ESCA 10-K & 10-Q changes, risk factors and insider trading

The Company is currently transitioning to a new Interim Chief Executive Officer and will soon commence the process of onboarding a new Chief Executive Officer, which may result in some disruption to the Company.

InOn August,October 2024,30, 2025, the Company announced that Mr. Walter P. Glazer, Jr. intended to retire as the Company’sappointment of an Interim President and Chief Executive Officer and President effective upon the commencementimmediate departure of employmentits byprior hisPresident successor. On February 6, 2025, the Company announced that it has hired Mr. Armin Boehm as the Company’s newand Chief Executive OfficerOfficer. andBoth Presidentchanges were effective as of AprilOctober 1,29, 2025. This transitionchange in executive management may result in some changes and/or disruptions to the Company’s ordinary course of operations. Additionally, the processtransition of onboardingto a new Chief Executive Officer requires substantial effort and time of the Company’s Board of Directors and of other Company executives, which may divert attention from other matters. The change in Chief Executive Officer may also give rise to questions, concerns and/or other risks among investors, customers, suppliers and/or employees.

The Company has two major customers, each of which accounted for more than ten percentpercent, and together accounted for thirty percent, of consolidated gross sales in the Company’s 20242025 fiscal year. The Company also has several other large customers, none of which represent more than ten percent of consolidated gross sales, and historically has derived substantial revenues from these customers. Our customers continue to experience industry consolidation, which increases our risk that we may be unable to find sufficient alternative customers. The Company needs to continue to expand its customer base, including sales of new product offerings to existing customers, in order to minimize the effects of the loss of any single customer in the future. If sales to one or more of the large customers would be lost or materially reduced, there can be no assurance that the Company will be able to replace such revenues, which could have a material adverse effect on the Company's business, results of operations and financial condition.

Our import operations are subject to complex custom laws, regulations, tax requirements, and trade regulations, such as tariffs set by governments through mutual agreements or bilateral actions. U.S. tariffs on goods imported into the U.S., particularly goods from China, resulthave resulted in increased costs of goods purchased by the Company, which in turn may result in lower profitability if we are unable to offset such increases through higher prices, and/or that we may suffer a decline in sales if our customers do not accept price increases.

Tariffs imposed and/or publicly contemplated byAdditionally, the U.S. governmentgovernment’s intariff the first quarter of 2025,policies, particularly as to China, Mexico and Canada, createhave fluctuated over the past year and created significant uncertainty with respect to future tax and trade regulations and the potential competitive effects of such actions. The countries in which our products are manufactured or imported have imposed and may fromagain timein tothe timefuture impose additional quotas, duties, tariffs or other restrictions on our imports or adversely modify existing restrictions. It is unclear what the U.S. administration or foreign governments specifically will or will not do with respect to tariffs, tax policies, or other international trade agreements, regulations and policies.policies in the long term. A trade war, other governmental action related to tariffs or international trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently manufacture and sell products or any resulting negative sentiments towards the United States could materially adversely affect the Company’s business, financial condition, operating results and cash flows.

The Company has key suppliers in China and numerous products sold by the Company are manufactured in China. The Company also has a wholly-owned Chinese subsidiary that facilitates the Company’s sourcing operations in China. As a result, the Company’s business is subject to risks associated with doing business in China including, but not limited to, political and social conditions, conflicts between ChinChina and the U.S., existing and future laws, regulations and policies, state ownership of and/or control or influence over certain companies and industries, protection of intellectual property rights and uncertainties associated with enforcing contractual obligations and laws. In addition, there are U.S. laws, rules and regulations that impose restrictions or requirements that could affect the Company, such as the Uyghur Forced Labor Prevention Act (“UFLPA”) enacted by Congress in 2021 that imposes a presumptive ban on the import of goods to the U.S. that are made, wholly or in part, in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China. Although the Company believes it is in compliance with the UFLPA and all other U.S. and Chinese laws impacting its operations in China, these risks generally associated with doing business in China could adversely affect our business, financial condition and results of operations.

Our business is tied to general economic and industry conditions as demand for sporting goods depends largely on the strength of the U.S. economy, and to a lesser extent, by the economies of Asia, Mexico, Canada and Europe. We cannot predict economic downturns or how robust the economy may be nor whether such downturns or growth will be sustained. If economic recoverygrowth is slow to occur, or if the economy experiences a prolonged period of decelerating or negative growth, the Company’s results of operations may be negatively impacted. In general, the Company’s sales depend on discretionary spending by consumers. Business and financial performance may be adversely affected by current and future economic conditions, including unemployment levels, energy costs, interest rates, recession, inflation, the impact of natural disasters and terrorist activities, public health crisis, consumer confidence, the availability and cost of credit, bankruptcies or financial difficulties of our customers and suppliers, and other matters that influence business and consumer spending. These factors have had and could continue to have a substantial impact on our business.

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,amended (the “Exchange Act”), 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 plans and expectations surrounding the transitionability to protect its newintellectual Chief Executive Officer and all potential related effects and consequencesproperty; 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; Escalade’s ability to successfully implement actions to lessen the potential impacts of tariffs 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; 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.

Management seeks acquisitions that strengthen the Company’s leadership in various product categories or provide entry into attractive new product categories. The Company also sometimes divests or discontinues certain operations, assets, and products that do not perform to the Company's expectations or no longer fit with the Company's strategic objectives. Consistent with that philosophy, the Company completed the discontinuance of its Mexico operations andoperations, sale of its Mexican facilitiesfacilities, discontinuance of its Orlando, FL operations and terminated its long-term lease for the Orlando, FL facility in 2024.

Net sales decreased 4.6%4.5% in 20242025 compared to 2023.2024. The Company recognized declines in sales across multiple categories due to softer consumer demand, partially offset by improved demand in the archery, table tennis,billiards, and fitness categories.

The overall gross margin increased to 24.7%26.9% in 20242025 compared with 23.4%24.7% in 2023.2024. Gross margins were favorably impacted by lower manufacturing andcosts logisticsdue costs.to a smaller operational footprint, when compared to the prior-year period.

Selling, general and administrative expenses (SG&A) were $43.6 million in 2025 compared to $43.3 million in 2024 compared to $41.5 million in 2023,2024, an increase of $1.8$0.3 million or 4.4%.0.7%. The increase in SG&A was primarily related to increasedCEO professional servicetransition costs incurred during 2024.2025. SG&A as a percent of sales is 17.2%18.2% in 20242025 compared with 15.7%17.2% in 2023.2024.

The effective tax rate for 20242025 and 20232024 was 26.9%24.0% and 21.3%,26.9%, respectively. The 2025 effective tax rate is higher than the federal statutory rate primarily due to the impact of state taxes and nondeductible expenses. The 2024 effective tax rate is higher than the federal statutory rate primarily due to state income tax expense, nondeductible expenses, and the sale of Harvard Sports, partially offset by federal income tax credits. The 2023 effective tax rate was slightly higher than the federal statutory rate primarily due to the impact of state taxes partially offset by captive insurance premiums being tax exempt and federal income tax credits.

Gross margin in 20242025 was 24.7%26.9% compared to 23.4%24.7% in 2023.2024. Operating income, as a percentage of net sales, increaseddecreased to 8.9% in 2025 compared to 9.2% in 2024 compared to 6.6% in 2023.2024.

The current ratio, a basic measure of liquidity (current assets divided by current liabilities), for 20242025 was 3.9,4.3, compared to 4.43.9 in 2023.2024. Receivable levels decreased to $46.3 million in 2025 compared with $48.8 million in 2024 compared with $50.0 million in 2023 as a result of lower sales. Net inventory decreased $16.5$7.5 million to $68.5 million in 2025 from $76.0 million in 2024 from $92.5 million in 2023,2024, due to continued efforts to right size our on hand inventory. Trade accounts payable and accrued liabilities increaseddecreased $1.8$4.1 million to $26.9$22.8 million from $25.1$26.9 million in 2023.2024.

TheOn October 11, 20242024, amendmentsthe alsoCompany entered into the Fifth Amendment to the 2022 Restated Credit Agreement. This 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. The amendmentsamendment 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 monthtwelve-month period.

The Company believes cash generated from its projected 20252026 operations and the commitment of borrowings from its primary lender will provide it with sufficient cash flows for its operations. The Company expects cash generated from 2026 and Q1 2027 operations will be sufficient to pay the remaining term loan balance of $11.3 million due on January 21, 2027.

The Company has one reporting unit that is identical to our operating segment, Sporting Goods. Of the total recorded goodwill of $42.3 million at December 31, 2024,2025, the entire amount was allocated to the Escalade Sports reporting unit. The results of the quantitative impairment assessment of the Escalade Sports reporting unit indicated that the fair value of the reporting unit was greater than the carrying value as of NovemberSeptember 1, 2024.2025. The Company performed a qualitative assessment for the interim period from September 1, 2025 to December 31, 2025. The results of the qualitative impairment assessment indicated that it was not “more likely than not” that the fair value of the reporting unit was less than the carrying value as of December 31, 2025.

As of December 31, 2024,2025, the Company had no material commitments for capital expenditures. In 2025,2026, the Company estimateshas budgeted capital expenditures in the range of approximately $4.2 million to $5.2 million. Actual expenditures may be approximatelyhigher $2.5or million.lower than budgeted amounts.

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. These risks and uncertainties could materially and adversely affect our business, consolidated financial condition, results of operations, or cash flows. Our operations could also be affected by additional risks or uncertainties that are not presently known to us or that we currently do not consider material to our business. As of the date of this filing, except as set forth below, there have been no material changes in our risk factors from those disclosed in the above-referenced Form 10-K, which risk factors are incorporated herein by reference.

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 recreationrecreation, safety and fitness products. Strong brands and on-going investment in product development provide a solid foundation for building customer loyalty and continued growth.

Sales increased 0.6%6.2% for the firstsecond quarter of 2026, compared with the same period in the prior year. Sales increased primarilylargely due to increases in our archery categoriescategories, due toincluding the recentincremental contribution from our September 2025 acquisition of Gold Tip acquisitionassets. andNet sales also benefited from increased demand in ourthe billiardssafety, table tennis and safetybasketball categories. These increases were partially offset dueby tolower a declinesales in our outdoor and indoor game categories.

Gross margin increased 146 basis points to 30.7%26.2% for the firstsecond quarter of 2026 compared to 26.7%24.7% for the same period in 20252025, primarily driven by lowerbetter fixedabsorption, costsoperating leverage and a favorable sales mix. For the six months ended June 30, 2026, gross margin increased to 28.4% compared to 25.7% for the same period in 2025.

Selling, general and administrative expenses (SG&A) were $10.7$12.5 million for the firstsecond quarter of 2026 compared to $10.6$10.2 million for the same period in the prior year, an increase of $0.1$2.2 million or 1.5%.21.7%. The increase in SG&A as a percent of sales is 19.2%largely fordriven theby firstselling quarterand ofmarketing 2026expenses comparedrelated withto 19.1%recent foracquisitions theand samean periodincrease in thevariable prior year.compensation.

TheSG&A effectiveas taxa ratepercent of sales is 21.6% for the firstsecond three monthsquarter of 2026 was 23.6% compared towith 23.8%18.9% for the same period in the prior year.

Total debt at the endas of theJune first three months of30, 2026 was $16.7$14.9 million, a decrease of $1.8$3.6 million from December 31, 2025. The following schedule summarizes the Company’s total debt:

As a percentage of stockholders’ equity, total debt was 9.5%,8.1%, 10.7% and 14.1%13.1% at MarchJune 31,30, 2026, December 31, 2025, and MarchJune 31,30, 2025 respectively.

The Company was in compliance with the debt covenants set forth in the Restated Credit Agreement as of MarchJune 31,30, 2026.

As of MarchJune 31,30, 2026, the outstanding principal amount of the term loan was $16.7$14.9 million and total amount drawn under the revolving facility was zero. The term loan and revolving facility have a maturity date of January 21, 2027.