2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM
For the quarterly period ended
for the transition period from _______________ to ________________
Commission file number
__________________________________
AVALON HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The registrant had
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
INDEX
| Page |
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| PART I. FINANCIAL INFORMATION |
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| Item 1. Financial Statements |
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| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited) |
1 |
| Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 (Unaudited) |
2 |
| Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2021 and 2020 (Unaudited) |
3 |
| Condensed Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2021 and 2020 (Unaudited) |
4 |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited) |
5 |
| Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
39 |
| Item 4. Controls and Procedures |
39 |
| PART II. OTHER INFORMATION |
|
| Item 1. Legal Proceedings |
40 |
| Item 2. Changes in Securities and Use of Proceeds |
40 |
| Item 3. Defaults upon Senior Securities |
40 |
| Item 4. Mine Safety Disclosures |
40 |
| Item 5. Other Information |
40 |
| Item 6. Exhibits and Reports on Form 8-K |
40 |
| SIGNATURE |
41 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net operating revenues: | ||||||||||||||||
| Waste management services | $ | $ | $ | $ | ||||||||||||
| Food, beverage and merchandise sales | ||||||||||||||||
| Other golf and related operations | ||||||||||||||||
| Total golf and related operations | ||||||||||||||||
| Total net operating revenues | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Waste management services operating costs | ||||||||||||||||
| Cost of food, beverage and merchandise | ||||||||||||||||
| Golf and related operations operating costs | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on debt extinguishment | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Less net loss attributable to non-controlling interest in subsidiaries | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) attributable to Avalon Holdings Corporation common shareholders | $ | $ | $ | $ | ( | ) | ||||||||||
| Income (loss) per share attributable to Avalon Holdings Corporation common shareholders: | ||||||||||||||||
| Basic net income (loss) per share | $ | $ | $ | $ | ( | ) | ||||||||||
| Diluted net income (loss) per share | $ | $ | $ | $ | ( | ) | ||||||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except per share amounts)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowance for credit losses | ||||||||
| Unbilled membership dues receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Property and equipment under finance leases, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Restricted cash | ||||||||
| Noncurrent deferred tax asset | ||||||||
| Other assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Current portion of obligations under finance leases | ||||||||
| Current portion of obligations under operating leases | ||||||||
| Accounts payable | ||||||||
| Accrued payroll and other compensation | ||||||||
| Accrued income taxes | ||||||||
| Other accrued taxes | ||||||||
| Deferred membership dues revenue | ||||||||
| Other liabilities and accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current portion | ||||||||
| Obligations under finance leases, net of current portion | ||||||||
| Obligations under operating leases, net of current portion | ||||||||
| Asset retirement obligation | ||||||||
| Equity: | ||||||||
| Avalon Holdings Corporation Shareholders' Equity: | ||||||||
| Class A Common Stock, $ par value | ||||||||
| Class B Common Stock, $ par value | ||||||||
| Paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Avalon Holdings Corporation Shareholders' Equity | ||||||||
| Non-controlling interest in subsidiaries | ( | ) | ||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
(in thousands, except for share data)
| For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Common Stock | Total Avalon | Non-controlling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Paid-in | Accumulated | Shareholders' | Interest in | |||||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Capital | Deficit | Equity | Subsidiaries | Total | ||||||||||||||||||||||||||||
| Balance at July 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Stock options - compensation costs | - | - | ||||||||||||||||||||||||||||||||||
| Investment in subsidiary from accredited investor | - | - | ||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||
| Common Stock | Total Avalon | Non-controlling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Paid-in | Accumulated | Shareholders' | Interest in | |||||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||
| Balance at July 1, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Stock options - compensation costs | - | - | ||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
(in thousands, except for share data)
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||
| Common Stock | Total Avalon | Non-controlling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Paid-in | Accumulated | Shareholders' | Interest in | |||||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Capital | Deficit | Equity | Subsidiaries | Total | ||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Stock options - compensation costs | - | - | ||||||||||||||||||||||||||||||||||
| Investment in subsidiary from accredited investors | - | - | ||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||
| Common Stock | Total Avalon | Non-controlling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Paid-in | Accumulated | Shareholders' | Interest in | |||||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Stock options - compensation costs | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Reconciliation of net income (loss) to cash provided by operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of debt issuance costs | ||||||||
| Compensation costs - stock options | ||||||||
| Provision for losses on accounts receivable | ||||||||
| (Gain) loss from disposal of equipment | ( | ) | ||||||
| Gain on debt extinguishment | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Unbilled membership dues receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other assets, net | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued payroll and other compensation | ( | ) | ||||||
| Accrued income taxes | ( | ) | ||||||
| Other accrued taxes | ( | ) | ( | ) | ||||
| Deferred membership dues revenue | ||||||||
| Other liabilities and accrued expenses | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Proceeds from disposal of equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from subsidiary private placement offering | ||||||||
| Proceeds under Paycheck Protection Program loans | ||||||||
| Principal payments on term loan facilities | ( | ) | ( | ) | ||||
| Principal payments on finance lease obligations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Significant non-cash operating and investing activities: | ||||||||
| Capital expenditures included in accounts payable | $ | $ | ||||||
| Significant non-cash operating and financing activities: | ||||||||
| Interest forgiven from Paycheck Protection Program loans | $ | $ | ||||||
| Significant non-cash investing and financing activities: | ||||||||
| Operating lease right-of-use assets in exchange for lease obligations | $ | $ | ||||||
| Finance lease obligations incurred | $ | $ | ||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
AVALON HOLDINGS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2021
Note 1. Description of Business
Avalon Holdings Corporation (“Avalon” or the “Company”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). On June 17, 1998, AWS distributed, as a special dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis.
Avalon provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets, captive landfill management services and salt water injection well operations. In addition, Avalon owns Avalon Resorts and Clubs, Inc. (“ARCI”), which includes the operation and management of golf courses and associated clubhouses, athletic and fitness centers, tennis courts, salon and spa services, dining and banquet facilities and a travel agency. ARCI also owns and operates a hotel and its related resort amenities including dining, banquet and conference facilities, salon and spa services, fitness center, outdoor resort pool, Roman Bath, indoor junior Olympic size swimming pool and tennis courts.
Note 2. Basis of Presentation
The unaudited condensed consolidated financial statements of Avalon and related notes included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted consistent with such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in Avalon’s 2020 Annual Report to Shareholders.
The unaudited condensed consolidated financial statements include the accounts of Avalon, its wholly owned subsidiaries and those companies in which Avalon has managerial control. All significant intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of Avalon as of September 30, 2021, and the results of its operations and cash flows for the interim periods presented.
The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements presented herein reflect our current estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods presented.
The coronavirus/COVID-19 pandemic (collectively referred to herein as "COVID-19") adversely impacted our financial position, results of operations, and cash flows during the nine months ended September 30, 2020. As a result of the government mandates being subsequently lifted, the COVID-19 pandemic had a limited impact on our results of operations during the nine months ended September 30, 2021. Due to the ongoing uncertainty of COVID-19, we cannot predict the future impact that the pandemic may have on our financial condition, results of operations or cash flows.
Note 3. COVID-19 Coronavirus Pandemic
In December 2019, a novel strain of coronavirus, COVID-19, emerged in Wuhan, Hubei Province, China. While initially concentrated in China, the outbreak spread to other countries and infections have been reported globally including in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 viral disease a pandemic. As a result, the federal and state governmental bodies began taking unprecedented measures to try and control the spread of the virus including the issuance of temporary stay at home orders, the temporary closing of non-essential businesses and in-house dining and restrictions on gatherings and events.
During the nine months ended September 30, 2020, the various governmental orders that were issued to control the spread of COVID-19 adversely impacted our operations and related financial results. Our restaurants operated under government mandated occupancy restrictions for in-house dining. Food and beverages sales related to banquets and conferences were significantly lower as a result of restrictions placed on gatherings and events. In addition, in March 2020, the Company began experiencing a high level of room and event cancellations with some subsequent re-bookings for a future date.
Although the various government mandates impacting our business operations have currently been lifted, we may experience weakened demand in light of continued travel restrictions or warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty. The full extent of the impact of the COVID-19 pandemic on our operations and financial performance will depend on future developments, including the duration and spread of the pandemic and the impact of COVID-19 variants, all of which are uncertain and cannot be predicted at this time. Governmental bodies may continue to impose additional restrictions, which could include additional shutdowns, to stop the spread of infection. These additional restrictions would have a negative impact on our financial condition, results of operations and cash flows.
Note 4. Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU 2020-04”) establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently evaluating the adoption of this pronouncement and does not expect the adoption to have an impact on the Company's financial position, results of operations or financial disclosures.
Note 5. Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents for purposes of the Condensed Consolidated Balance Sheets. Avalon maintains its cash balances in various financial institutions. These balances may, at times, exceed federal insured limits. Avalon has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to its cash and cash equivalents.
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash on the Condensed Consolidated Balance Sheets. Restricted cash consists of loan proceeds deposited into a project fund account to fund costs associated with the renovation and expansion of The Grand Resort and Avalon Field Club at New Castle in accordance with the provisions of the loan and security agreement (See Note 10).
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows. Cash, cash equivalents and restricted cash consist of the following at September 30, 2021 and December 31, 2020 (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash, cash equivalents and restricted cash | $ | $ | ||||||
Note 6. Revenues
Revenue Recognition
The Company identifies a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when obligations under the terms of the contract with our customer are satisfied; generally this occurs with the transfer of control of the good or service to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company does not incur incremental costs to obtain contracts or costs to fulfill contracts that meet the criteria for capitalization. In addition, the Company does not have material significant payment terms as payment is received at or shortly after the point of sale.
Waste Management Services
Avalon’s waste management services provide hazardous and nonhazardous waste brokerage and management services, captive landfill management services and salt water injection well operations. Waste management services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets.
Avalon’s waste brokerage and management business assists customers with managing and disposing of wastes at approved treatment and disposal sites based upon a customer’s needs. Avalon provides a service to its customers whereby Avalon, arranges for, and accepts responsibility for the removal, transportation and disposal of waste on behalf of the customer.
Avalon’s landfill management business provides technical and operational services to customers owning captive disposal facilities. A captive disposal facility only disposes of waste generated by the owner of such facility. The Company provides turnkey services, including daily operations, facilities management and management reporting for its customers. Currently, Avalon manages one captive disposal facility located in Ohio. The net operating revenues of the captive landfill operations are almost entirely dependent upon the volume of waste generated by the owner of the landfill for whom Avalon manages the facility.
Avalon is a minority owner with managerial control over salt water injection wells and its associated facility. Operations of the salt water injection wells have been suspended in accordance with the Chief of the Division of Oil and Gas Resources Management order (See Note 16). Due to the suspension of the salt water injection wells, there were
For the three months ended September 30, 2021 and 2020, the net operating revenues related to waste management services represented approximately
For our waste management services contracts, the customer contracts with us to provide a series of distinct waste management services over time which integrates a set of tasks (i.e. removal, transportation and disposal of waste) into a single project. Avalon provides substantially the same service over time and the same method is used to measure the Company’s progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. The series of distinct waste management services, which are the same over time, meets the series provision criteria, and as such, the Company treats that series as a single performance obligation. The Company allocates the transaction price to the single performance obligation and recognizes revenue by applying a single measure of progress to that performance obligation. Avalon transfers control of the service over time and, therefore, satisfies the performance obligation and recognizes the revenue over time as the customer simultaneously receives and consumes the benefits provided by Avalon’s performance as we perform.
In addition, as the promise to provide services qualifies as a series accounted for as a single performance obligation, the Company applied the practical expedient guidance that allows an entity that is recognizing revenue over time by using an output method to recognize revenue equal to the amount that the entity has the right to invoice if the invoiced amount corresponds directly to the value transferred to the customer. The Company applied the standard's practical expedient that permits the omission of disclosures relating to unsatisfied performance obligations as most of the Company’s waste management service contracts (i) have an original expected length of year or less and (ii) the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
Avalon evaluated whether we are the principal (i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). Avalon reports waste management services on a gross basis, that is, amounts billed to our customers are recorded as revenues, and amounts paid to vendors for providing those services are recorded as operating costs. As principal, Avalon is primarily responsible for fulfilling the promise to provide waste management services for the customer. Avalon accepts credit risk in the event of nonpayment by the customer and is obligated to pay vendors who provide the service regardless of whether the customer pays the Company. Avalon does have a level of discretion in establishing the pricing for its service.
Our payment terms vary by the type and location of our customer and the service offered. Avalon does not have any financing arrangements with its customers. The term between invoicing and when payment is due is not significant.
The Company assesses each contract amendment individually. Typically, amendments made to our contracts do not materially change the terms of the agreement or performance obligation of the Company. The Company accounts for such contract amendments as if it were part of the existing contract as the material terms contained in the contract do not change. In cases where Avalon views there is a material change in the terms of the agreement, the Company will reevaluate and determine if the contract should be viewed as an entirely new contract, replacement contract or a continuation of the existing contract.
Consideration promised in our waste management contracts do not typically include material variable amounts such as discounts, rebates, refunds, credits, price concessions, incentives, penalties or other such items, and, as such, no estimate is made by the Company for such items.
Golf and Related Operations
Avalon’s golf and related operations include the operation and management of golf courses and associated clubhouses, recreation and fitness centers, tennis courts, salon and spa services, dining and banquet facilities and a travel agency. The golf and related operations also include the operation of a hotel and its related amenities including dining, banquet and conference facilities, fitness center, indoor junior Olympic size swimming pool and tennis courts. Revenues for the golf and related operations consists primarily of food, beverage and merchandise sales, membership dues, greens fees and associated cart rentals, room rentals, fitness activities, salon and spa services. Due to adverse weather conditions, net operating revenues relating to the golf courses, which are located in northeast Ohio and western Pennsylvania, were minimal during the first three months of 2021 and 2020.
For the three months ended September 30, 2021 and 2020, the net operating revenues related to the golf and related operations represented approximately
For Avalon’s golf and related operations, the Avalon Golf and Country Club offers membership packages for use of the country club facilities and its related amenities. Membership agreements are a year noncancellable commitment and pricing varies based on the membership type selected by the customer. Based on the terms and conditions of the membership contract, resignations received within the membership period do not relieve the member of their annual commitment. Memberships automatically renew on the member’s anniversary date unless the member resigns for the upcoming membership period prior to the renewal date.
Membership for the Avalon Golf and Country Club does not contain up-front initiation fees or require monthly minimum spending at the facilities. Annual membership dues do not cover the cost of food, beverage or any other ancillary paid services which are made available to the member nor do they typically provide for discounts on these goods or services. Members have no obligation to purchase or utilize any of these additional goods or services. Avalon is not required to provide such goods or services unless requested and paid for at the point of sale by the member.
Under the terms of the contract, Avalon will provide unlimited use and access to the country club facilities. Avalon’s performance obligation in the contract is the “stand ready obligation” to provide access to these facilities for the member for the entire membership term. Avalon providing the “stand ready obligation” for use of the facilities to the member over the entire term of the membership agreement represents a single performance obligation of which Avalon expects the member to receive and consume the benefits of its obligation throughout the membership term, and as such, the Company recognizes membership dues on a straight line basis over the term of the contract. The Company applied the standard's practical expedient that permits the omission of disclosures relating to unsatisfied performance obligations for contracts with an original expected length of one year or less as Avalon Golf and Country Club membership agreements are one year in length.
For our hotel operations, Avalon’s performance obligation is to provide lodging facilities. The separate components of providing these services (hotel room, toiletry items, housekeeping, and amenities) are not distinct within the context of the contract as they are all highly dependent and interrelated as part of the obligation to provide the lodging facility. Room sales are driven by a fixed fee charged to a hotel guest to stay at The Grand Resort for an agreed upon period. The Company agrees to provide a room to the hotel guest for a specified time period for that agreed-upon rate. Our hotel room reservations are performance obligations satisfied over time as the hotel guest simultaneously receives and consumes the benefits provided by the hotel. For performance obligations satisfied over time, our hotel operations measure the progress toward complete satisfaction of the performance obligation and recognize revenue proportionately over the course of the customer’s stay.
For food, beverage, and merchandise sales, greens fees and associated cart rental, fitness activities, salon and spa services and other ancillary services, the transaction price is the set price charged by the Company for those goods or services. Upon purchase of the good or service, the Company transfers control of the good or service to the customer and the customer immediately consumes the benefits of the Company’s performance and, as such, we recognize revenue at the point of sale. Amounts paid in advance, such as deposits on overnight lodging or for banquet or conferences facilities, are recorded as a liability until the goods or services are provided to the customer (see Contract Liabilities below).
The following table presents our net operating revenues disaggregated by revenue source for the three and nine months ended September 30, 2021 and 2020 (in thousands). Sales and other taxes are excluded from revenues.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Waste management and brokerage services | $ | $ | $ | $ | ||||||||||||
| Captive landfill management operations | ||||||||||||||||
| Total waste management services revenues | ||||||||||||||||
| Food, beverage and merchandise sales | ||||||||||||||||
| Membership dues revenue | ||||||||||||||||
| Room rental revenue | ||||||||||||||||
| Greens fees and cart rental revenue | ||||||||||||||||
| Tennis lesson revenue | ||||||||||||||||
| Other revenue | ||||||||||||||||
| Total golf and related operations revenue | ||||||||||||||||
| Total net operating revenues | $ | $ | $ | $ | ||||||||||||
Avalon does not have operations located outside the United States and, accordingly, geographical revenue information is not presented.
Receivables, Net
Receivables, net, include amounts billed and currently due from customers. The amounts due are stated at their net realizable value. At September 30, 2021 and December 31, 2020, accounts receivable, net, related to our waste management services segment were approximately $
The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. Customer accounts that are outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous accounts receivable loss history, the customer’s current ability to pay its obligation to Avalon and the condition of the general economy and the industry as a whole. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for credit losses, or to income, as appropriate under the circumstances. Allowance for credit losses was approximately $
The following table presents changes in our allowance for credit losses during the three and nine months ended September 30, 2021 and 2020 (in thousands):
| Balance at Beginning of Period | Losses | Write-offs less Recoveries | Balance at End of Period | |||||||||||||
| Allowance for credit losses | ||||||||||||||||
| Three months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Three months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
Contract Assets
Contract assets include unbilled membership dues receivables related to the Avalon Golf and Country Club for the customers membership commitment which are billed on a monthly basis over the course of the annual agreement. Such amounts are stated at their net realizable value. Contract assets related to unbilled membership dues are classified as current as revenue related to such agreements is recognized within the annual membership period. Unbilled membership receivables in our Condensed Consolidated Balance Sheets were approximately $
The following table presents changes in our contract assets during the three and nine months ended September 30, 2021 and 2020 (in thousands):
| Balance at Beginning of Period | Unbilled Membership Dues | Billings | Balance at End of Period | |||||||||||||
| Contract Assets: | ||||||||||||||||
| Unbilled membership dues receivable | ||||||||||||||||
| Three months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Three months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
Contract Liabilities
Contract liabilities include unrecognized or deferred revenues relating to membership dues and customer advance deposits. We record deferred revenue when cash payments are received in advance of satisfying our performance obligation. We classify deferred membership dues revenue as current based on the timing of when we expect to recognize revenue for the membership commitment based on the Company satisfying the stand ready performance obligation throughout the annual membership period. The unrecognized or deferred revenues related to membership dues in our Condensed Consolidated Balance Sheets were approximately $
The following table presents changes in our contract liabilities during the three and nine months ended September 30, 2021 and 2020 (in thousands):
| Balance at Beginning of Period | Billings | Revenue Recognized | Balance at End of Period | |||||||||||||
| Contract Liabilities: | ||||||||||||||||
| Deferred membership dues revenue | ||||||||||||||||
| Three months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Three months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
| Customer advance deposits | ||||||||||||||||
| Three months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Three months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine months ended September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||
Note 7. Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from
Major additions and improvements are charged to the property and equipment accounts while replacements, maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the year of disposal. Gains or losses resulting from the disposal of property and equipment are recorded in “Other income, net” in our Condensed Consolidated Statements of Operations.
Property and equipment at September 30, 2021 and December 31, 2020 consists of the following (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Land and land improvements | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Office furniture and fixtures | ||||||||
| Vehicles | ||||||||
| Construction in progress | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
At September 30, 2021, the Company did not have any significant fixed contractual commitments for construction projects.
Avalon reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, Avalon would determine whether the estimated undiscounted sum of the future cash flows of such assets and their eventual disposition is less than its carrying amount. If less, an impairment loss would be recognized if, and to the extent that the carrying amount of such assets exceeds their respective fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows. During the first nine months of 2021 and 2020, no triggering events were present.
Note 8. Leases
Operating Leases
Avalon leases golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Grand Resort and office copiers under operating leases. Our operating leases have remaining lease terms ranging from less than
During the first nine months of 2021, the Company entered into new operating lease agreements for a facility and golf cart GPS equipment. The Company recorded operating lease right-of-use assets and corresponding obligations under the operating leases of approximately $
Leased property and associated obligations under operating leases at September 30, 2021 and December 31, 2020 consists of the following (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Current portion of obligations under operating leases | $ | $ | ||||||
| Long-term portion of obligations under operating leases | ||||||||
| Total obligations under operating leases | $ | $ | ||||||
The weighted average discount rate on operating leases was
Finance Leases
In November 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (
In addition, the golf and related operations also entered into lease agreements for vehicles, golf course maintenance and restaurant equipment and the captive landfill operations entered into lease agreements for equipment which were determined to be finance leases. At September 30, 2021, the vehicles, golf course maintenance and restaurant equipment and the landfill operations equipment have remaining lease terms ranging from less than
Leased property and associated obligations under finance leases at September 30, 2021 and December 31, 2020 consists of the following (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Leased property under finance leases | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Leased property under finance leases, net | $ | $ | ||||||
| Current portion of obligations under finance leases | $ | $ | ||||||
| Long-term portion of obligations under finance leases | ||||||||
| Total obligations under finance leases | $ | $ | ||||||
The weighted average discount rate on finance leases was
For the three and nine months ended September 30, 2021 and 2020, components of lease expense were as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease cost: | ||||||||||||||||
| Rental expense | $ | $ | $ | $ | ||||||||||||
| Finance lease cost: | ||||||||||||||||
| Depreciation expense | $ | $ | $ | $ | ||||||||||||
| Interest expense | ||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | ||||||||||||
For the twelve months ending September 30, future commitments under long-term, operating and finance leases are as follows (in thousands):
| Finance | Operating | Total | ||||||||||
| 2022 | $ | $ | $ | |||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 | ||||||||||||
| Thereafter | ||||||||||||
| Total lease payments | ||||||||||||
| Less: imputed interest | ||||||||||||
| Total | ||||||||||||
| Less: current portion of obligations under leases | ||||||||||||
| Long-term portion of obligations under leases | $ | $ | $ | |||||||||
Note 9. Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing the net income (loss) by the weighted average number of common shares outstanding. For both the three and nine months ended September 30, 2021, the weighted average number of common shares outstanding was
Diluted net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus any weighted common equivalent shares determined to be outstanding during the period using the treasury method. The weighted common equivalent shares included in the calculation are related to stock options granted by Avalon where the weighted average market price of Avalon’s common stock for the period presented is greater than the option exercise price of the stock option.
For the three months ended September 30, 2021, the diluted weighted average number of shares outstanding was
For the three months ended September 30, 2020, the diluted per share amount reported is equal to the basic per share amount because the average market price of Avalon’s common shares during the period was less than the exercise price of the stock options outstanding. For the nine months ended September 30, 2020, the diluted per share amount reported is equal to the basic per share amount because Avalon was in a net loss position and as a result, such dilution would be considered anti-dilutive. Assuming dilution, the diluted per share amount is equal to the basic per share amount because the average market price of Avalon’s common shares during the period was less than the exercise price of the stock options outstanding.
Note 10. Term Loans and Line of Credit Agreements
New Term Loan Agreement
On December 20, 2019, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “New Term Loan Agreement”) with Laurel Capital Corporation which provided for a $
The New Term Loan Agreement is payable in
Avalon has the right to prepay the amount outstanding under the New Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent (
Borrowings under the New Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The New Term Loan Agreement contains a Fixed Charge Coverage Ratio requirement of at least
The Company capitalized approximately $
Line of Credit Agreement
On May 31, 2018, Avalon entered into a business loan agreement with Premier Bank (formerly Home Savings Bank), (the “Line of Credit Agreement”) which provides for a line of credit of up to $
Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement contains a Fixed Charge Coverage Ratio requirement of at least
Paycheck Protection Program Loan
The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, qualified companies are eligible for a loan in an amount equal to the lesser of $10 million or 2.5 times the business’s average monthly payroll. Collateral or guarantor support is not required for the loan.
Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during, at the borrowers election, either an 8 or 24 week covered period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Under the Program, proceeds that are not forgiven convert to a loan bearing interest at a fixed rate of 1% payable, at the borrowers election, in either 18 or 54 equal monthly installments commencing 10 months after the end of their covered period.
In the second quarter of 2020, certain wholly-owned subsidiaries of Avalon entered into agreements and received a total of approximately $
The Company accounted for the loans in accordance with ASC 470 – Debt. Under ASC 470, the debt will be derecognized when the debt is extinguished in accordance with the guidance in ASC 405-20, Liabilities: Extinguishments of Liabilities. Debt forgiven in accordance with the Program is recognized in the Condensed Consolidated Statements of Operations as a gain on debt extinguishment.
During the fourth quarter of 2020, approximately $
During the three months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was
Obligations under the Company’s debt agreements at September 30, 2021 and December 31, 2020 consist of the following (in thousands):
| September 30, 2021 | ||||||||||||
| Gross Amount | Debt Issuance Costs | Net Amount | ||||||||||
| Term Loan Agreement | $ | $ | ( | ) | $ | |||||||
| Less current portion | ( | ) | ||||||||||
| Long-term debt | $ | $ | ( | ) | $ | |||||||
| December 31, 2020 | ||||||||||||
| Gross Amount | Debt Issuance Costs | Net Amount | ||||||||||
| Term Loan Agreement | $ | $ | ( | ) | $ | |||||||
| Paycheck Protection Program Loans | ||||||||||||
| Total | ( | ) | ||||||||||
| Less current portion | ( | ) | ||||||||||
| Long-term debt | $ | $ | ( | ) | $ | |||||||
For the twelve months ending September 30, future maturities of long-term debt are as follows (in thousands):
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
Note 11. Income Taxes
During the three months ended September 30, 2021 and 2020, net income attributable to Avalon Holdings Corporation shareholders was $
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryforwards generated in taxable years beginning after December 31, 2017, to offset 100% of taxable income for taxable years beginning before January 1, 2021, and 80% of taxable income in taxable years beginning after December 31, 2020. In addition, the CARES Act allows net operating losses incurred in taxable years beginning after December 31, 2017, and before January 1, 2021, to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The adoption of these provisions did not have a material impact on the Company’s financial position or results of operations.
On December 27, 2020, the Consolidated Appropriations Act, 2021 (the “Appropriations Act”) was enacted in response to the COVID-19 pandemic. The Appropriations Act, among other things, temporarily extends through December 31, 2025, certain expiring tax provisions, including look-through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations. Additionally, the Appropriations Act enacts new provisions and extends certain provisions originated within the CARES Act, including an extension of time for repayment of the deferred portion of employees’ payroll tax through December 31, 2021, and a temporary allowance for full deduction of certain business meals. Avalon has elected not to defer the employees’ portion of payroll tax. Management is currently evaluating the other provisions of the Appropriations Act, but at present time does not expect that the other provisions of the Appropriations Act would result in a material tax or cash benefit.
Note 12. Long-Term Incentive Plan
On March 14, 2019, the Board of Directors of Avalon approved the renewal of the expired 2009 Long-term Incentive Plan (the “2009 Plan”), which was set to expire in October of 2019. The 2009 Plan provides for the granting of options which are intended to be non-qualified stock options (“NQSO’s”) for federal income tax purposes except for those options designated as incentive stock options (“ISO’s”) which qualify under Section 422 of the Internal Revenue Code.
The name of the plan was changed to the 2019 Long-term Incentive Plan (“the Option Plan”) to reflect the year of approval. The Option Plan represents the renewal of the 2009 Plan which had
The purpose of the Avalon Holdings Corporation 2019 Long-term Incentive Plan (the “Plan”) is (a) to improve individual employee performance by providing long-term incentives and rewards to employees of Avalon, (b) to assist Avalon in attracting, retaining and motivating employees and non-employee directors with experience and ability, and (c) to associate the interests of such employees and directors with those of the Avalon shareholders.
NQSO’s may be granted with an exercise price which is not less than
No option shall be exercisable prior to year after its grant, unless otherwise provided by the Option Committee of the Board of Directors (but in no event before
The stock options, vest ratably over a year period and have a contractual term of years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within years following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended at the discretion of the Board of Directors.
The grant-date fair values of the stock option awards were estimated using the Monte Carlo Simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.
The grant date fair value of the underlying equity was determined to be equal to Avalon’s publicly traded stock price as of the grant dates times the sum of the Class A and Class B common shares outstanding.
The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the Company has had no historical exercising activity, prior to 2018, the simplified method was applied. Because of the nature of the vesting described above, the options are separated into five blocks, with each block having its own vesting period and expected term.
For stock option awards, the expected volatility was based on the observed historical volatility of Avalon common stock. There were
In March 2021, unexercised options to purchase
The following table is a summary of the stock option activity during 2021:
| Number of Options Granted | Weighted Average Exercise Price | Weighted Average Fair Value at Grant Date | ||||||||||
| Outstanding at January 1, 2021 | ||||||||||||
| Options granted | - | |||||||||||
| Options exercised | - | |||||||||||
| Options expired | ( | ) | ||||||||||
| Options cancelled or forfeited | - | |||||||||||
| Outstanding at September 30, 2021 | $ | $ | ||||||||||
| Options Vested | $ | $ | ||||||||||
| Exercisable at September 30, 2021 | $ | $ | - | |||||||||
The stock options vest and become exercisable based upon achieving two critical metrics as follows:
1) Contract Vesting Term: The stock options vest ratably over a five year period.
2) The Avalon common stock price traded on a public stock exchange (NYSE Amex) must reach the predetermined vesting price within three years after the options become vested under the contractual vesting term.
The table below represents the period and predetermined stock price needed for vesting.
| Begins | Ends | Predetermined | ||||||
| Vesting | Vesting | Vesting Price | ||||||
| Block 1 | | | $ | |||||
| Block 2 | | | $ | |||||
| Block 3 | | | $ | |||||
| Block 4 | | | $ | |||||
| Block 5 | | | $ | |||||
Compensation costs were approximately $
Note 13. Legal Matters
In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those related to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, will have a material adverse effect on its liquidity, financial position or results of operations (See Note 16).
Note 14. Business Segment Information
In determining the segment information, Avalon considered its operating and management structure and the types of information subject to regular review by its “chief operating decision maker.” Using the criteria of FASB ASC 280 Segment Reporting, Avalon’s reportable segments include waste management services and golf and related operations. Avalon accounts for intersegment net operating revenues as if the transactions were to third parties. The segment disclosures are presented on this basis for all periods presented.
Avalon’s primary business segment, the waste management services segment, provides hazardous and nonhazardous brokerage and management services to industrial, commercial, municipal and governmental customers, captive landfill management for an industrial customer and salt water injection well operations.
Avalon’s golf and related operations segment consists of four golf courses and associated clubhouses which provide dining and banquet facilities, a hotel which provides lodging and resort related amenities including dining, banquet and conference facilities, a multipurpose recreation center and a travel agency. Revenue for the golf and related operations segment consists primarily of membership dues, greens fees, cart rentals, room rentals, merchandise sales, tennis and fitness activities, salon and spa services and food and beverage sales.
Avalon does not have significant operations located outside the United States and, accordingly, geographical segment information is not presented.
For the nine months ended September 30, 2021, customer accounted for
The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of significant accounting policies included in Avalon’s 2020 Annual Report to Shareholders. Avalon measures segment profit for internal reporting purposes as income (loss) before income taxes.
Business segment information including the reconciliation of segment income before taxes to income (loss) before taxes is as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net operating revenues from: | ||||||||||||||||
| Waste management services: | ||||||||||||||||
| External customer revenues | $ | $ | $ | $ | ||||||||||||
| Intersegment revenues | ||||||||||||||||
| Total waste management services | ||||||||||||||||
| Golf and related operations: | ||||||||||||||||
| External customer revenues | ||||||||||||||||
| Intersegment revenues | ||||||||||||||||
| Total golf and related operations | ||||||||||||||||
| Segment operating revenues | ||||||||||||||||
| Intersegment eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total net operating revenues | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Income (loss) before income taxes: | ||||||||||||||||
| Waste management services | $ | $ | $ | $ | ||||||||||||
| Golf and related operations | ||||||||||||||||
| Segment income before income taxes | ||||||||||||||||
| Corporate interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Corporate gain on debt extinguishment | ||||||||||||||||
| Corporate other income, net | ||||||||||||||||
| General corporate expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before income taxes | $ | $ | $ | $ | ( | ) | ||||||||||
| Gain on debt extinguishment: | ||||||||||||||||
| Waste management services | $ | $ | $ | $ | ||||||||||||
| Golf and related operations | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total gain on debt extinguishment | $ | $ | $ | $ |
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Identifiable assets: | ||||||||
| Waste management services | $ | $ | ||||||
| Golf and related operations | ||||||||
| Corporate | ||||||||
| Subtotal | ||||||||
| Elimination of intersegment receivables | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
In comparing total assets at September 30, 2021 with those at December 31, 2020, the increase in the total assets of the waste management services segment of approximately $
Note 15. Certain Relationships and Related Transactions
AWMS Holdings, LLC
In August 2013, Avalon created a new Ohio limited liability company, AWMS Holdings, LLC, to act as a holding company to form and own a series of wholly owned subsidiaries that will own and operate Class II salt water injection wells and facilities (together the “facilities”). AWMS Holdings, LLC, offers investment opportunities to accredited investors by selling membership units of AWMS Holdings, LLC through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to construct the facilities necessary for the operation of salt water injection wells. AWMS Water Solutions, LLC, a wholly owned subsidiary of Avalon, manages all the salt water injection well operations, including the marketing and sales function and all decisions regarding the well operations for a percentage of the gross revenues.
In 2014 and 2013, Avalon, through a wholly owned subsidiary made capital contributions totaling approximately $
As a result of a private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC. At September 30, 2021 and December 31, 2020, respectively, Avalon owns approximately
Avalon Med Spa, LLC
In March 2021, Avalon created a new Ohio limited liability company, Avalon Med Spa, LLC. Avalon Med Spa, LLC provides elective appearance improving nonsurgical aesthetic services under the supervision of a licensed physician. Avalon Med Spa, LLC, offers investment opportunities to accredited investors by selling membership units through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to purchase medical spa equipment and construct the facilities necessary for operation. Avalon operates and manages all decisions regarding the medical spa operations for a percentage of the gross revenues.
In 2021, Avalon made a capital contributions totaling $
In accordance with ASC 810-10 and related amendment, Avalon Med Spa, LLC is a variable interest entity, and the financial statements of Avalon Med Spa, LLC are included in Avalon’s consolidated financial statements. ASC 810-10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2021, net loss attributable to the noncontrolling interest in Avalon Med Spa, LLC was $
Note 16. Injection Wells Suspension
As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014 to immediately suspend all operations of Avalon’s saltwater injection wells until the Division could further evaluate the wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and that the saltwater injection wells pose a risk of increasing or creating seismic activity.
On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections for the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.
On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension order is temporary, and he expects that AWMS #2 will be allowed to resume operations once the state’s final policymaking is complete.
On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension would allow the Chief more time to fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity.
Avalon appealed that decision to the Franklin County Court of Common Pleas (the “Court”), and on November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company over the 26 month period was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety.
On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order set forth conditions for restarting the AWMS #2 salt water injection well in accordance with the proposed restart plans filed by Avalon with minor revisions. On February 22, 2017, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order. The Motion to Stay was granted by the Ohio 10th District Court of Appeals on March 21, 2017.
On September 14, 2017, an appeal hearing was held in the Ohio 10th District Court of Appeals and on July 31, 2018 a decision was issued on the appeal. The decision reinstated the previous Ohio Oil and Gas Commission decision in this matter.
On September 12, 2018, the Company appealed the Ohio 10th District Court of Appeals decision to the Supreme Court of Ohio. On November 21, 2018, the Company received notice from the Supreme Court of Ohio that the court would not accept for review the Company’s appeal of the Ohio 10th District Court of Appeals decision on the Division of Oil and Gas Resources Management’s appeal of the Franklin County Court of Common Pleas February 21, 2017 entry allowing restart of the Company’s AWMS Water Solutions, LLC #2 salt water injection well.
On April 5, 2019, Avalon filed with the Oil and Gas Commission a motion to vacate its prior decisions in this matter. The Oil and Gas Commission scheduled a hearing on this motion for August 13, 2019. Before the hearing began, and in response to the Division’s motion to dismiss the Company’s motion to vacate, the Commission dismissed the matter. The Company appealed that decision to the Franklin County Court of Common Pleas. In April 2020, the Division’s motion to dismiss and the Company’s opposition were reviewed by the Court. The Company is currently awaiting judgment from the Court.
Concurrently with the filing of the appeal with the Franklin County Court of Common Pleas, the Company filed a writ of mandamus in the 10th District Court of Appeals on August 30, 2019 to compel the chief of the Division to issue restart orders, or alternative orders that would allow the Company to either restart the AWMS #2 well, or appeal said orders to the Oil and Gas Commission in accordance with Ohio Law. On October 6, 2020 and in response to a motion from the Division, the Court dismissed this complaint for writ of mandamus.
In addition, on August 26, 2016, Avalon filed a complaint in the 11th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. The Company believes that the actions, and lack of responsible actions, by the ODNR is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163.
On March 18, 2019, Avalon received notice that the 11th Appellate District Court in Trumbull County, Ohio issued summary judgment in favor of the Ohio Department of Natural Resources in the writ of mandamus action that resulted from the suspension order of the Company’s salt water injection well. The decision was appealed to the Supreme Court of Ohio on April 5, 2019. Oral arguments in the case occurred on April 7, 2020. On September 23, 2020, the Supreme Court of Ohio ruled in favor of the Company. The Supreme Court of Ohio reversed the decision of the 11th Appellate District Court and remanded the case back to that court for a trial on the merits. The trial occurred in September and October 2021. The Company is currently awaiting judgment from the 11th Appellate District Court.
On May 24, 2021, the Company received Chief’s Orders from the Division vacating the September 3, 2014 suspension orders for AWMS #2 and setting conditions for restart of that well. Among these conditions was a limit placed on the seismicity within three miles of the well. Under the Order, if a seismic event with a magnitude 2.1 or above occurs, the well must cease operations for an indefinite period of time until concurrence for subsequent restart is received from the Division. The Company appealed the May 2021 Chief’s Order to the Ohio Oil and Gas Commission, seeking reasonable operating conditions that will allow the facility to operate profitably while protecting human health and property. A hearing in this matter is expected in early 2022.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information which management believes is relevant to an assessment and understanding of the operations and financial condition of Avalon Holdings Corporation and its subsidiaries. As used in this report, the term “Avalon” or the “Company” means Avalon Holdings Corporation, its wholly owned subsidiaries and variable interest entities when it has been determined that Avalon is the primary beneficiary of those company’s operations, taken as a whole, unless the context indicates otherwise.
Statements included in Management’s Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature are intended to be, and are hereby identified as, “forward looking statements”. Avalon cautions readers that forward looking statements, including, without limitation, those relating to Avalon’s future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements, due to risks and factors identified herein and from time to time in Avalon’s reports filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
For the nine months ended September 30, 2021, Avalon utilized existing cash and cash provided by operations to meet operating needs and make required monthly payments on our term loan facility. Cash in our project fund account was utilized to fund capital expenditures which included the continued renovation of The Grand Resort and Avalon Field Club at New Castle as further described below.
Financial Impact of COVID-19 Pandemic
In December 2019, a novel strain of coronavirus, COVID-19, emerged in Wuhan, Hubei Province, China. While initially concentrated in China, the outbreak spread to other countries and infections have been reported globally including in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 viral disease a pandemic. As a result, the federal and state governmental bodies began taking unprecedented measures to try and control the spread of the virus including the issuance of temporary stay at home orders, the temporary closing of non-essential businesses and in-house dining and restrictions on gatherings and events.
During the nine months ended September 30, 2020, the various governmental orders that were issued to control the spread of COVID-19 adversely impacted our operations and related financial results. Our restaurants operated under government mandated occupancy restrictions for in-house dining. Food and beverages sales related to banquets and conferences were significantly lower as a result of restrictions placed on gatherings and events. In addition, in March 2020, the Company began experiencing a high level of room and event cancellations with some subsequent re-bookings for a future date.
Although the various government mandates impacting our business operations have currently been lifted, we may experience weakened demand in light of continued travel restrictions or warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty. The full extent of the impact of the COVID-19 pandemic on our operations and financial performance will depend on future developments, including the duration and spread of the pandemic and the impact of COVID-19 variants, all of which are uncertain and cannot be predicted at this time. Governmental bodies may continue to impose additional restrictions, which could include additional shutdowns, to stop the spread of infection. These additional restrictions would have a negative impact on our financial condition, results of operations and cash flows.
Paycheck Protection Program Loan
The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, qualified companies are eligible for a loan in an amount equal to the lesser of $10 million or 2.5 times the business’s average monthly payroll. Collateral or guarantor support is not required for the loan.
Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during, at the borrowers election, either an 8 or 24 week covered period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Under the Program, proceeds that are not forgiven convert to a loan bearing interest at a fixed rate of 1% payable, at the borrowers election, in either 18 or 54 equal monthly installments commencing 10 months after the end of their covered period.
In the second quarter of 2020, certain wholly-owned subsidiaries of Avalon entered into agreements and received a total of approximately $2.8 million in loans under the Program. The Company utilized the entire balance of the loan proceeds in accordance with the Program’s guidelines using the 24 week loan forgiveness period and subsequently applied for forgiveness with the Small Business Administration.
During the fourth quarter of 2020, approximately $0.8 million of the loans and $4,000 of associated interest were forgiven by the Small Business Administration. During the first quarter of 2021, approximately $1.1 million of the loans and $8,000 of associated interest were forgiven by the Small Business Administration and, during the second quarter of 2021, the remaining $0.9 million of the loans and $9,000 of associated interest were forgiven by the Small Business Administration. Debt forgiven in accordance with the Program is recognized in the Condensed Consolidated Statements of Operations as a gain on debt extinguishment.
Capital Expenditures
During the nine months ended September 30, 2021, Avalon incurred capital expenditures of $3.5 million of which $3.2 million of such expenditures was paid to vendors during the period. Expenditures primarily related to the continued renovation and expansion of The Grand Resort and the clubhouse at Avalon Field Club at New Castle. During the nine months ended September 30, 2020, Avalon incurred capital expenditures of $3.7 million of which $3.2 million of such expenditures was paid to vendors during the period. Expenditures primarily related to the continued renovation and expansion of The Grand Resort. In addition, approximately $0.4 million of such expenditures related to golf course maintenance equipment acquired under new finance lease agreements.
In 2021 and 2020, The Grand Resort was in operation but still in the process of being renovated and expanded. The renovations and expansion include the renovation of existing hotel rooms and the addition of a new restaurant, bars, cigar lounge, salon and spa. Avalon’s aggregate capital expenditures in 2021 are expected to be in the range of $4.0 million to $4.5 million, funded with cash from our project fund account. Capital expenditures principally relate to the continued renovation and expansion of The Grand Resort, the clubhouse at Avalon Field Club at New Castle, building improvements and equipment purchases.
New Term Loan Agreement
On December 20, 2019, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “New Term Loan Agreement”) with Laurel Capital Corporation which provided for a $23.0 million term loan. At closing, $13.8 million of the proceeds were used to pay off and refinance amounts outstanding under our then existing term loan and commercial mortgage agreements, $1.7 million of the proceeds were used to pay down the outstanding balance and associated interest on our existing line of credit agreement and $0.3 million of the proceeds were utilized to pay related transaction costs. The remaining proceeds of approximately $7.2 million were deposited into a project fund account for which those proceeds are required to fund future costs of renovating and expanding both The Grand Resort and Avalon Field Club at New Castle. At September 30, 2021 and December 31, 2020, loan proceeds of $2.1 million and $3.9 million, respectively, remained in the project fund account.
The then existing term loan and commercial mortgage agreements were terminated in conjunction with the New Term Loan Agreement.
The New Term Loan Agreement is payable in 119 equal monthly installments of principal and interest, based on a fifteen (15) year maturity schedule which commenced January 20, 2020 followed by one final balloon payment of all remaining principal, interest and fees due on the maturity date of December 20, 2029. Borrowings under the New Term Loan Agreement bear interest at a fixed rate of 5.00% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.00% per annum or (b) the sum of the five year treasury rate on the date two (2) business days prior to the reset date plus 3.60%, provided that the applicable rate shall in no event exceed 7.35% per annum.
Avalon has the right to prepay the amount outstanding under the New Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent (5%) on any prepayment in the first five years; four percent (4%) on any prepayment in the sixth and seventh year; three percent (3%) on any prepayment in the eighth and ninth year; and two percent (2%) on any prepayment in the tenth year.
Borrowings under the New Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The New Term Loan Agreement contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year. The New Term Loan also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the New Term Loan Agreement covenants at September 30, 2021 and December 31, 2020.
Line of Credit Agreement
On May 31, 2018, Avalon entered into a business loan agreement with Premier Bank (formerly Home Savings Bank), (the “Line of Credit Agreement”) which provides for a line of credit of up to $5.0 million. On August 17, 2021, the Company amended the Line of Credit Agreement to extend the maturity date to July 31, 2023. Under the Line of Credit Agreement, borrowings in excess of $1.0 million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement.
No amounts were drawn under the Line of Credit Agreement at September 30, 2021 and December 31, 2020. Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At September 30, 2021, the interest rate on the Line of Credit Agreement was 3.50%.
Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year. The Line of Credit Agreement also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the Line of Credit Agreements covenants at September 30, 2021 and December 31, 2020.
During the three months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 5.00% and 4.57%, respectively. During the nine months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 4.91% and 4.74%, respectively.
Squaw Creek Country Club Lease Agreement
In November 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all of its remaining renewal options.
Working Capital
At September 30, 2021 and December 31, 2020, there was a working capital deficit of approximately $1.2 million and $1.9 million, respectively. Working capital was positively impacted by an increase in accounts receivable, unbilled membership dues, inventory and a decrease in accounts payable and the current portion of the Paycheck Protection Program loans that were forgiven by the Small Business Administration. Working capital was negatively impacted by an increase in accrued payroll and other compensation and deferred membership dues revenue. Accounts receivable increased to $9.9 million at September 30, 2021 compared with $8.7 million at December 31, 2020. Accounts receivable related to the golf and related operations segment increased approximately $0.6 million at September 30, 2021 compared to December 31, 2020 due to the associated timing of annual membership renewals. In addition, accounts receivable related to our waste management services segment increased approximately $0.6 million at September 30, 2021 compared with December 31, 2020 as a result of the increase in net operating revenues in the third quarter of 2021 compared with the fourth quarter of 2020.
Accounts payable decreased to $9.0 million at September 30, 2021 compared to $9.1 million at December 31, 2020. The decrease in accounts payable was attributable to our waste management segment due to the associated timing of vendor payments in the ordinary course of business. The decrease in accounts payable related to our waste management services segment was partially offset by an increase in accounts payable related to our golf and related operations segment. Accounts payable related to the golf and related operations increased as a result of increased business operations during the third quarter of 2021 compared to the fourth quarter of 2020.
Deferred revenue relating to membership dues was approximately $4.4 million at September 30, 2021 compared to $3.2 million at December 31, 2020. The increase in deferred revenues was primarily due to the associated timing of annual membership renewals, and to a lesser extent, an increase in members during 2021. The number of members at September 30, 2021 was 5,112 compared to 4,920 at December 31, 2020.
Accrued payroll and other compensation was approximately $1.2 million at September 30, 2021 compared to $0.8 million at December 31, 2020. The increase is due to the associated timing and accrual of employee payroll payments in the ordinary course of business.
Management believes that anticipated cash provided from future operations will be sufficient to meet operating requirements and make required monthly payments under our term loan facility. Depending on the continued duration the COVID-19 pandemic may have on our business, if needed, Avalon will take all available actions to fund operating requirements including borrowing from our existing line of credit.
Growth Strategy
Waste Management Segment
Our growth strategy for the waste management services segment focuses on increasing revenue, gaining market share and enhancing shareholder value through internal growth. Although we are a waste management services company, we do not own any landfills or provide waste collection services. However, because of our many relationships with various disposal facilities and transporters, we are able to be more flexible and provide alternative solutions to a customer’s waste disposal or recycling needs. We intend to capitalize on our management and sales staff which has extensive experience in all aspects of the waste business. As such, we intend to manage our internal growth as follows:
• Sales and Marketing Activities. We will focus on retaining existing customers and obtaining new business through our well-managed sales and marketing activities. We seek to manage our sales and marketing activities to enable us to capitalize on our position in many of the markets in which we operate. We provide a tailored program to all of our customers in response to their particular needs. We accomplish this by centralizing services to effectively manage their needs, such as minimizing their procurement costs.
We currently have a number of professional sales and marketing employees in the field who are compensated using a commission structure that is focused on generating high levels of quality revenue. For the most part, these employees directly solicit business from existing and prospective customers. We emphasize our rate and cost structures when we train new and existing sales personnel. We intend to hire additional qualified professional sales personnel to expand into different geographical areas.
• Development Activities. We will seek to identify opportunities to further position us as an integrated service provider in markets where we provide services. In addition, we will continue to utilize the extensive experience of our management and sales staff to bid on significant one-time projects and those that require special expertise. Where appropriate, we may seek to obtain permits that would provide vertically integrated waste services or expand the service offerings or leverage our existing volumes with current vendors to provide for long term, cost competitive strategic positioning within our existing markets.
Golf and Related Operations Segment
In August 2014, the Company acquired The Grand Resort which was integrated into the golf and related operations segment. The acquisition is consistent with the Company's business strategy in that The Grand Resort provides guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allows its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club also have access to all of the amenities offered by The Grand Resort. The Grand Resort is open year-round and provides a consistent, comfortable environment where our guests can enjoy our various amenities and activities. Avalon believes that the combination of its four golf facilities and The Grand Resort will result in additional memberships in the Avalon Golf and Country Club.
In addition, several private country clubs in the northeast Ohio area are experiencing economic difficulties. Avalon believes some of these clubs may represent an attractive investment opportunity. While Avalon has not entered into any pending agreements for acquisitions, it may do so at any time and will continue to consider acquisitions that make economic sense.
Results of Operations
Avalon’s primary business segment, the waste management services segment, provides hazardous and nonhazardous waste brokerage and management services, captive landfill management services and salt water injection well operations. The golf and related operations segment includes the operation and management of four golf courses and related country clubs and facilities, a hotel and its associated resort amenities, a multipurpose recreation center and a travel agency.
Performance in the third quarter of 2021 compared with the third quarter of 2020
Overall Performance
Net operating revenues increased to $21.3 million in the third quarter of 2021 compared with $16.6 million in the third quarter of 2020. Net operating revenues of the waste management services segment were approximately $11.4 million in the third quarter of 2021 compared to $9.3 million in the third quarter of 2020. Net operating revenues of the golf and related operations segment were approximately $9.9 million in the third quarter of 2021 compared to $7.3 million in the third quarter of 2020.
Total cost of operations related to the waste management services segment increased to $9.4 million in the third quarter of 2021 compared with $7.4 million in the third quarter of 2020. The increase in the cost of operations between periods for the waste management segment is primarily due to the increased net operating revenues as these costs vary directly with the associated revenues.
Total cost of operations related to the golf and related operations segment increased to $7.3 million in the third quarter of 2021 compared to $5.4 million in the third quarter of 2020. The increase between periods was primarily a result of higher employee related costs and product costs associated with the increased business operations as certain restrictions and mandated shut downs associated with the COVID-19 pandemic were reduced and subsequently lifted.
Depreciation and amortization expense was approximately $0.8 million in the third quarter of 2021 compared to $0.7 million in the third quarter of 2020. The increase is due to the higher depreciable asset base primarily due to the renovation and expansion of The Grand Resort.
Consolidated selling, general and administrative expenses increased to approximately $2.7 million in the third quarter of 2021 compared to $2.1 million in the third quarter of 2020 due to higher employee related costs, which included employee incentives paid in the third quarter of 2021, and an increase in legal and professional costs incurred primarily related to the salt water injection wells mandamus process.
Interest expense was approximately $0.3 million in both the third quarter of 2021 and 2020. During the third quarter of 2021, the decrease in interest expense due to the lower average outstanding debt was offset by a higher weighted average interest rate on the outstanding borrowings. During the three months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 5.00% and 4.57%, respectively.
Net income attributable to Avalon Holdings Corporation common shareholders was $1.0 million, or $0.25 per share, in the third quarter of 2021 compared with net income attributable to Avalon Holdings Corporation common shareholders of $0.8 million, or $0.20 per share, in the third quarter of 2020.
Segment Performance
Segment performance should be read in conjunction with Note 14 to the Condensed Consolidated Financial Statements.
Waste Management Services Segment
The net operating revenues of the waste management services segment were approximately $11.4 million in the third quarter of 2021 compared to $9.3 million in the third quarter of 2020. The waste management services segment includes waste disposal brokerage and management services, captive landfill management operations and salt water injection well operations.
The net operating revenues of the waste disposal brokerage and management services business were approximately $10.8 million in the third quarter of 2021 compared to $8.8 million in the third quarter of 2020. Event work related to multiple projects increased by approximately $1.7 million during the third quarter of 2021 compared to the third quarter of 2020. Event work net operating revenues were approximately $5.4 million in the third quarter of 2021 compared to $3.7 million in the third quarter of 2020. Event work is defined as bid projects under contract that occurs on a one-time basis over a short period of time. Such work can fluctuate significantly from year to year. In addition, continuous work of the waste disposal brokerage business increased approximately $0.4 million between periods as a result of increased work from multiple customers. Net operating revenues related to continuous work were approximately $5.4 million in the third quarter of 2021 compared with $5.0 million in the third quarter of 2020. Net operating revenue relating to managerial, consulting and clerical services, which was performed for one customer, was entirely dependent on that customer’s needs. Net operating revenues related to managerial, consulting and clerical services were approximately $0.1 million in the third quarter of 2020. The managerial, consulting and clerical contract expired in the third quarter of 2020.
The net operating revenues of the captive landfill management operations were approximately $0.6 million in the third quarter of 2021 compared to $0.5 million in the third quarter of 2020. The net operating revenues of the captive landfill operations are almost entirely dependent upon the volume of waste generated by the owner of the landfill for whom Avalon manages the facility.
Costs of operations related to the waste management services segment increased to $9.4 million in the third quarter of 2021 compared with $7.4 million in the third quarter of 2020. The increase in the cost of operations between periods for the waste management segment is primarily due to the increased net operating revenues as these costs vary directly with the associated revenues. The overall gross margin percentage of the waste brokerage and management services business was approximately 18% in the third quarter of 2021 compared to 21% in the third quarter of 2020. The decrease was due to lower gross profit continuous and event work projects during the third quarter of 2021.
Income before income taxes for the waste management services segment were approximately $0.7 million in the third quarter of 2021 compared to $0.9 million in the third quarter of 2020. Income before income taxes of the waste brokerage and management services business was approximately $0.9 million in the third quarter of 2021 compared to $0.8 million in the third quarter of 2020. The increased income before taxes was primarily attributable to the increased net operating revenues and associated gross margin related to both continuous and event work projects during the third quarter of 2021 compared to the third quarter of 2020. Income before income taxes of the captive landfill operations were approximately $0.1 million in both the third quarter of 2021 and 2020. The salt water injection wells incurred a loss before income taxes of $0.3 million during the third quarter of 2021 compared to less than $0.1 million in the third quarter of 2020 due to legal and professional costs incurred relating to Avalon’s mandamus process.
Golf and Related Operations Segment
Net operating revenues of the golf and related operations segment were approximately $9.9 million in the third quarter of 2021 compared to $7.3 million in the third quarter of 2020. Avalon’s golf and related operations segment consists of the operation and management of four golf courses and related country clubs which provide dining and banquet facilities, a hotel which provides lodging, dining, banquet and conference facilities and other resort related amenities, a multipurpose recreation center and a travel agency.
Food, beverage and merchandise sales increased to approximately $4.0 million in the third quarter of 2021 compared to $2.9 million in the third quarter of 2020. Food, beverage and merchandise sales increased between periods as a result of an increase in business activity. The government restrictions issued in response to control the COVID-19 pandemic, which included decreased occupancy for restaurants and limits placed on mass gatherings and large community events, significantly impacted our operations during the third quarter of 2020. Food and beverages sales related to banquets and conferences were not significant during the third quarter of 2020 as a result of the government mandated restrictions on gatherings and events. During the third quarter of 2021, food and beverage sales related to banquets and conferences increased as a result of the lifting of certain government mandates placed on gatherings and events.
Other net operating revenues related to the golf and related operations were approximately $5.9 million in the third quarter of 2021 compared to $4.4 million in the third quarter of 2020. Membership dues revenue was approximately $1.7 million in the third quarter of 2021 compared to $1.5 million in the third quarter of 2020. The increase in membership dues revenue was attributable to an increase in both membership rates and the average number of members between periods. Net operating revenues related to room rental was approximately $1.8 million in the third quarter of 2021 compared to $1.1 million in the third quarter of 2020. The increase in room revenue was a result of both higher occupancy and an increase in average room rates when compared to the prior period. During the third quarter of 2020, the Company experienced significant cancellations of overnight room accommodations due to the COVID-19 pandemic. Greens fees and associated cart rentals were approximately $1.5 million in the third quarter of 2021 compared to $1.3 million in the third quarter of 2020. The increase in greens fees and associated cart rental during the third quarter of 2021 compared to the third quarter of 2020 was due to an increase in the number of golf rounds played. Other revenues consisting of athletic, fitness, travel agency, salon and spa related activities were approximately $0.9 million in the third quarter of 2021 compared to $0.5 million in the third quarter of 2020. The increase in other revenues was primarily attributable to an increase in salon and spa services between periods.
Total cost of operations for the golf and related operations segment were $7.3 million in the third quarter of 2021 compared with $5.4 million in the third quarter of 2020. Cost of food, beverage and merchandise was approximately $1.6 million in the third quarter of 2021 compared to $1.1 million in the third quarter of 2020. The increase in total food, beverage and merchandise costs between periods was due to both higher revenues from increased business operations and an increase in product costs. The cost of food, beverage and merchandise sales was approximately 42% of associated revenue in the third quarter of 2021 compared to 38% in the third quarter of 2020. Golf and related operations operating costs increased to approximately $5.7 million in the third quarter of 2021 compared with $4.3 million in the third quarter of 2020. The increase in operating costs between periods, primarily employee related costs, was directly attributable to the increased business operations during the third quarter of 2021 compared to the third quarter of 2020.
The golf and related operations recorded income before income taxes of $1.4 million in the third quarter of 2021 compared with income before income taxes of $1.0 million in the third quarter of 2020. The change between periods was a result of higher net operating revenues and associated gross profit related to room rentals, greens fees and related cart rental, food, beverage and merchandise sales.
General Corporate Expenses
General corporate expenses were $1.0 million in the third quarter of 2021 compared to $0.8 million in the third quarter of 2020. The increase was attributable to both higher employee related costs, which included employee incentives paid in the third quarter of 2021, and an increase in legal and professional fees.
Interest Expense
Interest expense was approximately $0.3 million in both the third quarter of 2021 and 2020. During the third quarter of 2021, the decrease in interest expense due to the lower average outstanding debt was offset by a higher weighted average interest rate on the outstanding borrowings. During the three months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 5.00% and 4.57%, respectively.
Net Income
Net income attributable to Avalon Holdings Corporation common shareholders was $1.0 million in the third quarter of 2021 compared to net income attributable to Avalon Holdings Corporation common shareholders of $0.8 million in the third quarter of 2020. Avalon recorded a state income tax provision in both the third quarter of 2021 and 2020, which was related entirely to the waste management and brokerage operations. Due to the recording of a full valuation allowance against the Company’s federal net deferred tax assets, the overall effective tax rate in both periods reflects taxes owed in certain U.S state jurisdictions. Avalon’s income tax provision on the income before taxes was offset by a change in the valuation allowance. A valuation allowance is provided when it is more likely than not that deferred tax assets relating to certain federal and state loss carryforwards will not be realized. Avalon continues to maintain a valuation allowance against the majority of its deferred tax amounts until it is evident that the deferred tax asset will be utilized in the future.
Performance in the first nine months of 2021 compared with the first nine months of 2020
Overall Performance
Net operating revenues increased to $52.8 million in the first nine months of 2021 compared with $44.1 million in the first nine months of 2020. Net operating revenues of the waste management services segment were approximately $31.3 million in the first nine months of 2021 compared to $29.5 million in the first nine months of 2020. Net operating revenues of the golf and related operations segment were approximately $21.5 million in the first nine months of 2021 compared to $14.6 million in the first nine months of 2020.
Total cost of operations related to the waste management services segment increased to $25.1 million in the first nine months of 2021 compared with $23.5 million in the first nine months of 2020. The increase in the cost of operations between periods for the waste management segment is primarily due to the increased net operating revenues as these costs vary directly with the associated revenues.
Total cost of operations related to the golf and related operations segment increased to $17.0 million in the first nine months of 2021 compared to $12.0 million in the first nine months of 2020. The increase between periods was primarily a result of higher employee related costs and product costs associated with the increased business operations as certain restrictions and mandated shut downs associated with the COVID-19 pandemic were reduced and subsequently lifted.
Depreciation and amortization expense was approximately $2.3 million in the first nine months of 2021 compared to $2.2 million in the first nine months of 2020. The increase is due to the higher depreciable asset base primarily due to the renovation and expansion of The Grand Resort.
Consolidated selling, general and administrative expenses increased to approximately $7.6 million in the first nine months of 2021 compared to $6.3 million in the first nine months of 2020 primarily due to higher employee related costs, which included employee incentives paid in 2021, and an increase in legal and professional costs incurred, primarily related to the salt water injection wells mandamus process.
Gain on debt extinguishment was approximately $2.0 million in the first nine months of 2021 representing the Paycheck Protection Program loans that were forgiven by the Small Business Administration received under the CARES Act.
Interest expense was approximately $0.9 million in both the first nine months of 2021 and 2020. During the first nine months of 2021, the decrease in interest expense due to the lower average outstanding debt was offset by a higher weighted average interest rate on the outstanding borrowings. During the nine months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 4.91% and 4.74%, respectively.
Net income attributable to Avalon Holdings Corporation common shareholders was $2.4 million, or $0.63 per share, in the first nine months of 2021 compared with a net loss attributable to Avalon Holdings Corporation common shareholders of $0.5 million, or $0.12 per share, in the first nine months of 2020.
Segment Performance
Segment performance should be read in conjunction with Note 14 to the Condensed Consolidated Financial Statements.
Waste Management Services Segment
The net operating revenues of the waste management services segment were approximately $31.3 million in the first nine months of 2021 compared to $29.5 million in the first nine months of 2020.
The net operating revenues of the waste disposal brokerage and management services business were approximately $29.5 million in the first nine months of 2021 compared to $27.8 million in the first nine months of 2020. Continuous work of the waste disposal brokerage business increased approximately $1.4 million between periods as a result of increased work from multiple customers. Net operating revenues related to continuous work were approximately $17.2 million in the first nine months of 2021 compared with $15.8 million in the first nine months of 2020. In addition, event work net operating revenues related to multiple projects increased by approximately $1.2 million during the first nine months of 2021 when compared to the first nine months of 2020. Event work is defined as bid projects under contract that occurs on a one-time basis over a short period of time. Such work can fluctuate significantly from year to year. Event work net operating revenues were approximately $12.3 million in the first nine months of 2021 compared with $11.1 million in the first nine months of 2020. Net operating revenue relating to managerial, consulting and clerical services, which was performed for one customer, was entirely dependent on that customer’s needs. Net operating revenues related to managerial, consulting and clerical services were approximately $0.9 million in the first nine months of 2020. The managerial, consulting and clerical contract expired in the third quarter of 2020.
The net operating revenues of the captive landfill management operations were approximately $1.8 million in the first nine months of 2021 compared to $1.7 million in the first nine months of 2020. The net operating revenues of the captive landfill operations are almost entirely dependent upon the volume of waste generated by the owner of the landfill for whom Avalon manages the facility.
Costs of operations related to the waste management services segment increased to $25.1 million in the first nine months of 2021 compared with $23.5 million in the first nine months of 2020. The increase in the cost of operations between periods for the waste management segment is primarily due to the increased net operating revenues as these costs vary directly with the associated revenues. The overall gross margin percentage of the waste brokerage and management services business was approximately 20% in the first nine months of 2021 compared to 21% in the first nine months of 2020. The decrease was due to lower gross profit continuous and event work projects during the third quarter of 2021.
Income before income taxes for the waste management services segment were approximately $2.5 million in the first nine months of 2021 compared to $2.7 million in the first nine months of 2020. Income before income taxes of the waste brokerage and management services business were approximately $2.6 million in both the first nine months of 2021 and 2020. Income before income taxes of the captive landfill operations were approximately $0.2 million in both the first nine months of 2021 and 2020. The salt water injection wells incurred a loss before income taxes of $0.3 million during the first nine month of 2021 compared to $0.1 million in the first nine months of 2020 due to legal and professional costs incurred relating to Avalon’s mandamus process.
Golf and Related Operations Segment
Net operating revenues of the golf and related operations segment were approximately $21.5 million in the first nine months of 2021 compared to $14.6 million in the first nine months of 2020.
Food, beverage and merchandise sales increased to approximately $8.6 million in the first nine months of 2021 compared to $5.3 million in the first nine months of 2020. Food, beverage and merchandise sales increased between periods as a result of an increase in business activity. The government restrictions issued in response to control the COVID-19 pandemic, which included decreased occupancy for restaurants and limits placed on mass gatherings and large community events, significantly impacted on our operations during the first nine months of 2020. Food and beverages sales related to banquets and conferences were not significant during the first nine months of 2020 as a result of the government mandated restrictions on gatherings and events. During the nine months ended September 2021, food and beverage sales related to banquets and conferences increased as a result of the lifting of certain government mandates placed on gatherings and events.
Other net operating revenues related to the golf and related operations were approximately $12.9 million in the first nine months of 2021 compared to $9.3 million in the first nine months of 2020. Membership dues revenue was approximately $5.0 million in the first nine months of 2021 compared to $4.6 million in the first nine months of 2020. The increase in membership dues revenue was attributable to an increase in both membership rates and the average number of members between periods. Net operating revenues related to room rental was approximately $3.4 million in the first nine months of 2021 compared to $1.7 million in the first nine months of 2020. The increase in room revenue was a result of both higher occupancy and an increase in average room rates when compared to the prior period. During the first nine months of 2020, the Company experienced cancellations of overnight room accommodations due to the COVID-19 pandemic. Other revenues consisting of athletic, fitness, travel agency, salon and spa related activities were approximately $2.0 million in the first nine months of 2021 compared to $1.0 million in the first nine months of 2020. In March of 2020, government orders were issued in response to controlling the COVID-19 pandemic which required all nonessential business activities, including athletic, fitness, salon and spa activities to temporarily cease operations. These business activities were allowed to resume operating late in the second quarter of 2020. Greens fees and associated cart rentals were approximately $2.5 million in the first nine months of 2021 compared to $2.0 million in the first nine months of 2020. The increase in greens fees and associated cart rental during the first nine months of 2021 compared to the first nine months of 2020 was due to an increase in the number of golf rounds played. Due to adverse weather conditions, net operating revenues relating to the golf courses, which are located in northeast Ohio and western Pennsylvania, were minimal during the first three months of 2021 and 2020.
Total cost of operations for the golf and related operations segment were $17.0 million in the first nine months of 2021 compared with $12.0 million in the first nine months of 2020. Cost of food, beverage and merchandise was approximately $3.6 million in the first nine months of 2021 compared to $2.2 million in the first nine months of 2020. The increase in total food, beverage and merchandise costs between periods is primarily due to higher revenues from increased business operations. The cost of food, beverage and merchandise sales was approximately 42% of associated revenue in the first nine months of 2021 and 2020. Golf and related operations operating costs increased to approximately $13.4 million in the first nine months of 2021 compared with $9.8 million in the first nine months of 2020. The increase in operating costs between periods, primarily employee related costs, was directly attributable to the increased business operations during the first nine months of 2021 compared to the first nine months of 2020 as certain government mandates regarding restaurant operations were reduced and subsequently lifted.
The golf and related operations recorded income before income taxes of $3.2 million in the first nine months of 2021 compared with net income before income taxes of $0.1 million in the first nine months of 2020. The change between periods was a result of higher net operating revenues and associated gross profit related to room rentals, greens fees and related cart rental, food, beverage and merchandise sales and the gain on debt extinguishment of approximately $1.5 million representing the Paycheck Protection Program loan that was forgiven by the Small Business Administration received under the CARES Act.
The ability to attract new members and retain members is very important to the success of the golf and related operations segment. Avalon is continually using different marketing strategies to attract and retain members, such as local television advertising and/or various membership promotions. A significant decline in members could adversely impact the financial results of the golf and related operations segment.
General Corporate Expenses
General corporate expenses were $3.1 million in the first nine months of 2021 compared to $2.4 million in the first nine months of 2020. The increase was primarily attributable to higher employee related costs, which included employee incentives paid in 2021, and an increase in legal and professional fees.
Interest Expense
Interest expense was approximately $0.9 million in both the first nine months of 2021 and 2020. During the first nine months of 2021, the decrease in interest expense due to the lower average outstanding debt was offset by a higher weighted average interest rate on the outstanding borrowings. During the nine months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 4.91% and 4.74%, respectively.
Net Income (Loss)
Net income attributable to Avalon Holdings Corporation common shareholders was $2.4 million in the first nine months of 2021 compared to a net loss attributable to Avalon Holdings Corporation common shareholders of $0.5 million in the first nine months of 2020. Avalon recorded a state income tax provision in both the first nine months of 2021 and 2020, which was related entirely to the waste management and brokerage operations. Due to the recording of a full valuation allowance against the Company’s federal net deferred tax assets, the overall effective tax rate in both periods reflects taxes owed in certain U.S state jurisdictions. Avalon’s income tax provision (benefit) on the income (loss) before taxes was offset by a change in the valuation allowance. A valuation allowance is provided when it is more likely than not that deferred tax assets relating to certain federal and state loss carryforwards will not be realized. Avalon continues to maintain a valuation allowance against the majority of its deferred tax amounts until it is evident that the deferred tax asset will be utilized in the future.
Trends and Uncertainties
Financial impact of COVID-19 pandemic
In December 2019, a novel strain of coronavirus, COVID-19, emerged in Wuhan, Hubei Province, China. While initially concentrated in China, the outbreak spread to other countries and infections have been reported globally including in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 viral disease a pandemic. As a result, the federal and state governmental bodies began taking unprecedented measures to try and control the spread of the virus including the issuance of temporary stay at home orders, the temporary closing of non-essential businesses and in-house dining and restrictions on gatherings and events. During the nine months ended September 30, 2020, the various governmental orders that were issued to control the spread of COVID-19 adversely impacted our operations and related financial results. Our restaurants operated under government mandated occupancy restrictions for in-house dining. Food and beverages sales related to banquets and conferences were significantly lower as a result of restrictions placed on gatherings and events. In addition, in March 2020, the Company began experiencing a high level of room and event cancellations with some subsequent re-bookings for a future date.
Although the various government mandates impacting our business operations have currently been lifted, we may experience weakened demand in light of continued travel restrictions or warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty. The full extent of the impact of the COVID-19 pandemic on our operations and financial performance will depend on future developments, including the duration and spread of the pandemic and the impact of COVID-19 variants, all of which are uncertain and cannot be predicted at this time. Governmental bodies may continue to impose additional restrictions, which could include additional shutdowns, to stop the spread of infection. These additional restrictions would have a negative impact on our financial condition, results of operations and cash flows.
Paycheck Protection Program Loan
The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, qualified companies are eligible for a loan in an amount equal to the lesser of $10 million or 2.5 times the business’s average monthly payroll. Collateral or guarantor support is not required for the loan.
Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during, at the borrowers election, either an 8 or 24 week covered period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Under the Program, proceeds that are not forgiven convert to a loan bearing interest at a fixed rate of 1% payable, at the borrowers election, in either 18 or 54 equal monthly installments commencing 10 months after the end of their covered period.
In the second quarter of 2020, certain wholly-owned subsidiaries of Avalon entered into agreements and received a total of approximately $2.8 million in loans under the Program. The Company utilized the entire balance of the loan proceeds in accordance with the Program’s guidelines using the 24 week loan forgiveness period and subsequently applied for forgiveness with the Small Business Administration.
During the fourth quarter of 2020, approximately $0.8 million of the loans and $4,000 of associated interest were forgiven by the Small Business Administration. During the first quarter of 2021, approximately $1.1 million of the loans and $8,000 of associated interest were forgiven by the Small Business Administration and, during the second quarter of 2021, the remaining $0.9 million of the loans and $9,000 of associated interest were forgiven by the Small Business Administration. Debt forgiven in accordance with the Program is recognized in the Condensed Consolidated Statements of Operations as a gain on debt extinguishment.
Government regulations
A portion of Avalon’s waste brokerage and management services revenues is derived from the disposal and/or transportation of out-of-state waste. Any law or regulation restricting or impeding the transportation of waste or the acceptance of out-of-state waste for disposal could have a negative effect on Avalon.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryforwards generated in taxable years beginning after December 31, 2017, to offset 100% of taxable income for taxable years beginning before January 1, 2021, and 80% of taxable income in taxable years beginning after December 31, 2020. In addition, the CARES Act allows net operating losses incurred in taxable years beginning after December 31, 2017, and before January 1, 2021, to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The adoption of these provisions did not have a material impact on the Company’s financial position or results of operations.
On December 27, 2020, the Consolidated Appropriations Act, 2021 (the “Appropriations Act”) was enacted in response to the COVID-19 pandemic. The Appropriations Act, among other things, temporarily extends through December 31, 2025, certain expiring tax provisions, including look-through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations. Additionally, the Appropriations Act enacts new provisions and extends certain provisions originated within the CARES Act, including an extension of time for repayment of the deferred portion of employees’ payroll tax through December 31, 2021, and a temporary allowance for full deduction of certain business meals. Avalon has elected not to defer the employees’ portion of payroll tax. Management is currently evaluating the other provisions of the Appropriations Act, but at present time does not expect that the other provisions of the Appropriations Act would result in a material tax or cash benefit.
Legal matters
In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those relating to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, management assesses the probability of loss and accrues a liability as appropriate. Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, will have a material adverse effect on its liquidity, financial position or results of operations.
Credit and collections
Economic challenges throughout the industries served by Avalon may result in payment defaults by customers. While Avalon continuously endeavors to limit customer credit risks, customer-specific financial downturns are not controllable by management. Significant customer payment defaults would have a material adverse impact upon Avalon’s future financial performance.
Competitive pressures
Avalon’s waste brokerage and management services business obtains and retains customers by providing services and identifying cost-efficient disposal options unique to a customer’s needs. Consolidation within the solid waste industry has resulted in reducing the number of disposal options available to waste generators and may cause disposal pricing to increase. Avalon’s waste brokerage and management services business may not be able to pass these price increases onto some of its customers, which, in turn, may adversely impact Avalon’s future financial performance.
A majority of Avalon’s business is not subject to long-term contracts
A significant portion of Avalon’s business is generated from waste brokerage and management services provided to customers that are not subject to long-term contracts. In light of current economic, regulatory and competitive conditions, there can be no assurance that Avalon’s current customers will continue to transact business with Avalon at historical levels. Failure by Avalon to retain its current customers or to replace lost business could adversely impact the future financial performance of Avalon.
Avalon’s captive landfill management business is dependent upon a single customer as its sole source of revenue. If the captive landfill management business is unable to retain this customer, Avalon’s future financial performance could be adversely impacted.
A significant source of the golf and related operations revenues is derived from the members of the Avalon Golf and Country Club. Members are obligated to pay dues for a one year period. As such, the golf and related operations is primarily dependent on the sale and renewal of memberships in the Avalon Golf and Country Club, on a year to year basis.
Avalon's loan and security agreement may obligate it to repay debt before its maturity
The Company’s loan and security agreement contains certain covenants and events of default. Should Avalon be unable to meet one or more of these covenants, its lender may require it to repay any outstanding balance prior to the expiration date of the agreement. Our ability to comply with the financial and other covenants in our loan and security agreement may be affected by worsening economic or business conditions, or other events that may be beyond our control. We cannot provide assurance that our business will generate sufficient cash flow from operating activities in amounts sufficient to enable us to service debt and meet these covenants. We may need to refinance all or a portion of our indebtedness, on or before maturity. The Company cannot assure that additional sources of financing would be available to pay off any long-term borrowings under the loan and security agreement, so as to avoid default.
Saltwater disposal wells
Saltwater disposal wells are regulated by the Ohio Department of Natural Resources (“ODNR”), with portions of the disposal facilities regulated by the Ohio EPA. As exploitation of the Marcellus and Utica shale formations by the hydrofracturing process develops, regulatory and public awareness of the environmental risks of saltwater brine and its disposal in saltwater disposal wells is growing and consequently, it is expected that regulation governing the construction and operation of saltwater disposal wells will increase in scope and complexity. Increased regulation may result in increased construction and/or operating costs, which could adversely affect the financial results of Avalon.
There is a continuing risk during the saltwater disposal well’s operation of an environmental event causing contamination to the water tables in the surrounding area, or seismic events. The occurrence of a spill or contamination at a disposal well site could result in remedial expenses and/or result in the operations at the well site being suspended and/or terminated by the Ohio EPA or the ODNR. Incurring remedial expenses and /or a suspension or termination of Avalon’s right to operate one or more saltwater disposal wells at the well site could have an adverse effect on Avalon’s financial results.
As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014 to immediately suspend all operations of Avalon’s two saltwater injection wells until the Division could further evaluate the wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and that the saltwater injection wells pose a risk of increasing or creating seismic activity.
On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections for the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.
On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension order is temporary, and he expects that AWMS #2 will be allowed to resume operations once the state’s final policymaking is complete.
On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension would allow the Chief more time to fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity.
Avalon appealed that decision to the Franklin County Court of Common Pleas (the “Court”), and on November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company over the 26 month period was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety.
On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order set forth conditions for restarting the AWMS #2 salt water injection well in accordance with the proposed restart plans filed by Avalon with minor revisions. On February 22, 2017, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order. The Motion to Stay was granted by the Ohio 10th District Court of Appeals on March 21, 2017.
On September 14, 2017, an appeal hearing was held in the Ohio 10th District Court of Appeals and on July 31, 2018 a decision was issued on the appeal. The decision reinstated the previous Ohio Oil and Gas Commission decision in this matter.
On September 12, 2018, the Company appealed the Ohio 10th District Court of Appeals decision to the Supreme Court of Ohio. On November 21, 2018, the Company received notice from the Supreme Court of Ohio that the court would not accept for review the Company’s appeal of the Ohio 10th District Court of Appeals decision on the Division of Oil and Gas Resources Management’s appeal of the Franklin County Court of Common Pleas February 21, 2017 entry allowing restart of the Company’s AWMS Water Solutions, LLC #2 salt water injection well.
On April 5, 2019, Avalon filed with the Oil and Gas Commission a motion to vacate its prior decisions in this matter. The Oil and Gas Commission scheduled a hearing on this motion for August 13, 2019. Before the hearing began, and in response to the Division’s motion to dismiss the Company’s motion to vacate, the Commission dismissed the matter. The Company appealed that decision to the Franklin County Court of Common Pleas. In April 2020, the Division’s motion to dismiss and the Company’s opposition were reviewed by the Court. The Company is currently awaiting judgment from the Court.
Concurrently with the filing of the appeal with the Franklin County Court of Common Pleas, the Company filed a writ of mandamus in the 10th District Court of Appeals on August 30, 2019 to compel the chief of the Division to issue restart orders, or alternative orders that would allow the Company to either restart the AWMS #2 well, or appeal said orders to the Oil and Gas Commission in accordance with Ohio Law. On October 6, 2020 and in response to a motion from the Division, the Court dismissed this complaint for writ of mandamus.
In addition, on August 26, 2016, Avalon filed a complaint in the 11th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. The Company believes that the actions, and lack of responsible actions, by the ODNR is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163.
On March 18, 2019, Avalon received notice that the 11th Appellate District Court in Trumbull County, Ohio issued summary judgment in favor of the Ohio Department of Natural Resources in the writ of mandamus action that resulted from the suspension order of the Company’s salt water injection well. The decision was appealed to the Supreme Court of Ohio on April 5, 2019. Oral arguments in the case occurred on April 7, 2020. On September 23, 2020, the Supreme Court of Ohio ruled in favor of the Company. The Supreme Court of Ohio reversed the decision of the 11th Appellate District Court and remanded the case back to that court for a trial on the merits. The trial occurred in September and October 2021. The Company is currently awaiting judgment from the 11th Appellate District Court.
On May 24, 2021, the Company received Chief’s Orders from the Division vacating the September 3, 2014 suspension orders for AWMS #2 and setting conditions for restart of that well. Among these conditions was a limit placed on the seismicity within three miles of the well. Under the Order, if a seismic event with a magnitude 2.1 or above occurs, the well must cease operations for an indefinite period of time until concurrence for subsequent restart is received from the Division. The Company appealed the May 2021 Chief’s Order to the Ohio Oil and Gas Commission, seeking reasonable operating conditions that will allow the facility to operate profitably while protecting human health and property. A hearing in this matter is expected in early 2022.
Golf memberships and liquor licenses
The Avalon Golf and Country Club operates four golf courses and related country clubs and a multipurpose recreation center. The Avalon Golf and Country Club facilities also offer swimming pools, fitness centers, tennis courts, dining and banquet facilities, salon and spa services. In addition, The Grand Resort provides guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allows its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club also have access to all of the amenities offered by The Grand Resort. The Avalon Golf and Country Club competes with many public courses and country clubs in the area. Although the golf courses continue to be available to the general public, the primary source of revenues is derived from the members of the Avalon Golf and Country Club. Avalon believes that the combination of its golf facilities and The Grand Resort will result in additional memberships in the Avalon Golf and Country Club. Although Avalon was able to increase the number of members of the Avalon Golf and Country Club as of September 30, 2021, the ability to retain current members and attract new members has been an ongoing challenge. Avalon is continually using different marketing strategies to attract new members, such as local television advertising and various membership promotions. A significant decline in members could adversely affect the future financial performance of Avalon.
Avalon’s golf course operations, The Grand Resort and multipurpose recreation center currently hold liquor licenses for their respective facilities. If, for some reason, any one of these facilities were to lose their liquor license, the financial performance of the golf and related operations would be adversely affected.
Seasonality
Avalon’s operations are somewhat seasonal in nature since a significant portion of those operations are primarily conducted in selected northeastern and midwestern states. Additionally, Avalon’s golf courses are located in northeast Ohio and western Pennsylvania and are significantly dependent upon weather conditions during the golf season. As a result, Avalon’s financial performance is adversely affected by adverse weather conditions.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Avalon does not have significant exposure to changing interest rates.
Borrowings under our Term Loan Agreement bear interest at a fixed rate of 5.00% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.00% per annum or (b) the sum of the five year treasury rate on the date two (2) business days prior to the reset date plus 3.60%, provided that the applicable rate shall in no event exceed 7.35% per annum.
Outstanding borrowings under our Line of Credit Agreement bear interest at Prime Rate plus .25%. At September 30, 2021, the interest rate on the Line of Credit Agreement was 3.50%. No amounts were outstanding under the Line of Credit Agreement at September 30, 2021.
Avalon does not undertake any specific actions to cover its exposure to interest rate risk and Avalon is not a party to any interest rate risk management transactions. Avalon does not purchase or hold any derivative financial instruments.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), Avalon’s management conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. For purposes of the foregoing, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Avalon’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as outlined above. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that they believe that, as of September 30, 2021, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Controls over Financial Reporting.
There were no changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. 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, 2020 for a description of legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
| (a) |
Exhibits |
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| Exhibit 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Exhibit 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Exhibit 101.INS Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) (1) |
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| Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document (1) |
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| Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) |
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| Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (1) |
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| Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (1) |
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| Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) |
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| Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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| (1) These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act, as amended, or otherwise subject to liability under those sections. |
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| (b) |
Reports on Form 8-K |
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| On August 18, 2021, Avalon reported that on August 17, 2021 the Company entered into an amendment to its existing Line of Credit Agreement with Premier Bank to extend the maturity date to July 31, 2023. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AVALON HOLDINGS CORPORATION |
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| (Registrant) |
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| Date: November 12, 2021 |
By: |
/s/ Bryan P. Saksa |
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| Bryan P. Saksa, Chief Financial Officer and |
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| Treasurer (Principal Financial and Accounting |
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| Officer and Duly Authorized Officer) |
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Exhibit 31.1
AVALON HOLDINGS CORPORATION
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Ronald E. Klingle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avalon Holdings Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e )and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: November 12, 2021
/s/ Ronald E. Klingle
Ronald E. Klingle
Chief Executive Officer
Exhibit 31.2
AVALON HOLDINGS CORPORATION
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Bryan P. Saksa, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avalon Holdings Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: November 12, 2021
/s/ Bryan P. Saksa
Bryan P. Saksa
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avalon Holdings Corporation on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Klingle, Chief Executive Officer of Avalon Holdings Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Avalon Holdings Corporation. |
/s/ Ronald E. Klingle
Ronald E. Klingle
Chief Executive Officer
November 12, 2021
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avalon Holdings Corporation on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bryan P. Saksa, Chief Financial Officer of Avalon Holdings Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Avalon Holdings Corporation. |
/s/ Bryan P. Saksa
Bryan P. Saksa
Chief Financial Officer
November 12, 2021
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Common Class A [Member] | ||
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common Class B [Member] | ||
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Condensed Consolidated Statement of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member]
Common Class A [Member]
|
Common Stock [Member]
Common Class B [Member]
|
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2019 | 3,263,647 | 611,784 | |||||
| Balance at Dec. 31, 2019 | $ 33 | $ 6 | $ 59,147 | $ (22,156) | $ 37,030 | $ (66) | $ 36,964 |
| Stock options - compensation costs | 0 | 0 | 4 | 0 | 4 | 0 | 4 |
| Net income (loss) | 0 | 0 | 0 | (467) | (467) | (37) | (504) |
| Net income (loss) | $ 0 | $ 0 | 0 | (467) | (467) | (37) | (504) |
| Balance (in shares) at Sep. 30, 2020 | 3,263,647 | 611,784 | |||||
| Balance at Sep. 30, 2020 | $ 33 | $ 6 | 59,151 | (22,623) | 36,567 | (103) | 36,464 |
| Balance (in shares) at Jun. 30, 2020 | 3,263,647 | 611,784 | |||||
| Balance at Jun. 30, 2020 | $ 33 | $ 6 | 59,150 | (23,404) | 35,785 | (95) | 35,690 |
| Stock options - compensation costs | 0 | 0 | 1 | 0 | 1 | 0 | 1 |
| Net income (loss) | 0 | 0 | 0 | 781 | 781 | (8) | 773 |
| Net income (loss) | $ 0 | $ 0 | 0 | 781 | 781 | (8) | 773 |
| Balance (in shares) at Sep. 30, 2020 | 3,263,647 | 611,784 | |||||
| Balance at Sep. 30, 2020 | $ 33 | $ 6 | 59,151 | (22,623) | 36,567 | (103) | 36,464 |
| Balance (in shares) at Dec. 31, 2020 | 3,287,647 | 611,784 | |||||
| Balance at Dec. 31, 2020 | $ 33 | $ 6 | 59,196 | (22,142) | 37,093 | (126) | 36,967 |
| Stock options - compensation costs | 0 | 0 | 4 | 0 | 4 | 0 | 4 |
| Investment in subsidiary from accredited investor | 0 | 0 | 0 | 0 | 0 | 358 | 358 |
| Net income (loss) | 0 | 0 | 0 | 2,441 | 2,441 | (214) | 2,227 |
| Net income (loss) | $ 0 | $ 0 | 0 | 2,441 | 2,441 | (214) | 2,227 |
| Balance (in shares) at Sep. 30, 2021 | 3,287,647 | 611,784 | |||||
| Balance at Sep. 30, 2021 | $ 33 | $ 6 | 59,200 | (19,701) | 39,538 | 18 | 39,556 |
| Balance (in shares) at Jun. 30, 2021 | 3,287,647 | 611,784 | |||||
| Balance at Jun. 30, 2021 | $ 33 | $ 6 | 59,199 | (20,684) | 38,554 | (172) | 38,382 |
| Stock options - compensation costs | 0 | 0 | 1 | 0 | 1 | 0 | 1 |
| Investment in subsidiary from accredited investor | 0 | 0 | 0 | 0 | 0 | 358 | 358 |
| Net income (loss) | 0 | 0 | 0 | 983 | 983 | (168) | 815 |
| Net income (loss) | $ 0 | $ 0 | 0 | 983 | 983 | (168) | 815 |
| Balance (in shares) at Sep. 30, 2021 | 3,287,647 | 611,784 | |||||
| Balance at Sep. 30, 2021 | $ 33 | $ 6 | $ 59,200 | $ (19,701) | $ 39,538 | $ 18 | $ 39,556 |
Note 1 - Description of Business |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Business Description and Basis of Presentation [Text Block] |
Note 1. Description of Business
Avalon Holdings Corporation (“Avalon” or the “Company”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). On June 17, 1998, AWS distributed, as a special dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis.
Avalon provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets, captive landfill management services and salt water injection well operations. In addition, Avalon owns Avalon Resorts and Clubs, Inc. (“ARCI”), which includes the operation and management of golf courses and associated clubhouses, athletic and fitness centers, tennis courts, salon and spa services, dining and banquet facilities and a travel agency. ARCI also owns and operates a hotel and its related resort amenities including dining, banquet and conference facilities, salon and spa services, fitness center, outdoor resort pool, Roman Bath, indoor junior Olympic size swimming pool and tennis courts. |
Note 2 - Basis of Presentation |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Basis of Accounting [Text Block] |
Note 2. Basis of Presentation
The unaudited condensed consolidated financial statements of Avalon and related notes included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted consistent with such rules and regulations. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in Avalon’s 2020 Annual Report to Shareholders.
The unaudited condensed consolidated financial statements include the accounts of Avalon, its wholly owned subsidiaries and those companies in which Avalon has managerial control. All significant intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of Avalon as of September 30, 2021, and the results of its operations and cash flows for the interim periods presented.
The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements presented herein reflect our current estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods presented.
The coronavirus/COVID-19 pandemic (collectively referred to herein as "COVID-19") adversely impacted our financial position, results of operations, and cash flows during the nine months ended September 30, 2020. As a result of the government mandates being subsequently lifted, the COVID-19 pandemic had a limited impact on our results of operations during the nine months ended September 30, 2021. Due to the ongoing uncertainty of COVID-19, we cannot predict the future impact that the pandemic may have on our financial condition, results of operations or cash flows. |
Note 3 - Covid-19 Coronavirus Pandemic |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Covid-19 Coronavirus Pandemic [Text Block] |
Note 3. COVID-19 Coronavirus Pandemic
In December 2019, a novel strain of coronavirus, COVID-19, emerged in Wuhan, Hubei Province, China. While initially concentrated in China, the outbreak spread to other countries and infections have been reported globally including in the United States. On March 11, 2020, the World Health Organization declared the COVID-19 viral disease a pandemic. As a result, the federal and state governmental bodies began taking unprecedented measures to try and control the spread of the virus including the issuance of temporary stay at home orders, the temporary closing of non-essential businesses and in-house dining and restrictions on gatherings and events.
During the nine months ended September 30, 2020, the various governmental orders that were issued to control the spread of COVID-19 adversely impacted our operations and related financial results. Our restaurants operated under government mandated occupancy restrictions for in-house dining. Food and beverages sales related to banquets and conferences were significantly lower as a result of restrictions placed on gatherings and events. In addition, in March 2020, the Company began experiencing a high level of room and event cancellations with some subsequent re-bookings for a future date.
Although the various government mandates impacting our business operations have currently been lifted, we may experience weakened demand in light of continued travel restrictions or warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty. The full extent of the impact of the COVID-19 pandemic on our operations and financial performance will depend on future developments, including the duration and spread of the pandemic and the impact of COVID-19 variants, all of which are uncertain and cannot be predicted at this time. Governmental bodies may continue to impose additional restrictions, which could include additional shutdowns, to stop the spread of infection. These additional restrictions would have a negative impact on our financial condition, results of operations and cash flows. |
Note 4 - Recent Accounting Pronouncements |
9 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Accounting Standards Update and Change in Accounting Principle [Text Block] |
Note 4. Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU 2020-04”) establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently evaluating the adoption of this pronouncement and does not expect the adoption to have an impact on the Company's financial position, results of operations or financial disclosures. |
Note 5 - Cash, Cash Equivalents and Restricted Cash |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents Disclosure [Text Block] |
Note 5. Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents for purposes of the Condensed Consolidated Balance Sheets. Avalon maintains its cash balances in various financial institutions. These balances may, at times, exceed federal insured limits. Avalon has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to its cash and cash equivalents.
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash on the Condensed Consolidated Balance Sheets. Restricted cash consists of loan proceeds deposited into a project fund account to fund costs associated with the renovation and expansion of The Grand Resort and Avalon Field Club at New Castle in accordance with the provisions of the loan and security agreement (See Note 10).
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows. Cash, cash equivalents and restricted cash consist of the following at September 30, 2021 and December 31, 2020 (in thousands):
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Note 6 - Revenues |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Text Block] |
Note 6. Revenues
Revenue Recognition
The Company identifies a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when obligations under the terms of the contract with our customer are satisfied; generally this occurs with the transfer of control of the good or service to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company does not incur incremental costs to obtain contracts or costs to fulfill contracts that meet the criteria for capitalization. In addition, the Company does not have material significant payment terms as payment is received at or shortly after the point of sale.
Waste Management Services
Avalon’s waste management services provide hazardous and nonhazardous waste brokerage and management services, captive landfill management services and salt water injection well operations. Waste management services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets.
Avalon’s waste brokerage and management business assists customers with managing and disposing of wastes at approved treatment and disposal sites based upon a customer’s needs. Avalon provides a service to its customers whereby Avalon, arranges for, and accepts responsibility for the removal, transportation and disposal of waste on behalf of the customer.
Avalon’s landfill management business provides technical and operational services to customers owning captive disposal facilities. A captive disposal facility only disposes of waste generated by the owner of such facility. The Company provides turnkey services, including daily operations, facilities management and management reporting for its customers. Currently, Avalon manages one captive disposal facility located in Ohio. The net operating revenues of the captive landfill operations are almost entirely dependent upon the volume of waste generated by the owner of the landfill for whom Avalon manages the facility.
Avalon is a minority owner with managerial control over salt water injection wells and its associated facility. Operations of the salt water injection wells have been suspended in accordance with the Chief of the Division of Oil and Gas Resources Management order (See Note 16). Due to the suspension of the salt water injection wells, there were no operating revenues for both the three and nine months ended September 30, 2021 and 2020.
For the three months ended September 30, 2021 and 2020, the net operating revenues related to waste management services represented approximately 54% and 56%, respectively, of Avalon’s total consolidated net operating revenues. For the nine months ended September 30, 2021 and 2020, the net operating revenues related to waste management services represented approximately 59% and 67%, respectively, of Avalon’s total consolidated net operating revenues. For the nine months ended September 30, 2021, customer accounted for 12% of the waste management services segment’s net operating revenues to external customers and 7% of the consolidated net operating revenues. For the nine months ended September 30, 2020, no one customer individually accounted for 10% or more of Avalon’s waste management services segment revenues.
For our waste management services contracts, the customer contracts with us to provide a series of distinct waste management services over time which integrates a set of tasks (i.e. removal, transportation and disposal of waste) into a single project. Avalon provides substantially the same service over time and the same method is used to measure the Company’s progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. The series of distinct waste management services, which are the same over time, meets the series provision criteria, and as such, the Company treats that series as a single performance obligation. The Company allocates the transaction price to the single performance obligation and recognizes revenue by applying a single measure of progress to that performance obligation. Avalon transfers control of the service over time and, therefore, satisfies the performance obligation and recognizes the revenue over time as the customer simultaneously receives and consumes the benefits provided by Avalon’s performance as we perform.
In addition, as the promise to provide services qualifies as a series accounted for as a single performance obligation, the Company applied the practical expedient guidance that allows an entity that is recognizing revenue over time by using an output method to recognize revenue equal to the amount that the entity has the right to invoice if the invoiced amount corresponds directly to the value transferred to the customer. The Company applied the standard's practical expedient that permits the omission of disclosures relating to unsatisfied performance obligations as most of the Company’s waste management service contracts (i) have an original expected length of year or less and (ii) the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
Avalon evaluated whether we are the principal (i.e. report revenues on a gross basis) or agent (i.e. report revenues on a net basis). Avalon reports waste management services on a gross basis, that is, amounts billed to our customers are recorded as revenues, and amounts paid to vendors for providing those services are recorded as operating costs. As principal, Avalon is primarily responsible for fulfilling the promise to provide waste management services for the customer. Avalon accepts credit risk in the event of nonpayment by the customer and is obligated to pay vendors who provide the service regardless of whether the customer pays the Company. Avalon does have a level of discretion in establishing the pricing for its service.
Our payment terms vary by the type and location of our customer and the service offered. Avalon does not have any financing arrangements with its customers. The term between invoicing and when payment is due is not significant.
The Company assesses each contract amendment individually. Typically, amendments made to our contracts do not materially change the terms of the agreement or performance obligation of the Company. The Company accounts for such contract amendments as if it were part of the existing contract as the material terms contained in the contract do not change. In cases where Avalon views there is a material change in the terms of the agreement, the Company will reevaluate and determine if the contract should be viewed as an entirely new contract, replacement contract or a continuation of the existing contract.
Consideration promised in our waste management contracts do not typically include material variable amounts such as discounts, rebates, refunds, credits, price concessions, incentives, penalties or other such items, and, as such, no estimate is made by the Company for such items.
Golf and Related Operations
Avalon’s golf and related operations include the operation and management of golf courses and associated clubhouses, recreation and fitness centers, tennis courts, salon and spa services, dining and banquet facilities and a travel agency. The golf and related operations also include the operation of a hotel and its related amenities including dining, banquet and conference facilities, fitness center, indoor junior Olympic size swimming pool and tennis courts. Revenues for the golf and related operations consists primarily of food, beverage and merchandise sales, membership dues, greens fees and associated cart rentals, room rentals, fitness activities, salon and spa services. Due to adverse weather conditions, net operating revenues relating to the golf courses, which are located in northeast Ohio and western Pennsylvania, were minimal during the first three months of 2021 and 2020.
For the three months ended September 30, 2021 and 2020, the net operating revenues related to the golf and related operations represented approximately 46% and 44%, respectively, of Avalon’s total consolidated net operating revenues. For the nine months ended September 30, 2021 and 2020, the net operating revenues related to the golf and related operations represented approximately 41% and 33%, respectively, of Avalon’s total consolidated net operating revenues. For both the nine months ended September 30, 2021 and 2020, no one customer individually accounted for 10% or more of Avalon’s golf and related operations segment revenues.
For Avalon’s golf and related operations, the Avalon Golf and Country Club offers membership packages for use of the country club facilities and its related amenities. Membership agreements are a year noncancellable commitment and pricing varies based on the membership type selected by the customer. Based on the terms and conditions of the membership contract, resignations received within the membership period do not relieve the member of their annual commitment. Memberships automatically renew on the member’s anniversary date unless the member resigns for the upcoming membership period prior to the renewal date.
Membership for the Avalon Golf and Country Club does not contain up-front initiation fees or require monthly minimum spending at the facilities. Annual membership dues do not cover the cost of food, beverage or any other ancillary paid services which are made available to the member nor do they typically provide for discounts on these goods or services. Members have no obligation to purchase or utilize any of these additional goods or services. Avalon is not required to provide such goods or services unless requested and paid for at the point of sale by the member.
Under the terms of the contract, Avalon will provide unlimited use and access to the country club facilities. Avalon’s performance obligation in the contract is the “stand ready obligation” to provide access to these facilities for the member for the entire membership term. Avalon providing the “stand ready obligation” for use of the facilities to the member over the entire term of the membership agreement represents a single performance obligation of which Avalon expects the member to receive and consume the benefits of its obligation throughout the membership term, and as such, the Company recognizes membership dues on a straight line basis over the term of the contract. The Company applied the standard's practical expedient that permits the omission of disclosures relating to unsatisfied performance obligations for contracts with an original expected length of one year or less as Avalon Golf and Country Club membership agreements are one year in length.
For our hotel operations, Avalon’s performance obligation is to provide lodging facilities. The separate components of providing these services (hotel room, toiletry items, housekeeping, and amenities) are not distinct within the context of the contract as they are all highly dependent and interrelated as part of the obligation to provide the lodging facility. Room sales are driven by a fixed fee charged to a hotel guest to stay at The Grand Resort for an agreed upon period. The Company agrees to provide a room to the hotel guest for a specified time period for that agreed-upon rate. Our hotel room reservations are performance obligations satisfied over time as the hotel guest simultaneously receives and consumes the benefits provided by the hotel. For performance obligations satisfied over time, our hotel operations measure the progress toward complete satisfaction of the performance obligation and recognize revenue proportionately over the course of the customer’s stay.
For food, beverage, and merchandise sales, greens fees and associated cart rental, fitness activities, salon and spa services and other ancillary services, the transaction price is the set price charged by the Company for those goods or services. Upon purchase of the good or service, the Company transfers control of the good or service to the customer and the customer immediately consumes the benefits of the Company’s performance and, as such, we recognize revenue at the point of sale. Amounts paid in advance, such as deposits on overnight lodging or for banquet or conferences facilities, are recorded as a liability until the goods or services are provided to the customer (see Contract Liabilities below).
The following table presents our net operating revenues disaggregated by revenue source for the three and nine months ended September 30, 2021 and 2020 (in thousands). Sales and other taxes are excluded from revenues.
Avalon does not have operations located outside the United States and, accordingly, geographical revenue information is not presented.
Receivables, Net
Receivables, net, include amounts billed and currently due from customers. The amounts due are stated at their net realizable value. At September 30, 2021 and December 31, 2020, accounts receivable, net, related to our waste management services segment were approximately $8.5 million and $7.9 million, respectively. At September 30, 2021, customer accounted for approximately 21% of the waste management services segment’s receivables and 18% of the consolidated receivables. At December 31, 2020 no one customer accounted for 10% or more of Avalon’s waste management services segment or consolidated net receivables. Accounts receivable, net, related to our golf and related operations segment were approximately $1.4 million and $0.8 million at September 30, 2021 and December 31, 2020, respectively. No one customer of the golf and related operations segment accounted for 10% or more of Avalon’s golf and related operations segment or consolidated net receivables at September 30, 2021 or December 31, 2020.
The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. Customer accounts that are outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous accounts receivable loss history, the customer’s current ability to pay its obligation to Avalon and the condition of the general economy and the industry as a whole. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for credit losses, or to income, as appropriate under the circumstances. Allowance for credit losses was approximately $0.3 million at September 30, 2021 and December 31, 2020.
The following table presents changes in our allowance for credit losses during the three and nine months ended September 30, 2021 and 2020 (in thousands):
Contract Assets
Contract assets include unbilled membership dues receivables related to the Avalon Golf and Country Club for the customers membership commitment which are billed on a monthly basis over the course of the annual agreement. Such amounts are stated at their net realizable value. Contract assets related to unbilled membership dues are classified as current as revenue related to such agreements is recognized within the annual membership period. Unbilled membership receivables in our Condensed Consolidated Balance Sheets were approximately $0.8 million at September 30, 2021 and $0.6 million at December 31, 2020.
The following table presents changes in our contract assets during the three and nine months ended September 30, 2021 and 2020 (in thousands):
Contract Liabilities
Contract liabilities include unrecognized or deferred revenues relating to membership dues and customer advance deposits. We record deferred revenue when cash payments are received in advance of satisfying our performance obligation. We classify deferred membership dues revenue as current based on the timing of when we expect to recognize revenue for the membership commitment based on the Company satisfying the stand ready performance obligation throughout the annual membership period. The unrecognized or deferred revenues related to membership dues in our Condensed Consolidated Balance Sheets were approximately $4.4 million at September 30, 2021 and $3.2 million at December 31, 2020, respectively. Customer advance deposits are recorded as a liability until the goods or services are provided to the customer. Generally, customer advances, and corresponding performance obligation are satisfied within 12 months of the date of receipt of advance payment. The unrecognized revenues related to customer advance deposits are recorded in “Other liabilities and accrued expenses” in our Condensed Consolidated Balance Sheets. Customer advance deposits were approximately $0.7 million at September 30, 2021 and December 31, 2020.
The following table presents changes in our contract liabilities during the three and nine months ended September 30, 2021 and 2020 (in thousands):
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Note 7 - Property and Equipment |
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| Property, Plant and Equipment Disclosure [Text Block] |
Note 7. Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from 10 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office furniture and equipment.
Major additions and improvements are charged to the property and equipment accounts while replacements, maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the year of disposal. Gains or losses resulting from the disposal of property and equipment are recorded in “Other income, net” in our Condensed Consolidated Statements of Operations.
Property and equipment at September 30, 2021 and December 31, 2020 consists of the following (in thousands):
At September 30, 2021, the Company did not have any significant fixed contractual commitments for construction projects.
Avalon reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, Avalon would determine whether the estimated undiscounted sum of the future cash flows of such assets and their eventual disposition is less than its carrying amount. If less, an impairment loss would be recognized if, and to the extent that the carrying amount of such assets exceeds their respective fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows. During the first nine months of 2021 and 2020, no triggering events were present. |
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Note 8 - Leases |
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Note 8. Leases
Operating Leases
Avalon leases golf carts, machinery and equipment for the landfill operations, furniture and fixtures for The Grand Resort and office copiers under operating leases. Our operating leases have remaining lease terms ranging from less than 1 year to 4.2 years. The weighted average remaining lease term on operating leases was approximately 3.0 years at September 30, 2021.
During the first nine months of 2021, the Company entered into new operating lease agreements for a facility and golf cart GPS equipment. The Company recorded operating lease right-of-use assets and corresponding obligations under the operating leases of approximately $67,000. During the first nine months of 2020, the Company entered into a new operating lease agreement for hotel furniture. The Company recorded an operating lease right-of-use asset and corresponding obligation under the operating lease of approximately $266,000.
Leased property and associated obligations under operating leases at September 30, 2021 and December 31, 2020 consists of the following (in thousands):
The weighted average discount rate on operating leases was 4.7% at September 30, 2021 and December 31, 2020.
Finance Leases
In November 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all its remaining renewal options. At September 30, 2021 there were approximately 32.0 years remaining on the golf course and related facilities finance lease.
In addition, the golf and related operations also entered into lease agreements for vehicles, golf course maintenance and restaurant equipment and the captive landfill operations entered into lease agreements for equipment which were determined to be finance leases. At September 30, 2021, the vehicles, golf course maintenance and restaurant equipment and the landfill operations equipment have remaining lease terms ranging from less than 1 year to 3.7 years. The weighted average remaining lease term on the vehicles and equipment leases was approximately 2.9 years at September 30, 2021.
Leased property and associated obligations under finance leases at September 30, 2021 and December 31, 2020 consists of the following (in thousands):
The weighted average discount rate on finance leases was 4.8% at September 30, 2021 and 4.5% at December 31, 2020.
For the three and nine months ended September 30, 2021 and 2020, components of lease expense were as follows (in thousands):
For the twelve months ending September 30, future commitments under long-term, operating and finance leases are as follows (in thousands):
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Note 9 - Basic and Diluted Net Income (Loss) Per Share |
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Note 9. Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing the net income (loss) by the weighted average number of common shares outstanding. For both the three and nine months ended September 30, 2021, the weighted average number of common shares outstanding was 3,899,431. For both the three and nine months ended September 30, 2020, the weighted average number of common shares outstanding was 3,875,431.
Diluted net income (loss) per share attributable to Avalon Holdings Corporation common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus any weighted common equivalent shares determined to be outstanding during the period using the treasury method. The weighted common equivalent shares included in the calculation are related to stock options granted by Avalon where the weighted average market price of Avalon’s common stock for the period presented is greater than the option exercise price of the stock option.
For the three months ended September 30, 2021, the diluted weighted average number of shares outstanding was 3,930,869. For the nine months ended September 30, 2021, the diluted weighted average number of shares outstanding was 3,934,838.
For the three months ended September 30, 2020, the diluted per share amount reported is equal to the basic per share amount because the average market price of Avalon’s common shares during the period was less than the exercise price of the stock options outstanding. For the nine months ended September 30, 2020, the diluted per share amount reported is equal to the basic per share amount because Avalon was in a net loss position and as a result, such dilution would be considered anti-dilutive. Assuming dilution, the diluted per share amount is equal to the basic per share amount because the average market price of Avalon’s common shares during the period was less than the exercise price of the stock options outstanding. |
Note 10 - Term Loans and Line of Credit Agreements |
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| Debt Disclosure [Text Block] |
Note 10. Term Loans and Line of Credit Agreements
New Term Loan Agreement
On December 20, 2019, Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the “New Term Loan Agreement”) with Laurel Capital Corporation which provided for a $23.0 million term loan. At closing, $13.8 million of the proceeds were used to pay off and refinance amounts outstanding under our then existing term loan and commercial mortgage agreements, $1.7 million of the proceeds were used to pay down the outstanding balance and associated interest on our existing line of credit agreement and $0.3 million of the proceeds were utilized to pay related transaction costs. The remaining proceeds of approximately $7.2 million were deposited into a project fund account for which those proceeds are required to fund future costs of renovating and expanding both The Grand Resort and Avalon Field Club at New Castle. At September 30, 2021 and December 31, 2020, loan proceeds of $2.1 million and $3.9 million, respectively, are presented in the Condensed Consolidated Balance Sheets as “Restricted cash.” The then existing term loan and commercial mortgage agreements were terminated in conjunction with the New Term Loan Agreement.
The New Term Loan Agreement is payable in 119 equal monthly installments of principal and interest, based on a fifteen (15) year maturity schedule which commenced January 20, 2020 followed by one final balloon payment of all remaining principal, interest and fees due on the maturity date of December 20, 2029. Borrowings under the New Term Loan Agreement bear interest at a fixed rate of 5.00% until the fifth anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a) 5.00% per annum or (b) the sum of the five year treasury rate on the date two (2) business days prior to the reset date plus 3.60%, provided that the applicable rate shall in no event exceed 7.35% per annum.
Avalon has the right to prepay the amount outstanding under the New Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is five percent (5%) on any prepayment in the first five years; four percent (4%) on any prepayment in the sixth and seventh year; three percent (3%) on any prepayment in the eighth and ninth year; and two percent (2%) on any prepayment in the tenth year.
Borrowings under the New Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The New Term Loan Agreement contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year. The New Term Loan also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the New Term Loan Agreement covenants at September 30, 2021 and December 31, 2020.
The Company capitalized approximately $0.4 million of debt issuance costs in connection with the New Term Loan Agreement. The Company is amortizing these costs over the life of the New Term Loan Agreement. In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, these costs are presented in the Condensed Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability.
Line of Credit Agreement
On May 31, 2018, Avalon entered into a business loan agreement with Premier Bank (formerly Home Savings Bank), (the “Line of Credit Agreement”) which provides for a line of credit of up to $5.0 million. On August 17, 2021, the Company amended the Line of Credit Agreement to extend the maturity date to July 31, 2023. Under the Line of Credit Agreement, borrowings in excess of $1.0 million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement.
No amounts were drawn under the Line of Credit Agreement at September 30, 2021 and December 31, 2020. Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus .25%. At September 30, 2021, the interest rate on the Line of Credit Agreement was 3.50%.
Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement contains a Fixed Charge Coverage Ratio requirement of at least 1.20 tested on an annual basis on December 31 of each year. The Line of Credit Agreement also contains other nonfinancial covenants, customary representations, warranties and events of default. Avalon was in compliance with the Line of Credit Agreements covenants at September 30, 2021 and December 31, 2020.
Paycheck Protection Program Loan
The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, qualified companies are eligible for a loan in an amount equal to the lesser of $10 million or 2.5 times the business’s average monthly payroll. Collateral or guarantor support is not required for the loan.
Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during, at the borrowers election, either an 8 or 24 week covered period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Under the Program, proceeds that are not forgiven convert to a loan bearing interest at a fixed rate of 1% payable, at the borrowers election, in either 18 or 54 equal monthly installments commencing 10 months after the end of their covered period.
In the second quarter of 2020, certain wholly-owned subsidiaries of Avalon entered into agreements and received a total of approximately $2.8 million in loans under the Program. The Company utilized the entire balance of the loan proceeds in accordance with the Program’s guidelines using the 24 week loan forgiveness period and subsequently applied for forgiveness with the Small Business Administration.
The Company accounted for the loans in accordance with ASC 470 – Debt. Under ASC 470, the debt will be derecognized when the debt is extinguished in accordance with the guidance in ASC 405-20, Liabilities: Extinguishments of Liabilities. Debt forgiven in accordance with the Program is recognized in the Condensed Consolidated Statements of Operations as a gain on debt extinguishment.
During the fourth quarter of 2020, approximately $0.8 million of the loans and $4,000 of associated interest were forgiven by the Small Business Administration. During the first quarter of 2021, approximately $1.1 million of the loans and $8,000 of associated interest were forgiven by the Small Business Administration and, during the second quarter of 2021, the remaining $0.9 million of the loans and $9,000 of associated interest were forgiven by the Small Business Administration.
During the three months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 5.00% and 4.57%, respectively. During the nine months ended September 30, 2021 and 2020, the weighted average interest rate on outstanding borrowings was 4.91% and 4.74%, respectively.
Obligations under the Company’s debt agreements at September 30, 2021 and December 31, 2020 consist of the following (in thousands):
For the twelve months ending September 30, future maturities of long-term debt are as follows (in thousands):
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Note 11 - Income Taxes |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
Note 11. Income Taxes
During the three months ended September 30, 2021 and 2020, net income attributable to Avalon Holdings Corporation shareholders was $1.0 million and $0.8 million, respectively. During the nine months ended September 30, 2021, net income attributable to Avalon Holdings Corporation shareholders was $2.4 million compared to a net loss attributable to Avalon Holdings Corporation shareholders of $0.5 million during the nine months ended September 30, 2020. Avalon recorded a state income tax provision in both the three and nine month periods ended September 30, 2021 and 2020, which was related entirely to the waste management and brokerage operations. Due to the recording of a full valuation allowance against the Company’s federal net deferred tax assets, the overall effective tax rate in both periods reflects taxes owed in certain U.S state jurisdictions. Avalon’s income tax on the income (loss) before taxes was offset by a change in the valuation allowance. A valuation allowance is provided when it is more likely than not that deferred tax assets relating to certain federal and state loss carryforwards will not be realized. Avalon continues to maintain a valuation allowance against the majority of its deferred tax amounts until it is evident that the deferred tax asset will be utilized in the future.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryforwards generated in taxable years beginning after December 31, 2017, to offset 100% of taxable income for taxable years beginning before January 1, 2021, and 80% of taxable income in taxable years beginning after December 31, 2020. In addition, the CARES Act allows net operating losses incurred in taxable years beginning after December 31, 2017, and before January 1, 2021, to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The adoption of these provisions did not have a material impact on the Company’s financial position or results of operations.
On December 27, 2020, the Consolidated Appropriations Act, 2021 (the “Appropriations Act”) was enacted in response to the COVID-19 pandemic. The Appropriations Act, among other things, temporarily extends through December 31, 2025, certain expiring tax provisions, including look-through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations. Additionally, the Appropriations Act enacts new provisions and extends certain provisions originated within the CARES Act, including an extension of time for repayment of the deferred portion of employees’ payroll tax through December 31, 2021, and a temporary allowance for full deduction of certain business meals. Avalon has elected not to defer the employees’ portion of payroll tax. Management is currently evaluating the other provisions of the Appropriations Act, but at present time does not expect that the other provisions of the Appropriations Act would result in a material tax or cash benefit. |
Note 12 - Long-term Incentive Plan |
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| Share-based Payment Arrangement [Text Block] |
Note 12. Long-Term Incentive Plan
On March 14, 2019, the Board of Directors of Avalon approved the renewal of the expired 2009 Long-term Incentive Plan (the “2009 Plan”), which was set to expire in October of 2019. The 2009 Plan provides for the granting of options which are intended to be non-qualified stock options (“NQSO’s”) for federal income tax purposes except for those options designated as incentive stock options (“ISO’s”) which qualify under Section 422 of the Internal Revenue Code.
The name of the plan was changed to the 2019 Long-term Incentive Plan (“the Option Plan”) to reflect the year of approval. The Option Plan represents the renewal of the 2009 Plan which had 1,300,000 shares of Class A Common Stock available for stock options to employees and non-employee directors. The Option Plan has 1,300,000 shares available for stock options, less any shares of stock issued pursuant to options exercised under the 2009 Plan. The total number of shares under the Option Plan and the 2009 Plan will not exceed 1,300,000. Shares of stock covered by options granted pursuant to the 2009 Plan which terminate or expire prior to exercise or have been surrendered or canceled shall be available for further option grants under the Option Plan. On April 25, 2019, at the Annual Meeting of Shareholders, the shareholders approved the Option Plan.
The purpose of the Avalon Holdings Corporation 2019 Long-term Incentive Plan (the “Plan”) is (a) to improve individual employee performance by providing long-term incentives and rewards to employees of Avalon, (b) to assist Avalon in attracting, retaining and motivating employees and non-employee directors with experience and ability, and (c) to associate the interests of such employees and directors with those of the Avalon shareholders.
NQSO’s may be granted with an exercise price which is not less than 100% of the fair market value of the Class A Common Stock on the date of grant. Options designated as ISO’s shall not be less than 110% of fair market value for employees who are ten percent shareholders and not less than 100% of fair market value for other employees. The Board of Directors may, from time to time in its discretion, grant options to one or more outside directors, subject to such terms and conditions as the Board of Directors may determine, provided that such terms and conditions are not inconsistent with other applicable provisions of the Option Plan. Options shall have a term of no longer than years from the date of grant; except that for an option designated as an ISO which is granted to a ten percent shareholder, the option shall have a term no longer than years.
No option shall be exercisable prior to year after its grant, unless otherwise provided by the Option Committee of the Board of Directors (but in no event before 6 months after its grant), and thereafter options shall become exercisable in installments, if any, as provided by the Option Committee. Options must be exercised for full shares of common stock. To the extent that options are not exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such options. No option may be exercised by an optionee after his or her termination of employment for any reason with Avalon or an affiliate, except in certain situations provided by the Option Plan.
The stock options, vest ratably over a year period and have a contractual term of years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within years following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended at the discretion of the Board of Directors.
The grant-date fair values of the stock option awards were estimated using the Monte Carlo Simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.
The grant date fair value of the underlying equity was determined to be equal to Avalon’s publicly traded stock price as of the grant dates times the sum of the Class A and Class B common shares outstanding.
The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the Company has had no historical exercising activity, prior to 2018, the simplified method was applied. Because of the nature of the vesting described above, the options are separated into five blocks, with each block having its own vesting period and expected term.
For stock option awards, the expected volatility was based on the observed historical volatility of Avalon common stock. There were no expected dividends and the risk-free interest rate was based on yield data for U. S. Treasury securities over a period consistent with the expected term.
In March 2021, unexercised options to purchase 190,000 shares previously granted under the 2009 Plan expired as the options were not exercised within ten years after the grant date. At September 30, 2021, options to purchase 90,000 shares have been granted under the 2009 Plan. Of these, 36,000 shares have been exercised, and options for 54,000 shares remain outstanding.
The following table is a summary of the stock option activity during 2021:
The stock options vest and become exercisable based upon achieving two critical metrics as follows: 1) Contract Vesting Term: The stock options vest ratably over a five year period. 2) The Avalon common stock price traded on a public stock exchange (NYSE Amex) must reach the predetermined vesting price within three years after the options become vested under the contractual vesting term.
The table below represents the period and predetermined stock price needed for vesting.
Compensation costs were approximately $1,000 for both the three month periods ended September 30, 2021 and 2020, and $4,000 for both the nine month periods ended September 30, 2021 and 2020, based upon the estimated grant date fair value calculations. As of September 30, 2021, there was approximately $8,000 of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.67 years. |
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Note 13 - Legal Matters |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Legal Matters and Contingencies [Text Block] |
Note 13. Legal Matters
In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those related to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, will have a material adverse effect on its liquidity, financial position or results of operations (See Note 16).
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Note 14 - Business Segment Information |
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| Segment Reporting Disclosure [Text Block] |
Note 14. Business Segment Information
In determining the segment information, Avalon considered its operating and management structure and the types of information subject to regular review by its “chief operating decision maker.” Using the criteria of FASB ASC 280 Segment Reporting, Avalon’s reportable segments include waste management services and golf and related operations. Avalon accounts for intersegment net operating revenues as if the transactions were to third parties. The segment disclosures are presented on this basis for all periods presented.
Avalon’s primary business segment, the waste management services segment, provides hazardous and nonhazardous brokerage and management services to industrial, commercial, municipal and governmental customers, captive landfill management for an industrial customer and salt water injection well operations.
Avalon’s golf and related operations segment consists of four golf courses and associated clubhouses which provide dining and banquet facilities, a hotel which provides lodging and resort related amenities including dining, banquet and conference facilities, a multipurpose recreation center and a travel agency. Revenue for the golf and related operations segment consists primarily of membership dues, greens fees, cart rentals, room rentals, merchandise sales, tennis and fitness activities, salon and spa services and food and beverage sales.
Avalon does not have significant operations located outside the United States and, accordingly, geographical segment information is not presented.
For the nine months ended September 30, 2021, customer accounted for 12% of the waste management services segment’s net operating revenues to external customers and 7% of the consolidated net operating revenues. For the nine months ended September 30, 2020, no one customer accounted for 10% of Avalon’s consolidated or reportable segment net operating revenues.
The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of significant accounting policies included in Avalon’s 2020 Annual Report to Shareholders. Avalon measures segment profit for internal reporting purposes as income (loss) before income taxes.
Business segment information including the reconciliation of segment income before taxes to income (loss) before taxes is as follows (in thousands):
In comparing total assets at September 30, 2021 with those at December 31, 2020, the increase in the total assets of the waste management services segment of approximately $0.7 million was primarily a result of an increase in accounts receivable and, to a lesser extent, an increase in intersegment transactions, which are eliminated in consolidation. The increase in total assets of the golf and related operations segment of $1.6 million was primarily due to an increase in accounts receivable and capital expenditures related to The Grand Resort and Avalon Field Club at New Castle partially offset by current year depreciation on property and equipment. The decrease in corporate total assets of approximately $2.6 million was primarily due to a decrease in restricted cash utilized for the expansion of The Grand Resort and Avalon Field Club at New Castle and intersegment transactions, which are eliminated in consolidation. |
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Note 15 - Certain Relationships and Related Transactions |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Related Party Transactions Disclosure [Text Block] |
Note 15. Certain Relationships and Related Transactions
AWMS Holdings, LLC
In August 2013, Avalon created a new Ohio limited liability company, AWMS Holdings, LLC, to act as a holding company to form and own a series of wholly owned subsidiaries that will own and operate Class II salt water injection wells and facilities (together the “facilities”). AWMS Holdings, LLC, offers investment opportunities to accredited investors by selling membership units of AWMS Holdings, LLC through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to construct the facilities necessary for the operation of salt water injection wells. AWMS Water Solutions, LLC, a wholly owned subsidiary of Avalon, manages all the salt water injection well operations, including the marketing and sales function and all decisions regarding the well operations for a percentage of the gross revenues.
In 2014 and 2013, Avalon, through a wholly owned subsidiary made capital contributions totaling approximately $3.4 million, which included cash and certain well assets, including the permits, in exchange for membership units of AWMS Holdings, LLC. Through a private placement offering for the purchase of membership units, AWMS Holdings, LLC raised approximately $3.8 million from accredited investors in 2014 and 2013. Management and outside directors of Avalon, who qualified as accredited investors, invested approximately $1.0 million in AWMS Holdings, LLC.
As a result of a private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC. At September 30, 2021 and December 31, 2020, respectively, Avalon owns approximately 47% of AWMS Holdings, LLC. In accordance with ASC 810-10 and related amendment, due to the managerial control of American Water Solutions, LLC, AWMS Holdings, LLC is a variable interest entity, and the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. ASC 810-10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2021, net loss attributable to the noncontrolling interest in AWMS Holdings, LLC was $144,000 and $190,000, respectively. During the three and nine months ended September 30, 2020, net loss attributable to the noncontrolling interest in AWMS Holdings, LLC was $8,000 and $37,000, respectively.
Avalon Med Spa, LLC
In March 2021, Avalon created a new Ohio limited liability company, Avalon Med Spa, LLC. Avalon Med Spa, LLC provides elective appearance improving nonsurgical aesthetic services under the supervision of a licensed physician. Avalon Med Spa, LLC, offers investment opportunities to accredited investors by selling membership units through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to purchase medical spa equipment and construct the facilities necessary for operation. Avalon operates and manages all decisions regarding the medical spa operations for a percentage of the gross revenues.
In 2021, Avalon made a capital contributions totaling $359,000, which included cash and certain equipment, in exchange for membership units of Avalon Med Spa, LLC. Through a private placement offering for the purchase of membership units, Avalon Med Spa, LLC raised $358,000 from accredited investors in August 2021. An outside director of Avalon, who qualified as an accredited investor, invested less than 10% of the total investment in Avalon Med Spa, LLC. Avalon is the majority owner of Avalon Med Spa, LLC owning 50.1% of the company.
In accordance with ASC 810-10 and related amendment, Avalon Med Spa, LLC is a variable interest entity, and the financial statements of Avalon Med Spa, LLC are included in Avalon’s consolidated financial statements. ASC 810-10 requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2021, net loss attributable to the noncontrolling interest in Avalon Med Spa, LLC was $24,000. |
Note 16 - Injection Wells Suspension |
9 Months Ended |
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Sep. 30, 2021 | |
| Notes to Financial Statements | |
| Suspended Injection Well Costs Disclosure [Text Block] |
Note 16. Injection Wells Suspension
As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014 to immediately suspend all operations of Avalon’s saltwater injection wells until the Division could further evaluate the wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to an area of known seismic activity and that the saltwater injection wells pose a risk of increasing or creating seismic activity.
On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well, and the Chief lifted the suspension for that well on September 18, 2014. On September 19, 2014, Avalon submitted information and a written plan required by the Chief’s Order proposing the establishment of certain operations and management controls on injections for the AWMS #2 injection well. To date, the Division has not responded to that plan despite Avalon’s requests for feedback.
On October 2, 2014, Avalon filed an appeal with the Ohio Oil and Gas Commission (the “Commission”) disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. On March 11, 2015, an appeal hearing was held. The Chief stated during the hearing that the suspension order is temporary, and he expects that AWMS #2 will be allowed to resume operations once the state’s final policymaking is complete.
On August 12, 2015, the Commission upheld the temporary suspension of injection operations of AWMS #2 stating that the temporary suspension would allow the Chief more time to fully evaluate the facts in anticipation of the Division’s implementation of a comprehensive regulatory plan that will specifically address injection-induced seismicity.
Avalon appealed that decision to the Franklin County Court of Common Pleas (the “Court”), and on November 1, 2016 an appeal hearing was held in that Court. On December 23, 2016, the Court issued its Decision and Order in Avalon’s favor, and vacated the Commission’s decision. The Court found that the Division’s suspension and refusal to work with the Company over the 26 month period was arbitrary and not in accordance with reason. Subsequent to the ruling, and in accordance with the Court’s Decision and Order, both Avalon and the Division submitted their proposed restart plans to the Court. Avalon’s plan sets forth both the initial volumes and pressures and increases in volume and pressure while continuously monitoring seismicity and addressing the concerns of public health and safety.
On February 21, 2017, the Court issued its Final Decision and Order. The Court’s Final Decision and Order set forth conditions for restarting the AWMS #2 salt water injection well in accordance with the proposed restart plans filed by Avalon with minor revisions. On February 22, 2017, the Division appealed the Final Decision and Order and filed a Motion to Stay the Court Order. The Motion to Stay was granted by the Ohio 10th District Court of Appeals on March 21, 2017.
On September 14, 2017, an appeal hearing was held in the Ohio 10th District Court of Appeals and on July 31, 2018 a decision was issued on the appeal. The decision reinstated the previous Ohio Oil and Gas Commission decision in this matter.
On September 12, 2018, the Company appealed the Ohio 10th District Court of Appeals decision to the Supreme Court of Ohio. On November 21, 2018, the Company received notice from the Supreme Court of Ohio that the court would not accept for review the Company’s appeal of the Ohio 10th District Court of Appeals decision on the Division of Oil and Gas Resources Management’s appeal of the Franklin County Court of Common Pleas February 21, 2017 entry allowing restart of the Company’s AWMS Water Solutions, LLC #2 salt water injection well.
On April 5, 2019, Avalon filed with the Oil and Gas Commission a motion to vacate its prior decisions in this matter. The Oil and Gas Commission scheduled a hearing on this motion for August 13, 2019. Before the hearing began, and in response to the Division’s motion to dismiss the Company’s motion to vacate, the Commission dismissed the matter. The Company appealed that decision to the Franklin County Court of Common Pleas. In April 2020, the Division’s motion to dismiss and the Company’s opposition were reviewed by the Court. The Company is currently awaiting judgment from the Court.
Concurrently with the filing of the appeal with the Franklin County Court of Common Pleas, the Company filed a writ of mandamus in the 10th District Court of Appeals on August 30, 2019 to compel the chief of the Division to issue restart orders, or alternative orders that would allow the Company to either restart the AWMS #2 well, or appeal said orders to the Oil and Gas Commission in accordance with Ohio Law. On October 6, 2020 and in response to a motion from the Division, the Court dismissed this complaint for writ of mandamus.
In addition, on August 26, 2016, Avalon filed a complaint in the 11th Appellate District Court in Trumbull County, Ohio for a Peremptory Writ of Mandamus to compel the Director of the Ohio Department of Natural Resources (“ODNR”) to initiate appropriations procedures to determine damages from the illegal regulatory taking of the Company’s property, or issue an alternative remedy at law. The Company believes that the actions, and lack of responsible actions, by the ODNR is a clear violation of the Company’s property rights and a violation of the Fifth and Fourteenth Amendments to the U.S. Constitution; Article I, Section 19 of the Ohio Constitution; and Ohio Revised Code Chapter 163.
On March 18, 2019, Avalon received notice that the 11th Appellate District Court in Trumbull County, Ohio issued summary judgment in favor of the Ohio Department of Natural Resources in the writ of mandamus action that resulted from the suspension order of the Company’s salt water injection well. The decision was appealed to the Supreme Court of Ohio on April 5, 2019. Oral arguments in the case occurred on April 7, 2020. On September 23, 2020, the Supreme Court of Ohio ruled in favor of the Company. The Supreme Court of Ohio reversed the decision of the 11th Appellate District Court and remanded the case back to that court for a trial on the merits. The trial occurred in September and October 2021. The Company is currently awaiting judgment from the 11th Appellate District Court.
On May 24, 2021, the Company received Chief’s Orders from the Division vacating the September 3, 2014 suspension orders for AWMS #2 and setting conditions for restart of that well. Among these conditions was a limit placed on the seismicity within three miles of the well. Under the Order, if a seismic event with a magnitude 2.1 or above occurs, the well must cease operations for an indefinite period of time until concurrence for subsequent restart is received from the Division. The Company appealed the May 2021 Chief’s Order to the Ohio Oil and Gas Commission, seeking reasonable operating conditions that will allow the facility to operate profitably while protecting human health and property. A hearing in this matter is expected in early 2022.
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Note 5 - Cash, Cash Equivalents and Restricted Cash (Tables) |
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Note 6 - Revenues (Tables) |
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Note 7 - Property and Equipment (Tables) |
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Note 8 - Leases (Tables) |
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Note 10 - Term Loans and Line of Credit Agreements (Tables) |
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Note 12 - Long-term Incentive Plan (Tables) |
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Note 14 - Business Segment Information (Tables) |
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Note 1 - Description of Business (Details Textual) |
9 Months Ended |
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Sep. 30, 2021 | |
| Golf and Related Operations [Member] | |
| Number of Golf Courses | 4 |
Note 5 - Cash, Cash Equivalents and Restricted Cash - Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
Sep. 30, 2020 |
Dec. 31, 2019 |
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| Cash and cash equivalents | $ 4,106 | $ 4,210 | ||
| Restricted cash | 2,092 | 3,885 | ||
| Cash, cash equivalents and restricted cash | $ 6,198 | $ 8,095 | $ 8,913 | $ 8,631 |
Note 6 - Revenues - Allowance for Doubtful Accounts (Details) - USD ($) $ in Thousands |
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Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
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| Allowance for doubtful accounts, Balance | $ 250 | $ 271 | $ 265 | $ 275 |
| Provision for doubtful accounts | 35 | 9 | 35 | 23 |
| Allowance for Credit Loss, Writeoff | (18) | (4) | (33) | (22) |
| Allowance for doubtful accounts, Balance | $ 267 | $ 276 | $ 267 | $ 276 |
Note 6 - Revenues - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands |
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|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Balance | $ 1,102 | $ 1,109 | $ 585 | $ 602 |
| Unbilled | 237 | 305 | 1,802 | 1,950 |
| Billings | (500) | (548) | (1,548) | (1,686) |
| Balance | 839 | 866 | 839 | 866 |
| Balance | 3,200 | |||
| Billings | 500 | 548 | 1,548 | 1,686 |
| Balance | 4,400 | 4,400 | ||
| Deferred Membership Dues [Member] | ||||
| Billings | (730) | (787) | (6,178) | (5,428) |
| Balance | 5,376 | 4,776 | 3,196 | 3,153 |
| Billings | 730 | 787 | 6,178 | 5,428 |
| Revenue recognized | (1,684) | (1,522) | (4,952) | (4,540) |
| Balance | 4,422 | 4,041 | 4,422 | 4,041 |
| Customer Advance Deposits [Member] | ||||
| Billings | (588) | (261) | (1,299) | (656) |
| Balance | 784 | 652 | 674 | 553 |
| Billings | 588 | 261 | 1,299 | 656 |
| Revenue recognized | (688) | (301) | (1,289) | (597) |
| Balance | $ 684 | $ 612 | $ 684 | $ 612 |
Note 7 - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Property and equipment, gross | $ 80,607 | $ 77,408 |
| Less accumulated depreciation and amortization | (27,982) | (26,109) |
| Property and equipment, net | 52,625 | 51,299 |
| Land and Land Improvements [Member] | ||
| Property and equipment, gross | 15,312 | 15,150 |
| Building and Building Improvements [Member] | ||
| Property and equipment, gross | 47,997 | 47,026 |
| Machinery and Equipment [Member] | ||
| Property and equipment, gross | 5,708 | 5,469 |
| Office Equipment [Member] | ||
| Property and equipment, gross | 8,521 | 8,000 |
| Vehicles [Member] | ||
| Property and equipment, gross | 661 | 677 |
| Construction in Progress [Member] | ||
| Property and equipment, gross | $ 2,408 | $ 1,086 |
Note 8 - Leases - Operating Leases Assets and Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Operating lease right-of-use assets | $ 1,354 | $ 1,728 |
| Current portion of obligations under operating leases | 540 | 529 |
| Long-term portion of obligations under leases, operating | 814 | 1,199 |
| Total obligations under operating leases | 1,354 | 1,728 |
| Leased property under finance leases | 12,434 | 12,112 |
| Less accumulated amortization | (6,790) | (6,377) |
| Leased property under finance leases, net | 5,644 | 5,735 |
| Current portion of obligations under finance leases | 178 | 333 |
| Long-term portion of obligations under finance leases | 444 | 560 |
| Total obligations under finance leases | $ 622 | $ 893 |
Note 8 - Leases - Lease Cost (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Rental expense | $ 279 | $ 235 | $ 571 | $ 520 |
| Depreciation expense | 133 | 148 | 413 | 416 |
| Interest expense | 9 | 9 | 33 | 30 |
| Total finance lease cost | $ 142 | $ 157 | $ 446 | $ 446 |
Note 9 - Basic and Diluted Net Income (Loss) Per Share (Details Textual) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Weighted Average Number of Shares Outstanding, Basic, Total (in shares) | 3,899,431 | 3,875,431 | 3,899,431 | 3,875,431 |
| Weighted Average Number of Shares Outstanding, Diluted, Total (in shares) | 3,930,869 | 3,875,000 | 3,934,838 | 3,875,000 |
Note 10 - Term Loans and Line of Credit Agreements - Summary of Term Loan and Line of Credit Agreements (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Long-term debt, gross | $ 21,116 | $ 23,908 |
| Debt issuance costs | (373) | |
| Term Loan Agreement | 23,535 | |
| Less current portion of long-term debt, gross | 1,153 | 1,636 |
| Less current portion debt issuance costs | (42) | (42) |
| Current portion of long-term debt | 1,111 | 1,594 |
| Long-term debt, gross, net of current portion | 19,963 | 22,272 |
| Debt issuance costs, net of current portion | (300) | (331) |
| Long-term debt | 19,663 | 21,941 |
| Term Loan Agreement [Member] | ||
| Long-term debt, gross | 21,116 | 21,944 |
| Debt issuance costs | (342) | (373) |
| Term Loan Agreement | $ 20,774 | 21,571 |
| Paycheck Protection Program CARES Act [Member] | ||
| Long-term debt, gross | 1,964 | |
| Debt issuance costs | 0 | |
| Term Loan Agreement | $ 1,964 |
Note 10 - Term Loans and Line of Credit Agreements - Future Maturities of Long-term Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| 2022 | $ 1,153 | |
| 2023 | 1,212 | |
| 2024 | 1,274 | |
| 2025 | 1,339 | |
| 2026 | 1,408 | |
| Thereafter | 14,730 | |
| Total | $ 21,116 | $ 23,908 |
Note 11 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Net Income (Loss) Attributable to Parent, Total | $ 983 | $ 781 | $ 2,441 | $ (467) |
Note 16 - Injection Wells Suspension (Details Textual) |
Sep. 30, 2021 |
Sep. 03, 2014 |
|---|---|---|
| Number of Suspended Saltwater Injection Wells | 2 | 2 |