ESCALADE INC 10-Q

Item 1. FINANCIAL STATEMENTS ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS All Amounts in Thousands Except Share Information June 30, 2025 December 31, 2024 June 30, 2024 (Unaudited) (Audited) (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 10,422 $ 4,194 $ 362 Receivables, less allowance of $ 595 ; $ 694 ; and $ 489 ; respectively 41,926 48,768 47,829 Inventories 72,672 76,025 86,571 Prepaid expenses 2,449 4,372 2,461 Prepaid income tax 402 465 1,829 TOTAL CURRENT ASSETS 127,871 133,824 139,052 Property, plant and equipment, net 21,827 22,221 23,441 Assets held for sale – – 2,459 Operating lease right-of-use assets 1,428 1,186 7,905 Intangible assets, net 24,703 25,838 27,456 Goodwill 42,326 42,326 42,326 Other assets 184 935 427 TOTAL ASSETS $ 218,339 $ 226,330 $ 243,066 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 7,143 $ 7,143 $ 7,143 Trade accounts payable 14,120 11,858 12,798 Accrued liabilities 9,086 15,050 9,222 Current operating lease liabilities 496 444 1,077 TOTAL CURRENT LIABILITIES 30,845 34,495 30,240 Other Liabilities: Long‑term debt 14,881 18,452 36,024 Deferred income tax liability 3,302 3,302 3,125 Operating lease liabilities 973 787 7,398 Other liabilities – 297 297 TOTAL LIABILITIES 50,001 57,333 77,084 Stockholders' Equity: Preferred stock: Authorized 1,000,000 shares; no par value, none issued – – – Common stock: Authorized 30,000,000 shares; no par value, issued and outstanding – 13,803,745 ; 13,732,719 ; and 13,877,302 ; shares respectively 3,251 4,218 5,406 Retained earnings 165,087 164,779 160,576 TOTAL STOCKHOLDERS' EQUITY 168,338 168,997 165,982 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 218,339 $ 226,330 $ 243,066 See notes to Consolidated Condensed Financial Statements. 3 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended All Amounts in Thousands Except Per Share Data June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Net sales $ 54,333 $ 62,526 $ 109,812 $ 119,830 Costs and Expenses Cost of products sold 40,896 47,415 81,585 90,365 Selling, administrative and general expenses 10,249 10,063 20,820 20,764 Amortization 567 591 1,134 1,184 Operating Income 2,621 4,457 6,273 7,517 Other Income (Expense) Interest expense ( 213 ) ( 730 ) ( 457 ) ( 1,465 ) Other income 51 3 82 6 Income Before Income Taxes 2,459 3,730 5,898 6,058 Provision for Income Taxes 634 886 1,454 1,439 Net Income $ 1,825 $ 2,844 $ 4,444 $ 4,619 Earnings Per Share Data: Basic earnings per share $ 0.13 $ 0.21 $ 0.32 $ 0.33 Diluted earnings per share $ 0.13 $ 0.20 $ 0.32 $ 0.33 Dividends declared $ 0.15 $ 0.15 $ 0.30 $ 0.30 See notes to Consolidated Condensed Financial Statements. 4 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED) Common Stock Retained All Amounts in Thousands Shares Amount Earnings Total Balances at March 31, 2024 13,862 $ 4,909 $ 159,811 $ 164,720 Net income 2,844 2,844 Expense of restricted stock units 497 – 497 Settlement of restricted stock units 15 – – – Dividends declared ( 2,079 ) ( 2,079 ) Balances at June 30, 2024 13,877 $ 5,406 $ 160,576 $ 165,982 Balances at December 31, 2023 13,737 $ 4,480 $ 160,099 $ 164,579 Net income 4,619 4,619 Expense of restricted stock units 926 926 Settlement of restricted stock units 140 – – Dividends declared ( 4,142 ) ( 4,142 ) Balances at June 30, 2024 13,877 $ 5,406 $ 160,576 $ 165,982 Common Stock Retained All Amounts in Thousands Shares Amount Earnings Total Balances at March 31, 2025 13,756 $ 3,428 $ 165,337 $ 168,765 Net income – – 1,825 1,825 Expense of restricted stock units – 495 – 495 Settlement of restricted stock units 58 – – – Issuance of restricted stock awards 35 Dividends declared – – ( 2,075 ) ( 2,075 ) Purchase of stock ( 53 ) ( 790 ) – ( 790 ) Issuance of common stock for service 8 118 – 118 Balances at June 30, 2025 13,804 $ 3,251 $ 165,087 $ 168,338 Balances at December 31, 2024 13,733 $ 4,218 $ 164,779 $ 168,997 Net income – – 4,444 4,444 Expense of restricted stock units – 962 – 962 Settlement of restricted stock units 165 – – – Issuance of restricted stock awards 35 – – – Dividends declared – – ( 4,136 ) ( 4,136 ) Purchase of stock ( 145 ) ( 2,171 ) – ( 2,171 ) Issuance of common stock for service 16 242 – 242 Balances at June 30, 2025 13,804 $ 3,251 $ 165,087 $ 168,338 See notes to Consolidated Condensed Financial Statements. 5 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended All Amounts in Thousands June 30, 2025 June 30, 2024 Operating Activities: Net income $ 4,444 $ 4,619 Depreciation and amortization 2,501 2,751 Allowance for credit losses 225 325 Stock-based compensation 962 926 Loss on disposal of assets 3 54 Common stock issued in lieu of bonus to officers 124 – Director stock compensation 118 – Changes in assets and liabilities 8,706 4,624 Net cash provided by operating activities 17,083 13,299 Investing Activities: Purchase of property and equipment ( 976 ) ( 1,174 ) Proceeds from sale of property and equipment – 92 Net cash used in investing activities ( 976 ) ( 1,082 ) Financing Activities: Proceeds from issuance of long-term debt 9,046 67,161 Payments on long-term debt ( 12,618 ) ( 74,890 ) Cash dividends paid ( 4,136 ) ( 4,142 ) Purchase of stock ( 2,171 ) – Net cash used in financing activities ( 9,879 ) ( 11,871 ) Net increase in cash and cash equivalents 6,228 346 Cash and cash equivalents, beginning of period 4,194 16 Cash and cash equivalents, end of period $ 10,422 $ 362 Supplemental Cash Flows Information Interest paid $ 428 $ 1,429 Income taxes paid, net $ 1,689 $ 3,270 See notes to Consolidated Condensed Financial Statements. 6 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note A – Summary of Significant Accounting Policies Presentation of Consolidated Condensed Financial Statements – The significant accounting policies followed by the Company and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for its annual financial reporting. All adjustments that are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated condensed financial statements. The consolidated condensed balance sheet of the Company as of December 31, 2024 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2024 filed with the Securities and Exchange Commission. Note B ‑ Seasonal Aspects The results of operations for the three and six months ended June 30, 2025 and June 30, 2024 are not necessarily indicative of the results to be expected for the full year. Note C ‑ Inventories In thousands June 30, 2025 December 31, 2024 June 30, 2024 Raw materials $ 3,843 $ 2,721 $ 3,629 Work in progress 2,936 2,370 2,576 Finished goods 65,893 70,934 80,366 $ 72,672 $ 76,025 $ 86,571 Note D – Fair Values of Financial Instruments Accounting Standard Codification (“ASC”) 820, “ Fair Value Measurement and Disclosures, ” outlines a valuation framework and creates a fair value hierarchy for assets and liabilities as follows: - Level 1: Observable inputs such as quoted prices in active markets; - Level 2: Inputs other than quoted prices in active markets that are either directly or indirectly observable; and - Level 3: Unobservable inputs for which little or no market data exists, therefore requiring the Company to develop its own assumptions. Due to their short-term nature, the fair value of cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximated their carrying values at June 30, 2025, December 31, 2024 and June 30, 2024. The Company believes the carrying value of borrowings under our senior secured revolving credit facility, due to variable rate interest, adequately reflects the fair value of these instruments. The Company discloses the fair value of its term loan using Level 2 inputs, which are estimated using treasury rates for a similar instrument, as follows: June 30, 2025 December 31, 2024 June 30, 2024 In thousands Carrying Value Fair Value Carrying Value Fair Value Carrying Value Fair Value Term Loan Facility $ 22,024 $ 20,744 $ 25,595 $ 23,528 $ 29,167 $ 26,390 7 Note E – Stock Compensation The fair value of stock-based compensation is recognized in accordance with the provisions of FASB ASC 718, Stock Compensation . During the six months ended June 30, 2025, the Company awarded 18,000 restricted stock units to directors, 105,181 restricted stock units and 35,000 shares of restricted stock to employees. The restricted stock units awarded to directors time vest over two years ( one -half one year from grant date and one -half two years from grant date) provided that the director is still a director of the Company at the vest date. Director restricted stock units are subject to forfeiture, except for termination of services as a result of retirement, death or disability, if on the vesting date the director no longer holds a position with the Company. All of the 2025 restricted stock units awarded to employees time vest over three years ( one -third one year from grant, one -third two years from grant and one -third three years from grant) provided that the employee continues to serve as an employee, director or consultant of the Company on the vesting date. The 35,000 shares of restricted stock vest on the fifth anniversary from the grant date provided that the employee is still employed by the Company on the vesting date. For the three and six months ended June 30, 2025, the Company recognized stock based compensation expense of $ 495 thousand and $ 962 thousand, respectively compared to stock based compensation expense of $ 497 thousand and $ 926 thousand for the same periods in the prior year. At June 30, 2025 and June 30, 2024, there was $ 2.8 million and $ 2.3 million, respectively, in unrecognized stock-based compensation expense related to non-vested stock awards. The unrecognized compensation expense of unvested restricted stock awards not yet recognized as of June 30, 2025 is expected to be recognized over the weighted average period of 2.2 years. Note F ‑ Segment Information The Company operates as one operating segment. The Company’s chief operating decision maker (“CODM”) is its president and chief executive officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated net sales and consolidated net income to assess financial performance and allocate resources. As of and for the Three Months Ended June 30, 2025 In thousands Sporting Goods Corp. Total Revenues from external customers $ 54,333 $ – $ 54,333 Cost of product sold 40,896 – 40,896 Other operating expenses 10,205 611 10,816 Operating income (loss) 3,232 ( 611 ) 2,621 Interest expense ( 213 ) – ( 213 ) Other income 51 – 51 Provision (benefit) for Income Taxes 844 ( 210 ) 634 Net income (loss) 2,226 ( 401 ) 1,825 Depreciation and Amortization $ 1,262 – $ 1,262 Total assets $ 207,144 $ 11,195 $ 218,339 8 As of and for the Six Months Ended June 30, 2025 In thousands Sporting Goods Corp. Total Revenues from external customers $ 109,812 $ – $ 109,812 Cost of product sold 81,585 – 81,585 Other operating expenses 20,519 1,435 21,954 Operating income (loss) 7,708 ( 1,435 ) 6,273 Interest expense ( 457 ) – ( 457 ) Other income 82 – 82 Provision (benefit) for Income Taxes 2,016 ( 562 ) 1,454 Net income (loss) 5,317 ( 873 ) 4,444 Depreciation and Amortization $ 2,501 – $ 2,501 Total assets $ 207,144 $ 11,195 $ 218,339 As of and for the Three Months Ended June 30, 2024 In thousands Sporting Goods Corp. Total Revenues from external customers $ 62,526 $ – $ 62,526 Cost of product sold 47,415 – 47,415 Other operating expenses 10,005 649 10,654 Operating income (loss) 5,106 ( 649 ) 4,457 Interest expense ( 730 ) – ( 730 ) Other income 3 – 3 Provision (benefit) for Income Taxes 1,203 ( 317 ) 886 Net income (loss) 3,176 ( 332 ) 2,844 Depreciation and Amortization $ 1,378 – $ 1,378 Total assets $ 240,639 $ 2,427 $ 243,066 As of and for the Six Months Ended June 30, 2024 In thousands Sporting Goods Corp. Total Revenues from external customers $ 119,830 $ – $ 119,830 Cost of product sold 90,365 – 90,365 Other operating expenses 20,259 1,689 21,948 Operating income (loss) 9,206 ( 1,689 ) 7,517 Interest expense ( 1,465 ) – ( 1,465 ) Other income 6 – 6 Provision (benefit) for Income Taxes 2,129 ( 690 ) 1,439 Net income (loss) 5,618 ( 999 ) 4,619 Depreciation and Amortization $ 2,751 – $ 2,751 Total assets $ 240,639 $ 2,427 $ 243,066 Note G – Dividend Payment On January 13, 2025, the Company paid a quarterly dividend of $ 0.15 per common share to all shareholders of record on January 6, 2025. The total amount of the dividend was approximately $ 2.1 million and was charged against retained earnings. On April 14, 2025, the Company paid a quarterly dividend of $ 0.15 per common share to all shareholders of record on April 7, 2025. The total amount of the dividend was approximately $ 2.1 million and was charged against retained earnings. 9 On July 14, 2025, the Company paid a quarterly dividend of $ 0.15 per common share to all shareholders of record on July 7, 2025. The total amount of the dividend was approximately $ 2.1 million and was charged against retained earnings. Note H ‑ Earnings Per Share The shares used in computation of the Company’s basic and diluted earnings per common share are as follows: Three Months Ended Six Months Ended In thousands June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Weighted average common shares outstanding 13,769 13,871 13,742 13,828 Dilutive effect of stock options and restricted stock units 139 183 141 195 Weighted average common shares outstanding, assuming dilution 13,908 14,054 13,883 14,023 Note I – New Accounting Standards and Changes in Accounting Principles With the exception of that discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three and six months ended June 30, 2025, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, that are of significance, or potential significance to the Company. In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required in an entity’s income tax rate reconciliation table and requires disclosure of income taxes paid in both U.S. and foreign jurisdictions. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, to be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the impact the adoption of ASU 2023-09 will have on its annual consolidated financial statements. Note J – Revenue from Contracts with Customers Revenue Recognition – Revenue is recognized when a contract exists with a customer that specifies the goods to be provided at an agreed upon sales price and when the performance obligations under the terms of the contract are satisfied; generally this occurs with the transfer of control of our goods at a point in time based on shipping terms and transfer of title. Sales are made on normal and customary short-term credit terms or upon delivery of point-of-sale transactions. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts. These costs are recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue. The Company enters into contractual arrangements with customers in the form of customer orders that specify goods, quantity, pricing, and associated order terms. The Company does not have long-term contracts that are satisfied over time. Due to the nature of the contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligations, or transaction price. Gross-to-net sales adjustments – We recognize revenue net of various sales adjustments to arrive at net sales as reported on the statement of operations. These adjustments are referred to as gross-to-net sales adjustments and primarily fall into one of three categories: returns, warranties and customer allowances. Returns – The Company records an accrued liability and reduction in sales for estimated product returns based upon historical experience. An accrued liability and reduction in sales is also recorded for approved return authorizations that have been communicated by the customer. 10 Warranties – Limited warranties are provided on certain products for varying periods. We record an accrued liability and reduction in sales for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the accrued liability and sales in the current year. The accrued liability amount attributable to warranties was $ 556 thousand as of June 30, 2025. There were no changes to the accrual due to a change in estimate during the current period. Customer Allowances – Customer allowances are common practice in the industries in which the Company operates. These agreements are typically in the form of advertising subsidies, volume rebates and catalog allowances and are accounted for as a reduction to gross sales. The Company reviews such allowances on an ongoing basis and accruals are adjusted, if necessary, as additional information becomes available. Contract Balances – Amounts relating to returns and customer allowances create contract liabilities, which were $ 5,025 thousand, $ 6,708 thousand and $ 5,325 thousand as of June 30, 2025, December 31, 2024, and December 31, 2023. Disaggregation of Revenue – We generate revenue from the sale of widely recognized sporting goods brands in basketball goals, archery, indoor and outdoor game recreation and fitness products. These products are sold through multiple sales channels that include: mass merchants, specialty dealers, key on-line retailers (“E-commerce”) and international. The following table depicts the disaggregation of revenue according to sales channel: Three Months Ended Six Months Ended All Amounts in Thousands June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Gross Sales by Channel: Mass Merchants $ 17,332 $ 19,127 $ 37,510 $ 40,152 Specialty Dealers 17,644 21,278 38,211 42,273 E-commerce 22,500 25,442 38,764 43,805 International 2,792 3,668 6,490 6,524 Other 845 994 1,646 1,802 Total Gross Sales 61,113 70,509 122,621 134,556 Less: Gross-to-Net Sales Adjustments Returns 1,547 1,965 3,087 3,801 Warranties 159 410 532 855 Customer Allowances 5,074 5,608 9,190 10,070 Total Gross-to-Net Sales Adjustments 6,780 7,983 12,809 14,726 Total Net Sales $ 54,333 $ 62,526 $ 109,812 $ 119,830 Note K – Leases We have operating leases for office, manufacturing and distribution facilities as well as for certain equipment. Our leases have remaining lease terms of 1 year to 4 years. As of June 30, 2025, the Company has not entered into any lease arrangements classified as a finance lease. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and operating lease liabilities on our consolidated balance sheet. The Company has elected an accounting policy to not recognize short-term leases (one year or less) on the balance sheet. The Company also elected the package of practical expedients which applies to leases that commenced before the adoption date. By electing the package of practical expedients, the Company did not need to reassess the following; whether any existing contracts are or contain leases, the lease classification for any existing leases and initial direct costs for any existing leases. 11 ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease terms may include options to extend or terminate the lease and are recognized in the presentation of the ROU assets and operating lease liabilities when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Components of lease expense and other information is as follows: Three Months Ended Six Months Ended All Amounts in Thousands June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Lease Expense Operating Lease Cost $ 153 $ 376 $ 286 $ 751 Short-term Lease Cost 314 382 542 739 Variable Lease Cost 58 143 100 308 Total Operating Lease Cost $ 525 $ 901 $ 928 $ 1,798 Operating Lease – Operating Cash Flows $ 155 $ 260 $ 291 $ 515 New ROU Assets – Operating Leases $ 487 $ 52 $ 487 $ 52 Other information about lease amounts recognized in our consolidated condensed financial statements are summarized as follows: Six Months Ended All Amounts in Thousands June 30, 2025 June 30, 2024 Weighted Average Remaining Lease Term – Operating Leases (in years) 3.20 7.67 Weighted Average Discount Rate – Operating Leases 6.61 % 5.19 % Future minimum lease payments under non-cancellable leases as of June 30, 2025 were as follows: All Amounts in Thousands Remainder of Year 1 $ 298 Year 2 557 Year 3 449 Year 4 179 Year 5 112 Thereafter 41 Total future minimum lease payments 1,636 Less imputed interest ( 167 ) Total $ 1,469 Reported as of June 30, 2025 Current operating lease liabilities 496 Long-term operating lease liabilities 973 Total $ 1,469 12 Note L – Commitments and Contingencies The Company is involved in litigation arising in the normal course of its business, but the Company does not believe the disposition or ultimate resolution of such claims or lawsuits will have a material adverse effect on the business or financial condition of the Company. Based on current information, available insurance coverage and established reserves, the Company believes that the eventual outcome of existing litigation against the Company will not, individually or in the aggregate, have a material adverse effect on the Company’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, may be material to the Company’s results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating results for the applicable period. Note M – Debt On October 11, 2024, the Company entered into the Fifth Amendment (the “Fifth Amendment”) to its Amended and Restated Credit Agreement with its issuing bank, JPMorgan Chase Bank, N.A. and the other lenders identified therein (the “Restated Credit Agreement”). The Fifth Amendment eliminated the fixed charge coverage ratio covenant and related provisions. The fixed charge ratio covenant was replaced by a new minimum interest coverage ratio covenant of 3.50 to 1:00 effective September 30, 2024. Under the terms of the Fifth Amendment, the Company and the Lender also agreed to decrease the maximum availability under the senior revolving credit facility from $ 75.0 million to $ 60.0 million, but added an accordion feature that could increase the facility in an amount not to exceed $ 85.0 million. The Fifth Amendment further revised the restricted payments covenant to provide that if at any time the Company’s Funded Debt to EBITDA Ratio would exceed 1.75 to 1.0, then the aggregate combined total of cash dividends and Company share repurchases may not exceed $ 12.0 million in any trailing twelve month period. The Company was in compliance with the debt covenants set forth in the Restated Credit Agreement as of June 30, 2025. As of June 30, 2025, the outstanding principal amount of the term loan was $ 22.0 million and total amount drawn under the Revolving Facility was zero . Note N – Provision for Taxes The effective tax rate for the three months ending June 30, 2025 was 25.8 % compared to 23.8 % for the same three month period last year. The effective tax rate for the first six months ending June 30, 2025 was 24.7 % compared to 23.8 % for the same period last year. Note O – Subsequent Events On July 4, 2024, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law. The OBBBA includes changes such as provisions allowing accelerated tax deductions for qualified property and research expenditures and provides permanent extensions of certain expiring provisions of the Tax Cuts and Jobs Act. We are currently evaluating the impact of the OBBBA to our consolidated financial statements. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This report contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. All statements, other than statements of historical fact, are forward-looking statements. These statements relate to our financial condition, results of operations, plans, objectives, future performance, capital actions or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “potential,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. These risks include, but are not limited to: Escalade’s ability to achieve its business objectives; Escalade’s plans and expectations surrounding the transition to its new Chief Executive Officer and all potential related effects and consequences; Escalade’s ability to successfully implement actions to lessen the potential impacts of tariffs, a potential trade war with China and other trade restrictions applicable to our products and raw materials, including impacts on the costs of producing our goods, importing products and materials into our markets for sale, and on the pricing of our products; our international operations, including any related to political uncertainty and geopolitical tensions; Escalade’s ability to successfully achieve the anticipated results of strategic transactions, including the integration of the operations of acquired assets and businesses and of divestitures or discontinuances of certain operations, assets, brands, and products; the continuation and development of key customer, supplier, licensing and other business relationships; Escalade’s ability to protect its intellectual property; Escalade’s ability to develop and implement our own direct to consumer e-commerce distribution channel; the impact of competitive products and pricing; product demand and market acceptance; new product development; Escalade’s ability to successfully negotiate the shifting retail environment and changes in consumer buying habits; the financial health of our customers; disruptions or delays in our business operations, including without limitation disruptions or delays in our supply chain, arising from political unrest, war, terrorist attacks, labor strikes, natural disasters, public health crises such as the coronavirus pandemic, and other events and circumstances beyond our control; the evaluation and implementation of remediation efforts designed and implemented to enhance the Company’s control environment; the potential identification of one or more additional material weaknesses in the Company’s internal control of which the Company is not currently aware or that have not yet been detected; Escalade’s ability to control costs, including managing inventory levels; general economic conditions, including inflationary pressures; fluctuation in operating results; changes in foreign currency exchange rates; changes in the securities markets; continued listing of the Company’s common stock on the NASDAQ Global Market; the Company’s inclusion or exclusion from certain market indices; Escalade’s ability to obtain financing, to maintain compliance with the terms of such financing and to manage debt levels; the availability, integration and effective operation of information systems and other technology, and the potential interruption of such systems or technology; the potential impact of actual or perceived defects in, or safety of, our products, including any impact of product recalls or legal or regulatory claims, proceedings or investigations involving our products; risks related to data security of privacy breaches; the potential impact of regulatory claims, proceedings or investigations involving our products; Escalade’s use of estimates in its financial reporting as well as in its forward looking statements; and other risks detailed from time to time in Escalade’s filings with the Securities and Exchange Commission. Escalade’s future financial performance could differ materially from the expectations of management contained herein. Escalade undertakes no obligation to release revisions to these forward-looking statements after the date of this report. Overview Escalade, Incorporated (Escalade, the Company, we, us or our) is focused on growing its Sporting Goods business through organic growth of existing categories, strategic acquisitions, and new product development. The Sporting Goods business competes in a variety of categories including basketball goals, archery, billiards, indoor and outdoor game recreation and fitness products. Strong brands and on-going investment in product development provide a solid foundation for building customer loyalty and continued growth. 14 Within the sporting goods industry, the Company has successfully built a robust market presence in several niche markets. This strategy is heavily dependent on expanding our customer base, barriers to entry, strong brands, excellent customer service and a commitment to innovation. A key strategic advantage is the Company’s established relationships with major customers that allow the Company to bring new products to market in a cost effective manner while maintaining a diversified portfolio of products to meet the demands of consumers. In addition to strategic customer relations, the Company has substantial manufacturing and import experience that enable it to be a low cost supplier. To enhance growth opportunities, the Company has focused on promoting new product innovation and development and brand marketing. In addition, the Company has embarked on a strategy of acquiring companies or product lines that complement or expand the Company's existing product lines or provide expansion into new or emerging categories in sporting goods. A key objective is the acquisition of product lines with barriers to entry that the Company can take to market through its established distribution channels or through new market channels. Significant synergies are achieved through assimilation of acquired product lines into the existing Company structure. Management believes that key indicators in measuring the success of these strategies are revenue growth, earnings growth, new product introductions, and the expansion of channels of distribution. The United States Government has continued making new announcements concerning tariffs enacted and/or proposed to be enacted on the importation of goods into the United States as well as negotiations of trade agreements to potentially replace such tariffs. Although the United States has begun to negotiate reciprocal trade agreements with several nations, few agreements have been finalized to date and the administration has paused or modified many of its announced tariffs leading to uncertainty with respect to which tariffs may apply and the size and scope of such tariffs. While the United States and China have announced agreements on certain trade frameworks and have backed off of previously announced retaliatory tariffs and other restrictive measures, the details of these agreements have not been fully disclosed and concerns over a potential trade war have persisted. Although the Company has engaged in actions to mitigate the potential impacts from tariffs and other economic pressures such as inflation and supply chain disruptions, it may not be able to effectively protect itself from these risks. Tariffs, a potential trade war with China and other restrictions on trade could result in increased costs and/or the unavailability of goods purchased by the Company, which in turn may result in lower profitability and/or a decline in sales as well as the loss of goodwill among customers. General economic conditions, inflation, recessionary fears, rising interest rates, changes in the housing market and declining consumer confidence also may impact the Company adversely. Management cannot predict the full impact of these factors on the Company. Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the period ended June 30, 2025 are not necessarily indicative of the results to be expected for fiscal year 2025. Results of Operations The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue: Three Months Ended Six Months Ended June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024 Net revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of products sold 75.3 % 75.8 % 74.3 % 75.4 % Gross margin 24.7 % 24.2 % 25.7 % 24.6 % Selling, administrative and general expenses 18.9 % 16.1 % 19.0 % 17.3 % Amortization 1.0 % 1.0 % 1.0 % 1.0 % Operating income 4.8 % 7.1 % 5.7 % 6.3 % Revenue and Gross Margin Sales decreased 13.1% for the second quarter of 2025, compared with the same period in the prior year. Sales decreased primarily due to softer market demand across most categories, including delayed customer shipments due to tariff volatility, partially offset by market share gains within the safety category. For the six months ended June 30, 2025, net sales decreased 8.4% compared with the same period in the prior year, driven by the same factors that impacted the second quarter. 15 Gross margin increased 56 basis points to 24.7% for the second quarter of 2025 compared to 24.2% for the same period in 2024 primarily driven by lower fixed costs and decreased inventory storage and handling costs, partially offset by tariff-related costs and unfavorable product mix. For the six months ended June 30, 2025, gross margin increased to 25.7% compared to 24.6% for the same period in 2024 driven by the favorable impact of lower fixed costs, partially offset by tariff-related costs and an unfavorable product mix. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) were $10.2 million for the second quarter of 2025 compared to $10.1 million for the same period in the prior year, an increase of $0.1 million or 1.8%. SG&A as a percent of sales is 18.9% for the second quarter of 2025 compared with 16.1% for the same period in the prior year. For the six months ended June 30, 2025, SG&A were $20.8 million compared to $20.8 million for the same period in the prior year. Provision (Benefit) for Income Taxes The effective tax rate for the three months ending June 30, 2025 was 25.8% compared to 23.8% for the same three month period last year. The effective tax rate for the first six months ending June 30, 2025 was 24.7% compared to 23.8% for the same period last year. Financial Condition and Liquidity Total debt as of June 30, 2025 was $22.0 million, a decrease of $3.6 million from December 31, 2024. The following schedule summarizes the Company’s total debt: In thousands June 30, 2025 December 31, 2024 June 30, 2024 Current portion of long-term debt $ 7,143 $ 7,143 $ 7,143 Long term debt 14,881 18,452 36,024 Total Debt $ 22,024 $ 25,595 $ 43,167 As a percentage of stockholders’ equity, total debt was 13.1%, 15.1% and 26.0% at June 30, 2025, December 31, 2024, and June 30, 2024 respectively. On October 11, 2024, the Company entered into the Fifth Amendment (the “Fifth Amendment”) to its Amended and Restated Credit Agreement with its issuing bank, JPMorgan Chase Bank, N.A. and the other lenders identified therein (the “Restated Credit Agreement”). The Fifth Amendment eliminated the fixed charge coverage ratio covenant and related provisions. The fixed charge ratio covenant was replaced by a new minimum interest coverage ratio covenant of 3.50 to 1:00 effective September 30, 2024. Under the terms of the Fifth Amendment, the Company and the Lender also agreed to decrease the maximum availability under the senior revolving credit facility from $75.0 million to $60.0 million, but added an accordion feature that could increase the facility in an amount not to exceed $85.0 million. The Fifth Amendment further revised the restricted payments covenant to provide that if at any time the Company’s Funded Debt to EBITDA Ratio would exceed 1.75 to 1.0, then the aggregate combined total of cash dividends and Company share repurchases may not exceed $12.0 million in any trailing twelve month period. The Company was in compliance with the debt covenants set forth in the Restated Credit Agreement as of June 30, 2025. As of June 30, 2025, the outstanding principal amount of the term loan was $22.0 million and total amount drawn under the Revolving Facility was zero. The Company funds working capital requirements and shareholder dividends through operating cash flows and revolving credit agreements with its Lenders. The Company expects that cash generated from its 2025 operations and its access to adequate levels of revolving credit will provide it with sufficient cash flows for its operations and to meet growth needs. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Required. 16 Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Escalade maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, could provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. Changes in Internal Control over Financial Reporting Management of the Company has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the second quarter of 2025. There have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of the Company’s second quarter of 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. Refer to Note L of the Notes to Consolidated Condensed Financial Statements in Part I, Item 1 for information regarding legal proceedings.