Avalon(AWX) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Avalon Holdings Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2025, and 2024 Item 1. Financial Statements This section presents Avalon Holdings Corporation's unaudited condensed consolidated financial statements, including statements of operations, balance sheets, statements of shareholders' equity, and cash flows for the periods ended June 30, 2025, and 2024, along with accompanying notes detailing business description, accounting policies, revenue recognition, debt, leases, and segment information Condensed Consolidated Statements of Operations This statement details Avalon Holdings Corporation's revenues, operating income, and net income (loss) for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net operating revenues | $20,252 | $23,057 | $36,320 | $41,915 | | Operating income (loss) | $750 | $1,448 | $(401) | $934 | | Income (loss) before income taxes | $240 | $927 | $(1,421) | $(87) | | Net income (loss) attributable to Avalon Holdings Corporation common shareholders | $274 | $954 | $(1,225) | $(25) | | Basic and diluted net income (loss) per share | $0.07 | $0.24 | $(0.31) | $(0.01) | Condensed Consolidated Balance Sheets This statement provides a snapshot of Avalon Holdings Corporation's assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total current assets | $17,255 | $14,556 | | Total assets | $88,055 | $86,186 | | Total current liabilities | $18,907 | $15,463 | | Total equity | $35,577 | $37,052 | | Total liabilities and equity | $88,055 | $86,186 | Condensed Consolidated Statements of Shareholders' Equity This statement outlines changes in Avalon Holdings Corporation's total shareholders' equity for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | June 30, 2025 (3 months) | June 30, 2024 (3 months) | June 30, 2025 (6 months) | June 30, 2024 (6 months) | | :-------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Total Avalon Holdings Corporation Shareholders' Equity | $36,809 | $36,691 | $36,809 | $36,691 | | Total equity | $35,577 | $35,929 | $35,577 | $35,929 | Condensed Consolidated Statements of Cash Flows This statement summarizes Avalon Holdings Corporation's cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $2,052 | $3,610 | | Net cash used in investing activities | $(682) | $(696) | | Net cash used in financing activities | $(446) | $(375) | | Increase in cash, cash equivalents and restricted cash | $924 | $2,539 | | Cash, cash equivalents and restricted cash at end of period | $12,685 | $13,991 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1. Description of Business This note describes Avalon Holdings Corporation's primary business activities, including waste management services and golf/hospitality operations - Avalon Holdings Corporation provides waste management services (hazardous/nonhazardous waste brokerage, landfill management, salt water injection wells) and owns/operates a hotel, four golf courses, country clubs, and a multipurpose recreation center[14] Note 2. Basis of Presentation This note explains the accounting principles and consolidation policies used in preparing the unaudited condensed financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules, omitting certain GAAP disclosures, and include accounts of Avalon, its wholly-owned subsidiaries, and companies under managerial control[15][16] Note 3. Recent Accounting Pronouncements This note discusses the potential impact of recently issued accounting standards on the Company's financial reporting - The Company is evaluating ASU 2023-09 (Income Taxes) effective for annual periods beginning after December 15, 2024, and does not expect a material impact[19] - The Company is evaluating ASU 2024-03 (Disaggregation of Income Statement Expenses) effective for annual periods beginning after December 15, 2026, and has not yet determined its effect[20] Note 4. Cash, Cash Equivalents and Restricted Cash This note provides details on the composition of cash, cash equivalents, and restricted cash balances - Restricted cash of $8.971 million (June 30, 2025) and $8.958 million (December 31, 2024) consists of loan proceeds for the renovation and expansion of The Grand Resort and Avalon Field Club at New Castle[22][23] | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------- | :--------------------------- | :------------------------------- | | Cash and cash equivalents | $3,714 | $2,803 | | Restricted cash | $8,971 | $8,958 | | Total | $12,685 | $11,761 | Note 5. Revenues This note details the Company's revenue recognition policies and disaggregation of revenue by source Revenue Recognition This section outlines the principles and timing for recognizing revenue from customer contracts - Revenue is recognized when performance obligations are satisfied, typically with the transfer of control of goods or services to the customer, and is measured as the expected consideration[24] Waste Management Services This section describes the types of waste management services offered and their revenue contribution - Waste management services include hazardous/nonhazardous waste brokerage, captive landfill management, and salt water injection wells, primarily in the northeastern and midwestern U.S[25] - Salt water injection well operations were suspended due to a Chief's order, resulting in no operating revenues for the three and six months ended June 30, 2025 and 2024[28] | Period | Waste Management Services Revenue % of Total | | :----- | :----------------------------------------- | | Q2 2025 | 48% | | Q2 2024 | 53% | | H1 2025 | 53% | | H1 2024 | 59% | Golf and Related Operations This section details the revenue streams from golf courses, clubs, and hospitality services - Golf and related operations include four golf courses, clubhouses, recreation/fitness centers, a dermatology center, salon/spa, dining/banquet facilities, and a hotel[35] - Membership dues are recognized on a straight-line basis over the one-year non-cancellable membership term, representing a "stand ready obligation" to provide facility access[38][40] | Period | Golf and Related Operations Revenue % of Total | | :----- | :--------------------------------------------- | | Q2 2025 | 52% | | Q2 2024 | 47% | | H1 2025 | 47% | | H1 2024 | 41% | Revenue Disaggregation This section provides a detailed breakdown of net operating revenues by various service categories | Revenue Source (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :---------------------------- | :------ | :------ | :------ | :------ | | Waste management and brokerage services | $8,889 | $11,437 | $17,664 | $23,224 | | Captive landfill management operations | $853 | $783 | $1,755 | $1,466 | | Food, beverage and merchandise sales | $3,760 | $3,996 | $5,784 | $6,007 | | Membership dues revenue | $1,829 | $1,839 | $3,662 | $3,813 | | Room rental revenue | $2,018 | $2,052 | $3,104 | $3,047 | | Greens fees and cart rental revenue | $1,060 | $1,169 | $1,119 | $1,238 | | Salon and spa services | $1,025 | $991 | $1,929 | $1,790 | | Fitness and tennis lesson revenue | $69 | $79 | $109 | $188 | | Other revenue | $749 | $711 | $1,194 | $1,142 | | Total net operating revenues | $20,252 | $23,057 | $36,320 | $41,915 | Receivables, Net This section details the composition of accounts receivable and the allowance for credit losses - Accounts receivable, net, for golf and related operations increased to approximately $2.4 million at June 30, 2025, from $1.1 million at December 31, 2024, while waste management services receivables remained at $7.5 million[45] | Metric (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Allowance for credit losses (Beginning of Period) | $249 | $257 | $260 | $260 | | Provision for Credit Losses | $38 | $8 | $45 | $15 | | Write-offs less Recoveries | $(27) | $(11) | $(45) | $(21) | | Allowance for credit losses (End of Period) | $260 | $254 | $260 | $254 | Contract Assets This section explains the nature and changes in unbilled membership dues receivable - Unbilled membership dues receivable increased to approximately $1.0 million at June 30, 2025, from $0.6 million at December 31, 2024, due to the timing of annual membership renewals and monthly billing[48] | Metric (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Unbilled membership dues receivable (Beginning of Period) | $733 | $790 | $582 | $567 | | Membership Dues | $769 | $858 | $1,383 | $1,528 | | Billings | $(465) | $(538) | $(928) | $(985) | | Unbilled membership dues receivable (End of Period) | $1,037 | $1,110 | $1,037 | $1,110 | Contract Liabilities This section details deferred membership dues revenue and customer advance deposits - Deferred membership dues revenue increased to approximately $5.7 million at June 30, 2025, from $3.5 million at December 31, 2024, primarily due to the timing of annual membership renewals[50] - Customer advance deposits remained stable at approximately $1.6 million at both June 30, 2025, and December 31, 2024[51] | Metric (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Deferred membership dues revenue (Beginning of Period) | $5,134 | $5,158 | $3,524 | $3,443 | | Billings | $2,429 | $2,544 | $5,872 | $6,233 | | Revenue Recognized | $(1,829)| $(1,839)| $(3,662)| $(3,813)| | Deferred membership dues revenue (End of Period) | $5,734 | $5,863 | $5,734 | $5,863 | | Customer advance deposits (Beginning of Period) | $1,647 | $1,311 | $1,565 | $1,223 | | Billings | $117 | $726 | $622 | $1,209 | | Revenue Recognized | $(115) | $(725) | $(538) | $(1,120)| | Customer advance deposits (End of Period) | $1,649 | $1,312 | $1,649 | $1,312 | Note 6. Property and Equipment This note provides information on the Company's property and equipment, including depreciation policies and net book values - Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives ranging from 3 to 50 years[53] | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Land and land improvements | $17,071 | $17,071 | | Buildings and improvements | $54,752 | $54,673 | | Machinery and equipment | $10,402 | $9,866 | | Office furniture and fixtures | $10,630 | $10,568 | | Vehicles | $1,125 | $1,065 | | Construction in progress | $1,382 | $1,136 | | Total | $95,362 | $94,379 | | Less accumulated depreciation and amortization | $(40,779) | $(38,797) | | Property and equipment, net | $54,583 | $55,582 | - No significant fixed contractual commitments for construction projects existed at June 30, 2025, and no triggering events for impairment of long-lived assets were present during the first six months of 2025 and 2024[56][57] Note 7. Leases This note details the Company's operating and finance lease arrangements, including right-of-use assets and lease obligations Operating Leases This section describes the Company's operating lease agreements and associated financial impacts - Operating leases for golf carts, landfill equipment, furniture, and office copiers have remaining terms from less than 1 year to 3.5 years, with a weighted average of 3.1 years at June 30, 2025[58] | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $1,269 | $1,383 | | Current portion of obligations under operating leases | $364 | $365 | | Long-term portion of obligations under operating leases | $905 | $1,018 | | Total obligations under operating leases | $1,269 | $1,383 | Finance Leases This section details the Company's finance lease arrangements and related financial obligations - Avalon leases Squaw Creek Country Club facilities under a finance lease with approximately 28.3 years remaining at June 30, 2025, and also has finance leases for vehicles and equipment[60][61] | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Leased property under finance leases, net | $5,924 | $5,647 | | Current portion of obligations under finance leases | $278 | $201 | | Long-term portion of obligations under finance leases | $1,022 | $707 | | Total obligations under finance leases | $1,300 | $908 | | Lease Expense (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--------------------------- | :------ | :------ | :------ | :------ | | Operating lease cost: Rental expense | $175 | $155 | $226 | $223 | | Finance lease cost: Depreciation expense | $121 | $133 | $268 | $270 | | Finance lease cost: Interest expense | $19 | $9 | $33 | $29 | | Total finance lease cost | $140 | $142 | $301 | $299 | | Future Lease Commitments (in thousands) | Finance | Operating | Total | | :-------------------------------------- | :------ | :-------- | :---- | | 2026 | $362 | $438 | $800 | | 2027 | $337 | $395 | $732 | | 2028 | $296 | $292 | $588 | | 2029 | $231 | $201 | $432 | | 2030 | $115 | $109 | $224 | | Thereafter | $344 | $- | $344 | | Total lease payments | $1,685 | $1,435 | $3,120| | Less: imputed interest | $385 | $166 | $551 | | Total | $1,300 | $1,269 | $2,569| Note 8. Basic and Diluted Net Income (Loss) per Share This note explains the calculation of basic and diluted earnings per share, including common shares outstanding and potential dilutive instruments - Basic and diluted net income (loss) per share are calculated using a weighted average of 3,899,431 common shares outstanding for all periods presented[64] - No outstanding stock options existed for the three and six months ended June 30, 2025 and 2024, resulting in no dilution[66] Note 9. Term Loans and Line of Credit Agreements This note provides details on the Company's term loan and line of credit agreements, including terms, interest rates, and compliance with covenants - The 2022 Term Loan Agreement, totaling $31.0 million, refinanced previous debt and allocated $10.4 million to a project fund for renovations, with $9.0 million remaining as restricted cash[67] - The term loan bears a fixed interest rate of 6.00% until August 5, 2029, after which it resets based on the three-year treasury rate plus 3.40%, not exceeding 8.50%[68] - A Line of Credit Agreement provides up to $5.0 million, extended to July 31, 2026, with $3.2 million outstanding and $1.8 million available at June 30, 2025, bearing interest at Prime Rate plus 0.25% (7.75% at June 30, 2025)[72][73] - Avalon was in compliance with the Fixed Charge Coverage Ratio (at least 1.20) and other covenants for both the 2022 Term Loan Agreement and the Line of Credit Agreement at June 30, 2025, and December 31, 2024[70][74] | Debt Obligations (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Term Loan Agreement (Gross Amount) | $29,347 | $29,660 | | Debt Issuance Costs | $(409) | $(439) | | Term Loan Agreement (Net Amount) | $28,938 | $29,221 | | Current portion of long-term debt | $594 | $575 | | Long-term debt | $28,344 | $28,646 | | Future Maturities of Long-Term Debt (in thousands) | Amount | | :------------------------------------------------- | :----- | | 2026 | $654 | | 2027 | $3,894 | | 2028 | $737 | | 2029 | $782 | | 2030 | $831 | | Thereafter | $25,649| | Total | $32,547| Note 10. Income Taxes This note discusses the Company's income tax provisions, effective tax rates, and deferred tax assets and liabilities - Avalon recorded a state income tax provision for waste management and brokerage operations, but the overall effective tax rate reflects a full valuation allowance against federal and most state net deferred tax assets[76] - The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, is not expected to materially impact the Company's financial position, results of operations, or disclosures[77] Note 11. Long-Term Incentive Plan This note describes the Company's long-term incentive plan, including stock option grants and vesting conditions - The Plan, approved in 2019, provides 1,300,000 shares of Class A Common Stock for stock options to employees and non-employee directors, aiming to improve performance and align interests with shareholders[79][80] - Stock options vest ratably over five years and require the Class A Common Stock price to reach a predetermined vesting price within three years post-vesting to be exercisable[83][89] - All previously granted options were cancelled by March 31, 2024, as they did not meet the predetermined stock price, and no options were outstanding at June 30, 2025, or 2024[88][91] Note 12. Legal Matters This note provides an overview of the Company's involvement in various legal and administrative proceedings - Avalon is involved in various lawsuits and administrative proceedings, including environmental matters, but management does not believe any uninsured liabilities will have a material adverse effect on its liquidity, financial position, or results of operations[92] Note 13. Business Segment Information This note presents financial information disaggregated by the Company's two reportable business segments - Avalon operates in two reportable segments: waste management services (brokerage, landfill management, salt water injection wells) and golf and related operations (golf courses, hotel, recreation centers, med spa, dermatology)[93][94][95] - Segment profit is measured as income (loss) before income taxes, and no single customer accounted for more than 10% of consolidated net operating revenues for the periods presented[95][96] | Segment Performance (Income (loss) before income taxes, in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------------------------ | :------ | :------ | :------ | :------ | | Waste Management Services | $1,022 | $1,311 | $1,813 | $2,456 | | Golf and Related Operations | $561 | $967 | $(711) | $(13) | | Corporate | $(1,343)| $(1,351)| $(2,523)| $(2,530)| | Total | $240 | $927 | $(1,421)| $(87) | | Identifiable Assets (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Waste management services | $36,567 | $35,100 | | Golf and related operations | $63,637 | $62,500 | | Corporate | $62,962 | $64,247 | | Subtotal | $163,166 | $161,847 | | Elimination of intersegment receivables | $(75,111) | $(75,661) | | Total | $88,055 | $86,186 | Note 14. Certain Relationships and Related Transactions This note details transactions and relationships with affiliated entities, including variable interest entities AWMS Holdings, LLC This section describes Avalon's ownership and consolidation of AWMS Holdings, LLC - Avalon owns approximately 47% of AWMS Holdings, LLC, a variable interest entity (VIE) that operates salt water injection wells, but maintains managerial control, leading to consolidation[100][102] | Net Loss Attributable to Non-Controlling Interest in AWMS Holdings, LLC (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------------------------------------------------------- | :------ | :------ | :------ | :------ | | Net Loss | $22 | $11 | $90 | $37 | Avalon Med Spa, LLC This section describes Avalon's ownership and consolidation of Avalon Med Spa, LLC - Avalon is the majority owner (50.1%) of Avalon Med Spa, LLC, a VIE providing aesthetic services, and its financial statements are consolidated[103][104][105] | Net Loss Attributable to Non-Controlling Interest in Avalon Med Spa, LLC (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------------------------------------------ | :------ | :------ | :------ | :------ | | Net Loss | $4 | $36 | $67 | $85 | Avalon Dermatology, LLC This section describes Avalon's ownership and consolidation of Avalon Dermatology, LLC - Avalon is the majority owner (50.1%) of Avalon Dermatology, LLC, a VIE providing dermatology services, and its financial statements are consolidated[106][107] | Net Loss Attributable to Non-Controlling Interest in Avalon Dermatology, LLC (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :---------------------------------------------------------------------------------------- | :------ | :------ | :------ | :------ | | Net Loss | $37 | $24 | $93 | $24 | Note 15. Injection Wells Suspension This note provides an update on the suspension of salt water injection well operations and related legal proceedings - Operations of Avalon's AWMS 2 salt water injection well remain suspended since September 2014 due to seismic activity concerns and ongoing legal appeals with the Ohio Division of Oil and Gas Resources Management[108][115][122] - The Supreme Court of Ohio remanded a case to the 11th Appellate District Court to determine if the Company suffered a total or partial regulatory taking due to the well suspension[119] - The 11th Appellate District Court denied the categorical regulatory takings claim but found for a partial regulatory takings claim, which the Company has appealed to the Supreme Court of Ohio, with oral arguments scheduled for August 20, 2025[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Avalon's financial condition and operational results, highlighting liquidity, capital resources, growth strategies, and performance for the three and six months ended June 30, 2025, compared to 2024, along with key trends and uncertainties impacting the business Introduction This introduction outlines the scope of management's discussion and analysis, including forward-looking statements - This discussion covers Avalon Holdings Corporation, its wholly-owned subsidiaries, and variable interest entities where Avalon is the primary beneficiary[123] - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[124] Liquidity and Capital Resources This section discusses Avalon's ability to generate and manage cash, including debt agreements and capital expenditures 2022 Term Loan Agreement This section details the terms, conditions, and compliance status of the Company's primary term loan - A $31.0 million term loan, entered into on August 5, 2022, refinanced $20.2 million of prior debt and allocated $10.4 million to a project fund for renovations, with $9.0 million remaining as restricted cash[126] - The loan is payable in 119 monthly installments with a balloon payment on August 5, 2032, bearing a fixed interest rate of 6.00% until August 5, 2029, then resetting to a rate between 6.00% and 8.50%[127] - Avalon was in compliance with all covenants, including a Fixed Charge Coverage Ratio of at least 1.20, at June 30, 2025, and December 31, 2024[129] Line of Credit Agreement This section describes the Company's revolving line of credit, including available amounts and interest rates - The line of credit, extended to July 31, 2026, provides up to $5.0 million, with $3.2 million outstanding and $1.8 million available at June 30, 2025, bearing interest at Prime Rate plus 0.25% (7.75% at June 30, 2025)[131][132] - The agreement includes a Fixed Charge Coverage Ratio requirement of at least 1.20, and Avalon was in compliance with all covenants at June 30, 2025, and December 31, 2024[133] Squaw Creek Country Club Lease Agreement This section outlines the terms of the long-term lease for the Squaw Creek Country Club facilities - Avalon leases and operates Squaw Creek Country Club facilities under a long-term agreement, with an initial 10-year term and four 10-year renewal options, requiring $15,000 in annual rent and $150,000 in annual leasehold improvements[135] Capital Expenditures This section reports on the Company's investments in property and equipment and future spending plans - Capital expenditures for the first six months of 2025 and 2024 were $0.7 million, primarily for remodeling The Grand Resort and Avalon Dermatology, LLC[136] - Aggregate capital expenditures for 2025 are projected to be $2.5 million to $3.5 million, funded by the project fund account and cash from operations, focusing on hotel room remodeling and building improvements[137] Working Capital This section analyzes the Company's short-term liquidity position and changes in current assets and liabilities - Avalon reported a working capital deficit of approximately $1.7 million at June 30, 2025, compared to $0.9 million at December 31, 2024, primarily due to increased deferred membership dues, accounts payable, and accrued payroll[138] - Accounts receivable for golf operations increased by $1.3 million, unbilled membership dues by $0.4 million, and inventory by $0.2 million, while accounts payable increased by $0.6 million and deferred membership dues by $2.2 million[139][140][141][142][143] - Management anticipates future operations will generate sufficient cash to meet operating needs and debt obligations, with the existing line of credit available for additional funding if necessary[145] Growth Strategy This section outlines Avalon's strategic initiatives for expanding its business segments and enhancing shareholder value Waste Management Services Segment This section details the strategies for increasing revenue and market share in waste management services - The growth strategy focuses on increasing revenue, market share, and shareholder value through internal growth, leveraging extensive management and sales staff experience[146] - Key activities include retaining existing customers, acquiring new business through tailored sales and marketing, and identifying opportunities for integrated service provision and bidding on specialized projects[146][148] Golf and Related Operations Segment This section describes the strategies for enhancing the golf and hospitality business, including acquisitions and amenity expansion - The acquisition of The Grand Resort in 2014 aimed to provide a self-contained vacation experience, offering golf packages and access to amenities, expecting to increase Avalon Golf and Country Club memberships[149] - Avalon continues to consider attractive investment opportunities, particularly among private country clubs experiencing economic difficulties in northeast Ohio[149] Results of Operations This section provides a comparative analysis of Avalon's financial performance for the reported periods Performance in the second quarter of 2025 compared with the second quarter of 2024 This section analyzes Avalon's financial performance for the second quarter of 2025 against the same period in 2024 Overall Performance This section summarizes the key financial results and drivers for the second quarter - Net operating revenues decreased by $2.8 million (12.2%) to $20.3 million in Q2 2025, primarily due to a decrease in waste management event work projects and adverse weather impacting golf and related operations[151] - Total cost of operations for waste management decreased by $2.0 million (21.1%) to $7.5 million, while golf and related operations costs increased by $0.2 million (2.4%) to $8.6 million due to higher utility and operating expenditures[152][153] - Net income attributable to common shareholders decreased by $0.7 million (73.7%) to $0.3 million, or $0.07 per share, in Q2 2025, compared to $1.0 million, or $0.24 per share, in Q2 2024[155] Segment Performance This section analyzes the financial performance of Avalon's individual business segments for the second quarter Waste Management Services Segment This section details the revenue and income performance of the waste management services segment for the second quarter - Net operating revenues decreased by $2.5 million (20.5%) to $9.7 million in Q2 2025, driven by a $2.9 million decrease in event work projects, partially offset by a $0.4 million increase in continuous work[157][158] - Income before income taxes decreased by $0.3 million (22.9%) to $1.0 million in Q2 2025, primarily due to lower net operating revenues[161] - Gross margin percentage for waste brokerage and management services increased to approximately 23% in Q2 2025 from 22% in Q2 2024, attributed to higher gross profit from event work projects[160] Golf and Related Operations Segment This section details the revenue and income performance of the golf and related operations segment for the second quarter - Net operating revenues decreased by $0.3 million (2.8%) to $10.5 million in Q2 2025, mainly due to decreased business activity at The Grand Resort and country clubs, and fewer rounds played due to poor weather[162][163][164] - Income before income taxes decreased by $0.4 million (40.0%) to $0.6 million in Q2 2025, primarily due to decreased business activity from adverse weather conditions[166] - Cost of food, beverage, and merchandise sales increased to 46% of associated revenue in Q2 2025 from 42% in Q2 2024[165] General Corporate Expenses This section discusses the trends and changes in general corporate overhead expenses for the second quarter - General corporate expenses remained stable at approximately $0.9 million in both Q2 2025 and Q2 2024, attributed to lower corporate overhead[167] Interest Expense This section analyzes the Company's interest expense for the second quarter, including weighted average interest rates - Interest expense remained stable at approximately $0.5 million in both Q2 2025 and Q2 2024, with weighted average interest rates of 6.17% and 6.26%, respectively[168] Net Income This section summarizes the net income attributable to common shareholders for the second quarter - Net income attributable to Avalon Holdings Corporation common shareholders decreased to $0.3 million in Q2 2025 from $1.0 million in Q2 2024[169] - A state income tax provision was recorded for waste management operations, but a full valuation allowance against federal net deferred tax assets impacted the overall effective tax rate[169] Performance in the first six months of 2025 compared with the first six months of 2024 This section analyzes Avalon's financial performance for the first six months of 2025 against the same period in 2024 Overall Performance This section summarizes the key financial results and drivers for the first six months - Net operating revenues decreased by $5.6 million (13.4%) to $36.3 million in H1 2025, primarily due to a decrease in waste management event work and adverse weather affecting golf operations[170] - Total cost of operations for waste management decreased by $4.3 million (22.2%) to $15.1 million, while golf and related operations costs increased by $0.4 million (2.8%) to $14.7 million due to higher utility and operating expenditures[171][172] - Net loss attributable to common shareholders increased significantly to $1.2 million, or $0.31 per share, in H1 2025, compared to a net loss of $25 thousand, or $0.01 per share, in H1 2024[175] Segment Performance This section analyzes the financial performance of Avalon's individual business segments for the first six months Waste Management Services Segment This section details the revenue and income performance of the waste management services segment for the first six months - Net operating revenues decreased by $5.3 million (21.5%) to $19.4 million in H1 2025, primarily due to a $5.1 million decrease in event work projects, with continuous work also decreasing by $0.4 million[177][178] - Income before income taxes decreased by $0.7 million (28.0%) to $1.8 million in H1 2025, mainly due to the reduction in event work projects[181] - Gross margin percentage for waste brokerage and management services increased to approximately 22% in H1 2025 from 21% in H1 2024, driven by increased gross profit from continuous work[180] Golf and Related Operations Segment This section details the revenue and income performance of the golf and related operations segment for the first six months - Net operating revenues decreased by $0.3 million (1.7%) to $16.9 million in H1 2025, attributed to decreased food, beverage, and merchandise sales, lower membership dues, and fewer greens fees due to poor weather[182][183][184] - Net loss before income taxes increased significantly to $0.7 million in H1 2025, compared to a $13 thousand loss in H1 2024, due to decreased revenues and increased utility and operating costs[186] - The cost of food, beverage, and merchandise sales increased to 47% of associated revenue in H1 2025 from 45% in H1 2024[185] General Corporate Expenses This section discusses the trends and changes in general corporate overhead expenses for the first six months - General corporate expenses remained stable at approximately $1.5 million in both H1 2025 and H1 2024, due to lower corporate overhead[187] Interest Expense This section analyzes the Company's interest expense for the first six months, including weighted average interest rates - Interest expense remained stable at approximately $1.0 million in both H1 2025 and H1 2024, with weighted average interest rates of 6.17% and 6.27%, respectively[188] Net Loss This section summarizes the net loss attributable to common shareholders for the first six months - Net loss attributable to Avalon Holdings Corporation common shareholders increased to $1.2 million in H1 2025 from $25 thousand in H1 2024[189] - A state income tax provision was recorded for waste management operations, but a full valuation allowance against federal net deferred tax assets impacted the overall effective tax rate[189] Trends and Uncertainties This section identifies key factors and potential challenges that could impact Avalon's future financial performance Government regulations This section discusses the potential impact of regulatory changes on Avalon's waste management services - Laws or regulations restricting waste transportation or acceptance of out-of-state waste could negatively impact Avalon's waste brokerage and management services[190] Legal matters This section addresses the potential financial implications of ongoing lawsuits and administrative proceedings - Ongoing lawsuits and administrative proceedings, including environmental matters, could result in fines or penalties, but management does not anticipate a material adverse effect on liquidity or financial position[191] Credit and collections This section discusses the risks associated with customer payment defaults and their impact on financial performance - Economic challenges in served industries could lead to customer payment defaults, which, if significant, would materially adversely impact Avalon's future financial performance[192] Competitive pressures This section addresses the impact of industry consolidation and pricing pressures on Avalon's business - Consolidation in the solid waste industry may increase disposal pricing, which Avalon's waste brokerage business may not be able to pass on to customers, potentially impacting financial performance[193] Unfavorable general economic conditions This section discusses how economic downturns and inflation could affect Avalon's business and consumer spending - Economic downturns, inflation, and decreased consumer spending could adversely affect Avalon's business, particularly its discretionary golf and related operations, impacting financial performance[194][195] Challenges with respect to labor This section addresses the risks associated with recruiting and retaining qualified employees - Difficulty in recruiting, motivating, and retaining qualified employees in a competitive labor market, especially for specialized waste management roles and senior management, could negatively impact operating margins and profitability[196][197] Changes in commodity and other operating costs This section discusses the impact of fluctuating commodity prices and labor costs on operating results - Volatility in commodity prices (food, supplies, fuel, utilities) and labor costs could adversely affect the operating results and profitability of the golf and related operations segment[198] Effective succession planning This section highlights the importance of succession planning for key personnel and potential business disruptions - Failure to effectively identify, develop, and retain key personnel, particularly as senior management approaches retirement, could disrupt business and adversely affect results[199] Majority of business not subject to long-term contracts This section discusses the risks associated with a lack of long-term contracts for a significant portion of the business - A significant portion of waste management services and golf operations (membership renewals) are not under long-term contracts, posing a risk if current customers are not retained or replaced[200][202] Avalon's captive landfill management business This section highlights the risk of dependence on a single customer for the captive landfill management business - The captive landfill management business is solely dependent on a single customer, and losing this customer would adversely impact future financial performance[201] Avalon's loan and security agreement This section discusses the risks of non-compliance with debt covenants and potential early debt repayment - Failure to comply with financial or other covenants in the loan and security agreement could lead to the lender requiring early debt repayment, and there's no assurance of available refinancing[203] Saltwater disposal wells This section addresses the risks associated with regulatory changes, environmental events, and seismic activity impacting well operations - Increased regulation, environmental events, or seismic activity could lead to higher operating costs, suspension, or termination of saltwater disposal well operations, adversely affecting financial results[204][205] - Operations of AWMS 2 well remain suspended since 2014 due to seismic concerns, with ongoing legal appeals and a Supreme Court of Ohio remand to determine regulatory taking damages[206][217][218][219][220] Golf memberships and liquor licenses This section discusses the dependence on membership retention and the risk of losing liquor licenses for golf operations - The golf and related operations' financial performance is highly dependent on retaining and attracting new members for the Avalon Golf and Country Club, a continuous challenge[221] - Loss of liquor licenses for any of Avalon's golf course operations, The Grand Resort, or recreation center facilities would adversely affect the financial performance of the golf and related operations[222] Seasonality This section highlights the impact of seasonal operations and adverse weather conditions on financial performance - Avalon's operations, particularly golf courses in northeast Ohio and western Pennsylvania, are seasonal and significantly affected by adverse weather conditions, negatively impacting financial performance[223] Inflation This section discusses the potential adverse effects of inflation on operating costs, consumer spending, and profitability - Elevated interest rates and high consumer goods pricing due to inflation can impact disposable income and spending habits, potentially pressuring Avalon's business and operating performance[224] - While management believes rising costs from inflation can generally be passed to customers, competitive conditions may require Avalon to absorb some increases, affecting financial performance[224] Item 3. Quantitative and Qualitative Disclosures about Market Risk Avalon Holdings Corporation has limited exposure to changing interest rates, with its term loan having a fixed rate until 2029 and its line of credit bearing interest at Prime Rate plus 0.25%. The company does not use derivative financial instruments for interest rate risk management - Avalon has limited exposure to changing interest rates, as its 2022 Term Loan Agreement bears a fixed interest rate of 6.00% until August 5, 2029[225][226] - The Line of Credit Agreement bears interest at Prime Rate plus 0.25% (7.75% at June 30, 2025), with approximately $3.2 million outstanding[227] - Avalon does not undertake specific actions to cover interest rate risk exposure and does not hold derivative financial instruments[227] Item 4. Controls and Procedures Management, under the supervision of the CEO and CFO, evaluated the effectiveness of Avalon's disclosure controls and procedures as of June 30, 2025, concluding they were effective at a reasonable assurance level. No material changes in internal controls over financial reporting occurred during the quarter - As of June 30, 2025, Avalon's disclosure controls and procedures were deemed effective at a reasonable assurance level by management, including the CEO and CFO[228] - There were no material changes in internal controls over financial reporting during the fiscal quarter ended June 30, 2025[229] PART II. OTHER INFORMATION This section covers legal proceedings, changes in securities, defaults, mine safety, other information, exhibits, and the report's signature Item 1. Legal Proceedings This section refers to the description of legal proceedings detailed in Avalon's Annual Report on Form 10-K for the year ended December 31, 2024 - For a description of legal proceedings, refer to Avalon's Annual Report on Form 10-K for the year ended December 31, 2024[231] Item 2. Changes in Securities and Use of Proceeds There were no changes in securities or use of proceeds to report for the period - No changes in securities and use of proceeds to report[232] Item 3. Defaults upon Senior Securities There were no defaults upon senior securities for the period - No defaults upon senior securities to report[232] Item 4. Mine Safety Disclosures There were no mine safety disclosures for the period - No mine safety disclosures to report[232] Item 5. Other Information No other information was reported for the period - No other information to report[232] Item 6. Exhibits and Reports on Form 8-K This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and notes the voting results from the Annual Meeting reported on May 8, 2025 - Exhibits include Section 302 and 906 certifications, Inline XBRL documents, and a report on voting results from the Annual Meeting held on May 7, 2025[232][233][234] SIGNATURE The report was duly signed on behalf of Avalon Holdings Corporation by Michael J. Havalo, Chief Financial Officer and Treasurer, on August 8, 2025 - The report was signed by Michael J. Havalo, Chief Financial Officer and Treasurer, on August 8, 2025[237]