10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 1-14105

AVALON HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	34-1863889
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One American Way, Warren, Ohio 44484-5555

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (330) 856-8800

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Class A Common Stock, $.01 par value	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by 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.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

The aggregate market value of Class A Common Stock held by non-affiliates of the registrant on February 13, 2004 was $11.4 million. Assuming that the market value of Avalon Holdings Corporation’s Class B Common Stock was the same as its Class A Common Stock by reason of its one-to-one conversion rights, the market value of Class B Common Stock held by non-affiliates of the registrant on February 13, 2004 was approximately $5,400. The registrant had 3,185,240 shares of its Class A Common Stock and 618,091 shares of its Class B Common Stock outstanding as of March 3, 2004.

Documents Incorporated by Reference

1. Portions of the Avalon Holdings Corporation Annual Report to Shareholders for the year ended December 31, 2003 (Parts I and II of Form 10-K).

2. Portions of the Avalon Holdings Corporation Proxy Statement dated March 24, 2004 (Part III of Form 10-K).

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

As used in this report, the terms “Avalon,” “Company,” and “Registrant” mean Avalon Holdings Corporation and its wholly owned subsidiaries, taken as a whole, unless the context indicates otherwise.

TABLE OF CONTENTS

			Page
Part I
	Item 1.	Business	1
	Item 2.	Properties	5
	Item 3.	Legal Proceedings	6
	Item 4.	Submission of Matters to a Vote of Security Holders	6
Part II
	Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	7
	Item 6.	Selected Financial Data	7
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	7
	Item 8.	Financial Statements and Supplementary Data	7
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7
Part III
	Item 10.	Directors and Executive Officers of the Registrant	8
	Item 11.	Executive Compensation	9
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	9
	Item 13.	Certain Relationships and Related Transactions	9
Part IV
	Item 14.	Controls and Procedures	10
	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	10
Signatures			12

Note on Incorporation by Reference

Throughout this report various information and data are incorporated by reference from Avalon’s 2003 Annual Report to Shareholders (hereinafter referred to as the “Annual Report to Shareholders”). Any reference in this report to disclosures in the Annual Report to Shareholders shall constitute incorporation by reference of that specific material into this Form 10-K.

PART 1

ITEM 1. BUSINESS

General

Avalon Holdings Corporation (“Avalon”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). Pursuant to the terms of a Contribution and Distribution Agreement dated as of May 7, 1998 between Avalon and AWS, AWS contributed to Avalon its transportation operations, technical environmental services operations, waste disposal brokerage and management operations, and golf course and related operations, together with certain other assets including the headquarters of AWS and certain accounts receivable. In connection with the contribution, Avalon also assumed certain liabilities of 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 (the “Spin-off”). Avalon has subsequently discontinued its technical environmental services operations.

In January 1990, AWS acquired Avalon’s transportation companies: DartAmericA, Inc. and its subsidiaries which provide hazardous and nonhazardous waste transportation, transportation of general and bulk commodities, and transportation brokerage and management services. These companies became subsidiaries of Avalon as a result of the Spin-off.

In June 1990, AWS purchased approximately 5.6 acres of real estate located in Warren, Ohio on which it constructed Avalon’s corporate headquarters. In connection with the acquisition of such property, Avalon Lakes Golf, Inc. (“ALGI”) acquired the real and personal property associated with the Avalon Lakes Golf Course, an 18-hole golf course adjacent to the office property. Avalon’s corporate headquarters building has been remodeled to include a clubhouse for the Avalon Lakes Golf Club. ALGI became a subsidiary of Avalon as a result of the Spin-off.

During 1995, American Waste Management Services, Inc., a subsidiary of AWS, commenced its waste disposal brokerage and management operations. This company became a subsidiary of Avalon as a result of the Spin-off.

During the third quarter of 1997, a newly organized subsidiary of AWS, American Landfill Management, Inc., started its captive landfill management operations. This company became a subsidiary of Avalon as a result of the Spin-off.

In November 2003, TBG, Inc., a subsidiary of Avalon, entered into a long-term lease agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. As a result of the transaction, Avalon created a newly organized subsidiary, Avalon Golf and Country Club, Inc.

Business Segments Information

Avalon’s business segments are transportation services, waste management services, and golf and related operations. Avalon’s technical environmental services segment has been eliminated and the management of a captive landfill which had been included in the technical environmental services segment has been combined with the waste disposal brokerage and management services segment to form the waste management services segment.

Transportation services and waste management services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets. Avalon’s transportation services segment provides transportation of hazardous and nonhazardous waste, transportation of general and bulk commodities and the brokerage and management of transportation services. For the years 2003, 2002 and 2001, the net operating revenues of the transportation services segment represented approximately 56%, 60% and 58%, respectively, of Avalon’s total segments’ net operating revenues. Avalon’s waste management services segment provides hazardous and nonhazardous waste brokerage and management services and captive landfill management

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services. For the years 2003, 2002 and 2001, the net operating revenues of the waste brokerage and management services segment represented approximately 39%, 37% and 40%, respectively, of Avalon’s total segments’ net operating revenues. Avalon’s golf course and related operations segment operates two 18-hole golf courses and related facilities. For the years 2003, 2002 and 2001, the net operating revenues of the golf and related operations segment represented approximately 5%, 3%, and 2%, respectively, of Avalon’s total segments’ net operating revenues. Avalon did not acquire the rights to the Squaw Creek Country Club facility until November, 2003. As such, net operating revenues relating to such facility were not material in 2003.

Transportation Services

Avalon’s transportation subsidiaries transport waste and other materials on behalf of customers within the United States and portions of Canada and provide transportation brokerage and management services. The transportation operations have the equipment and the ability to transport virtually all types of waste and most commodity products.

DartAmericA, Inc. through its subsidiaries (collectively, “Dart”), headquartered in Warren, Ohio, is engaged in the transportation of waste and is a common carrier of both general and bulk commodities. Dart, which commenced operations in 1965, also engages in the brokerage and management of transportation.

Dart is a fully licensed hazardous and nonhazardous waste carrier. Approximately 53%, 66% and 70% of the revenue generated by Dart in 2003, 2002 and 2001, respectively, related to the transportation of waste. Hazardous waste represented 36%, 29% and 36% of Dart’s waste transportation revenues in 2003, 2002 and 2001, respectively.

Dart, which is licensed as a common carrier in 49 states and several provinces of Canada, derived 47%, 34% and 30% of its revenues in 2003, 2002 and 2001, respectively, from the transportation of general and bulk commodities, such as coal, salt, sand, ash, steel products and heavy machinery. A common carrier engaged in the transportation of goods owned by others is subject to federal and state regulations which establish operating and safety standards. Carriers are liable for loss of or damage to goods entrusted to their care. Public liability and property damage insurance is compulsory.

A substantial number of the truck power units and trailers used by Dart are owned and operated by independent truckers who receive a negotiated percentage of the gross revenue from carriage. Many of the approximately 70 to 90 independent truckers who regularly provide services for Dart have been doing so for a number of years. These independent truckers pay for fuel and all other expenses with the exception of automotive liability insurance, hazardous waste permits, special equipment required to carry hazardous waste and other safety equipment, all of which are provided by Dart. Equipment used by the independent truckers is inspected at least annually and is subject to random inspections by Dart. See Item 2—”Properties.”

Waste is transported by roll-off trailers, specialized tankers, van trailers, dump trailers, walking floor trailers or flatbed trailers to treatment and disposal facilities. In connection with its transportation of municipal solid waste, Dart also provides loading services at several municipal solid waste transfer stations. See Item 2—”Properties.”

Dart also provides transportation brokerage and management services to a variety of customers. Dart maintains lists of approved transporters, which it periodically reviews and updates, and Dart will only engage transporters that it believes are reliable and efficient in providing the services required in accordance with Dart’s standards.

During 2003, three customers of the transportation services segment accounted for approximately 24%, 14%, and 12%, respectively, of the segment’s net operating revenues to external customers. Waste Management, Inc. and its affiliates are the transportation services segment’s largest customer and accounted for approximately 13% of Avalon’s consolidated net operating revenues.

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Waste Management Services

Avalon’s waste management subsidiaries provide hazardous and nonhazardous waste brokerage and management services and captive landfill management services.

American Waste Management Services, Inc. (“AWMS”) assists customers with managing and disposing of wastes at approved treatment and disposal sites based upon a customer’s needs.

Because waste generators remain liable for their waste both before and after disposal, they require assurance that their waste will be safely and properly transported, treated and disposed of. To give customers this confidence, as well as to limit its own potential liability, AWMS has instituted procedures designed to minimize the risks of improper handling or disposal of waste.

Prior to AWMS providing waste brokerage or management services, a potential customer must complete a detailed questionnaire setting forth the amount, chemical composition and any special characteristics for each separate waste to be handled. Representative samples of the waste are analyzed by a state or federally certified laboratory. In addition, an AWMS representative generally inspects the process generating the waste, the location where the waste may be temporarily stored or the site of the remediation project producing the waste, and interviews representatives of the generator familiar with the waste. This inspection, along with the laboratory results, allows AWMS to determine whether the waste is within acceptable parameters for disposal and, if so, what special handling and treatment procedures must be instituted. If the waste is continuously generated, new representative samples are tested on a periodic basis.

These procedures are important to both AWMS and its customers because the key to proper handling of waste is accurate identification. Hazardous waste which is not identified as such and thus improperly disposed of can result in substantial liability to the waste generator, the disposal facility, AWMS and potentially to all other waste generators that have used the disposal site. Conversely, waste that could safely and legally be disposed of in a solid waste landfill but is instead sent to a hazardous waste facility for treatment and disposal will result in substantial and unnecessary expense to the generator.

American Landfill Management, Inc. (“ALMI”) is a landfill management company that 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. ALMI provides turnkey services, including daily operations, facilities management and management reporting for its customers. Currently, ALMI manages one captive disposal facility located in Ohio.

Golf and Related Operations

Avalon Lakes Golf, Inc. (“ALGI”) owns and operates a Pete Dye designed championship golf course located in Warren, Ohio. ALGI generates its revenue from membership dues, greens fees, cart rentals, merchandise sales, and food and beverage sales. During 2002, Avalon remodeled its corporate headquarters building to include a clubhouse for the Avalon Lakes Golf Course. Avalon Travel, Inc. a subsidiary of ALGI owns and operates a travel agency which generates its revenue from booking travel reservations. As described below, TBG, Inc. a subsidiary of ALGI operates the golf course and related facilities of Squaw Creek Country Club located in Vienna, Ohio. TBG, Inc. generates its revenue in the same manner as ALGI.

TBG, Inc. has entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease which commenced on November 1, 2003 has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by TBG, Inc. In addition to a second championship golf course, the Squaw Creek facilities include a swimming pool, tennis courts and a clubhouse that provides dining and banquet facilities.

Although the golf course is available to the general public, as a result of the transaction with Squaw Creek, Avalon has formed the Avalon Golf and Country Club. Members of the Avalon Golf and Country Club are entitled to privileges at both facilities. Membership requires payment of a one-time initiation fee as well as annual dues. Members receive several benefits including reduced greens fees and preferential tee times.

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The golf courses are significantly dependent upon weather conditions during the golf season as a result of being located in northeast Ohio. See Item 2 – “Properties”.

Governmental Regulations

As with other transportation companies, Avalon’s transportation operations must comply with Federal Motor Carrier Safety Regulations as promulgated by the United States Department of Transportation. In order to transport hazardous waste and, in certain cases, nonhazardous solid waste, Avalon’s transportation operations must also comply with additional Federal Motor Carrier Safety Regulations and possess and maintain one or more state operating permits. These operating permits must be renewed annually and are subject to modification and revocation by the issuing agency. In addition, Avalon’s waste transportation operations are subject to evolving and expanding operational and safety requirements.

In the ordinary course of their operations, Avalon’s subsidiaries may from time to time receive citations, notices or comments from regulatory authorities that such operations are not in compliance with applicable environmental regulations. These agencies may seek to impose fines, or revoke or deny renewal of operating permits or licenses, or require the remediation of environmental problems resulting from Avalon’s transportation or waste brokerage operations. Upon receipt of such citations, notices or comments, the appropriate subsidiary works with the authorities in an attempt to resolve the issues raised. Failure to correct the problems to the satisfaction of the authorities could lead to fines and/or a curtailment or cessation of certain operations.

The federal government and numerous state and local governmental bodies are increasingly considering, proposing or enacting legislation or regulations to either restrict or impede the disposal and/or transportation of waste. A significant portion of Avalon’s disposal brokerage and transportation revenues is derived from the disposal 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 significant negative effect on Avalon. Avalon’s transportation operations may also be affected by the trend toward laws requiring the development of waste reduction and recycling or other programs.

Sales and Marketing

Avalon’s sales and marketing approach is decentralized, with each operation being responsible for its own sales and marketing efforts. Each operation employs its own sales force which concentrates on expanding its business.

Competition

The markets for the transportation of hazardous and nonhazardous waste and for the transportation of general and bulk commodities are each highly competitive. There are numerous participants, and no one transporter has a dominant market share. Avalon competes primarily with other short and long-haul carriers for both truckload and less than truckload shipments. Competition for the transportation of waste is based on the ability of the carrier to transport the waste at a competitive price and in accordance with applicable regulations. Competition for the transportation of commodities is based primarily on price and service. Some of Avalon’s competitors periodically reduce their freight rates to gain or retain business, especially during difficult economic times, which may limit Avalon’s ability to maintain its freight rates.

The hazardous and nonhazardous waste disposal brokerage and management business is highly competitive and fragmented. Avalon’s waste disposal brokerage and management business competes with other brokerage companies as well as with companies which own treatment and disposal facilities. In addition to price, knowledge and service are the key factors when competing for waste disposal brokerage and management business. Avalon’s waste disposal brokerage and management operations obtain and retain customers by providing service and identifying cost-efficient disposal options unique to a customer’s needs. Consolidation within the solid waste industry has reduced the number of disposal

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options available to waste generators and has caused disposal pricing to increase. Avalon does not believe that industry pricing changes alone will have a material effect upon its waste disposal brokerage and management operations. However, consolidation has had the effect of reducing the number of competitors offering disposal alternatives.

Avalon’s two golf courses are located in Warren, Ohio and Vienna, Ohio and are significantly dependent on weather conditions during the golf season. The golf courses compete with many public courses and country clubs in the area.

Insurance

Avalon carries $15,000,000 of liability insurance coverages. This insurance includes coverage for comprehensive general liability, automobile liability (including a pollution liability endorsement which covers certain liabilities from spills), comprehensive property damage and other customary coverages. Dart self-insures for collision risks and the golf courses and related operations maintain separate insurance. No assurance can be given that such insurance will be available in the future or, if available, that the premiums for such insurance will be reasonable.

If Avalon were to incur a substantial liability for damages not covered by insurance or in excess of its policy limits or at a time when Avalon no longer is able to obtain appropriate liability insurance, its financial condition could be materially adversely affected.

From time to time, Avalon entered into contracts which required surety bonds or other financial instruments to assure performance under the terms thereof. Although Avalon has obtained such bonds or other financial instruments in the past, substantial changes in the bond market have limited Avalon’s ability to obtain surety bonds in the future. No assurance can be given that such bonds will be available in the future or, if available, that the premiums and/or collateral requirements for such bonds will be reasonable. The inability of Avalon to obtain surety bonds may adversely impact its future financial performance.

Employees

As of December 31, 2003, Avalon had 321 employees, 177 of whom were employed in the transportation segment, 26 of whom were employed by the waste management services segment, 31 of whom were employed by the golf course and related operations and 28 of whom were employed in financial and administrative activities. A total of 59 were employed in the technical environmental services operations which were discontinued in January 2004. Avalon believes that it has a good relationship with its employees.

Other Business Factors

None of Avalon’s business segments is materially dependent on patents, trademarks, licenses, franchises or concessions, other than permits, licenses and approvals issued by regulatory agencies. Avalon does not sponsor significant research and development activities.

ITEM 2. PROPERTIES

Dart provides transportation services from locations in Canfield, Ohio (where Dart owns an 18,800 square foot facility); Oxford, Massachusetts (where Dart leases a 5,760 square foot terminal); Kenova, West Virginia (where Dart leases a 1,500 square foot terminal); Chicago, Illinois (where Dart leases a 500 square foot terminal and leases a 5,100 square foot maintenance facility); and Londonderry, New Hampshire (where Dart leases a 400 square foot office). At December 31, 2003, the transportation operations owned a fleet of 20 power units (in addition to 114 power units which are leased), 305 trailers (in addition to 30 trailers which are leased and 130 which are rented), and 514 roll-off and other containers. In addition, 70 to 90 power units and 140 to 160 trailers owned by independent owner/operators are available for use in Dart’s operations.

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Avalon owns a 48,000 square foot office building in Export, Pennsylvania. Avalon currently leases approximately 12,000 square feet of this building to a third party. The building is currently held for sale. In addition, 3,600 square feet of warehouse space in Murrysville, Pennsylvania is leased for file storage.

The captive landfill management operations use approximately six pieces of equipment (such as a bulldozer, excavator and backhoe) all of which are owned or leased by ALMI.

ALGI owns an 18-hole golf course and practice facility on approximately 200 acres, a maintenance and storage building of approximately 12,000 square feet, a restaurant building of approximately 10,400 square feet, and a banquet facility of approximately 7,000 square feet. ALGI currently leases the restaurant building and banquet facility to a third party operator. Avalon constructed a clubhouse of approximately 10,000 square feet as part of the remodeling of Avalon’s corporate headquarters building. All the facilities are located in Warren, Ohio.

TBG, Inc. leases and operates the Squaw Creek Country Club facility, which includes an 18-hole golf course and practice facility on approximately 224 acres, a swimming pool, four tennis courts and a clubhouse that provides dining and banquet facilities. The clubhouse is currently being renovated and expanded.

Avalon owns a 37,000 square foot headquarters building located on approximately 5.6 acres of property in Warren, Ohio adjacent to the golf course. The corporate and administrative offices of Dart, ALMI, ALGI, and AWMS are each located at the headquarters building of Avalon in Warren, Ohio. Avalon’s corporate headquarters building has been remodeled to include a clubhouse for the Avalon Lakes Golf Club.

Generally, Avalon’s fixed assets are in good condition and are satisfactory for the purposes for which they are intended.

ITEM 3. LEGAL PROCEEDINGS

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, would have a material adverse effect on it. See Item 1. “Business—Insurance.”

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of Avalon’s security holders during the fourth quarter of 2003.

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PART II

Information with respect to the following items can be found on the indicated pages of Exhibit 13.1, the 2003 Annual Report to Shareholders if not otherwise included herein.

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

	Page(s)
Common stock information	28
Dividend policy	28

ITEM 6. SELECTED FINANCIAL DATA

The information required by this item is included in the Digest of Financial Data for the years 1999 through 2003 under the captions Net operating revenues, Income (loss) from continuing operations, Income (loss) from discontinued operations, Net income (loss), Net income (loss) per share from continuing operations, Net income (loss) per share from discontinued operations, Net income (loss) per share and pro forma net loss per share, Total assets and Long-term debt 25

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations 2-10

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the subcaption “Market Risk” contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent auditors’ report regarding financial statements as of December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003	24
Financial Statements:
Consolidated Balance Sheets, December 31, 2003 and 2002	11
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001	12
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001	13
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December 31, 2003	14
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2003, 2002 and 2001	14
Notes to Consolidated Financial Statements	15-23

Information regarding financial statement schedules is contained in Item 15(a) of Part IV of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 regarding Directors is contained under the caption “Election of Directors” in the Registrant’s definitive Proxy Statement for its 2004 Annual Meeting of Shareholders (the “Proxy Statement”) which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year, which information under such caption is incorporated herein by reference. The following information with respect to the Executive Officers of Avalon is included pursuant to Instruction 3 of Item 401(b) of Regulation S-K:

Name	Age	Position
Ronald E. Klingle	56	Chairman of the Board, Chief Executive Officer and a Director
Timothy C. Coxson	53	Treasurer, Chief Financial Officer and Chief Executive Officer of DartAmericA, Inc.
Jeffrey M. Grinstein	43	General Counsel and Secretary
Frances R. Klingle	57	Chief Administrative Officer
Kenneth J. McMahon	51	Chief Executive Officer and President of American Waste Management Services, Inc.

The above-listed individuals have been elected to the offices set opposite their names to hold office at the discretion of the Board of Directors of Avalon or its subsidiaries, as the case may be.

Ronald E. Klingle has been a director and Chairman of the Board of Avalon since June 1998. He was Chief Executive Officer from June 1998 until December 2002 and reassumed the position in March 2004. He had been Chairman, Chief Executive Officer and a director of American Waste Services, Inc. since December 1988. Mr. Klingle has over 30 years of environmental experience and received his Bachelor of Engineering degree in Chemical Engineering from Youngstown State University. Mr. Klingle is the spouse of Frances R. Klingle who is the Chief Administrative Officer of Avalon.

Timothy C. Coxson has been Treasurer and Chief Financial Officer since June 1998. He has been Chief Executive Officer of DartAmericA, Inc. since December 2001. He had been Executive Vice President, Finance, Treasurer and Chief Financial Officer and a director of American Waste Services, Inc. since May 1995. He received a Bachelor of Business Administration degree in Accounting from The Ohio State University.

Jeffrey M. Grinstein has been General Counsel and Secretary since June 1998. He had been an Executive Vice President, General Counsel and Secretary of American Waste Services, Inc. since December 1992. Mr. Grinstein was previously with the Youngstown, Ohio law firm of Nadler, Nadler & Burdman Co. L.P.A. He received his Bachelor of Business Administration degree from Emory University and his Doctor of Jurisprudence degree from The Ohio State University.

Frances R. Klingle has been Chief Administrative Officer since June 1998. She was Controller of Avalon from June 1998 to April 2002. She had been Controller of American Waste Services, Inc. since June 1986. Ms. Klingle received a Bachelor of Arts degree in French from Kent State University and has completed postgraduate work in accounting at Youngstown State University. Ms. Klingle is the spouse of Ronald E. Klingle who is Chairman of the Board, Chief Executive Officer and a director of Avalon.

Kenneth J. McMahon has been Chief Executive Officer and President of American Waste Management Services, Inc. since June 1998. Mr. McMahon had previously been Executive Vice President, Sales and a director of American Waste Services, Inc. since September 1996. Mr. McMahon received a Bachelor of Business Administration degree in finance and his Master of Business Administration degree from Youngstown State University.

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CODE OF ETHICS

Avalon has adopted a Code of Ethics in the form of Standards of Business Ethics and Conduct. Such code applies to all employees of Avalon including its principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions.

Copies of Avalon’s Code of Ethics may be obtained without charge by any shareholder. Written requests for copies should be directed to the Secretary of Avalon Holdings Corporation, One American Way, Warren, Ohio 44484.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is contained under the captions “Meetings and Committees of the Board” and “Compensation of Directors and Executive Officers” in the Proxy Statement. The information under such captions is incorporated herein by reference, except that information contained under subpart captions “Board Committee Reports on Executive Compensation” and “Performance Graph” are specifically not incorporated herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is contained under the captions “Voting Securities and Principal Holders Thereof” and “Stock Ownership of Management” in the Proxy Statement which information under such captions is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Ted Wesolowski was Chief Executive Officer, President and a director of Avalon in 2003. Previously, Mr. Wesolowski was a shareholder of the Pittsburgh, Pennsylvania law firm of Babst, Calland, Clements & Zomnir, P.C. which rendered legal services to Avalon during the last fiscal year. Mr. Wesolowski returned to his position with the law firm after resigning as Chief Executive Officer and President of Avalon on March 15, 2004.

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PART IV

ITEM 14. CONTROLS AND PROCEDURES

Avalon’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements and Independent Auditors’ Report (See Part II, Item 8 of this report regarding incorporation by reference from the 2003 Annual Report to Shareholders)

2. Financial Statement Schedules required to be filed by Item 8 and Paragraph (d) of this Item 15.

The following financial statement schedule, which is applicable for years ended December 31, 2003, 2002 and 2001, should be read in conjunction with the previously referenced financial statements.

Independent Auditors’ Report on Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

Such independent auditors’ report and financial statement schedule are at pages 13 and 14 of this report. The other schedules are omitted because of the absence of conditions under which they are required or because the information required is shown in the consolidated financial statements or the notes thereto.

3. Exhibits

Registrant will furnish to any shareholder, upon written request, any of the following exhibits upon payment by such shareholder of the Registrant’s reasonable expenses in furnishing any such exhibit.

Exhibit No.
2.1	Agreement and Plan of Merger, dated as of February 6, 1998, entered into by and among USA Waste Services, Inc. (“USA”), C&S Ohio Corp. and American Waste Services, Inc. (“AWS”), incorporated herein by reference to Avalon Holdings Corporation Registration Statement on Form 10, Exhibit 2.1
2.2	Form of Contribution and Distribution Agreement, dated as of May 7, 1998, by and between AWS and Avalon Holdings Corporation (“Avalon”), incorporated herein by reference to Avalon Holdings Corporation Registration Statement on Form 10, Exhibit 2.2
3.1	Articles of Incorporation of Avalon incorporated herein by reference to Avalon Holdings Corporation Registration Statement on Form 10, Exhibit 3.1
3.2	Code of Regulations of Avalon incorporated herein by reference to Avalon Holdings Corporation Registration Statement on Form 10, Exhibit 3.2
4.1	Form of certificate evidencing shares of Class A common stock, par value $.01, of Avalon Holdings Corporation incorporated herein by reference to Avalon Holdings Corporation Registration Statement on Form 10, Exhibit 4.1

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	10.1	Form of Tax Allocation Agreement, dated as of May 7, 1998, by and among AWS, Avalon and USA incorporated herein by reference to Avalon Holdings Corporation Registration Statement on Form 10, Exhibit 10.1
	10.2	Avalon Holdings Corporation Long-Term Incentive Plan incorporated herein by reference to Avalon Holdings Corporation Registration Statement on Form 10, Exhibit 10.2
	10.3	Lease Agreement with Squaw Creek Country Club, as referenced as Exhibit 10.3 to the registrant’s Form 10-Q for the period ended September 30, 2003.
	11.1	Omitted—inapplicable. See “Basic net income (loss) per share” on page 17 of the 2003 Annual Report to Shareholders
	13.1	Avalon Holdings Corporation 2003 Annual Report to Shareholders (except pages and information therein expressly incorporated by reference in this Form 10-K, the Annual Report to Shareholders is provided for the information of the Commission and is not be deemed “filed” as part of the Form 10-K)
	21.1	Subsidiaries of Avalon Holdings Corporation
	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
		On January 8, 2004, Avalon disclosed the discontinuance of the engineering and consulting operations
		On January 30, 2004, Avalon disclosed the sale of the AWS Remediation, Inc. fixed assets
		On March 1, 2004, Avalon disclosed the resignation of Ted Wesolowski as President and Chief Executive Officer
(c) Reference is made to Item 15 (a)(3) above for the index of Exhibits.
(d) Reference is made to Item 15 (a)(2) above for the index to the financial statements and financial statement schedules.

11

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on the 24^th day of March, 2004.

AVALON HOLDINGS CORPORATION
(Registrant)
By	/s/ TIMOTHY C. COXSON
	Timothy C. Coxson - Treasurer and
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the 24^th day of March, 2004.

Signatures	Title
/s/ RONALD E. KLINGLE Ronald E. Klingle	Chairman of the Board, Chief Executive Officer and Director
/s/ TED WESOLOWSKI Ted Wesolowski	Director
/s/ SANFORD B. FERGUSON Sanford B. Ferguson	Director
/s/ ROBERT M. ARNONI Robert M. Arnoni	Director
/s/ STEPHEN L. GORDON Stephen L. Gordon	Director
/s/ THOMAS C. KNISS Thomas C. Kniss	Director

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Independent Auditors’ Report

The Shareholders and Board of Directors

of Avalon Holdings Corporation:

Under date of February 27, 2004, we reported on the consolidated balance sheets of Avalon Holdings Corporation and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2003, as contained in the 2003 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2003. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the 2003, 2002 and 2001 information included in the related financial statement schedule as listed in the accompanying index. The 2003, 2002 and 2001 information included in the financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the 2003, 2002 and 2001 information included in the financial statement schedule based on our audits.

In our opinion, the 2003, 2002 and 2001 information included in the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/    Grant Thornton LLP

Grant Thornton LLP

Cleveland, Ohio

February 27, 2004

13

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(thousands of dollars)

DESCRIPTION	Balance at Beginning of Year		Additions				Deductions (1)		Balance at End of Year
			Charged to Costs and Expenses		Charged to Other Accounts
Allowance for Doubtful Accounts:
Year ended December 31,
2003	$	2,924	$	670	$	—	$	836	$	2,758
2002	$	333	$	2,705	$	—	$	114	$	2,924
2001	$	314	$	179	$	—	$	160	$	333

(1) Accounts receivable written-off as uncollectible, net of recoveries.

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AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX

	Exhibit
13.1	2003 Annual Report to Shareholders
21.1	Subsidiaries of Avalon Holdings Corporation
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15

EX-13.1

Exhibit 13.1

2003 Annual Report

Avalon Holdings Corporation

Financial Highlights

(in thousands, except for per share amounts)
For the year	2003			2002
Net operating revenues	$	53,512		$	56,028
Operating loss from continuing operations		(2,431	)		(4,984	)
Net loss		(3,644	)		(5,838	)
Net loss per share from continuing operations		(.50	)		(1.21	)
Net loss per share from discontinued operations		(.46	)		(.33	)
Net loss per share		(.96	)		(1.54	)
At year-end	2003			2002
Working capital	$	7,345		$	13,785
Total assets		49,054			51,646
Shareholders’ equity		38,920			42,634

The Company

Avalon Holdings Corporation provides transportation services and waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets. Avalon Holdings Corporation also owns the Avalon Golf and Country Club, which operates two golf courses and related facilities.

Contents

Financial Highlights	1
Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Consolidated Balance Sheets	11
Consolidated Statements of Operations	12
Consolidated Statements of Cash Flows	13
Consolidated Statements of Shareholders’ Equity	14
Consolidated Statements of Comprehensive Income (Loss)	14
Notes to Consolidated Financial Statements	15
Independent Auditors’ Report	24
Digest of Financial Data	25
Company Location Directory	26
Directors and Officers	27
Shareholder Information	28

1

Avalon Holdings Corporation and Subsidiaries

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 (collectively “Avalon”). This discussion should be read in conjunction with the consolidated financial statements and accompanying notes.

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 year 2003, Avalon utilized cash provided by operations to fund capital expenditures and meet operating needs.

Avalon’s capital expenditures in 2003 were $.3 million, which related principally to the purchase of transportation equipment. Avalon’s aggregate capital expenditures in 2004 are expected to be in the range of $.2 million to $.3 million, which will relate principally to the purchase of golf, transportation and computer equipment.

Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease, which commenced November 1, 2003, 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 improvements during a given year in excess of $150,000 will be carried forward and applied to future obligations and classified as prepaid rent. Avalon has commenced construction of certain initial improvements to the Squaw Creek facility, which are anticipated to be completed during the second quarter of 2004 and are currently estimated to cost between $2.5 million and $3.5 million.

Working capital decreased to $7.3 million at December 31, 2003 compared with $13.8 million at December 31, 2002. The decrease is primarily the result of a reclassification of certain short-term investments to noncurrent investments. (See Note 3 to the Consolidated Financial Statements)

In 2003, Avalon recorded charges to the provision for losses on accounts receivable of $.7 million due to customers filing for protection from creditors under the provisions of Chapter 11 of the United Sates Bankruptcy Code. The inability to collect these accounts receivable, coupled with Avalon’s use of cash provided by operations to satisfy its obligations associated with these receivables, has negatively affected its liquidity.

The increase of $1.4 million in accounts payable at December 31, 2003 compared with December 31, 2002 is primarily the result of an increase in the amounts payable to vendors of the waste management services business and for payments due vendors for the renovation and construction of the Squaw Creek Country Club facilities.

The increase of $.7 million in other liabilities and accrued expenses is primarily the result of an increase in membership dues of the Avalon Golf and Country Club and the timing of the recognition of revenues associated with the membership dues. Although membership dues are collected throughout the calendar year, they are recognized as net operating revenues during the months of May through October, which generally represents the golf season.

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From time to time, Avalon entered into contracts which required surety bonds or other financial instruments to assure performance under the terms thereof. Although Avalon has obtained such bonds or other financial instruments in the past, substantial changes in the bond market have limited Avalon’s ability to obtain surety bonds in the future. No assurance can be given that such bonds will be available in the future or, if available, that the premiums and/or any collateral requirements for such bonds will be reasonable. The inability of Avalon to obtain surety bonds may adversely impact its future financial performance and any significant collateral requirements may impact Avalon’s liquidity.

Off-Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments

Contractual Obligations.

The following table summarizes Avalon’s significant off-balance sheet contractual obligations at December 31, 2003, and the effect such obligations are expected to have on Avalon’s liquidity and cash flows in future periods.

	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years
Operating lease obligations	$	8,350,000	$	2,697,000	$	3,898,000	$	930,000	$	825,000

The operating lease obligations are primarily for power units of the transportation operations and the lease obligations associated with the Squaw Creek Country Club. The lease for the Squaw Creek Country Club facility 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 improvements during a given year in excess of $150,000 will be carried forward and applied to future obligations. If Avalon would exercise all its options and lease the Squaw Creek Country Club facility for 50 years the operating lease obligation for the more than five years would be $7,397,000.

Management believes that anticipated cash provided from future operations, existing working capital, as well as Avalon’s ability to incur indebtedness, will be for the foreseeable future, sufficient to meet operating requirements and fund capital expenditure programs. Avalon does not currently have a credit facility.

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. Such potential acquisitions could be financed by existing working capital, secured or unsecured debt, issuance of common stock, or issuance of a security with characteristics of both debt and equity, any of which could impact liquidity in the future.

Results of Operations

Avalon’s primary business segment provides transportation services, which include transportation of hazardous and nonhazardous waste, transportation of general and bulk commodities, and transportation brokerage and management services. The waste management services segment provides hazardous and nonhazardous waste brokerage and management services and captive landfill management services. The golf and related operations segment includes the operation of two golf courses and related facilities and a travel agency.

Recognizing that the continuing losses of the environmental remediation business and the engineering and consulting business would adversely impact Avalon’s future financial performances, in the fourth quarter of 2003, management determined that it was in Avalon’s best interest to sell or discontinue the operation of its environmental remediation business and discontinue its engineering and consulting business. As a result, Avalon has eliminated the technical environmental services segment. Avalon’s captive landfill management services, which was formerly included in the technical environmental services segment, has been combined with the waste disposal brokerage and

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management services segment to form the waste management services segment. All current and prior year segment information and Management’s Discussion and Analysis of Financial Condition and Results of Operations have been restated to reflect this change.

Performance in 2003 compared with 2002

Overall Performance.

Net operating revenues decreased to $53.5 million in 2003 compared with $56.0 million in 2002. The decrease is primarily the result of a decrease in the net operating revenues of the transportation services segment partially offset by an increase in the net operating revenues of the golf and related operations segment. Cost of operations as a percentage of net operating revenues decreased to 89.2% in 2003 compared with 90.6% in 2002 primarily as a result of improved operating margins of the waste management services and golf and related operations segments. Consolidated selling, general and administrative expenses decreased in 2003 compared with 2002 primarily as a result of a significant decrease in the provision for losses on accounts receivable. In 2003, Avalon recorded charges to the provision for losses on accounts receivable of $.7 million compared with $2.7 million in 2002. Avalon incurred a loss from continuing operations of $1.9 million in 2003 compared with a loss from continuing operations of $4.6 million in 2002.

In the fourth quarter of 2003 management determined that it was in Avalon’s best interest to sell or discontinue the operation of its environmental remediation business and to discontinue its engineering and consulting business. Previously, in 2002, Avalon sold all of the operating assets of its analytical laboratory business. Accordingly, the results of the remediation business, the engineering and consulting business and the laboratory business are reported as discontinued operations. Concurrent with the decision to discontinue the engineering and consulting business, Avalon decided to sell the building associated with the technical environmental services operations. Accordingly, in the fourth quarter of 2003, the building was classified as held-for-sale and, based upon a quoted estimated market price, Avalon recorded a charge of $1.6 million for the write-down of the building which is included in discontinued operations in 2003. The loss from discontinued operations was $1.7 million in 2003 compared with $1.3 million in 2002.

Segment Performance. Segment performance should be read in conjunction with Note 13 to the Consolidated Financial Statements.

Net operating revenues of the transportation services segment decreased to $31.9 million in 2003 compared with $36.2 million in 2002. The decrease in net operating revenues is primarily attributable to a significant decrease in the level of business of the transportation brokerage operations and a decrease in the transportation of municipal solid waste, partially offset by an increase in the transportation of general commodities, hazardous and industrial waste. The decrease in net operating revenues of the transportation brokerage operations was primarily due to providing a significant amount of transportation brokerage services for a single customer on a one-time basis during the first nine months of 2002. The increase in net operating revenues relating to the transportation of general commodities is primarily the result of a significant increase in the number of owner operators contracted to haul general commodities. The increase in net operating revenues relating to the transportation of hazardous waste was primarily the result of an increase in the volume of hazardous waste transported for a single customer. The transportation services segment incurred a loss before taxes of $.1 million in 2003 compared with a loss before taxes of $2.2 million in 2002. In the third quarter of 2002, the transportation services segment recorded a charge to the provision for losses on accounts receivable of $1.9 million as a result of one customer’s operational and financial decline.

Net operating revenues of the waste management services segment decreased to $22.3 million in 2003 compared with $22.5 million in 2002. The decrease in net operating revenues is primarily the result of a decrease in the level of services provided by the waste brokerage and management business partially offset by an increase in the services provided by the captive landfill management operation. Income before taxes was $1.5 million in 2003 compared with $1.1 million in 2002. The increase was primarily the result of higher gross margins of the waste brokerage and

4

management business and to a lesser extent the improved operating results of the captive landfill management operations as a result of the increased net operating revenues.

Net operating revenues of the golf and related operations segment increased to $2.7 million in 2003 compared with $1.9 million in 2002. The golf course owned by Avalon, which is located in Warren, Ohio, was closed during the first three months of 2003 and 2002 due to seasonality. The golf and related operations segment recorded income before taxes of $.1 million in 2003 compared with a loss before taxes of $.3 million in 2002. The increase in net operating revenues and income before taxes is primarily attributed to a significant increase in the number of members of the Avalon Golf and Country Club in 2003 compared with the prior year, which in turn has significantly increased the number of rounds of golf played and increased food and beverage sales. The financial performance of the golf and related operations segment was negatively impacted by adverse weather conditions during the second and third quarters of 2003. Although the golf courses will continue to be available to the general public, the primary source of revenues will be derived from membership dues.

Avalon did not acquire rights to the Squaw Creek Country Club facility until November 2003. As such, net operating revenues and results of operations relating to such facility were not material in 2003.

Interest Income

Interest income was $.2 million in both 2003 and 2002.

General Corporate Expenses

General corporate expenses increased to $3.6 million in 2003 compared with $3.2 million in 2002, primarily as a result of increased employee costs.

Net Loss

Avalon incurred a net loss of $3.6 million in 2003 compared with a net loss of $5.8 million in 2002. Although Avalon incurred a net loss in 2003 and 2002, Avalon recorded only a small net tax benefit in 2003 and a small tax provision in 2002. This was primarily the result of Avalon recording a valuation allowance to reduce the deferred tax assets because Avalon believes it is more likely than not that the deferred tax assets will not be realized.

Performance in 2002 compared with 2001

Overall Performance. Avalon’s net operating revenues decreased to $56 million in 2002 compared with $56.7 million in 2001. The decrease is primarily attributed to a decrease in the net operating revenues of the waste management services segment partially due to a slow economy. Costs of operations as a percentage of net operating revenues remained relatively flat in 2002 compared to 2001. Consolidated selling and general administrative expenses increased to $10.2 million in 2002 compared with $8.1 million in 2001, primarily as a result of increased charges to the provision for losses on accounts receivable. Avalon recorded charges of $2.7 million in 2002 to the provision for losses on accounts receivables compared with $.2 million in 2001. Avalon incurred a loss from continuing operations of $4.6 million in 2002 compared with $1.5 million in 2001. During 2002, Avalon sold all the operating assets of its analytical laboratory business and accordingly, the results of Avalon’s laboratory business including the loss on the disposal of its assets are reported as discontinued operations. The loss from discontinued operations was $1.3 million in 2002 compared with $1.8 million in 2001.

Segment Performance. Segment performance should be read in conjunction with Note 13 to the Consolidated Financial Statements.

Net operating revenues of the transportation services segment decreased to $36.2 million in 2002 compared with $36.7 million in 2001. The decrease is primarily a result of a decrease in the transportation of hazardous waste

5

partially offset by an increase in the net operating revenues of the transportation brokerage operations and an increase in the transportation of municipal solid waste. The decrease in the net operating revenues for the transportation of hazardous waste was primarily due to a decline in the volume of hazardous waste transported for one customer. The increase in net operating revenues of the transportation brokerage operations is primarily a result of increased business with a single customer, while the increase in net operating revenues for the transportation of municipal solid waste is primarily a result of higher volumes and increased pricing. The transportation services segment incurred a loss before taxes of $2.2 million in 2002 compared with a loss before taxes of $.2 million in 2001. The increased loss before taxes is primarily the result of higher insurance costs and a charge of $1.9 million to the provision for losses on accounts receivable resulting from the financial and operational decline of one significant customer. The decrease in the level of transportation services provided resulted in the under-utilization of many leased power units, thereby increasing costs as a percentage of net operating revenues.

Net operating revenues of the waste management services segment decreased to $22.5 million in 2002 compared with $24.8 million in 2001. The net operating revenues in 2001 included $2.4 million relating to a single one-time project. Income before taxes was $1.1 million in 2002 compared with $1.6 million in 2001. The decrease in income before taxes is primarily due to a $.4 million charge to the provision for losses on accounts receivable in the fourth quarter of 2002 and decreased net operating revenues partially offset by increased margins. During 2002, the net operating revenues and income before taxes of the captive landfill management business decreased slightly from the prior year period.

Avalon’s golf and related operations segment consisted of a golf course, restaurant and travel agency. Net operating revenues for the golf and related operations segment increased to $1.9 million in 2002 compared with $1.2 million in 2001. The increase in net operating revenues is primarily the result of increased memberships in the Avalon Lakes Golf Club, which has resulted in additional membership dues, greens fees, cart rental revenues and food and beverage sales, partially offset by a decrease in net operating revenues associated with the travel agency. The golf and related operations segment incurred a loss before taxes of $.3 million in 2002 compared with a loss before taxes of $.9 million in the prior year. The decrease in the loss before taxes was primarily as a result of increased membership of the Avalon Lakes Golf Club and an increase in the number of rounds of golf played.

Interest Income

Interest income decreased to $.2 million in 2002 compared with $.5 million in 2001, primarily due to a decline in the average amount of cash and cash equivalents and investments during 2002 compared with the prior year as a result of the utilization of cash and investments to fund capital expenditures. Investment rates also decreased slightly in 2002 compared with 2001.

General Corporate Expenses

General corporate expenses decreased slightly in 2002 compared with 2001.

Net Loss

Avalon incurred a net loss of $5.8 million in 2002 compared with a net loss of $3.3 million in 2001. Although Avalon incurred a net loss in 2002, Avalon recorded a net tax provision of $.2 million as a result of an increase in the valuation allowance for deferred tax assets. Avalon recorded a valuation allowance because Avalon believes it is more likely than not that the deferred tax assets will not be realized. Avalon’s overall effective tax rate, including the effect of state income tax provisions, was 35.2% in 2001. The effective tax rate for 2001 is different than the federal statutory rates due to state income taxes, the nondeductibility for tax purposes of the amortization and write-down of costs in excess of fair market value of net assets of acquired businesses, and other nondeductible expenses.

6

Trends and Uncertainties

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 that, 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 it.

The federal government and numerous state and local governmental bodies are continuing to consider legislation or regulations to either restrict or impede the disposal and/or transportation of waste. A significant portion of Avalon’s transportation and waste disposal brokerage and management revenues is derived from the disposal 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 significant negative effect on Avalon.

As is the case with any transportation company, an increase in fuel prices will subject Avalon’s transportation operations to increased operating expenses, which, in light of competitive market conditions, Avalon may not be able to pass on to its customers.

Increased regulation of the transportation industry relating to driver hours of service and hazardous materials security have and will continue to increase Avalon’s operating expenses, which in light of competitive market conditions, Avalon may not be able to pass on to its customers.

Avalon’s transportation operations utilize power units that are subject to long-term leases. Historically, the level of transportation services provided has resulted in the under-utilization of many of these power units. Although Avalon has taken steps to reduce the number of power units subject to long-term leases, the under-utilization of leased power units will adversely impact the future financial performance of the transportation operations.

As is the case with any transportation company, Avalon’s transportation operations are significantly dependent upon its ability to attract and retain qualified drivers and independent contractors. Failure to do so will adversely impact the future financial performance of the transportation operations.

Avalon is currently evaluating the business and prospects of its transportation operations in light of its financial performance over the past few years. Such evaluation includes an examination of each type of transportation service provided and measures needed to increase the profitability of these services, as well as the consideration of other strategic alternatives including, without limitation, the discontinuation of certain operations. Continuing operating losses incurred by the transportation business will adversely impact the future financial performance of Avalon.

In connection with the transportation of municipal solid waste, Avalon’s transportation operations provide loading services at several municipal solid waste transfer stations. Because of the fixed costs associated with loading, the profitability of such operations is dependent upon the volume of waste delivered to each transfer station. The volume of waste delivered to each transfer station is not within Avalon’s control and has been less than anticipated. During the second quarter of 2004, Avalon intends to cease transportation operations at the three Massachusetts’ municipal solid waste transfer stations being serviced by Avalon.

Insurance costs, particularly within the transportation industry, have risen dramatically over the past year. The increase in Avalon’s insurance premiums relating to its transportation operations has increased Avalon’s operating expenses, which, in light of competitive market conditions, Avalon has not been able to fully pass on to its customers.

From time to time, Avalon entered into contracts which required surety bonds or other financial instruments to assure performance under the terms thereof. Although Avalon has obtained such bonds or other financial instruments in the past, substantial changes in the bond market have significantly limited Avalon’s ability to obtain

7

surety bonds. No assurance can be given that such bonds will be available in the future or, if available, that the premiums and/or any collateral requirements for such bonds will be reasonable. The inability of Avalon to obtain surety bonds may adversely impact its future financial performance.

Competitive and economic pressures continue to impact the financial performance of Avalon’s transportation services and waste management services. Some of Avalon’s competitors periodically reduce their pricing to gain or retain business, especially during difficult economic times, which may limit Avalon’s ability to maintain rates. A decline in the rates which customers are willing to pay could adversely impact the future financial performance of Avalon.

Avalon’s waste brokerage and management operations obtain and retain 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 has caused disposal pricing to increase. Avalon does not believe that industry pricing changes alone will have a material effect upon its waste brokerage and management operations. However, consolidation has had the effect of reducing the number of competitors offering disposal alternatives that may adversely impact the future financial performance of Avalon’s waste brokerage and management operations.

Avalon’s captive landfill management business is dependent upon a single customer as its sole source of revenue.

A significant portion of Avalon’s business is 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.

Current economic challenges throughout the industries served by Avalon have resulted in a reduction of revenues coupled with an increase 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 in the future could continue to have a material adverse impact upon Avalon’s future financial performance.

As a result of the acquisition of rights to the Squaw Creek Country Club facilities, the Avalon Lakes Golf Club has become the Avalon Golf and Country Club. In addition to a second championship golf course, the Squaw Creek facility includes a swimming pool, tennis courts and a clubhouse that provides dining and banquet facilities. The Avalon Golf and Country Club competes with many public courses and country clubs in the area. Although the golf courses will continue to be available to the general public, the primary source of revenues will be derived from members of the Avalon Golf and Country Club. Avalon believes that the combination of the Squaw Creek and Avalon Lakes facilities will result in a significant increase in the number of members of the Avalon Golf and Country Club. Such increased membership, if attained, will result in increased net operating revenues; however, there can be no assurance as to when such increased membership will be attained. Failure by Avalon to attain increased membership could adversely affect the future financial performance of Avalon.

Avalon’s golf courses are located in Warren, Ohio and Vienna, Ohio and are significantly dependent upon weather conditions during the golf season. Additionally, all of Avalon’s other operations are somewhat seasonal in nature since a significant portion of those operations are primarily conducted in selected northeastern and midwestern states. As a result, Avalon’s financial performance is adversely affected by winter weather conditions.

Avalon believes that the current depressed state of the golf market may result in attractive golf course properties becoming available under favorable terms. In addition to the Squaw Creek transaction previously described, it is possible that Avalon will further expand its involvement in the golf business in the future.

Management is currently evaluating Avalon’s strategic direction for the future. While there are no specific transactions under negotiation or pending at this time, Avalon does not necessarily intend to limit itself in the future to lines of business which it has historically conducted.

8

Recognizing that the continuing losses of the environmental remediation business and the engineering and consulting business would adversely impact Avalon’s future financial performances, in the fourth quarter of 2003, management determined that it was in Avalon’s best interest to sell or discontinue the operation of its environmental remediation business and discontinue its engineering and consulting business. In January 2004, Avalon sold all of the fixed assets of the remediation services business and discontinued the operation of its engineering and consulting services business.

Market Risk

Avalon does not have significant exposure to changing interest rates. A 10% change in interest rates would have an immaterial effect on Avalon’s income before taxes for the next fiscal year. Avalon currently has no debt outstanding and invests primarily in U.S. Treasury notes, short-term money market funds and other short-term obligations. 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.

Inflation Impact

Avalon has not entered into any long-term fixed price contracts that could have a material adverse impact upon its financial performance in periods of inflation. In general, management believes that rising costs resulting from price inflation could be passed on to customers; however, Avalon may need to absorb all or a portion of these cost increases depending upon competitive conditions at the time. An increase in fuel prices may subject Avalon’s transportation operations to increased operating expenses, which Avalon, in light of competitive market conditions, may not be able to pass on to its customers.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles requires management to make judgments, assumptions, and estimates that affect reported amounts. Significant accounting policies used in the preparation of Avalon’s Consolidated Financial Statements are described in Note 2. Estimates are used when accounting for, among other things, the allowance for doubtful accounts, asset impairments, contingencies and administrative proceedings, environmental matters, and taxes.

Avalon’s allowance for doubtful accounts is based on management’s assessment of the collectibility of specific customers’ accounts and the aging of accounts receivable. Bankruptcy or economic challenges of a particular customer represent uncertainties that are not controllable by management. If management’s assessments change due to different assumptions or if actual collections differ from management’s estimates, future operating results could be impacted.

Certain events or changes in circumstances may indicate that the recoverability of the carrying value of long-lived assets should be assessed. Such events or changes may include a significant decrease in market value, a significant change in the business climate in a particular market, or a current-period operating or cash flow loss combined with historical losses or projected future losses. If an event occurs or changes in circumstances are present, Avalon estimates the future cash flows expected to result from the use of the applicable groups of long-lived assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value, Avalon would recognize an impairment loss to the extent the carrying value of the groups of long-lived assets exceeds their fair value.

Avalon performs tests for impairment of goodwill annually or whenever circumstances indicate a potential impairment. In determining whether an impairment exists, Avalon compares the fair value of the reporting unit associated with the goodwill to the carrying value of its net assets, including goodwill. If the carrying amount of the

9

reporting unit exceeds its fair value, then the implied fair value of reporting unit goodwill is compared to the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to the excess. Avalon determines the fair value using a variety of methods including quoted market prices, cash flow analysis and estimates of earnings or revenues. Where applicable, an appropriate discount rate is used.

The ability to accurately predict future cash flows may impact the determination of fair value. Avalon’s assessments of cash flows represent management’s best estimate as of the time of the impairment review. Avalon estimates the future cash flows expected to result from the use and, if applicable, the eventual disposition of the assets. The key variables that management must estimate include, among other factors, sales, costs, inflation and capital spending. Significant management judgment is involved in estimating these variables, and they include inherent uncertainties. If different cash flows had been estimated in the current period, the value of the long-lived assets and/or goodwill could have been materially impacted. Furthermore, Avalon’s accounting estimates may change from period to period as conditions in markets change, and this could materially impact financial results in future periods.

When Avalon concludes that it is probable that an environmental liability has been incurred, a provision is made in Avalon’s financial statements for Avalon’s best estimate of the liability based on management’s judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site as well as the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then Avalon provides for the minimum amount within the range, in accordance with generally accepted accounting principles. The liability is recognized on an undiscounted basis. Avalon’s estimates are revised, as deemed necessary, as additional information becomes known. Such revisions may impact future operating results.

Avalon records a valuation allowance to reduce deferred tax assets when it is more likely than not that the deferred tax assets relating to certain federal and state loss carryforwards will not be realized.

10

Avalon Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except for share data)

	December 31,
	2003			2002
Assets
Current Assets:
Cash and cash equivalents	$	4,656		$	1,929
Short-term investments (Note 3)		—			5,965
Accounts receivable, less allowance for doubtful accounts of $2,758 in 2003 and $2,924 in 2002		7,803			9,187
Prepaid expenses		1,953			1,750
Other current assets		623			549
Current assets – discontinued operations (Note 4)		2,444			3,286
Total current assets		17,479			22,666
Noncurrent investments (Note 3)		6,009			—
Property and equipment, net (Note 5)		21,871			23,613
Costs in excess of fair market value of net assets of acquired businesses, net		538			538
Other assets, net		448			130
Noncurrent assets – discontinued operations (Note 4)		2,709			4,699
Total assets	$	49,054		$	51,646
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	5,938		$	4,542
Accrued payroll and other compensation		582			497
Accrued income taxes		242			236
Other accrued taxes		415			525
Other liabilities and accrued expenses (Note 7)		1,828			1,170
Current liabilities – discontinued operations (Note 4)		1,129			1,911
Total current liabilities		10,134			8,881
Other noncurrent liabilities		—			120
Noncurrent liabilities – discontinued operations (Note 4)		—			11
Contingencies and commitments (Notes 10 and 11)		—			—
Shareholders’ Equity (Note 9):
Class A Common Stock, $.01 par value, one vote per share; authorized 10,500,000 shares, issued 3,185,240 shares at December 31, 2003 and December 31, 2002		32			32
Class B Common Stock, $.01 par value, ten votes per share; authorized 1,000,000 shares; issued 618,091 shares at December 31, 2003 and December 31, 2002		6			6
Paid-in capital		58,096			58,096
Accumulated deficit		(19,218	)		(15,574	)
Accumulated other comprehensive income		4			74
Total shareholders’ equity		38,920			42,634
Total liabilities and shareholders’ equity	$	49,054		$	51,646

See accompanying notes to consolidated financial statements.

11

Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands, except for per share amounts)

	Year Ended December 31,
	2003			2002			2001
Net operating revenues	$	53,512		$	56,028		$	56,748
Costs and expenses:
Costs of operations		47,742			50,781			51,461
Selling, general and administrative expenses		8,201			10,231			8,085
Operating loss from continuing operations		(2,431	)		(4,984	)		(2,798	)
Other income (expense):
Interest income		204			246			511
Other income (expense), net		302			344			(33	)
Loss from continuing operations before income taxes		(1,925	)		(4,394	)		(2,320	)
Provision (benefit) for income taxes (Note 6):
Current		(26	)		21			(636	)
Deferred		—			170			(181	)
		(26	)		191			(817	)
Loss from continuing operations		(1,899	)		(4,585	)		(1,503	)
Discontinued operations (Note 4):
Loss from discontinued operations before income taxes1		(1,745	)		(905	)		(2,615	)
Provision (benefit) for income taxes		—			348			(788	)
Loss from discontinued operations		(1,745	)		(1,253	)		(1,827	)
Net loss	$	(3,644	)	$	(5,838	)	$	(3,330	)
Net loss per share from continuing operations	$	(.50	)	$	(1.21	)	$	(.40	)
Net loss per share from discontinued operations	$	(.46	)	$	(.33	)	$	(.48	)
Net loss per share (Note 2)	$	(.96	)	$	(1.54	)	$	(.88	)
Weighted average shares outstanding (Note 2)		3,803			3,803			3,803

¹ Includes loss on write-down of building of $1,634 in 2003 and loss on disposal of $104 in 2002.

See accompanying notes to consolidated financial statements.

12

Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2003			2002			2001
Operating activities:
Loss from continuing operations	$	(1,899	)	$	(4,585	)	$	(1,503	)
Reconciliation of loss from continuing operations to cash provided by operating activities:
Depreciation		2,012			2,040			2,176
Amortization		1			1			45
Amortization of investments		57			106			11
Provision (benefit) for deferred income taxes		—			170			(181	)
Provision for losses on accounts receivable		670			2,704			179
(Gain) loss from disposal of property and equipment		(87	)		(66	)		45
Sales of trading investments		—			—			734
Gain on sale of investments		—			(2	)		—
Change in operating assets and liabilities:
Accounts receivable		714			(605	)		(1,126	)
Refundable income taxes		—			—			327
Prepaid expenses		(203	)		(257	)		(7	)
Other current assets		(74	)		20			(5	)
Other assets		(319	)		—			10
Accounts payable		1,396			(496	)		816
Accrued payroll and other compensation		85			(34	)		(98	)
Accrued income taxes		6			20			(380	)
Other accrued taxes		(110	)		101			138
Other liabilities and accrued expenses		658			81			46
Other noncurrent liabilities		(120	)		—			—
Net cash provided by (used in) operating activities from continuing operations		2,787			(802	)		1,227
Net cash provided by operating activities from discontinued operations		291			55			1,309
Net cash provided by (used in) operating activities		3,078			(747	)		2,536
Investing activities:
Purchases of held-to-maturity investments		—			—			(7,907	)
Purchases of available-for-sale investments		(6,009	)		—			(32	)
Maturities/sales of available-for-sale investments		5,838			1,900			57
Capital expenditures		(310	)		(3,247	)		(1,375	)
Proceeds from disposal of property and equipment		127			87			312
Net cash used in investing activities from continuing operations		(354	)		(1,260	)		(8,945	)
Net cash provided by (used in) investing activities from discontinued operations		3			454			(140	)
Net cash used in investing activities		(351	)		(806	)		(9,085	)
Increase (decrease) in cash and cash equivalents		2,727			(1,553	)		(6,549	)
Cash and cash equivalents at beginning of year		1,929			3,482			10,031
Cash and cash equivalents at end of year	$	4,656		$	1,929		$	3,482

For supplemental disclosures of cash flow information, see Note 6.

See accompanying notes to consolidated financial statements.

13

Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(in thousands)

	For The Three Years Ended December 31, 2003
	Shares		Common Stock				Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Total
	Class A	Class B	Class A		Class B
Balance at December 31, 2000	3,185	618	$	32	$	6	$	58,096	$	(6,406	)	$	—		$	51,728
Net loss	—	—		—		—		—		(3,330	)		—			(3,330	)
Balance at December 31, 2001	3,185	618		32		6		58,096		(9,736	)		—			48,398
Net loss	—	—		—		—		—		(5,838	)		—			(5,838	)
Changes in unrealized gain on investments	—	—		—		—		—		—			74			74
Balance at December 31, 2002	3,185	618		32		6		58,096		(15,574	)		74			42,634
Net loss	—	—		—		—		—		(3,644	)		—			(3,644	)
Changes in unrealized loss on investments	—	—		—		—		—		—			(70	)		(70	)
Balance at December 31, 2003	3,185	618	$	32	$	6	$	58,096	$	(19,218	)	$	4		$	38,920

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Year Ended December 31,
	2003			2002			2001
Net loss	$	(3,644	)	$	(5,838	)	$	(3,330	)
Changes in unrealized (loss) gain on investments		(70	)		74			—
Comprehensive income (loss)	$	(3,714	)	$	(5,764	)	$	(3,330	)

See accompanying notes to consolidated financial statements.

14

Avalon Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Description of the Business

Avalon Holdings Corporation (“Avalon”) was formed on April 30, 1998 as a subsidiary of American Waste Services, Inc. (“AWS”). Pursuant to the terms of a Contribution and Distribution Agreement dated as of May 7, 1998 between Avalon and AWS, AWS contributed to Avalon its transportation operations, technical environmental services operations, waste disposal brokerage and management operations, and golf course and related operations together with certain other assets including the headquarters of AWS and certain accounts receivable. In connection with the contribution, Avalon also assumed certain liabilities of 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 (the “Spin-off”).

In 2002, Avalon sold all of the fixed assets of its analytical laboratory business and in January 2004, Avalon sold all of the fixed assets of the remediation services business and discontinued the operation of the engineering and consulting services business. As such, the technical environmental services segment has been eliminated. The management of a captive landfill which was previously included in the technical environmental services segment has been combined with the waste disposal brokerage and management services segment to form the waste management services segment.

Avalon provides transportation services and waste management services to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern U.S. markets. Avalon also owns the Avalon Golf and Country Club, which operates two golf courses and related facilities.

Note 2. Summary of Significant Accounting

Policies

The significant accounting policies of Avalon which are summarized below are consistent with generally accepted accounting principles and reflect practices appropriate to the businesses in which they operate. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates. Certain prior year amounts have been reclassified to be consistent with the 2003 presentations.

Principles of consolidation

The consolidated financial statements include the accounts of Avalon and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and cash equivalents

Cash and cash equivalents include money market instruments and other highly liquid short-term investments that are stated at cost which approximates market value. Such investments, which mature in three months or less from date of purchase, are considered to be cash equivalents for purposes of the Consolidated Statements of Cash Flows and Consolidated Balance Sheets. The balance of such short-term investments was $4,588,000 and $1,836,000 at December 31, 2003 and 2002, respectively. Such investments were not insured by the Federal Deposit Insurance Corporation.

Avalon maintains its cash balances in several 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 cash and cash equivalents.

Investment securities

Avalon classifies its investment securities into trading, available-for-sale, or held-to-maturity categories. Securities are classified as trading when Avalon has the intent of selling them in the near term. Trading securities are reported at fair value on the balance sheet, with the change in fair value during the period included in earnings. Securities are classified as held-to-maturity when Avalon has the ability and intent to hold the securities to maturity. Held-to-maturity securities are reported as either short-term or noncurrent on the balance sheet based upon contractual maturity date and are stated at amortized cost. Securities that are not classified as either trading or held-to-maturity are classified as available-for-sale and reported at fair value on the balance sheet with the change in fair value reported as a component of other comprehensive income (see Note 3).

15

Financial instruments

The fair value of financial instruments consisting of cash, cash equivalents, accounts receivable, and accounts payable at December 31, 2003 and 2002, approximates carrying value due to the relative short maturity of these financial instruments. The fair value of available-for-sale investments was $6,009,000 at December 31, 2003 and $5,965,000 at December 31, 2002.

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, transportation equipment and vehicles, and office furniture and equipment (See Note 5).

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 currently. 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 disposals of property and equipment are credited or charged to operations currently. Interest costs, if any, would be capitalized on significant construction projects.

Costs in excess of fair market value of net assets of acquired businesses (“goodwill”)

Effective January 1, 2002, in accordance with Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets”, goodwill is no longer subject to amortization, but is tested for impairment annually or whenever there is an impairment indicator. Goodwill had been amortized on a straight-line basis over 25 years prior to January 1, 2002. Amortization of these costs was $41,000 in 2001.

Income taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is recorded against net deferred tax assets when it is determined that is more likely than not that such deferred tax assets will not be realized.

Revenue recognition

Avalon recognizes revenue for transportation services on the date of delivery. Revenue for waste management services is recognized as services are performed. Revenue for golf operations are recognized as services are provided with the exception of membership dues which are recognized during the months of May through October, which generally represents the golf season.

Asset impairments

Effective January 1, 2002, Avalon adopted SFAS No. 142. In accordance with this statement, Avalon performs tests for impairment of goodwill annually or whenever circumstances indicate a potential impairment. In determining whether an impairment exists, Avalon compares the fair value of the reporting unit associated with the goodwill to the carrying value of its net assets, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, then the implied fair value of reporting unit goodwill is compared to the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to the excess. Avalon determines the fair value using a variety of methods including quoted market prices, cash flow analyses and estimates of earnings or revenues. Where applicable, an appropriate discount rate is used.

Effective January 1, 2002, Avalon adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets.” In accordance with this statement, Avalon reviews the carrying value of its long-lived assets (other than goodwill) 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 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 values. 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.

Environmental liabilities

When Avalon concludes that it is probable that a liability has been incurred with respect to a site, a provision is made in Avalon’s financial statements for Avalon’s best estimate of the liability based on management’s judgment and experience, information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site as well as the typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better

16

estimate than any other, then Avalon provides for the minimum amount within the range, in accordance with generally accepted accounting principles. The liability is recognized on an undiscounted basis. Avalon’s estimates are revised, as deemed necessary, as additional information becomes known.

Basic net income (loss) per share

For the years ended December 31, 2003, 2002 and 2001 basic net income (loss) per share has been computed using the weighted average number of common shares outstanding during each period, which was 3,803,331. There were no common equivalent shares outstanding and therefore diluted per share amounts are equal to basic per share amounts for all years presented.

Note 3. Investments

Avalon held no trading securities at either December 31, 2003 or December 31, 2002. During the second quarter of 2002, Avalon sold certain securities that had been classified as held-to-maturity. At the time of acquisition, Avalon intended to hold these securities until maturity; however, because of the filing for protection from creditors under the United States Bankruptcy Code by a customer which owed Avalon $2.2 million, Avalon was forced to sell these held-to-maturity securities to meet its operating and capital requirements. As a result of the sale of a portion of the held-to-maturity securities, in accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”, Avalon transferred all the remaining securities from the held-to-maturity category to the available-for-sale category. As a result of the classification of these securities to available-for-sale, Avalon has recognized, in other comprehensive income, net of applicable income taxes, unrealized losses of $70,000 in 2003 and unrealized gains of $74,000 in 2002. Accumulated comprehensive income was $4,000 at December 31, 2003 and $74,000 at December 31, 2002.

Information regarding investment securities consists of the following (in thousands):

	December 31, 2003
	Amortized Cost		Gross Unrealized Gains		Estimated Fair Value
Available-for-Sale U.S. Treasury Notes	$	6,005	$	4	$	6,009

	December 31, 2002
	Amortized Cost		Gross Unrealized Gains		Estimated Fair Value
Available-for-Sale U.S. Treasury Notes	$	5,891	$	74	$	5,965

The amortized cost and estimated fair value of available-for-sale investments at December 31, 2003, by contractual maturity, consist of the following (in thousands):

	Available-For-Sale
	Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		6,005		6,009
Total	$	6,005	$	6,009

Note 4. Discontinued Operations

Avalon’s environmental remediation operation had continued to experience operating losses as a result of a decline in net operating revenues and operational inefficiencies. Recognizing that the continuing losses incurred by the environmental remediation business would adversely impact Avalon’s future financial performance, in the fourth quarter of 2003, management determined that it was in Avalon’s best interest to sell or discontinue the operation of the environmental remediation business. In January 2004, Avalon sold all of the fixed assets of the remediation business for $.2 million which approximated the fair value of the assets that were sold. As part of the transaction, the purchaser assumed all of the remediation business’ obligations relating to ongoing projects. The remediation business retained all of its other liabilities and assets, including cash and accounts receivable. The results of operations of the remediation business have been included in discontinued operations.

The financial results of Avalon’s technical environmental engineering and consulting business have been at a level lower than expected. The business began to experience losses and Avalon believed that the losses were likely to continue in the future. Accordingly, in the fourth quarter of 2003, management determined that it was in Avalon’s best interest to discontinue the operations of the engineering and consulting business. In January 2004, Avalon discontinued such operations and the results of operations are included in discontinued operations.

In the second quarter of 2002, management determined that it was in Avalon’s best interest to discontinue operating the analytical laboratory business. Accordingly, on May 1, 2002, Avalon sold all of the operating assets of its Export, Pennsylvania analytical laboratory business and on September 1, 2002, Avalon sold all of the operating assets of its radio-chemistry laboratory business. The results of operations of the analytical laboratory business have been included in discontinued operations.

Concurrent with the decision to discontinue the technical environmental engineering and consulting business,

17

Avalon decided to sell the building associated with the technical environmental services operations.

Accordingly, in the fourth quarter of 2003, the building was classified as held-for-sale and, based upon a quoted estimated market price, Avalon recorded a $1.6 million write-down of the building, which is included in loss from discontinued operations in 2003.

Note 5. Property and Equipment

Property and equipment at December 31, 2003 and 2002 consists of the following (in thousands):

	2003			2002
Land and land improvements	$	10,481		$	10,337
Buildings and improvements		9,430			9,424
Machinery and equipment		1,935			2,132
Transportation equipment and vehicles		12,458			12,619
Office furniture and equipment		2,101			2,034
Construction in progress		26			133
		36,431			36,679
Less accumulated depreciation and amortization		(14,560	)		(13,066	)
Property and equipment, net	$	21,871		$	23,613

Note 6. Income Taxes

Loss before income taxes for each of the three years in the period ended December 31, 2003 was subject to taxation under United States jurisdictions only.

Total provisions (benefits) for income taxes consist of the following (in thousands):

	2003			2002		2001
Continuing operations	$	(26	)	$	191	$	(817	)
Discontinued operations		—			348		(788	)
	$	(26	)	$	539	$	(1,605	)

The provision (benefit) for income taxes from continuing operations consists of the following (in thousands):

	2003			2002			2001
Current:
Federal	$	—		$	—		$	(683	)
State		(26	)		21			47
		(26	)		21			(636	)
Deferred:
Federal		—			(47	)		(109	)
State		—			217			(72	)
		—			170			(181	)
	$	(26	)	$	191		$	(817	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2003 and 2002 are as follows (in thousands):

	2003			2002
Deferred tax assets:
Accounts receivable, allowance for doubtful accounts	$	1,900		$	1,985
Reserves not deductible until paid		243			307
Net operating loss carry-forwards
Federal		2,533			1,841
State		808			667
Other		23			1
Gross deferred tax assets		5,507			4,801
Less valuation allowance		(4,050	)		(2,742	)
Deferred tax assets net of valuation allowance		1,457			2,059
Deferred tax liabilities:
Property and equipment	$	(1,335	)	$	(1,936	)
Other		(122	)		(123	)
Gross deferred tax liabilities		(1,457	)		(2,059	)
Net deferred tax asset	$	—		$	—

The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) from continuing operations before income taxes as a result of the following differences (in thousands):

	2003			2002			2001
Loss before income taxes from continuing operations	$	(1,925	)	$	(4,394	)	$	(2,320	)
Federal statutory tax rate		35	%		35	%		35	%
		(674	)		(1,538	)		(812	)
State income taxes, net of federal income tax benefits		(101	)		(85	)		(16	)
Change in valuation allowance		725			1,670			350
Nondeductible amortization and depreciation		—			—			9
Other nondeductible expenses		46			95			88
Change in prior estimate		—			—			(465	)
Other, net		(22	)		49			29
	$	(26	)	$	191		$	(817	)

Avalon received net income tax refunds of $35,000 and $343,000 in 2003 and 2001, respectively. Avalon made net income tax payments of $3,000 in 2002.

At December 31, 2003 Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately $7,450,000, which are available to offset future federal taxable income. These carryforwards expire in 2020 through 2023. In addition, at December 31, 2003, certain subsidiaries of Avalon have net operating loss carryforwards for state purposes aggregating approximately $9,856,000, which are available to offset future state taxable income. These carryforwards expire at various dates through 2023. A valuation allowance has been provided because it is more likely than not that the deferred tax assets relating to certain of the federal and state loss carryforwards will not be realized.

18

Note 7. Retirement Benefits

Avalon sponsors a defined contribution profit sharing plan that is a qualified tax deferred benefit plan under Section 401(k) of the Internal Revenue Code (the “Plan”). Substantially all employees are eligible to participate in the Plan. The Plan provides for employer discretionary cash contributions as determined by Avalon’s Board of Directors. Discretionary contributions vest on a graduated basis and become 100% vested after six years of service. Plan participants may also contribute a portion of their annual compensation to the Plan, subject to maximums imposed by the Internal Revenue Code and related regulations. Costs charged to operations for Avalon’s contributions were $132,000, $223,000 and $348,000 for the years 2003, 2002 and 2001, respectively. These amounts are included in the Consolidated Balance Sheets under the caption “Other liabilities and accrued expenses.”

Note 8. Stock Option Plan

Effective July 1, 1998, Avalon adopted the 1998 Long-term Incentive Plan which 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. Avalon has reserved 1,300,000 shares of Class A Common Stock for issuance to employees and non-employee directors. NQSO’s may be granted with an exercise price which is not less than 85% 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 1998 Long-term Incentive Plan. Options shall have a term of no longer than ten 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 five years.

No option shall be exercisable prior to one 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.

To date, no options have been granted under the 1998 Long-term Incentive Plan.

Note 9. Shareholders’ Equity

Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters submitted to a vote of the shareholders. Except for the election of Avalon’s Board of Directors, the Class A Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote of the shareholders. However, with regard to the election of directors, for as long as the outstanding Class B Common Stock has more than 50% of the total outstanding voting power of all common stock, the holders of the Class A Common Stock, voting as a separate class, will elect the number of directors equal to at least 25% of the total Board of Directors and the holders of the Class B Common Stock, voting as a separate class, will elect the remaining directors. Thereafter, the holders of the Class A Common Stock (one vote per share) and Class B Common Stock (ten votes per share) will vote together as a single class for the election of directors. The holders of a majority of all outstanding shares of Class A Common Stock or Class B Common Stock, voting as separate classes, must also approve amendments to the Articles of Incorporation that adversely affect the shares of their class. Shares of Class A Common Stock and Class B Common Stock do not have cumulative voting rights.

Each share of Class B Common Stock is convertible, at any time, at the option of the shareholder, into one share of Class A Common Stock. Shares of Class B Common Stock are also automatically converted into shares of Class A Common Stock on the transfer of such shares to any person other than Avalon, another holder of Class B Common Stock or a Permitted Transferee, as defined in Avalon’s Articles of Incorporation. The Class A Common Stock is not convertible.

Note 10. 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, would have a material adverse effect on it.

19

Note 11. Lease Commitments

Avalon leases certain office facilities, vehicles, machinery, and equipment. Avalon also leases the Squaw Creek Country Club facilities. Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease, which commenced November 1, 2003, 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 improvements during a given year in excess of $150,000 will be carried forward and applied to future obligations and classified as prepaid rent.

Future commitments under long-term, operating leases at December 31, 2003 are as follows (in thousands):

Year ending December 31,
2004	$	2,697
2005		2,287
2006		1,611
2007		684
2008		246
After 2008		825
	$	8,350

If Avalon would exercise all its options and lease the Squaw Creek Country Club facility for 50 years, the future commitments for years after 2008 would be $7,397,000.

Rental expense included in the Consolidated Statements of Operations amounted to $4,258,000 in 2003, $4,565,000 in 2002, and $4,725,000 in 2001. Avalon’s transportation operations rent additional transportation equipment on a short-term basis in order to meet its hauling obligations.

Note 13. Business Segment Information

In applying SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” Avalon considered its operating and management structure and the types of information subject to regular review by its “chief operating decision maker.” On this basis, Avalon’s reportable segments include transportation services and 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 years presented.

Avalon’s primary business segment provides transportation services that include transportation of hazardous and non-hazardous waste, transportation of general and bulk commodities and transportation brokerage and management services. The waste management services segment provides hazardous and nonhazardous brokerage and management services to industrial, commercial, municipal and governmental customers and manages a captive landfill for an industrial customer. The golf and related operations segment includes the operations of two golf courses and related facilities and a travel agency. Avalon does not have significant operations located outside the United States and, accordingly, geographical segment information is not presented.

In 2003, one customer accounted for approximately 24% of the transportation services segments net operating revenues to external customers and approximately 13% of Avalon’s consolidated net operating revenues. In 2002 one customer accounted for 23% of the transportation services segment net operating revenues to external customers and approximately 13% of Avalon’s consolidated net operating revenues.

20

The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of significant accounting policies (see Note 2). Avalon measures segment profit for internal reporting purposes as income (loss) from continuing operations before taxes. Business segment information including the reconciliation of segment income to consolidated income (loss) from continuing operations before taxes is as follows (in thousands):

	2003			2002			2001
Net operating revenues from:
Transportation services:
External customers revenues	$	28,778		$	32,099		$	31,570
Intersegment revenues		3,162			4,079			5,088
Total transportation services		31,940			36,178			36,658
Waste management services:
External customers revenues		22,137			22,100			24,111
Intersegment revenues		201			422			689
Total waste management services		22,338			22,522			24,800
Golf and related operations:
External customer revenues		2,597			1,829			1,067
Intersegment revenues		78			88			140
Total golf and related operations		2,675			1,917			1,207
Other businesses:
External customers revenues		—			—			—
Intersegment revenues		—			—			—
Total other businesses		—			—			—
Segment operating revenues		56,953			60,617			62,665
Intersegment eliminations		(3,441	)		(4,589	)		(5,917	)
Total net operating revenues	$	53,512		$	56,028		$	56,748
Income (loss) from continuing operations before taxes:
Transportation services	$	(112	)	$	(2,233	)	$	(234	)
Waste management services		1,512			1,140			1,640
Golf and related operations		66			(303	)		(877	)
Other businesses		(13	)		—			10
Segment income (loss) before taxes		1,453			(1,396	)		539
Corporate interest income		154			209			398
Corporate other income, net		30			35			7
General corporate expenses		(3,562	)		(3,242	)		(3,264	)
Income (loss) from continuing operations before taxes	$	(1,925	)	$	(4,394	)	$	(2,320	)
Depreciation and amortization:
Transportation services	$	1,219		$	1,283		$	1,519
Waste management services		84			94			93
Golf and related operations		524			473			407
Other businesses		—			—			—
Corporate		243			297			213
Total	$	2,070		$	2,147		$	2,232
	2003			2002			2001
Interest income:
Transportation services	$	36		$	19		$	59
Waste management services		12			16			48
Golf and related operations		2			2			6
Other businesses		—			—			—
Corporate		154			209			398
Total	$	204		$	246		$	511
Capital expenditures:
Transportation services	$	177		$	759		$	500
Waste management services		6			42			26
Golf and related operations		101			2,433			537
Other businesses		—			—			—
Corporate		26			13			312
Total	$	310		$	3,247		$	1,375
Identifiable assets at December 31:
Transportation services	$	9,003		$	10,735		$	13,349
Waste management services		5,821			6,100			6,214
Golf and related operations		14,825			14,376			12,292
Other businesses		557			566			66
Corporate		30,137			27,573			30,735
Discontinued operations		5,153			7,985			10,924
Sub Total		65,496			67,335			73,580
Elimination of intersegment receivables		(16,442	)		(15,689	)		(13,613	)
Total	$	49,054		$	51,646		$	59,967

21

Avalon Holdings Corporation and Subsidiaries

Note 14. Recently Issued Financial Accounting Standards

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46) to provide guidance on when an investor should consolidate another entity from which they receive benefits or are exposed to risks when those other entities are not controlled based on traditional voting interests or they are thinly capitalized. This statement was subsequently revised by FIN 46 (revised December 2003) (FIN 46R) in December 2003. This revision clarified some of the provisions of FIN 46. The provisions of FIN 46R are effective beginning December 15, 2003 for public entities that have interests in structures that are considered special-purpose entities and March 15, 2004 for all other types of variable interest entities. The adoption of FIN 46R did not have an effect on Avalon’s financial position or results of operations.

In April 2003, SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, was issued. SFAS No. 149 amends and clarifies financial accounting and reporting for derivatives and hedging activities under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. This statement is effective for contracts entered into or modified after June 30, 2003. Avalon does not purchase or hold any derivative financial instruments or engage in hedging activities, and therefore, the adoption of SFAS No. 149 had no impact on Avalon’s financial position or results of operations.

In May 2003, SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, was issued. SFAS No. 150 requires that an issuer classify a financial instrument within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Avalon has not entered into or modified any financial instruments after May 31, 2003 and holds no financial instruments with characteristics of both liabilities and equity, and therefore, the adoption of SFAS No. 150 had no impact on Avalon’s financial position or results of operations.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers Disclosure about Pensions and Other Postretirement Benefits”. The provisions of this revised statement retains the disclosure requirement of the original guidance of SFAS No. 132 and includes additional disclosures regarding the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The provisions of this statement are effective for financial statements with fiscal years ending and interim periods beginning after December 15, 2003. Avalon has no pension or postretirement benefit plans, and therefore, the adoption of SFAS No. 132 (revised 2003) had no impact on the disclosure requirements relating to Avalon’s financial statements.

22

Avalon Holdings Corporation and Subsidiaries

Note 15. Quarterly financial data (Unaudited)

Selected quarterly financial data for each quarter in 2003 and 2002 is as follows:

	Year Ended December 31, 2003*
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
Net operating revenues	$	11,585		$	14,547		$	13,986		$	13,394		$	53,512
Operating loss from continuing operations		(1,150	)		(379	)		(221	)		(681	)		(2,431	)
Loss from continuing operations		(1,020	)		(286	)		(108	)		(485	)		(1,899	)
Income (loss) from discontinued operations		41			(101	)		60			(1,745	)		(1,745	)
Net loss		(979	)		(387	)		(48	)		(2,230	)		(3,644	)
Basic net loss per share from continuing operations		(.27	)		(.08	)		(.03	)		(.12	)		(.50	)
Basic net income (loss) per share from discontinued operations		.01			(.02	)		.02			(.47	)		(.46	)
Basic net loss per share	$	(.26	)	$	(.10	)	$	(.01	)	$	(.59	)	$	(.96	)
	Year Ended December 31, 2002*
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
Net operating revenues	$	13,179		$	14,019		$	15,799		$	13,031		$	56,028
Operating loss from continuing operations		(1,216	)		(543	)		(2,054	)		(1,171	)		(4,984	)
Loss from continuing operations		(1,113	)		(292	)		(1,926	)		(1,254	)		(4,585	)
Income (loss) from discontinued operations		(518	)		(543	)		290			(482	)		(1,253	)
Net loss		(1,631	)		(835	)		(1,636	)		(1,736	)		(5,838	)
Basic net loss per share from continuing operations		(.29	)		(.08	)		(.51	)		(.33	)		(1.21	)
Basic net income (loss) per share from discontinued operations		(.14	)		(.14	)		.08			(.13	)		(.33	)
Basic net loss per share	$	(.43	)	$	(.22	)	$	(.43	)	$	(.46	)	$	(1.54	)

^* The information in the above quarterly financial data for the year ended December 31, 2002 and the first three quarters of the year ended December 31, 2003 has been reclassified from the information previously reported in Avalon’s filings on Form 10Q and Form 10K to reflect discontinued operations.

23

Avalon Holdings Corporation and Subsidiaries

Independent Auditors’ Report

The Shareholders and Board of Directors of Avalon Holdings Corporation

We have audited the accompanying consolidated balance sheets of Avalon Holdings Corporation and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Avalon Holdings Corporation and subsidiaries as of December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

Grant Thornton LLP

Cleveland, Ohio

February 27, 2004

24

Avalon Holdings Corporation and Subsidiaries

Digest of Financial Data

	(All amounts are in thousands, except per share data, percentages and number of employees)
	2003			2002			2001			2000			1999
SELECTED STATEMENT OF OPERATIONS INFORMATION
Net operating revenues	$	53,512		$	56,028		$	56,748		$	58,836		$	54,121
Operating loss from continuing operations		(2,431	)		(4,984	)		(2,798	)		(2,315	)		(460	)
Interest expense		—			—			—			—			—
Income (loss) from continuing operations		(1,899	)		(4,585	)		(1,503	)		(599	)		363
Income (loss) from discontinued operations		(1,745	)		(1,253	)		(1,827	)		(1,834	)		860
Net income (loss)		(3,644	)		(5,838	)		(3,330	)		(2,433	)		1,223
Net income (loss) per share from continuing operations		(.50	)		(1.21	)		(.40	)		(.16	)		.10
Net income (loss) per share from discontinued operations		(.46	)		(.33	)		(.48	)		(.48	)		.22
Net income (loss) per share		(.96	)		(1.54	)		(.88	)		(.64	)		.32
Dividends per Class A share		—			—			—			—			—
Dividends per Class B share		—			—			—			—			—
Weighted average shares used to calculate net income and pro forma net (loss) per share		3,803			3,803			3,803			3,803			3,803
SELECTED CASH FLOW INFORMATION
Net cash provided by (used in) operating activities from continuing operations		2,787			(802	)		1,227			16			(220	)
Cash used for capital expenditures		310			3,247			1,375			7,115			5,254
SELECTED YEAR-END BALANCE SHEET INFORMATION
Cash and cash equivalents		4,656			1,929			3,482			10,031			17,663
Current assets		17,479			22,666			25,135			30,952			37,738
Current liabilities		10,134			8,881			10,748			9,223			10,769
Working capital		7,345			13,785			14,387			21,729			26,969
Properties less accumulated depreciation and amortization		21,871			23,613			22,427			23,585			18,976
Total assets		49,054			51,646			59,967			62,310			66,404
Current portion of long-term debt		—			—			—			—			—
Long-term debt		—			—			—			—			—
Deferred income tax liability (non-current)		—			—			701			1,239			1,354
Shareholders’ equity		38,920			42,634			48,398			51,728			54,161
OTHER INFORMATION
Working capital ratio		1.7:1			2.6:1			2.3:1			3.4:1			3.5:1
Quoted market price-Class A Shares:
High		2.70			3.40			3.55			5 3/4			7 1/4
Low		1.70			1.96			2.20			2 5/16			4 13/16
Year-end		2.63			2.00			2.85			2 3/4			5
Number of employees at year-end		321			346			422			450			470

25

Avalon Holdings Corporation and Subsidiaries

Company Location Directory

Corporate Office

Avalon Holdings Corporation

One American Way

Warren, Ohio 44484-5555

(330) 856-8800

Waste Management Services

American Waste Management Services, Inc.

One American Way

Warren, Ohio 44484-5555

(330) 856-8800

American Landfill Management, Inc.

One American Way

Warren, Ohio 44484-5555

(330) 856-8800

American Construction Supply, Inc.

One American Way

Warren, Ohio 44484-5555

(330) 856-8800

Golf and Related Operations

Avalon Golf and Country Club

One American Way

Warren, Ohio 44484

(330) 856-8898

Avalon Lakes Golf Course

One American Way

Warren, Ohio 44484-5555

(330) 856-8898

Squaw Creek Golf Course

761 Youngstown-Kingsville Road

Vienna, Ohio 44473

Avalon Travel, Inc.

One American Way

Warren, Ohio 44484-5555

(330) 856-8400

Transportation Offices

DartAmericA, Inc.

Dart Trucking Company, Inc.

Dart Services, Inc.

TRB National Systems, Inc.

One American Way

Warren, Ohio 44484-5555

(330) 856-8430

Transportation Terminals

Dart Trucking Company, Inc.

61 Railroad Street

Canfield, Ohio 44406

Dart Trucking Company, Inc.

200 Old Webster Road

Oxford, Massachusetts 01540

Dart Trucking Company, Inc.

1807A Route 7

Kenova, West Virginia 25530

Dart Trucking Company, Inc.

11861 S. Cottage Grove Ave.

Chicago, Illinois 60628

26

Avalon Holdings Corporation and Subsidiaries

Directors and Officers

Directors

Ronald E. Klingle

Chairman of the Board

Executive Committee (Chairman)

Compensation Committee (Chairman)

Ted Wesolowski

Shareholder, Babst, Calland, Clements, & Zomnir, P.C.

Executive Committee

Compensation Committee

Sanford B. Ferguson

Partner, Kirkpatrick & Lockhart, LLP

Executive Committee

Option Plan Committee (Chairman)

Robert M. Arnoni

President, Arnoni Development Company, Inc.

Compensation Committee

Audit Committee

Option Plan Committee

Stephen L. Gordon

Partner, Beveridge & Diamond, P.C.

Audit Committee

Option Plan Committee

Thomas C. Kniss

Partner, Kniss Kletzli & Associates, P.C.

Audit Committee (Chairman)

Option Plan Committee

Officers

Ronald E. Klingle

Chief Executive Officer

Timothy C. Coxson

Treasurer and Chief Financial Officer

Chief Executive Officer of DartAmericA, Inc.

Jeffrey M. Grinstein

Secretary

Frances R. Klingle

Chief Administrative Officer

Kenneth R. Nichols

Vice President, Taxes

Frank Lamanna

Controller

27

Avalon Holdings Corporation and Subsidiaries

Shareholder Information

Annual meeting of shareholders

The annual meeting of shareholders will be held at Avalon Holdings Corporation corporate headquarters, One American Way, Warren, Ohio, on Thursday, April 29, 2004, at 10:00 a.m.

Common stock information

Avalon’s Class A Common Stock is listed on the American Stock Exchange (symbol: AWX). Quarterly stock information for 2003, 2002 and 2001 as reported by The Wall Street Journal is as follows:

2003:
Quarter Ended	High	Low	Close
March 31	2.06	1.70	1.89
June 30	2.12	1.70	2.06
September 30	2.39	2.05	2.38
December 31	2.70	2.22	2.63
2002:
Quarter Ended	High	Low	Close
March 31	3.40	2.75	2.90
June 30	2.94	2.40	2.40
September 30	2.56	2.05	2.05
December 31	2.50	1.96	2.00
2001:
Quarter Ended	High	Low	Close
March 31	3.55	2.75	3.17
June 30	3.30	2.37	3.00
September 30	3.10	2.20	2.45
December 31	3.00	2.20	2.85

No dividends were paid during 2003.

There are 619 Class A and 12 Class B Common Stock shareholders of record as of the close of business March 3, 2004. The number of holders is based upon the actual holders registered on the records of Avalon’s transfer agent and registrar and does not include holders of shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.

Dividend policy

Avalon presently intends to retain earnings for use in the operation and expansion of its business and therefore does not anticipate paying any cash dividends in the foreseeable future.

Annual report on Form 10-K

Copies of Avalon’s annual report on Form 10-K can be obtained free of charge by writing to Avalon Holdings Corporation, One American Way, Warren, Ohio 44484-5555, Attention: Shareholder Relations.

Transfer agent and registrar

The transfer agent and registrar for Avalon is American Stock Transfer and Trust Company. All correspondence concerning stock transfers should be directed to them at 59 Maiden Lane, New York, New York 10038.

Investor inquiries

Security analysts, institutional investors, shareholders, news media representatives and others seeking financial information or general information about Avalon are invited to direct their inquiries to Timothy C. Coxson, Treasurer and Chief Financial Officer, telephone (330) 856-8800.

Policy statement on equal employment opportunity and affirmative action

Avalon is firmly committed to a policy of equal employment opportunity and affirmative action. Toward this end, Avalon will continue to recruit, hire, train and promote persons in all job titles, without regard to race, color, religion, sex, national origin, age, handicap, ancestry or Vietnam-era or disabled veteran status. We will base all decisions on merit so as to further the principle of equal employment opportunity. This policy extends to promotions and to all actions regarding employment including compensation, benefits, transfers, layoffs, returns from layoff, company-sponsored training and social programs.

28

EX-21.1

Exhibit 21.1

The following is a list of Avalon’s subsidiaries except for unnamed subsidiaries which considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

Subsidiary Name	State of Incorporation
•      American Landfill Management, Inc.	Ohio
•      American Waste Management Services, Inc.	Ohio
•      Avalon Golf and Country Club, Inc.	Ohio
•      Avalon Lakes Golf, Inc.	Ohio
•      Avalon Travel, Inc.	Ohio
•      TGB, Inc.	Ohio
•      DartAmericA, Inc.	Ohio
•      Dart Trucking Company, Inc.	Ohio
•      Dart Realty, Inc.	Ohio
•      Dart Services, Inc.	Ohio
•      TRB National Systems, Inc.	Ohio

Parent/subsidiary relationships are indicated by indentations. In each case, 100% of the voting securities of each of the subsidiaries is owned by the indicated parent of such subsidiary.

EX-31.1

Exhibit 31.1

AVALON HOLDINGS CORPORATION

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Ronald E. Klingle, certify that:

1. I have reviewed this Annual Report on Form 10-K of Avalon Holdings Corporation;

2. Based on my knowledge, this 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)) 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) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and 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

c) 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 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 registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: March 24, 2004

/s/ Ronald E. Klingle

Ronald E. Klingle

Chief Executive Officer

EX-31.2

Exhibit 31.2

AVALON HOLDINGS CORPORATION

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Timothy C. Coxson, certify that:

1. I have reviewed this Annual Report on Form 10-K of Avalon Holdings Corporation;

2. Based on my knowledge, this 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)) 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) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and 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

c) 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 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 registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: March 24, 2004

/s/ Timothy C. Coxson

Timothy C. Coxson

Chief Financial Officer

EX-32.1

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 Annual Report of Avalon Holdings Corporation (the “registrant”) on Form 10-K for the year ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “report”), I, Chief Executive Officer of the registrant, certify, pursuant to 18 U.S.C. (a) 1350, as adopted pursuant to (a) 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

/s/ Ronald E. Klingle

Ronald E. Klingle

Chief Executive Officer

March 24, 2004

EX-32.2

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 Annual Report of Avalon Holdings Corporation (the “registrant”) on Form 10-K for the year ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “report”), I, Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. (a) 1350, as adopted pursuant to (a) 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

/s/ Timothy C. Coxson

Timothy C. Coxson

Chief Financial Officer

March 24, 2004