total Avalon Holdings Corporation Shareholders' Equity | $36,218 | $37,030 | | Total liabilities and equity | $77,676 | $79,164 | [Condensed Consolidated Statements of Shareholders' Equity (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Unaudited)) Total equity decreased to $36.14 million at March 31, 2020, primarily due to a net loss of $830 thousand during the period | Metric | Balance at Jan 1, 2020 (in thousands) | Stock options - compensation costs (in thousands) | Net loss (in thousands) | Balance at Mar 31, 2020 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Class A Common Stock | $33 | - | - | $33 | | Class B Common Stock | $6 | - | - | $6 | | Paid-in Capital | $59,147 | $1 | - | $59,148 | | Accumulated Deficit | $(22,156) | - | $(813) | $(22,969) | | Total Avalon Shareholders' Equity | $37,030 | $1 | $(813) | $36,218 | | Noncontrolling Interest in Subsidiary | $(66) | - | $(17) | $(83) | | Total | $36,964 | $1 | $(830) | $36,135 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash used in operating activities increased to $400 thousand in Q1 2020, with a significant decrease in cash from financing activities | Cash Flow Activity | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net loss | $(830) | $(653) | | Net cash used in operating activities | $(400) | $(129) | | Net cash used in investing activities | $(977) | $(369) | | Net cash provided by (used in) financing activities | $(283) | $2,803 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(1,660) | $2,305 | | Cash, cash equivalents and restricted cash at end of period | $6,971 | $4,213 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes detail the company's business segments, accounting policies, and the significant impact of the COVID-19 pandemic [Note 1. Description of Business](index=7&type=section&id=Note%201.%20Description%20of%20Business) The company operates in two primary segments: waste management services and golf and related operations - Avalon provides waste management services to industrial, commercial, municipal, and governmental customers in selected northeastern and midwestern U.S. markets, including captive landfill management and salt water injection well operations[13](index=13&type=chunk) - The Company also owns Avalon Resorts and Clubs, Inc (ARCI), which operates four golf courses, clubhouses, athletic/fitness centers, tennis courts, salon/spa services, dining/banquet facilities, a travel agency, and a hotel with related resort amenities[13](index=13&type=chunk) [Note 2. Basis of Presentation](index=7&type=section&id=Note%202.%20Basis%20of%20Presentation) The unaudited financial statements include all necessary adjustments and reflect the expected adverse impact of the COVID-19 pandemic - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation[14](index=14&type=chunk)[16](index=16&type=chunk) - Operating results for interim periods are not necessarily indicative of the results to be expected for the full year[16](index=16&type=chunk) - The effects of the COVID-19 pandemic are expected to **adversely impact** the Company's financial position, results of operations, and cash flows in fiscal year 2020, with future impacts remaining uncertain[17](index=17&type=chunk) [Note 3. Recent Accounting Pronouncements](index=7&type=section&id=Note%203.%20Recent%20Accounting%20Pronouncements) The company adopted new lease and credit loss standards, with the lease standard adding a $1.7 million asset and liability - Adopted ASU 2016-02, Leases, on January 1, 2019, resulting in the recording of a right-of-use (ROU) asset and a related lease liability of **approximately $1.7 million** for existing operating leases[18](index=18&type=chunk) - Adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, effective January 1, 2020, which did **not have an impact** on the Company's financial position or results of operations[19](index=19&type=chunk) [Note 4. Cash, Cash Equivalents and Restricted Cash](index=8&type=section&id=Note%204.%20Cash%2C%20Cash%20Equivalents%20and%20Restricted%20Cash) Restricted cash primarily consists of loan proceeds designated for the renovation and expansion of resort properties - Cash equivalents are highly liquid investments with a maturity of three months or less when purchased[20](index=20&type=chunk) - Restricted cash consists of loan proceeds deposited into a project fund account to finance the renovation and expansion of The Grand Resort and Avalon Field Club at New Castle[21](index=21&type=chunk) | Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,448 | $1,446 | | Restricted cash | $5,523 | $7,185 | | Cash, cash equivalents and restricted cash | $6,971 | $8,631 | [Note 5. Revenues](index=8&type=section&id=Note%205.%20Revenues) Waste management services constitute the majority of revenue, accounting for 77% of the total in Q1 2020 - Revenue is recognized when obligations under the contract are satisfied, generally with the transfer of control of the good or service to the customer[22](index=22&type=chunk) - Waste management services represented approximately **77% and 78%** of total consolidated net operating revenues for the three months ended March 31, 2020 and 2019, respectively[28](index=28&type=chunk) - Golf and related operations represented approximately **23% and 22%** of total consolidated net operating revenues for the three months ended March 31, 2020 and 2019, respectively[35](index=35&type=chunk) - The adoption of ASU 2016-13 on January 1, 2020, did not have an impact on the Company's financial condition and results of operations[46](index=46&type=chunk) | Revenue Source | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Waste management and brokerage services | $10,525 | $10,798 | | Captive landfill management operations | $608 | $636 | | Total waste management services revenues | $11,133 | $11,434 | | Food, beverage and merchandise sales | $1,035 | $1,082 | | Membership dues revenue | $1,522 | $1,322 | | Room rental revenue | $272 | $336 | | Greens fees and cart rental revenue | $53 | $41 | | Other revenue | $388 | $393 | | Total golf and related operations revenue | $3,270 | $3,174 | | Total net operating revenues | $14,403 | $14,608 | | Contract Liabilities | Balance at Beginning of Period (in thousands) | Billings (in thousands) | Revenue Recognized (in thousands) | Balance at End of Period (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Deferred membership dues revenue (Mar 31, 2020) | $3,153 | $2,387 | $(1,522) | $4,018 | | Deferred membership dues revenue (Mar 31, 2019) | $2,899 | $1,739 | $(1,322) | $3,316 | | Customer advance deposits (Mar 31, 2020) | $553 | $255 | $(178) | $630 | | Customer advance deposits (Mar 31, 2019) | $453 | $287 | $(204) | $536 | [Note 6. Property and Equipment](index=13&type=section&id=Note%206.%20Property%20and%20Equipment) Property and equipment are recorded at cost and depreciated using the straight-line method, with no impairment events in Q1 2020 - Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives[53](index=53&type=chunk) - No significant fixed contractual commitments for construction projects existed at March 31, 2020[55](index=55&type=chunk) - No triggering events for impairment of long-lived assets were present in the first quarter of 2020 and 2019[56](index=56&type=chunk) | Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Land and land improvements | $14,832 | $14,823 | | Buildings and improvements | $44,654 | $44,596 | | Machinery and equipment | $5,128 | $5,005 | | Office furniture and fixtures | $7,374 | $7,234 | | Vehicles | $499 | $499 | | Construction in progress | $1,576 | $581 | | Less accumulated depreciation and amortization | $(24,323) | $(23,760) | | Property and equipment, net | $49,740 | $48,978 | [Note 7. Leases](index=13&type=section&id=Note%207.%20Leases) The company holds both operating and finance leases for various assets and has significant future lease commitments - Operating leases include golf carts, landfill equipment, resort furniture, and office copiers, with a weighted average remaining lease term of approximately **3.2 years** at March 31, 2020[57](index=57&type=chunk) - Finance leases include a long-term agreement for Squaw Creek Country Club (33.6 years remaining) and leases for vehicles, golf course maintenance, restaurant, and landfill equipment (1-5 years remaining), with a weighted average remaining lease term of approximately **2.2 years** at March 31, 2020[61](index=61&type=chunk)[62](index=62&type=chunk) | Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Operating lease right-of-use assets | $1,399 | $1,466 | | Current portion of obligations under operating leases | $473 | $513 | | Long-term portion of obligations under operating leases | $926 | $953 | | Total obligations under operating leases | $1,399 | $1,466 | | Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Leased property under finance leases, net | $5,805 | $5,878 | | Current portion of obligations under finance leases | $297 | $295 | | Long-term portion of obligations under finance leases | $576 | $555 | | Total obligations under finance leases | $873 | $850 | | Lease Expense Component | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Operating lease cost: | | | | Rental expense | $89 | $91 | | Finance lease cost: | | | | Depreciation expense | $131 | $126 | | Interest expense | $11 | $11 | | Total finance lease cost | $142 | $137 | | Year | Finance (in thousands) | Operating (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | 2021 | $333 | $529 | $862 | | 2022 | $291 | $501 | $792 | | 2023 | $86 | $301 | $387 | | 2024 | $35 | $149 | $184 | | 2025 | $27 | $27 | $54 | | Thereafter | $420 | - | $420 | | Total | $1,192 | $1,507 | $2,699 | [Note 8. Basic and Diluted Net Loss per Share](index=15&type=section&id=Note%208.%20Basic%20and%20Diluted%20Net%20Loss%20per%20Share) Basic and diluted net loss per share were identical due to the anti-dilutive effect of potential common shares - Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding (**3,875,431** for both Q1 2020 and Q1 2019)[67](index=67&type=chunk) - Diluted net loss per share was equal to basic net loss per share for Q1 2020 because the average market price of common shares was less than the stock option exercise price[69](index=69&type=chunk) - Diluted net loss per share was equal to basic net loss per share for Q1 2019 because Avalon was in a net loss position, making potential common equivalent shares **anti-dilutive**[69](index=69&type=chunk) [Note 9. Term Loans and Line of Credit Agreements](index=15&type=section&id=Note%209.%20Term%20Loans%20and%20Line%20of%20Credit%20Agreements) The company entered a new $23.0 million term loan in December 2019 and maintains a $5.0 million line of credit - On December 20, 2019, Avalon entered into a **New Term Loan Agreement for $23.0 million**, used to pay off and refinance existing term loans and a commercial mortgage, pay down a line of credit, and fund transaction costs[70](index=70&type=chunk)[71](index=71&type=chunk) - Approximately **$7.2 million** of the loan proceeds were deposited into a project fund account for renovating and expanding The Grand Resort and Avalon Field Club at New Castle, with **$5.5 million** remaining as restricted cash at March 31, 2020[71](index=71&type=chunk) - The New Term Loan Agreement bears a **fixed interest rate of 5.00%** for the first five years and is secured by certain real property and business assets[74](index=74&type=chunk)[76](index=76&type=chunk) - Avalon maintains a **$5.0 million Line of Credit Agreement**, extended to May 31, 2021, with no amounts drawn at March 31, 2020, or December 31, 2019[78](index=78&type=chunk)[79](index=79&type=chunk) - The weighted average interest rate on outstanding borrowings was **5.00%** for Q1 2020, down from 5.36% for Q1 2019[81](index=81&type=chunk) | Debt Category | Gross Amount (in thousands) | Debt Issuance Costs (in thousands) | Net Amount (in thousands) | | :--- | :--- | :--- | :--- | | **March 31, 2020** | | | | | Term Loan Agreement | $22,741 | $(405) | $22,336 | | Less current portion | $1,070 | $(42) | $1,028 | | Long-term debt | $21,671 | $(363) | $21,308 | | **December 31, 2019** | | | | | Term Loan Agreement | $23,000 | $(415) | $22,585 | | Less current portion | $1,057 | $(42) | $1,015 | | Long-term debt | $21,943 | $(373) | $21,570 | [Note 10. Income Taxes](index=17&type=section&id=Note%2010.%20Income%20Taxes) The company's federal net deferred tax assets are fully offset by a valuation allowance, resulting in an effective tax rate reflecting only state taxes - Avalon recorded a state income tax provision related entirely to its waste management and brokerage operations for Q1 2020 and Q1 2019[83](index=83&type=chunk) - A **full valuation allowance** is maintained against the Company's federal net deferred tax assets, as it is not more likely than not that these assets will be realized[83](index=83&type=chunk) - The Tax Act (December 22, 2017) reduced U.S. corporate tax rates, and Avalon valued all deferred tax assets and liabilities at the newly enacted rate, with a full valuation allowance on federal deferred tax assets[84](index=84&type=chunk) [Note 11. Long-Term Incentive Plan](index=17&type=section&id=Note%2011.%20Long-Term%20Incentive%20Plan) The company's 2019 incentive plan provides for stock options, with 268,000 options outstanding as of March 31, 2020 - The 2019 Long-term Incentive Plan (Option Plan) was approved by shareholders on April 25, 2019, making **1,300,000 shares** of Class A Common Stock available for stock options[86](index=86&type=chunk) - At March 31, 2020, **268,000 options** to purchase shares remain outstanding, after 420,000 unexercised options expired in March 2020[88](index=88&type=chunk) - Stock options vest ratably over a five-year period and become exercisable if the Avalon common stock price reaches a predetermined price within three years following the contractual vesting period[91](index=91&type=chunk) - Compensation costs were approximately **$1,000** for both Q1 2020 and Q1 2019, with **$16,000** of unrecognized costs remaining as of March 31, 2020, to be recognized over 4.17 years[99](index=99&type=chunk) | Activity | Number of Options Granted | Weighted Average Exercise Price | Weighted Average Fair Value at Grant Date | | :--- | :--- | :--- | :--- | | Outstanding at January 1, 2020 | 688,000 | $2.52 | $1.00 | | Options expired | (420,000) | $2.48 | $1.02 | | Outstanding at March 31, 2020 | 268,000 | $2.58 | $0.97 | | Options Vested | 250,000 | $2.64 | $1.02 | | Exercisable at March 31, 2020 | 214,000 | $2.77 | $1.11 | [Note 12. Legal Matters](index=19&type=section&id=Note%2012.%20Legal%20Matters) Management does not anticipate any material adverse effect on its financial position from various pending legal proceedings - Avalon is involved in lawsuits, administrative proceedings, and governmental investigations, including environmental matters, in the ordinary course of business[100](index=100&type=chunk) - Management believes that any uninsured ultimate liabilities, fines, or penalties from these proceedings will **not have a material adverse effect** on its liquidity, financial position, or results of operations[100](index=100&type=chunk) [Note 13. Business Segment Information](index=19&type=section&id=Note%2013.%20Business%20Segment%20Information) The company operates in two reportable segments: waste management services and golf and related operations - Avalon's reportable segments are waste management services and golf and related operations, with segment profit measured as income (loss) before taxes[101](index=101&type=chunk)[106](index=106&type=chunk) - The decrease in waste management services segment assets (**$0.7 million**) was primarily due to a decrease in accounts receivable, while the increase in golf and related operations segment assets (**$2.2 million**) was due to increased accounts receivable and capital expenditures[108](index=108&type=chunk) - Corporate total assets decreased by approximately **$0.6 million**, mainly due to a decrease in restricted cash used for The Grand Resort expansion[108](index=108&type=chunk) | Segment | March 31, 2020 (in thousands) | March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net operating revenues from: | | | | Waste management services | $11,133 | $11,434 | | Golf and related operations | $3,298 | $3,195 | | Total net operating revenues | $14,403 | $14,608 | | Income (loss) before income taxes: | | | | Waste management services | $1,048 | $1,000 | | Golf and related operations | $(731) | $(644) | | Corporate interest expense | $(297) | $(152) | | Loss before income taxes | $(786) | $(613) | | Identifiable Assets | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Waste management services | $30,853 | $31,574 | | Golf and related operations | $57,567 | $55,369 | | Corporate | $58,005 | $58,638 | | Total | $77,676 | $79,164 | [Note 14. Certain Relationships and Related Transactions](index=21&type=section&id=Note%2014.%20Certain%20Relationships%20and%20Related%20Transactions) Avalon consolidates the financial statements of AWMS Holdings, LLC, a variable interest entity in which it holds a minority ownership - Avalon created AWMS Holdings, LLC for salt water injection well operations, in which Avalon owns approximately **47%** at March 31, 2020 and December 31, 2019[109](index=109&type=chunk)[111](index=111&type=chunk) - Despite minority ownership, AWMS Holdings, LLC is a variable interest entity, and its financial statements are included in Avalon's consolidated financial statements due to **Avalon's managerial control**[111](index=111&type=chunk) [Note 15. Injection Wells Suspension](index=21&type=section&id=Note%2015.%20Injection%20Wells%20Suspension) Operations of the AWMS 2 salt water injection well have been suspended since September 2014 due to seismic activity - Operations of Avalon's AWMS 2 salt water injection well have been **suspended since September 2014** by the Chief of the Division of Oil and Gas Resources Management due to seismic activity[112](index=112&type=chunk) - Avalon has pursued multiple appeals through the Ohio Oil and Gas Commission, Franklin County Court of Common Pleas, Ohio 10th District Court of Appeals, and the Supreme Court of Ohio, disputing the suspension and seeking restart orders[114](index=114&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk) - The operations of the injection wells remain suspended as there is no implemented state-wide policy on induced seismicity, and the Ohio Department of Natural Resources (ODNR) has refused to communicate regarding policymaking[120](index=120&type=chunk) [Note 16. Asset Acquisition](index=24&type=section&id=Note%2016.%20Asset%20Acquisition) The company acquired the real property assets of New Castle Country Club in May 2019, assuming approximately $0.8 million in debt - On May 13, 2019, Avalon acquired the real property assets of New Castle Country Club, which was subsequently named The Avalon Field Club at New Castle[125](index=125&type=chunk)[127](index=127&type=chunk) - The acquisition involved assuming approximately **$0.8 million** in outstanding debt, which was later refinanced[125](index=125&type=chunk)[126](index=126&type=chunk) - The transaction was accounted for as an **asset acquisition**, as the fair value of acquired gross assets was concentrated in the real property[129](index=129&type=chunk) | Category | Amount (in thousands) | | :--- | :--- | | Assets acquired: | | | Building and land | $854 | | Operating lease right-of-use assets | $126 | | Prepaid real estate taxes | $23 | | Total assets acquired: | $1,003 | | Liabilities assumed: | | | Commercial mortgage | $653 | | Demand line of credit | $134 | | Obligations under operating leases | $126 | | Total liabilities assumed | $913 | | Total consideration | $90 | [Note 17. COVID-19 Coronavirus Pandemic](index=25&type=section&id=Note%2017.%20COVID-19%20Coronavirus%20Pandemic) The COVID-19 pandemic significantly impacted operations in March 2020, leading to closures and aggressive expense reductions - The COVID-19 pandemic led to government orders in Ohio and Pennsylvania in March 2020, temporarily closing in-house dining, salons, spas, and imposing 'Stay at Home' orders[133](index=133&type=chunk)[134](index=134&type=chunk) - Essential operations, including waste management services, restaurant carry-out, overnight lodging, and outdoor golf courses, remained in operation[135](index=135&type=chunk) - The pandemic adversely impacted operations, with expected **significantly lower restaurant revenue**, high room and event cancellations, and no revenue from fitness, athletics, salon, and spa operations[137](index=137&type=chunk) - In response, the Company implemented **aggressive expense reduction efforts**, including hiring freezes, headcount reductions, and substantial employee furloughs[139](index=139&type=chunk) [Note 18. Subsequent Event](index=26&type=section&id=Note%2018.%20Subsequent%20Event) In Q2 2020, the company's subsidiaries received approximately $2.8 million in loans under the Paycheck Protection Program - In Q2 2020, Avalon's wholly-owned subsidiaries received approximately **$2.8 million** in loans under the Paycheck Protection Program (PPP) of the CARES Act[140](index=140&type=chunk) - The PPP loans are 100% federally guaranteed and eligible for forgiveness for amounts spent on payroll costs, mortgage interest, rent, and utility services during an 8-week period[141](index=141&type=chunk) - The Company anticipates utilizing the proceeds in accordance with Program guidelines and repaying any unforgiven amounts[142](index=142&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's Q1 2020 financial performance, liquidity, and operational results, highlighting the impact of COVID-19 [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The COVID-19 pandemic is expected to severely impact revenue, leading to expense reductions and reliance on PPP loans for liquidity - For Q1 2020, Avalon used existing cash and cash from operations for operating needs, term loan payments, and capital expenditures, primarily for The Grand Resort renovation[146](index=146&type=chunk) - The COVID-19 pandemic is expected to **significantly lower restaurant revenue**, cause high room/event cancellations, and eliminate revenue from fitness, athletics, salon, and spa operations[147](index=147&type=chunk) - The Company has implemented aggressive expense reduction efforts, including hiring freezes, headcount reductions, and substantial furloughs, and anticipates using Paycheck Protection Program proceeds to meet operating requirements[148](index=148&type=chunk)[172](index=172&type=chunk) [New Castle Country Club Real Property Acquisition](index=28&type=section&id=New%20Castle%20Country%20Club%20Real%20Property%20Acquisition) The company acquired the New Castle Country Club property in May 2019, integrating it into its golf operations strategy - On May 13, 2019, Avalon acquired the real property assets of New Castle Country Club, which was subsequently renamed Avalon Field Club at New Castle[152](index=152&type=chunk)[154](index=154&type=chunk) - The acquisition aligns with the Company's golf operations business strategy, providing Avalon Golf and Country Club members and The Grand Resort hotel guests access to its facilities[155](index=155&type=chunk) [Capital Expenditures](index=28&type=section&id=Capital%20Expenditures) Capital expenditures were $1.3 million in Q1 2020, primarily directed towards the ongoing renovation of The Grand Resort - Capital expenditures were **$1.3 million** for both the three months ended March 31, 2020 and 2019, primarily for the continued renovation and expansion of The Grand Resort[156](index=156&type=chunk) - The Grand Resort renovations include hotel rooms, a new restaurant, bars, salon, spa, outdoor resort pool, and Roman Bath[156](index=156&type=chunk) - Aggregate capital expenditures for 2020 are expected to be in the range of **$2.0 million to $2.5 million**, funded by cash from the project fund account[156](index=156&type=chunk) [New Term Loan Agreement](index=28&type=section&id=New%20Term%20Loan%20Agreement) The company secured a $23.0 million term loan in December 2019 to refinance debt and fund renovations at a 5.00% fixed rate - On December 20, 2019, Avalon entered into a **$23.0 million term loan agreement** with Laurel Capital Corporation[157](index=157&type=chunk) - Proceeds were used to pay off and refinance existing term loans and a commercial mortgage, pay down a line of credit, cover transaction costs, and deposit approximately **$7.2 million** into a project fund for renovations[157](index=157&type=chunk)[158](index=158&type=chunk) - The loan is payable in 119 monthly installments with a final balloon payment in December 2029, bearing a **fixed interest rate of 5.00%** for the first five years[160](index=160&type=chunk) - Avalon was in compliance with the New Term Loan Agreement covenants at March 31, 2020, and December 31, 2019[162](index=162&type=chunk) [Line of Credit Agreement](index=29&type=section&id=Line%20of%20Credit%20Agreement) The company maintains a $5.0 million line of credit with no outstanding borrowings at March 31, 2020 - Avalon has a **$5.0 million line of credit agreement** with Home Savings Bank, with its maturity date extended to May 31, 2021[163](index=163&type=chunk) - **No amounts were drawn** under the Line of Credit Agreement at March 31, 2020, and December 31, 2019[164](index=164&type=chunk) - The interest rate on outstanding borrowings is Prime Rate plus 0.25%, which was **3.50%** at March 31, 2020[164](index=164&type=chunk) - Avalon was in compliance with the line of credit agreement covenants at March 31, 2020, and December 31, 2019[165](index=165&type=chunk) [Squaw Creek Country Club Lease Agreement](index=29&type=section&id=Squaw%20Creek%20Country%20Club%20Lease%20Agreement) The company has a long-term finance lease for Squaw Creek Country Club with multiple renewal options it expects to exercise - Avalon entered into a long-term agreement in November 2003 to lease and operate Squaw Creek Country Club's golf course and facilities[167](index=167&type=chunk) - The lease has an initial ten-year term with four consecutive ten-year renewal options, which Avalon expects to exercise[167](index=167&type=chunk) - Avalon is obligated to pay **$15,000 in annual rent** and make **$150,000 in annual leasehold improvements**[167](index=167&type=chunk) [Working Capital](index=29&type=section&id=Working%20Capital) The working capital deficit remained stable at approximately $3.5 million, influenced by changes in receivables, payables, and deferred revenue - Working capital deficit was approximately **$3.5 million** at March 31, 2020, compared to $3.4 million at December 31, 2019[168](index=168&type=chunk) - Accounts receivable decreased to **$11.0 million** at March 31, 2020, from $12.0 million at December 31, 2019, primarily due to decreased waste management sales[169](index=169&type=chunk) - Accounts payable decreased to **$10.4 million** at March 31, 2020, from $11.7 million at December 31, 2019, mainly due to decreased waste management revenues and timing of vendor payments[170](index=170&type=chunk) - Deferred membership dues revenue increased to approximately **$4.0 million** at March 31, 2020, from $3.2 million at December 31, 2019, driven by annual membership renewals and an increase in members (5,133 vs 5,051)[171](index=171&type=chunk) [Growth Strategy](index=30&type=section&id=Growth%20Strategy) The growth strategy focuses on internal expansion in waste management and strategic acquisitions in golf and related operations [Waste Management Segment](index=30&type=section&id=Waste%20Management%20Segment) The segment's growth strategy centers on internal expansion through focused sales and marketing to increase market share - The growth strategy for the waste management services segment focuses on increasing revenue, gaining market share, and enhancing shareholder value through internal growth[173](index=173&type=chunk) - Key activities include retaining existing customers, obtaining new business through tailored sales and marketing, and expanding into different geographical areas with qualified sales personnel[173](index=173&type=chunk)[174](index=174&type=chunk) - Development activities aim to position Avalon as an integrated service provider, bid on significant one-time projects, and potentially obtain permits for vertically integrated waste services[175](index=175&type=chunk) [Golf and Related Operations Segment](index=31&type=section&id=Golf%20and%20Related%20Operations%20Segment) The segment's strategy involves leveraging integrated properties to attract new members and exploring potential acquisitions - The Grand Resort, acquired in August 2014, provides a self-contained vacation experience, offering golf packages and access to club facilities, aiming to increase Avalon Golf and Country Club memberships[177](index=177&type=chunk) - The acquisition of Avalon Field Club at New Castle in May 2019 further integrates golf operations, providing access for existing members and hotel guests[178](index=178&type=chunk) - Avalon is considering acquisitions of private country clubs in northeast Ohio that are experiencing economic difficulties[179](index=179&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Overall net operating revenues slightly decreased in Q1 2020, leading to an increased net loss due to higher costs and interest expense [Overall Performance](index=31&type=section&id=Overall%20Performance) In Q1 2020, a slight revenue decline and increased costs led to a higher net loss of $0.8 million compared to the prior year - Net operating revenues decreased to **$14.4 million** in Q1 2020 from $14.6 million in Q1 2019, primarily due to a decrease in the waste management services segment[181](index=181&type=chunk) - Waste management services segment revenues were **$11.1 million** (Q1 2020) vs $11.4 million (Q1 2019), while golf and related operations segment revenues increased to **$3.3 million** (Q1 2020) vs $3.2 million (Q1 2019)[181](index=181&type=chunk) - Operating costs for waste management decreased to **$8.9 million** (Q1 2020) from $9.2 million (Q1 2019), while golf operations costs increased to **$3.2 million** (Q1 2020) from $3.0 million (Q1 2019) due to higher employee and food product costs[182](index=182&type=chunk) - Interest expense increased to **$0.3 million** (Q1 2020) from $0.2 million (Q1 2019) due to higher average outstanding debt, partially offset by a lower weighted average interest rate (5.00% vs 5.36%)[184](index=184&type=chunk) - Net loss attributable to Avalon Holdings Corporation common shareholders increased to **$0.8 million** ($0.21 per share) in Q1 2020 from $0.6 million ($0.16 per share) in Q1 2019[185](index=185&type=chunk) [Waste Management Services Segment](index=32&type=section&id=Waste%20Management%20Services%20Segment) The segment's revenue decreased to $11.1 million in Q1 2020, but gross margin improved to 20% - Net operating revenues for the waste management services segment decreased to **$11.1 million** in Q1 2020 from $11.4 million in Q1 2019[187](index=187&type=chunk) - The decrease was mainly due to reduced event work ($4.2 million vs $4.4 million) and continuous work ($6.1 million vs $6.3 million) in waste disposal brokerage and management services[188](index=188&type=chunk) - Captive landfill management operations revenues were stable at approximately $0.6 million in both periods, and salt water injection wells generated no operating revenues due to suspension[189](index=189&type=chunk)[190](index=190&type=chunk) - The overall gross margin percentage for waste brokerage and management services **increased to 20%** in Q1 2020 from 19% in Q1 2019[191](index=191&type=chunk) - Income before income taxes for the segment remained approximately **$1.0 million** in both Q1 2020 and Q1 2019[192](index=192&type=chunk) [Golf and Related Operations Segment](index=32&type=section&id=Golf%20and%20Related%20Operations%20Segment) The segment's revenue increased slightly to $3.3 million, but higher costs led to an increased loss before income taxes - Net operating revenues for the golf and related operations segment increased to **$3.3 million** in Q1 2020 from $3.2 million in Q1 2019[193](index=193&type=chunk) - Food, beverage, and merchandise sales decreased to **$1.0 million** (Q1 2020) from $1.1 million (Q1 2019), impacted by COVID-19 related closures in March 2020[195](index=195&type=chunk) - Membership dues revenue increased to **$1.5 million** (Q1 2020) from $1.3 million (Q1 2019), primarily due to an increase in average members (5,120 vs 4,649)[196](index=196&type=chunk) - Operating costs increased to **$3.2 million** (Q1 2020) from $3.0 million (Q1 2019), mainly due to higher employee-related costs and food product costs[197](index=197&type=chunk) - The segment recorded a loss before income taxes of **$0.7 million** in Q1 2020, compared to $0.6 million in Q1 2019, due to increased costs[198](index=198&type=chunk) [Interest Expense](index=33&type=section&id=Interest%20Expense) Interest expense increased to $0.3 million in Q1 2020 due to higher average outstanding debt - Interest expense was approximately **$0.3 million** in Q1 2020, compared to $0.2 million in Q1 2019[200](index=200&type=chunk) - The increase is attributed to higher average outstanding debt during Q1 2020, partially offset by a lower weighted average interest rate of **5.00%** (Q1 2020) compared to 5.36% (Q1 2019)[200](index=200&type=chunk) [General Corporate Expenses](index=33&type=section&id=General%20Corporate%20Expenses) General corporate expenses remained consistent at $0.8 million for the first quarters of 2020 and 2019 - General corporate expenses were **$0.8 million** in both the first quarter of 2020 and 2019[199](index=199&type=chunk) [Net Loss](index=33&type=section&id=Net%20Loss) The net loss attributable to common shareholders increased to $0.8 million in Q1 2020 - Net loss attributable to Avalon Holdings Corporation common shareholders was **$0.8 million** in Q1 2020, compared to $0.6 million in Q1 2019[201](index=201&type=chunk) - A state income tax provision was recorded for waste management operations, while a **full valuation allowance** offsets federal net deferred tax assets[201](index=201&type=chunk) [Trends and Uncertainties](index=34&type=section&id=Trends%20and%20Uncertainties) The company faces significant uncertainties from COVID-19, regulatory challenges, and competitive pressures [Government regulations](index=34&type=section&id=Government%20regulations) COVID-19 government orders have severely impacted hospitality operations, while the waste segment faces ongoing regulatory risks - COVID-19 related government orders in Ohio and Pennsylvania in March 2020 led to temporary closures of in-house dining, salons, spas, and 'Stay at Home' mandates, adversely impacting operations and financial results[203](index=203&type=chunk)[204](index=204&type=chunk)[207](index=207&type=chunk) - The Company has responded with **aggressive expense reduction**, hiring freezes, headcount reductions, and furloughs due to weakened demand and economic uncertainty[208](index=208&type=chunk) - The waste management services segment faces risks from potential new legislation or regulations restricting waste disposal and transportation, particularly for out-of-state waste, and the development of waste reduction/recycling programs[209](index=209&type=chunk) - The Tax Act of 2017 reduced U.S. corporate tax rates, and Avalon maintains a **full valuation allowance** on its federal deferred tax assets[210](index=210&type=chunk) [Legal matters](index=36&type=section&id=Legal%20matters) Management believes various lawsuits and administrative proceedings will not have a material adverse effect on the company - Avalon is involved in lawsuits, administrative proceedings, and governmental investigations, including environmental matters[211](index=211&type=chunk) - Management assesses the probability of loss and accrues liabilities as appropriate, believing that uninsured ultimate liabilities will **not materially adversely affect** liquidity, financial position, or results of operations[211](index=211&type=chunk) [Credit and collections](index=36&type=section&id=Credit%20and%20collections) Economic challenges in industries served by the company pose a risk of customer payment defaults - Economic challenges may lead to customer payment defaults, which are not controllable by management[212](index=212&type=chunk) - Significant customer payment defaults would have a **material adverse impact** on Avalon's future financial performance[212](index=212&type=chunk) [Competitive pressures](index=36&type=section&id=Competitive%20pressures) Consolidation in the solid waste industry may increase disposal pricing and adversely affect financial performance - Consolidation within the solid waste industry may reduce disposal options and increase pricing[213](index=213&type=chunk) - Avalon's waste brokerage and management services business may not be able to pass these price increases onto some customers, which could adversely impact future financial performance[213](index=213&type=chunk) [Majority of business is not subject to long-term contracts](index=36&type=section&id=Majority%20of%20business%20is%20not%20subject%20to%20long-term%20contracts) A significant portion of revenue is not secured by long-term contracts, creating customer retention risk - A significant portion of Avalon's waste brokerage and management services business is not subject to long-term contracts, posing a risk to customer retention[214](index=214&type=chunk) - The captive landfill management business is dependent on a **single customer** as its sole source of revenue[215](index=215&type=chunk) - Golf and related operations revenues are primarily dependent on the annual sale and renewal of memberships in the Avalon Golf and Country Club[216](index=216&type=chunk) [Avalon's loan and security agreement may obligate it to repay debt before its maturity](index=36&type=section&id=Avalon's%20loan%20and%20security%20agreement%20may%20obligate%20it%20to%20repay%20debt%20before%20its%20maturity) A breach of loan covenants could trigger an obligation to repay outstanding debt before its scheduled maturity - The Company's loan and security agreement contains covenants and events of default, which, if not met, could require early repayment of outstanding balances[217](index=217&type=chunk) - Compliance with financial covenants may be affected by worsening economic conditions, and there is no assurance of sufficient cash flow or additional financing to service debt and avoid default[217](index=217&type=chunk) [Saltwater disposal wells](index=36&type=section&id=Saltwater%20disposal%20wells) Saltwater disposal wells face increasing regulatory scrutiny and environmental risks, including the ongoing suspension of one well - Saltwater disposal wells are subject to increasing regulation, which may lead to higher construction and operating costs[218](index=218&type=chunk) - There is a continuing risk of environmental events (contamination, seismic activity) that could result in remedial expenses or suspension/termination of operations[219](index=219&type=chunk) - Avalon's AWMS 2 saltwater injection well has been **suspended since September 2014** due to seismic activity, with ongoing legal appeals and no resolution for restart[220](index=220&type=chunk)[229](index=229&type=chunk) [Golf memberships and liquor licenses](index=38&type=section&id=Golf%20memberships%20and%20liquor%20licenses) The company faces challenges in attracting and retaining golf members and risks the potential loss of its liquor licenses - Attracting and retaining members for the Avalon Golf and Country Club remains an ongoing challenge, and membership goals have not yet been attained, impacting profitability[233](index=233&type=chunk) - The loss of liquor licenses for any of Avalon's golf course operations or The Grand Resort facilities would adversely affect the financial performance of the golf and related operations segment[234](index=234&type=chunk) [Seasonality](index=38&type=section&id=Seasonality) The company's operations, particularly its golf courses, are seasonal and vulnerable to adverse weather conditions - Avalon's operations are seasonal, with golf courses in northeast Ohio and western Pennsylvania significantly dependent on weather conditions during the golf season[234](index=234&type=chunk) - Adverse weather conditions negatively affect Avalon's financial performance[234](index=234&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company has limited exposure to interest rate risk due to its fixed-rate term loan and zero balance on its variable-rate credit line - Avalon does not have significant exposure to changing interest rates[235](index=235&type=chunk) - The Term Loan Agreement bears a **fixed interest rate of 5.00%** for the first five years, with a reset mechanism thereafter[236](index=236&type=chunk) - The Line of Credit Agreement bears interest at Prime Rate plus 0.25% (3.50% at March 31, 2020), but **no amounts were outstanding** at that date[237](index=237&type=chunk) - Avalon does not undertake specific actions to cover interest rate risk and does not hold derivative financial instruments[237](index=237&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020 - The Chief Executive Officer and Chief Financial Officer concluded that Avalon's disclosure controls and procedures were **effective** at a reasonable assurance level as of March 31, 2020[238](index=238&type=chunk) - There were **no material changes** in internal controls over financial reporting during the fiscal quarter ended March 31, 2020[239](index=239&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company refers to its Annual Report on Form 10-K for a comprehensive description of legal proceedings - For a description of legal proceedings, reference is made to 'Item 3 Legal Proceedings' in Avalon's Annual Report on Form 10-K for the year ended December 31, 2019[239](index=239&type=chunk) [Item 2. Changes in Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Changes%20in%20Securities%20and%20Use%20of%20Proceeds) The company reported no changes in securities or use of proceeds for the period - No changes in securities and use of proceeds were reported[240](index=240&type=chunk) [Item 3. Defaults upon Senior Securities](index=40&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[240](index=240&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures for the period - No mine safety disclosures were reported[240](index=240&type=chunk) [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) The company reported no other information for the period - No other information was reported[240](index=240&type=chunk) [Item 6. Exhibits and Reports on Form 8-K](index=40&type=section&id=Item%206.%20Exhibits%20and%20Reports%20on%20Form%208-K) This section lists filed exhibits and summarizes recent Form 8-K reports detailing the receipt of PPP loans - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and XBRL taxonomy extension files[240](index=240&type=chunk)[241](index=241&type=chunk) - Recent Form 8-K reports indicate that Avalon's wholly-owned subsidiaries received approximately **$0.8 million** on April 27, 2020, and **$2.0 million** on May 6, 2020, under the Paycheck Protection Program[241](index=241&type=chunk)[242](index=242&type=chunk) - An 8-K report on April 30, 2020, detailed the voting results from the Annual Meeting[242](index=242&type=chunk) [SIGNATURE](index=41&type=section&id=SIGNATURE) The report was duly signed on behalf of the company by its Chief Financial Officer on May 14, 2020 - The report was signed by Bryan P Saksa, Chief Financial Officer and Treasurer, on behalf of Avalon Holdings Corporation on May 14, 2020[244](index=244&type=chunk)

2019 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________ FORM 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2019 ☐ 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 ...