10-K/A

2004

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment #1)

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

For the fiscal year ended December 31, 2004

¨ 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, 2005 was $9.4 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, 2005 was approximately $4,400. The registrant had 3,190,786 shares of its Class A Common Stock and 612,545 shares of its Class B Common Stock outstanding as of March 3, 2005.

Documents Incorporated by Reference

1. Portions of the Avalon Holdings Corporation Annual Report to Shareholders for the year ended December 31, 2004 (Parts I and II 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	4
	Item 3.	Legal Proceedings	5
	Item 4.	Submission of Matters to a Vote of Security Holders	5
Part II
	Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	6
	Item 6.	Selected Financial Data	6
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	6
	Item 8.	Financial Statements and Supplementary Data	6
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	6
	Item 9A.	Controls and Procedures	7
	Item 9B.	Other Information	7
Part III
	Item 10.	Directors and Executive Officers of the Registrant	8
	Item 11.	Executive Compensation	10
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	12
	Item 13.	Certain Relationships and Related Transactions	13
Part IV
	Item 14.	Principal Accountant Fees and Services	14
	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	14
Signatures			16

Note on Incorporation by Reference

Throughout this report various information and data are incorporated by reference from Avalon’s 2004 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.

Explanatory Note

Avalon Holdings Corporation (“Avalon”) is filing this Amendment No. 1 to its Form 10-K for the fiscal year ended December 31, 2004 (the “Form 10-K”), originally filed with the Securities and Exchange Commission on March 30, 2005, for the sole purpose of including information required by Part III, Items 10, 11 and 12, and by Part IV, Item 14, which were previously incorporated by reference to the Avalon Holdings Corporation Proxy Statement for the 2005 Annual Meeting of Shareholders. Avalon is also updating the signature page and Exhibits 31.1, 31.2, 32.1 and 32.2.

No attempt has been made in this Form 10-K/A to modify or update other disclosures presented in the original report on Form 10-K, except as required to reflect the information as indicated above.

The Form 10-K/A does not reflect events occurring after the filing of the Form 10-K or modify or update those disclosures, including the exhibits to the Form 10-K affected by subsequent events. Information not affected by the information is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-K on March 30, 2005.

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 subsequently sold the assets of the laboratory services and remediation business and discontinued the engineering and consulting businesses which were part of the technical environmental services operations. In July 2004, Avalon sold its transportation operations.

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”), a subsidiary of AWS, 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 Golf and Country 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. (“TBG”), a subsidiary of ALGI, 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. (“AGCC”) which manages the two golf courses and related operations.

Business Segments Information

Avalon’s business segments are waste management services and golf and related operations. The waste management services segment includes waste disposal brokerage and management services and captive landfill management operations. The captive landfill management operations had been included in the technical environmental services segment. As a result of the assets of the remediation business being sold and the environmental engineering and consulting business being discontinued, the technical environmental services segment has been eliminated. The golf and related operations segment includes the operation and management of two golf courses, dining and banquet facilities and a travel agency. The transportation services segment has been eliminated as a result of the sale of DartAmericA, Inc. in July 2004. All financial information for the current and prior year has been reclassified to reflect the changes.

Waste management services are provided to industrial, commercial, municipal and governmental customers primarily in selected northeastern and midwestern United States markets. Avalon’s waste management services segment provides hazardous and nonhazardous waste brokerage and management services and captive landfill management services. For the years 2004, 2003 and 2002, the net operating revenues of the waste management services segment represented approximately 85%, 89% and 92%, 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 2004, 2003 and 2002, the net operating revenues of the golf and related operations segment represented approximately

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15%, 11%, and 8%, respectively, of Avalon’s total segments’ net operating revenues. One customer, Timken Company, accounted for approximately 12% of Avalon’s 2004 consolidated net operating revenues.

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.

Before AWMS will provide 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 revenue from membership dues, greens fees, cart rentals, merchandise sales, and food and beverage sales. TBG, a subsidiary of ALGI, 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. In addition to a championship golf course, the Squaw Creek facilities include a swimming pool, tennis courts and a clubhouse that provides dining and banquet facilities. TBG generates its revenue in the same manner as ALGI. Avalon Travel, Inc. a subsidiary of ALGI owns and operates a travel agency which generates its revenue from booking travel reservations.

In November 2003, Avalon formed the Avalon Golf and Country Club to manage the two golf courses and related operations. 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. Both the

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Avalon Lakes Golf Course and the Squaw Creek Golf Course are also available to the general public. Although the golf courses are available to the general public, the primary source of revenues will be derived from the members of the Avalon Golf and Country Club. Avalon believes that the combination of the Squaw Creek and Avalon Lakes facilities will result in additional memberships in the Avalon Golf and Country Club. Over the past year and a half, Avalon has had a substantial increase in the number of members of the Avalon Golf and Country Club but as of December 31, 2004, Avalon still has not attained its goal. Such additional memberships, 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 additional members could adversely affect the future financial performance of Avalon.

The golf courses are significantly dependent upon weather conditions during the golf season as a result of being located in northeast Ohio. Avalon’s financial performance is adversely affected by adverse weather conditions.

Governmental Regulations

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 portion of Avalon’s waste brokerage and management services revenues is derived from the disposal and/or transportation of out-of-state waste. Any law or regulation restricting or impeding the transportation of waste or the acceptance of out-of-state waste for disposal could have a negative effect on Avalon. Avalon’s waste brokerage and management services may also be affected by the trend toward laws requiring the development of waste reduction and recycling or other programs.

ALGI and TBG currently hold liquor licenses for their respective facilities. If, for some reason, either of these facilities were to lose their liquor license, the financial performance of the golf and related operations would be adversely affected.

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 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 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 compete with many public courses and country clubs in the area.

Insurance

Avalon carries $5,000,000 of liability insurance coverages. This insurance includes coverage for comprehensive general liability, automobile liability and other customary coverages. In addition, Avalon carries comprehensive property damage coverage. Avalon also carries $5,000,000 of liability insurance for the golf courses and related operations which maintains separate insurance coverage. 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.

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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, 2004, Avalon had 120 employees, 24 of whom were employed by the waste management services segment, 75 of whom were employed by the golf course and related operations and 21 of whom were employed in financial and administrative activities. 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

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 ALMI, ALGI, TBG, AGCC and AWMS are each located at the headquarters building of Avalon in Warren, Ohio. Avalon’s corporate headquarters building also includes a clubhouse, restaurant and pro shop for the Avalon Golf and Country Club at Avalon Lakes Golf Course.

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. All the facilities are located in Warren, Ohio.

TBG, Inc. leases and operates the Avalon Golf and Country Club at Squaw Creek in Vienna, Ohio, which includes an 18-hole golf course and practice facility on approximately 224 acres, a swimming pool, four tennis courts and a 67,000 square foot clubhouse that includes a pro shop, restaurant and banquet facilities. The clubhouse was renovated and expanded in 2004.

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.

Dart Realty, Inc., a subsidiary of Avalon, owns a 18,800 square foot facility in Canfield, Ohio. This facility was used in the transportation operations, which were sold in July 2004. This building is currently held for sale.

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

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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 2004.

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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 2004 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 2000 through 2004 under the captions Net operating revenues, Loss from continuing operations, Loss from discontinued operations, Net loss, Net loss per share from continuing operations, Net loss per share from discontinued operations, Net loss per share, Total assets and Long-term obligations under capital leases	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, 2004 and 2003 and for each of the years in the three-year period ended December 31, 2004	24
Financial Statements:
Consolidated Balance Sheets, December 31, 2004 and 2003	11
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002	12
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	13
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December 31, 2004	14
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2004, 2003 and 2002	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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ITEM 9A. 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 9B. OTHER INFORMATION

None

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following information is included pursuant to Item 401, 405 and 406 of Regulation S-K:

Name	Age	Position
Ronald E. Klingle	57	Chairman of the Board, Chief Executive Officer and a Director
Frank Lamanna	41	Treasurer and Chief Financial Officer
Frances R. Klingle	58	Chief Administrative Officer
Kenneth J. McMahon	52	Chief Executive Officer and President of American Waste Management Services, Inc.
Thomas C. Kniss	49	Director
Stephen L. Gordon	63	Director
Ted Wesolowski	53	Director
Robert M. Arnoni	49	Director

The above-listed executive officers 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. The above listed directors have been elected to hold office as directors until the next annual shareholder’s meeting and until their respective successors are duly elected and qualified.

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.

Frank Lamanna has been Treasurer and Chief Financial Officer of Avalon since August 2004. He was Controller from April 2002 until August 2004. Mr. Lamanna had previously been Vice President of Corporate Financial Services from 1999 to April 2002. Mr. Lamanna received a Bachelor of Science in Business Administration in Accounting degree from Youngstown State University. He is also a Certified Public Accountant in the State of Ohio.

Frances R. Klingle has been Chief Administrative Officer of Avalon since June 1998. She was also 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.

Thomas C. Kniss has been a director of Avalon since November 2003. Mr. Kniss has been a certified public accountant since 1979 and was a founder of the certified public accounting firm of Kniss Kletzli & Associates, P.C. in 1992. Mr. Kniss received his Bachelor of Science degree in Accounting from Saint Vincent College in 1977.

Stephen L. Gordon has been a director of Avalon since June 1998. He has been a partner in the law firm of Beveridge & Diamond, P.C. since 1982. Mr. Gordon received his Bachelor of Arts degree from Rutgers University and his Doctor of Jurisprudence degree from the University of Pennsylvania.

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Ted Wesolowski, has been a director of Avalon since April 2002. Mr. Wesolowski was Chief Executive Officer and President of Avalon from January 2003 until March 15, 2004. Mr. Wesolowski resigned as Chief Executive Officer and President on March 15, 2004. Mr. Wesolowski continued as a director. Prior to serving as Chief Executive Officer and President of Avalon, Mr. Wesolowski was a co-founder of Babst, Calland, Clements & Zomnir, P.C., and had been with the Pittsburgh, Pennsylvania-based law firm since its inception in 1986. Mr. Wesolowski returned to his position with the law firm after his resignation. He received his Bachelor of Science degree from The Pennsylvania State University and his Doctor of Jurisprudence degree from The University of Pittsburgh. He was also the Chairman of the Business Law Section of the Allegheny County Bar Association and was a faculty member of the Pennsylvania Business Law Institute.

Robert M. Arnoni has been a director of Avalon since June 1998. He is currently President of the Arnoni Development Company, Inc. From 1985 to August 1996, Mr. Arnoni was President and Chief Executive Officer of The Arnoni Group, a management company for various solid waste collection, transportation and disposal operations. Mr. Arnoni has over 20 years experience in the solid waste industry.

Audit Committee Financial Expert

The Audit Committee is responsible for recommending the firm of independent accountants to be engaged to audit Avalon’s financial statements, reviewing the scope and results of the audit with the independent accountants, reviewing with management and the independent accountants Avalon’s interim and year-end operating results, considering the adequacy of the internal accounting controls and procedures of Avalon and reviewing the non-audit services to be performed by the independent accountants. The Audit Committee consists of three members, as follows: Messrs. Kniss (Chairman), Arnoni and Gordon. The Board of Directors has determined that each member of the Audit Committee is independent as defined by the Securities and Exchange Commission and American Stock Exchange. The Board of Directors has identified Mr. Kniss as the Audit Committee financial expert. Avalon has adopted a formal written Audit Committee Charter. The Audit Committee reviews and reassesses the adequacy of the formal written charter on an annual basis.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires Avalon’s directors, its executive officers and persons holding more than 10 percent of a class of Avalon’s equity securities to file with the Commission, the American Stock Exchange and Avalon, initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of Avalon. These officers, directors and greater than 10 percent shareholders are required by the Commission’s regulations to furnish Avalon with copies of all Section 16(a) forms they file.

To Avalon’s knowledge, based solely on review of the copies of such reports furnished to Avalon, all such Section 16(a) reports were filed.

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.

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ITEM 11. EXECUTIVE COMPENSATION

Compensation of Executive Officers

The following information required by Item 11 is included pursuant to Item 402 of Regulation S-K and the table below sets forth the compensation of Avalon’s Chief Executive Officer, Avalon’s four most highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers as of December 31, 2004 and those individuals who served as executive officers of Avalon during some part of the fiscal year ended December 31, 2004.

SUMMARY COMPENSATION TABLE (1)

		Annual Compensation (2)					Long Term Compensation
							Awards		Payouts
Name and Principal Position	Year	Salary		Bonus		Other Annual Compensation	Restricted Stock Awards	Options/ SARs (Shares)	LTIP Payouts	All Other Compen- sation (3)
Ronald E. Klingle Chairman of the Board, and Chief Executive Officer	2004 2003 2002	$	160,000 160,000 160,000	$	260,000 20,000 50,000	—   —   —	—   —   —	—   —   —	—   —   —	$	4,100 3,600 6,800
Ted Wesolowski (4) Ex-Chief Executive Officer and Ex-President	2004 2003 2002		49,886 250,000 —		9,863 50,000 —	186 537 —	—   —   —	—   —   —	—   —   —		—   2,511 —
Frances R. Klingle Chief Administrative Officer	2004 2003 2002		95,000 95,000 95,000		57,500 —   10,000	—   —   —	—   —   —	—   —   —	—   —   —		3,050 1,900 4,200
Frank Lamanna Chief Financial Officer and Treasurer	2004		92,500		7,500	—	—	—	—		2,000
Kenneth J. McMahon Chief Executive Officer, American Waste Management Services, Inc.	2004 2003 2002		130,000 130,000 130,000		97,535 40,000 50,000	—   —   —	—   —   —	—   —   —	—   —   —		4,100 3,400 6,800
Timothy C. Coxson (5) Ex-Chief Financial Officer and Ex-Treasurer,	2004 2003 2002		124,000 145,000 130,000		75,000 30,000 50,000	—   —   —	—   —   —	—   —   —	—   —   —		3,320 3,500 6,800
Jeffrey M. Grinstein (6) Ex-General Counsel and Ex-Secretary	2004 2003 2002		83,000 145,000 130,000		50,000 30,000 50,000	—   —   —	—   —   —	—   —   —	—   —   —		3,320 3,500 6,800

(1) Does not include the value of certain non-cash compensation to the named individuals which did not exceed the lesser of $50,000 or 10% of such individuals’ total annual salary and bonus shown in the table.

(2) Includes salary and/or bonuses deferred pursuant to Section 401(k) of the Internal Revenue Code.

(3) Reflects contributions to be made on behalf of the named executive officer pursuant to the provisions of Avalon’s 401(k) Profit Sharing Plan.

(4) Mr. Wesolowski resigned from his position as Chief Executive Officer and President on March 15, 2004.

(5) Mr. Coxson resigned from his position as Chief Financial Officer and Treasurer on August 31, 2004.

(6) Mr. Grinstein resigned from his position as General Counsel and Secretary on July 31, 2004.

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Option Grants in Last Fiscal Year

The Option Plan Committee determines grants of options to purchase shares under Avalon’s 1998 Long-Term Incentive Plan based upon recommendations made by Avalon’s Compensation Committee. The Option Plan Committee consists of three members, as follows: Messrs. Kniss (Chairman), Arnoni and Gordon.

There were no options granted during 2004.

Compensation of Directors

Each of Avalon’s directors who is not an officer or employee of Avalon is entitled to receive a retainer fee of $20,000 per year for Board of Directors membership and a fee of $1,000 for attendance at each Board of Directors meeting (or committee meeting held on a separate day). Officers and employees who serve as directors are not compensated for their services as directors. In accordance with the Avalon Holdings Corporation 1998 Long-Term Incentive Plan, non-employee directors are entitled to receive grants of options to purchase shares of Class A Common Stock as determined by the Board of Directors. All directors are reimbursed for expenses incurred in attending Board of Directors meetings and committee meetings. During 2004, Avalon made a payment of $50,000 to Ted Wesolowski for services performed subsequent to his resignation as Chief Executive Officer and President.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is responsible for reviewing and establishing the compensation arrangements for employees of Avalon, including the salaries and bonuses of top management. The Compensation Committee consists of three members, as follows: Messrs. Klingle (Chairman), Wesolowski and Arnoni.

Ronald E. Klingle served as Chairman of the Compensation Committee and was an executive officer of Avalon during 2004. Furthermore, during 2004, Mr. Klingle was an executive officer and/or director of various directly or indirectly wholly owned subsidiaries of Avalon.

No member of the Compensation Committee serve on a Compensation Committee performing equivalent functions for any other entity other than a directly or indirectly wholly owned subsidiary of Avalon.

Avalon is a controlled company as defined by the American Stock Exchange company guide because over 50% of the voting power of Avalon is held by Mr. Klingle. As such, Avalon does not have a Nominating Committee and the members of Avalon’s Compensation Committee are not all independent.

11

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is included pursuant to Item 403 of Regulation S-K and the following table sets forth information with respect to beneficial ownership of the Class A Common Stock and Class B Common Stock by: (i) Avalon’s Directors and certain named officers of Avalon (ii) all executive officers and directors as a group and (iii) each person known to Avalon to be the beneficial owner of more than five percent of either class of Common Stock. This information is as of February 15, 2005, unless noted that it is based upon Schedules 13-D or 13-G filed with the Securities and Exchange Commission (the “Commission”), in which event such information is as of December 31, 2004.

	Beneficially Owned as of February 15, 2005
	Class A Common Stock			Class B Common Stock
Name	Number of Shares	Percent of Class		Number of Shares	Percent of Class		Percent of all Common Stock		Percent of Total Voting Power
Ronald E. Klingle (1)(6)(7) c/o Avalon Holdings Corporation One American Way Warren, Ohio 44484-5555	170,417	5.3	%	611,133	99.8	%	20.5	%	67.4	%
Anil C. Nalluri, M.D., Inc. Profit Sharing Plan and Trust (3)(4) c/o Anil C. Nalluri, M.D., Inc. 5500 Market Street Youngstown, OH 44512	404,044	12.7		—	—		10.6		4.3
Lourde John Constable (2) 41 Leopard Road, Suite 202 Paoli, PA 19301	371,046	11.6		—	—		9.8		4.0
Constable Group, LLC (2) Constable Managing Partners, L.P. (2) Constable Partners, L.P. (2) 41 Leopard Road, Suite 202 Paoli, PA 19301	348,346	10.9		—	—		9.2		3.7
Advisory Research, Inc. (3)(5) 180 North Stetson St. Suite 5500 Chicago, IL 60601	309,500	9.7		—	—		8.1		3.3
Raffles Associates, L.P. (3)(11) 450 Fashion Avenue, Suite 509 New York, New York 10123	199,400	6.3		—	—		5.2		2.1
Daniel R. Tisch (3)(10) Mentor Partners, L.P. 500 Park Avenue New York, New York 10022	177,400	5.6		—	—		4.7		1.9
Thomas C. Kniss (7)	—	—		—	—		—		—
Robert M. Arnoni (7)	20,200	*		—	—		*		*
Stephen L. Gordon (7)	—	—		—	—		—		—
Ted Wesolowski (7)	—	—		—	—		—		—
Kenneth J. McMahon (6)	—	—		—	—		—		—
Frank Lamanna (6)	12	*		—	—		*		*
Frances R. Klingle (6)(9)	397	*		14,296	2.3		*		1.5
All executive officers, directors and nominees for directors as a group (8 persons) (8)	190,629	6.0	%	611,133	99.8	%	21.1	%	67.4	%

* Indicates less than 1%.

12

(1) Includes 14,296 shares of Class B Common Stock owned by Mr. Klingle’s spouse, the beneficial ownership of which is disclaimed. Includes 1,067 shares of Class A Common Stock held by Mr. Klingle in the Avalon Holdings Corporation Participating Companies Profit Sharing Plan and Trust (including 397 shares held by Mr. Klingle’s spouse, the beneficial ownership of which Mr. Klingle disclaims). Mr. Klingle has sole voting power and sole investment power over 170,020 shares of Class A Common Stock and 596,837 shares of Class B Common Stock.

(2) Each named security holder, except Mr. Constable, has shared voting power and shared investment power over all of the shares listed. Under the rules of the Commission, Mr. Constable is deemed to be the beneficial owner of the shares owned by Constable Group, LLC, Constable Managing Partners, L.P., and Constable Partners, L.P. Mr. Constable has sole voting power and sole investment power over 22,700 shares and shared voting power and investment power over 348,346 shares. This information is based upon Schedule 13-D filed with the Commission on January 29, 2004.

(3) Each named security holder has sole voting power and sole investment power over all of the shares listed.

(4) Based upon information contained in Schedule 13-D filed with the Commission on October 18, 2004.

(5) Based upon information contained in Schedule 13-G filed with the Commission on February 14, 2005.

(6) Each of these individuals is an employee and executive officer of Avalon.

(7) Each of these individuals is a director of Avalon.

(8) In determining the number of shares held by executive officers and directors as a group, shares beneficially owned by more than one executive officer or director have been counted only once.

(9) Ms. Klingle is the spouse of Mr. Klingle.

(10) Based upon information contained in Schedule 13-G filed with the Commission on February 11, 2003.

(11) Based upon information contained in Schedule 13-D filed with the Commission on October 10, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Ted Wesolowski is a director of Avalon and was Chief Executive Officer and President of Avalon from January 1, 2003 until March 15, 2004. 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 2004. Mr. Wesolowski returned to his position with the law firm after resigning as Chief Executive Officer and President of Avalon on March 15, 2004.

13

PART IV

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is included pursuant to Item 9(e) of Schedule 14A.

Independent Public Accountants

The appointment of an independent public accountant is approved annually by the Board of Directors based on the recommendation of the Audit Committee. Grant Thornton LLP has served as independent public accountant of Avalon since 1999.

The aggregate fees billed to Avalon for the years ended December 31, 2004 and 2003 by Grant Thornton LLP are as follows:

	Year Ended December 31
	2004		2003
Audit fees	$	97,000	$	110,000
Audit related fees	$	—	$	—
Tax fees	$	—	$	—
All other fees	$	15,500	$	6,600

The amount shown for “Audit fees” also includes fees relating to quarterly reviews of unaudited financial statements, and the amount shown for “All other fees” relates primarily to the audit of Avalon’s 401(k) profit sharing plan and providing Sarbanes-Oxley information.

Pre-Approval Policy Regarding Independent Auditors

It is the Audit Committee’s policy to pre-approve all audit and non-audit services performed by Avalon’s independent auditors, Grant Thornton LLP. The Audit Committee pre-approved all services provided by Grant Thornton LLP in 2004.

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 2004 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, 2004, 2003 and 2002, 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 12 and 13 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.

14

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
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.
10.4	Stock Purchase Agreement dated as of June 30, 2004 between Avalon Holdings Corporation and BMC International, Inc. for the purchase of DartAmericA, Inc., as referenced as Exhibit 10.4 to the registrants Form 10-Q for the period ended June 30, 2004.
11.1	Omitted—inapplicable. See “Basic net income (loss) per share” on page 17 of the 2004 Annual Report to Shareholders
13.1	Avalon Holdings Corporation 2004 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 to 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 October 29, 2004, Avalon Holdings Corporation announced an award relating to the settlement of arbitration between its subsidiary, AWS Remediation, Inc. and IT Corporation.

(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.

15

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 14th day of April, 2005.

AVALON HOLDINGS CORPORATION
(Registrant)
By	/s/ Frank Lamanna
	Frank Lamanna - 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 14^th day of April, 2005.

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/ ROBERT M. ARNONI Robert M. Arnoni	Director
/s/ STEPHEN L. GORDON Stephen L. Gordon	Director
/s/ THOMAS C. KNISS Thomas C. Kniss	Director

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors

Of Avalon Holdings Corporation

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Avalon Holdings Corporation and subsidiaries referred to in our report dated February 18, 2005, which is included in the 2004 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on 10-K for the year 2004. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The information included in Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ GRANT THORNTON LLP

Cleveland, Ohio

February 18, 2005

17

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(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,
2004	$	527	$	107	$	—	$	65	$	569
2003	$	500	$	584	$	—	$	557	$	527
2002	$	85	$	488	$	—	$	73	$	500

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

18

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX

	Exhibit
13.1	2004 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

19

EX-13.1

Exhibit 13.1

Financial Highlights

(in thousands, except for per share amounts)

For the year	2004			2003
Net operating revenues	$	30,002		$	24,734
Loss from continuing operations		(845	)		(1,816	)
Loss from discontinued operations		(1,810	)		(1,828	)
Net loss		(2,655	)		(3,644	)
Net loss per share from continuing operations		(.22	)		(.48	)
Net loss per share from discontinued operations		(.48	)		(.48	)
Net loss per share		(.70	)		(.96	)
At year-end	2004			2003
Working capital	$	9,845		$	7,195
Total assets		43,540			49,054
Shareholders’ equity		36,259			38,920

The Company

Avalon Holdings Corporation provides 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
Report of Independent Registered Public Accounting Firm	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 2004, Avalon utilized existing cash and cash provided by the sale of investment securities to fund capital expenditures and meet operating needs.

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 leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Avalon has made $5.6 million of leasehold improvements as of December 31, 2004. Based upon the amount of leasehold improvements already made and leasehold improvements anticipated to be made in the future, Avalon expects to exercise all of its renewal options.

Avalon’s aggregate capital expenditures in 2004 were $5.1 million which relate principally to the remodeling of the Squaw Creek facilities. Avalon’s aggregate capital expenditures in 2005 are expected to be in the range of $.3 million to $.4 million, which will relate to building improvements and the purchase of golf equipment.

Working capital was $9.8 million at December 31, 2004 compared with $7.2 million at December 31, 2003. The increase is primarily the result of a reclassification of noncurrent investments to short-term investments as a result of a change in maturity dates of certain investments and the increase in cash and cash equivalents relating to the proceeds received from the sale of DartAmericA, Inc. (“DartAmericA”).

The increase in accounts receivable at December 31, 2004 compared with December 31, 2003 is primarily due to the increased net operating revenues of the waste management services segment in the fourth quarter of 2004 compared with the fourth quarter of 2003.

The decrease in prepaid expenses at December 31, 2004 compared with December 31, 2003 is primarily the result of decreased prepaid insurance premiums. Avalon’s insurance requirements were significantly reduced as a result of the sale of DartAmericA.

The increase in other assets, net at December 31, 2004 compared with December 31, 2003 reflects the noncurrent portion of a $1 million promissory note received from BMC International, Inc. (“BMC”) to Avalon as part of the purchase price for DartAmericA.

The decrease in accounts payable at December 31, 2004 compared with December 31, 2003 is primarily due to the reduction in insurance premiums payable as a result of the sale of DartAmericA, partially offset by an increase in accounts payable to waste facilities and transportation carriers as a result of increased net operating revenues of the waste brokerage and management services in the fourth quarter of 2004 compared with the fourth quarter of 2003.

2

Avalon Holdings Corporation and Subsidiaries

In the fourth quarter of 2001, Avalon’s remediation business had recorded a pretax charge of $2.2 million to the provision for losses on accounts receivable as a result of IT Group Inc., and most of its subsidiaries, including IT Corporation (“IT”), having filed for protection under Chapter 11 of the United States Bankruptcy Code on January 16, 2002. The remediation business had performed services as a subcontractor to IT for which it had not received payment. In the fourth quarter of 2002, the remediation business purchased from IT, for a nominal amount, the receivable relating to the contract under which it had performed services. The remediation business subsequently filed for binding arbitration under the provisions of the contract for payment of such receivable. On October 25, 2004, as a result of such arbitration, the remediation business was awarded, after offsets for counterclaims, the net amount of $1.4 million, plus interest of $.1 million for its claim. Such monies were received in February 2005.

On July 15, 2004, Avalon completed the sale of DartAmericA to BMC for a selling price of approximately $4.2 million. At the closing, BMC delivered to Avalon $3 million in cash and a secured promissory note of $1 million payable in 6 monthly installments of interest only and 54 equal monthly installments of $21,583 commencing February 15, 2005. The promissory note bears interest at a rate of 6.875%. The balance of the selling price, $.2 million, was based upon changes in certain of DartAmericA’s balance sheet items from March 31, 2004 to June 30, 2004. Such amount was paid in September 2004. In addition, DartAmericA transferred to Avalon all of the accounts receivable outstanding for more than 60 days as of June 30, 2004. Such receivables amounted to approximately $.5 million, net of the allowance for doubtful accounts. Avalon collected the $.5 million in receivables subsequent to the sale.

From time to time, Avalon enters into contracts which require 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 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 and any significant collateral requirements may impact Avalon’s liquidity.

Management believes that anticipated cash provided from future operations and 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.

Several private country clubs in the northeast Ohio area are experiencing economic difficulties. Avalon believes some of these clubs may represent an attractive investment opportunity and is giving consideration to the possibility of acquiring one or more additional golf courses. 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.

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

The following table summarizes Avalon’s significant off-balance sheet contractual obligations at December 31, 2004, 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	$	1,111,000	$	341,000	$	518,000	$	252,000	$	0
Capital lease obligations		720,000		15,000		30,000		30,000		645,000
	$	1,831,000	$	356,000	$	548,000	$	282,000	$	645,000

3

Avalon Holdings Corporation and Subsidiaries

Results of Operations

Avalon’s primary business segment, 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.

As previously disclosed, Avalon had been evaluating the business and prospects of its transportation operations in light of its financial performance over the past few years. Such evaluation included 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. In connection with the transportation of municipal solid waste, Avalon’s transportation operations provided loading services at several municipal solid waste transfer stations. The profitability of such operations was dependent upon the volume of waste delivered to each transfer station. The volume of waste delivered to each transfer station was not within Avalon’s control and had been less than anticipated. During the second quarter of 2004, Avalon ceased transportation operations at three Massachusetts municipal solid waste transfer stations. In conjunction with the cessation of these transfer station operations, Avalon closed its Oxford, Massachusetts terminal. Also, during the second quarter Avalon sold approximately $.2 million of idle assets of the transportation operations and recognized a gain of approximately $.4 million.

In addition, on June 25, 2004, Avalon announced that it had reached an agreement in principle to sell all of the common stock of DartAmericA, Avalon’s transportation operations, to BMC. Based upon the proposed selling price and in accordance with Avalon’s asset impairment policy, Avalon recorded a write-down of costs in excess of fair market value of net assets of acquired businesses (“goodwill”) of approximately $.5 million and a write-down of the long-lived assets of approximately $2.3 million in the second quarter of 2004. The results of operations of the transportation operations for the current and prior years, including the write-down of goodwill and long-lived assets, have been included in discontinued operations. The transportation services segment has been eliminated and 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.

On July 15, 2004, Avalon completed the sale of DartAmericA for a selling price of approximately $4.2 million. At the closing, BMC delivered to Avalon $3 million in cash and a secured promissory note of $1 million payable in 6 monthly installments of interest only and 54 equal monthly installments of $21,583 commencing February 15, 2005. The promissory note bears interest at a rate of 6.875%. The balance of the selling price, $.2 million, was based upon changes in certain of DartAmericA’s balance sheet items from March 31, 2004 to June 30, 2004. Such amount was paid in September 2004. By purchasing the common stock of DartAmericA, BMC also acquired DartAmericA’s wholly owned subsidiaries including Dart Trucking Company, Inc. (“Dart”) and Dart Services, Inc. and assumed Dart’s operating lease obligations of approximately $5 million. Prior to the completion of the sale, DartAmericA transferred to Avalon, Dart Realty, Inc., a wholly owned subsidiary of DartAmericA, which owned the Canfield, Ohio terminal. Avalon intends to sell this facility. As a result, this facility is classified as held-for-sale and the expenses related to the maintenance and operation of this facility are included in discontinued operations. In addition, DartAmericA transferred to Avalon all of the accounts receivable outstanding for more than 60 days as of June 30, 2004. Such receivables amounted to approximately $.5 million, net of the allowance for doubtful accounts. Avalon collected the $.5 million in receivables subsequent to the sale.

Avalon’s environmental remediation operations 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 and recorded a gain of $.1 million on the sale. 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.

4

Avalon Holdings Corporation and Subsidiaries

In the fourth quarter of 2001, the remediation business recorded a pretax charge of $2.2 million to the provision for losses on accounts receivable as a result of IT Group Inc., and most of its subsidiaries, including IT Corporation (“IT”), having filed for protection under Chapter 11 of the United States Bankruptcy Code on January 16, 2002. The remediation business had performed services as a subcontractor to IT for which it had not received payment. In the fourth quarter of 2002, the remediation business purchased from IT, for a nominal amount, the receivable relating to the contract under which it had performed services. The remediation business subsequently filed for binding arbitration under the provisions of the contract for payment of such receivable. On October 25, 2004, as a result of such arbitration, the remediation business was awarded, after offsets for counterclaims, the net amount of $1.4 million, plus interest of $.1 million for its claim. Such amount was recorded as income in discontinued operations in the third quarter of 2004. Such monies were received in February 2005.

The financial results of Avalon’s technical environmental engineering and consulting business had 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 are included in discontinued operations.

Concurrent with the decision to discontinue the technical environmental engineering and consulting business, Avalon decided to sell the building associated with the technical environmental services operations. Accordingly, the building is classified as held-for-sale and the expenses related to the maintenance and operations of the building are included in discontinued operations. Based upon quoted estimated market prices, Avalon recorded a $.2 million write-down of the building in 2004 and a $1.6 million write-down of the building in 2003. Such write-downs are included in discontinued operations.

As a result of the assets of the remediation business being sold and the environmental engineering and consulting business being discontinued, 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 brokerage and 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 2004 compared with 2003

Overall Performance.

Net operating revenues increased to $30.0 million in 2004 compared with $24.7 million in 2003. The increase is primarily the result of higher net operating revenues of both the waste management services segment and the golf and related operations segment. Costs of operations as a percentage of net operating revenues increased to 82.9% in 2004 compared with 82.4% in 2003. Consolidated selling, general and administrative expenses decreased to $6.4 million in 2004 compared with $6.5 million in 2003 primarily as a result of a significant decrease in the provision for losses on accounts receivable and decreased employee costs, partially offset by approximately $.5 million of bonuses paid to certain employees. In 2004, Avalon recorded charges to the provision for losses on accounts receivable of $.1 million compared with $.6 million in 2003. Avalon incurred a loss from continuing operations of $.8 million in 2004 compared with a loss from continuing operations of $1.8 million in 2003.

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

Net operating revenues of the waste management services segment increased to $25.7 million in 2004 compared with $22.3 million in 2003. The increase in net operating revenues is primarily the result of an increase in the level of waste brokerage and management services provided, partially offset by a decrease in the services provided by the captive landfill management operation. Income from continuing operations before taxes for the waste management services segment increased to $2.5 million in 2004 compared with $1.5 million in 2003 primarily as a result of the increased level of business of the waste brokerage and management services, partially offset by a slight decrease in income from continuing operations before taxes of the captive landfill operations. In 2003, income from continuing operations before taxes included a charge of approximately $.5 million to the provision for losses on accounts receivable due to customers filing bankruptcy.

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Avalon Holdings Corporation and Subsidiaries

Avalon’s golf and related operations segment consists primarily of two golf courses, a travel agency and a clubhouse that provides dining and banquet facilities. Although the golf courses will continue to be available to the general public, the primary source of revenue will arise from the members of the Avalon Golf and Country Club. With the addition of the Squaw Creek facilities in November 2003, the Avalon Golf and Country Club will be open year round instead of just during the golf season. Membership in the Avalon Golf and Country Club entitles members to use both the Avalon Lakes golf course facilities and the Squaw Creek facilities. As a result, net operating revenues associated with membership dues are prorated monthly over the entire year beginning with the first quarter of 2004. Previously, net operating revenues associated with membership dues were recognized during the months of May through October, which generally represented the golf season.

Net operating revenues of the golf and related operations segment were $4.5 million in 2004 compared with $2.7 million in 2003. The golf courses, which are located in Warren, Ohio and Vienna, Ohio, were closed during the first three months of 2004 and 2003 due to seasonality. The increase in net operating revenues are primarily attributable to significant increases in the average number of members of the Avalon Golf and Country Club in 2004 compared with the prior year, which in turn has significantly increased membership dues, the number of rounds of golf played and food and beverage sales. Despite the increase in net operating revenues, income from continuing operations before taxes decreased to $24,000 in 2004 compared with $66,000 in 2003, primarily as a result of additional operating expenses and employee costs incurred at the Squaw Creek facilities. Although there has been a significant increase in the number of members of the Avalon Golf and Country Club, Avalon believes the combination of the Squaw Creek and Avalon Lakes facilities will result in additional memberships in the Avalon Golf and Country Club. As of December 31, 2004, the Avalon Golf and Country Club has not attained its membership goals.

Interest Income

Interest income was $.2 million in both 2004 and 2003.

General Corporate Expenses

General corporate expenses decreased to $3.4 million in 2004 compared with $3.6 million in 2003, primarily as a result of decreased employee costs partially offset by bonuses paid to certain employees.

Net Loss

Avalon incurred a net loss of $2.7 million in 2004 compared with a net loss of $3.6 million in 2003. Although Avalon incurred a net loss in 2004 and 2003, Avalon did not record a tax benefit in either year. 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 2003 compared with 2002

Overall Performance. Avalon’s net operating revenues increased to $24.7 million in 2003 compared with $23.9 million in 2002. The increase is primarily attributed to an increase in the net operating revenues of the golf and related operations segment. Costs of operations as a percentage of net operating revenues decreased to 82.4% in 2003 compared with 85.1% in 2002. Consolidated selling, general and administrative expenses increased to $6.5 million in 2003 compared with $6.1 million in 2002, primarily as a result of increased employee costs. Avalon incurred a loss from continuing operations before taxes of $1.8 million in 2003 compared with $2.2 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.

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Avalon Holdings Corporation and Subsidiaries

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.

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

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 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 from continuing operations before taxes of $.1 million in 2003 compared with a loss from continuing operations 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.

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 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 a small tax provision in both years instead of a tax benefit. This was 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.

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Avalon Holdings Corporation and Subsidiaries

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 which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, management assesses the probability of loss and accrues a liability as appropriate. Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, will have a material adverse effect on its financial position or results of operations.

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 portion of Avalon’s waste management services revenues is derived from the brokerage of the disposal and/or transportation of out-of-state waste. Any law or regulation restricting or impeding the transportation of waste or the acceptance of out-of-state waste for disposal could have a negative effect on Avalon.

From time to time, Avalon enters into contracts that require 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 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.

Avalon’s waste disposal brokerage 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 disposal brokerage and management operations. However, consolidation has had the effect of reducing the number of competitors offering disposal alternatives which may adversely impact the future financial performance of Avalon’s waste disposal 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.

Economic challenges throughout the industries served by Avalon have resulted in payment defaults by customers. While Avalon continuously endeavors to limit customers credit risks, customer specific financial downturns are not controllable by management. Significant customer payment defaults would have a material adverse impact upon Avalon’s future financial performance.

As a result of the acquisition of rights to the Squaw Creek 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 facilities include 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 the 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. Although Avalon has had a substantial increase in the number of members of the Avalon Golf and Country Club, as of December 31, 2004, Avalon has not attained its membership goals.

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Avalon Holdings Corporation and Subsidiaries

Squaw Creek and Avalon Lakes currently hold liquor licenses for their respective facilities. If, for some reason, either of these facilities were to lose their liquor license, the financial performance of the golf and related operations would be adversely affected.

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 adverse weather conditions.

Management is currently evaluating Avalon’s strategic direction for the future. While there is 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.

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.

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 to the consolidated financial statements. Estimates are used when accounting for, among other things, the allowance for doubtful accounts, asset impairments, contingencies and administrative proceedings, environmental matters, and taxes.

The majority of Avalon’s accounts receivable are due from industrial and commercial customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous loss history, the customer’s current ability to pay its obligation to Avalon, and the condition of the general economy and the industry as a whole. Avalon writes-off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the circumstances.

9

Avalon Holdings Corporation and Subsidiaries

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 determines impairment on its note receivable considering a number of factors, including length of time scheduled payments are past due, the obligor’s current ability to pay its obligation to Avalon, correspondence with the obligor and other applicable factors. If, after consideration of these factors, it appears that the note receivable is impaired, management would record an impairment charge sufficient to reduce the carrying value of the note receivable to its estimated realizable value.

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 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,
	2004			2003
Assets
Current Assets:
Cash and cash equivalents	$	7,861		$	3,224
Short-term investments (Note 3)		1,598			—
Accounts receivable, less allowance for doubtful accounts of $569 in 2004 and $527 in 2003		5,299			3,620
Prepaid expenses		255			1,448
Other current assets		226			218
Current assets – discontinued operations (Note 5)		1,632			8,819
Total current assets		16,871			17,329
Noncurrent investments (Note 3)		—			6,009
Property and equipment, net (Note 6)		17,774			18,392
Leased property under capital leases, net (Notes 4 and 6)		5,519			474
Other assets, net		880			80
Noncurrent assets – discontinued operations (Note 5)		2,496			6,770
Total assets	$	43,540		$	49,054
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of obligations under capital leases (Notes 4 and 12)	$	1		$	—
Accounts payable		3,797			4,035
Accrued payroll and other compensation		457			230
Accrued income taxes		183			242
Other accrued taxes		210			295
Other liabilities and accrued expenses (Note 8)		1,629			1,447
Current liabilities – discontinued operations (Note 5)		749			3,885
Total current liabilities		7,026			10,134
Other noncurrent liabilities		21			—
Obligations under capital leases (Notes 4 and 12)		234			—
Contingencies and commitments (Notes 11 and 12)		—			—
Shareholders’ Equity (Note 10):
Class A Common Stock, $.01 par value, one vote per share; authorized 10,500,000 shares; issued and outstanding 3,185,240 shares at December 31, 2004 and December 31, 2003		32			32
Class B Common Stock, $.01 par value, ten votes per share; authorized 1,000,000 shares; issued and outstanding 618,091 shares at December 31, 2004 and December 31, 2003		6			6
Paid-in capital		58,096			58,096
Accumulated deficit		(21,873	)		(19,218	)
Accumulated other comprehensive income (loss)		(2	)		4
Total shareholders’ equity		36,259			38,920
Total liabilities and shareholders’ equity	$	43,540		$	49,054

See accompanying notes to consolidated financial statements.

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Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands, except for per share amounts)

	Year Ended December 31,
	2004			2003			2002
Net operating revenues	$	30,002		$	24,734		$	23,929
Costs and expenses:
Costs of operations		24,840			20,393			20,361
Selling, general and administrative expenses		6,377			6,530			6,104
Operating loss from continuing operations		(1,215	)		(2,189	)		(2,536	)
Other income:
Interest expense		(15	)		—			—
Interest income		195			168			227
Other income, net		190			209			148
Loss from continuing operations before income taxes		(845	)		(1,812	)		(2,161	)
Provision for income taxes (Note 7):
Current		—			4			10
Deferred		—			—			—
		—			4			10
Loss from continuing operations		(845	)		(1,816	)		(2,171	)
Discontinued operations (Note 5):
Loss from discontinued operations before income taxes1		(1,810	)		(1,858	)		(3,138	)
Provision (benefit) for income taxes		—			(30	)		529
Loss from discontinued operations		(1,810	)		(1,828	)		(3,667	)
Net loss	$	(2,655	)	$	(3,644	)	$	(5,838	)
Net loss per share from continuing operations	$	(.22	)	$	(.48	)	$	(.57	)
Net loss per share from discontinued operations	$	(.48	)	$	(.48	)	$	(.97	)
Net loss per share (Note 2)	$	(.70	)	$	(.96	)	$	(1.54	)
Weighted average shares outstanding (Note 2)		3,803			3,803			3,803

¹ Year ended December 31, 2004 includes a write-down of goodwill of $.5 million, a write-down of long-lived assets of $2.3 million, a write-down of a building of $.2 million, a bad debt recovery of $1.5 million and gains on sale of assets of $.5 million.

Year ended December 31, 2003 includes a write-down of a building of $1.6 million.

Year ended December 31, 2002 includes a loss on sale of assets of $.1 million.

See accompanying notes to consolidated financial statements.

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Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2004			2003			2002
Operating activities:
Loss from continuing operations	$	(845	)	$	(1,816	)	$	(2,171	)
Reconciliation of loss from continuing operations to cash provided by (used in) operating activities:
Depreciation		886			793			758
Amortization		1			1			1
Amortization of investments		8			57			106
Provision for losses on accounts receivable		107			584			488
Gain from disposal of property and equipment		—			(31	)		(8	)
Gain on sale of investments		(2	)		—			(2	)
Change in operating assets and liabilities:
Accounts receivable		(1,786	)		146			691
Prepaid expenses		1,193			(28	)		(210	)
Other current assets		(8	)		(123	)		21
Other assets		(801	)		1			(22	)
Accounts payable		(238	)		1,152			(168	)
Accrued payroll and other compensation		227			70			(25	)
Accrued income taxes		(59	)		6			20
Other accrued taxes		(85	)		24			120
Other liabilities and accrued expenses		182			639			248
Other noncurrent liabilities		21			—			—
Net cash (used in) provided by operating activities from continuing operations		(1,199	)		1,475			(153	)
Net cash provided by (used in) operating activities from discontinued operations		2,241			1,384			(141	)
Net cash provided (used in) by operating activities		1,042			2,859			(294	)
Investing activities:
Purchases of available-for-sale investments		—			(6,009	)		—
Maturities/sales of available-for-sale investments		4,399			5,838			1,900
Capital expenditures		(5,154	)		(607	)		(2,488	)
Proceeds from the sale of facilities		3,192			—			—
Proceeds from disposal of property and equipment		79			64			11
Net cash provided by (used in) investing activities from continuing operations		2,516			(714	)		(577	)
Net cash provided by (used in) investing activities from discontinued operations		1,082			(111	)		(229	)
Net cash provided by (used in) investing activities		3,598			(825	)		(806	)
Financing activities:
Principal payments on capital lease obligations		(3	)		—			—
Net cash used in financing activities from continuing operations		(3	)		—			—
Increase (decrease) in cash and cash equivalents		4,637			2,034			(1,100	)
Cash and cash equivalents at beginning of year		3,224			1,190			2,290
Cash and cash equivalents at end of year	$	7,861		$	3,224		$	1,190
Significant non-cash investing and financing activities:
Capital lease obligations incurred	$	238		$	—		$	—

For supplemental disclosures of cash flow information, see Note 7.

See accompanying notes to consolidated financial statements.

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Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(in thousands)

	For The Three Years Ended December 31, 2004
	Shares		Common Stock				Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (loss)			Total
	Class A	Class B	Class A		Class B
Balance at January 1, 2002	3,185	618	$	32	$	6	$	58,096	$	(9,736	)	$	—		$	48,398
Net loss	—	—		—		—		—		(5,838	)		—			(5,838	)
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	)
Unrealized loss on investments	—	—		—		—		—		—			(70	)		(70	)
Balance at December 31, 2003	3,185	618		32		6		58,096		(19,218	)		4			38,920
Net loss	—	—		—		—		—		(2,655	)		—			(2,655	)
Unrealized loss on investments	—	—		—		—		—		—			(6	)		(6	)
Balance at December 31, 2004	3,185	618	$	32	$	6	$	58,096	$	(21,873	)	$	(2	)	$	36,259

Consolidated Statements of Comprehensive Income(Loss)

(in thousands)

	Year Ended December 31,
	2004			2003			2002
Net loss	$	(2,655	)	$	(3,644	)	$	(5,838	)
Unrealized (loss) gain on investments		(6	)		(70	)		74
Comprehensive income (loss)	$	(2,661	)	$	(3,714	)	$	(5,764	)

See accompanying notes to consolidated financial statements.

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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 operations of the engineering and consulting services business. As such, the technical environmental services segment has been eliminated. The results of these operations are included in discontinued operations. All prior years information has been restated to reflect this change. The captive landfill management operations which were 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.

In July 2004, Avalon sold all of the common stock of DartAmericA, Inc., Avalon’s transportation operations. DartAmericA, Inc.’s wholly owned subsidiaries, Dart Trucking Company, Inc. and Dart Services, Inc., were included in the sale. As a result, the transportation services segment has been eliminated. The results of the transportation operations are included in discontinued operations. All current and prior year information has been restated to reflect this change.

Avalon provides 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 2004 presentation.

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, with original maturities of 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 cash equivalents was $7,780,000 and $3,160,000 at December 31, 2004 and 2003, 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).

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Financial instruments

The fair value of financial instruments consisting of cash, cash equivalents, accounts receivable, and accounts payable at December 31, 2004 and 2003, approximates carrying value due to the relative short maturity of these financial instruments. The fair value of available-for-sale investments, based upon market quotes, was $1,598,000 at December 31, 2004 and $6,009,000 at December 31, 2003. The fair value of the secured note receivable approximates its carrying value of $1 million at December 31, 2004, based upon an evaluation of prevailing market interest rates and other applicable factors.

Property and equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from 10 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office furniture and equipment (See Note 6).

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.

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 it is more likely than not that such deferred tax assets will not be realized.

Revenue recognition

Avalon recognizes revenue for waste management services as services are performed. Revenue for golf operations are recognized as services are provided with the exception of membership dues which, beginning in 2004, are prorated monthly over the entire year. Previously, membership dues were prorated monthly from May through October.

Accounts Receivable

The majority of Avalon’s accounts receivable are due from industrial and commercial customers. Credit is extended based on evaluation of a customer’s financial condition and, generally collateral is not required. Accounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, Avalon’s previous loss history, the customer’s current ability to pay its obligation to Avalon, and the condition of the general economy and the industry as a whole. Avalon writes-off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the circumstances.

Asset impairments

Effective January 1, 2002, Avalon adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. 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.

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Avalon Holdings Corporation and Subsidiaries

Avalon determines impairment on its note receivable considering a number of factors, including length of time scheduled payments are past due, the obligor’s current ability to pay its obligation to Avalon, correspondence with the obligor and other applicable factors. If, after consideration of these factors, it appears that the note receivable is impaired, management would record an impairment charge sufficient to reduce the carrying value of the note receivable to its estimated realizable value.

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 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, 2004, 2003 and 2002 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 available-for-sale securities of $1,598,000 at December 31, 2004 which are included in the Consolidated Balance Sheets under the caption “Short-term investments”. At December 31, 2003, Avalon held available-for-sale securities of $6,009,000 which are included in the Consolidated Balance Sheets under the caption “Noncurrent investments”. As a result of the classification of these securities as available-for-sale, Avalon recognized unrealized losses of $6,000 and $70,000, net of applicable income taxes, for the years ended December 31, 2004 and 2003, respectively, and net unrealized gains of $74,000, net of applicable income taxes, for the year ended December 31, 2002, as a component of other comprehensive income (loss).

Accumulated other comprehensive income (loss) consisted of an unrealized loss of $2,000 at December 31, 2004 and an unrealized gain of $4,000 at December 31, 2003.

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

	December 31, 2004
	Amortized Cost		Gross Unrealized Losses			Estimated Fair Value
Available-for-Sale
U.S. Treasury Notes	$	1,600	$	(2	)	$	1,598
	December 31, 2003
	Amortized Cost		Gross Unrealized Gains			Estimated Fair Value
Available-for-Sale
U.S. Treasury Notes	$	6,005	$	4		$	6,009

The amortized cost and estimated fair value of available-for-sale investments at December 31, 2004, by contractual maturity, consists of the following (in thousands):

	Available-For-Sale
	Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,600	$	1,598
Due after one year through five years		—		—
Total	$	1,600	$	1,598

Note 4. Capital Leased Assets

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 leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement obligations. Avalon has made $5.6 million of leasehold improvements as of December 31, 2004. Based upon the amount of leasehold improvements already made and leasehold improvements anticipated to be made in the future, Avalon expects to exercise all its renewal options. As a result of the $5.6 million of leasehold improvements made in the first year of the lease, the lease is deemed to have been modified and, as such, has been reclassified and recorded as a capital lease instead of an operating lease as originally recorded.

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Avalon Holdings Corporation and Subsidiaries

Note 5. Discontinued Operations

As previously disclosed, Avalon had been evaluating the business and prospects of its transportation operations in light of its financial performance over the past few years. Such evaluation included 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. In connection with the transportation of municipal solid waste, Avalon’s transportation operations provided loading services at several municipal solid waste transfer stations. The profitability of such operations was dependent upon the volume of waste delivered to each transfer station. The volume of waste delivered to each transfer station was not within Avalon’s control and had been less than anticipated. During the second quarter of 2004, Avalon ceased transportation operations at three Massachusetts municipal solid waste transfer stations. In conjunction with the cessation of these transfer station operations, Avalon closed its Oxford, Massachusetts terminal. Also, during the second quarter Avalon sold approximately $.2 million of idle assets of the transportation operations and recognized a gain of approximately $.4 million.

In addition, on June 25, 2004, Avalon announced that it had reached an agreement in principle to sell all of the common stock of DartAmericA, Inc. (“DartAmericA”), Avalon’s transportation operations, to BMC International, Inc. (“BMC”). Based upon the proposed selling price and in accordance with Avalon’s asset impairment policy, Avalon recorded a write-down of costs in excess of fair market value of net assets of acquired businesses (“goodwill”) of approximately $.5 million and a write-down of the long-lived assets of approximately $2.3 million in the second quarter of 2004. The results of operations of the transportation operations for the current and prior years, including the write-down of goodwill and long-lived assets, have been included in discontinued operations.

On July 15, 2004, Avalon completed the sale of DartAmericA for a selling price of approximately $4.2 million. At the closing, BMC delivered to Avalon $3 million in cash and a secured promissory note of $1 million payable in 6 monthly installments of interest only and 54 equal monthly installments of $21,583 commencing February 15, 2005. The promissory note bears interest at a rate of 6.875%. The balance of the selling price, $.2 million, was based upon changes in certain of DartAmericA’s balance sheet items from March 31, 2004 to June 30, 2004. Such amount was paid in September 2004. By purchasing the common stock of DartAmericA, BMC also acquired DartAmericA’s wholly owned subsidiaries including Dart Trucking Company, Inc. (“Dart”) and Dart Services, Inc. and assumed Dart’s operating lease obligations of approximately $5 million. Prior to the completion of the sale, DartAmericA transferred to Avalon, Dart Realty, Inc., a wholly owned subsidiary of DartAmericA, which owned the Canfield, Ohio terminal. Avalon intends to sell this facility. As a result, this facility is classified as held-for-sale and the expenses related to the maintenance and operation of this facility are included in discontinued operations. In addition, DartAmericA transferred to Avalon all of the accounts receivable outstanding for more than 60 days as of June 30, 2004. Such receivables amounted to approximately $.5 million, net of the allowance for doubtful accounts. Avalon collected the $.5 million in receivables subsequent to the sale.

Avalon’s environmental remediation operations 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 and recorded a gain of $.1 million on the sale. 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.

In the fourth quarter of 2001, the remediation business recorded a pretax charge of $2.2 million to the provision for losses on accounts receivable as a result of IT Group Inc., and most of its subsidiaries, including IT Corporation (“IT”), having filed for protection under Chapter 11 of the United States Bankruptcy Code on January 16, 2002. The remediation business had performed services as a subcontractor to IT for which it had not received payment. In the fourth quarter of 2002, the remediation business purchased from IT, for a nominal amount, the receivable relating to the contract under which it had performed services. The remediation business subsequently filed for binding arbitration under the provisions of the contract for payment of such receivable. On October 25, 2004, as a result of such arbitration, the remediation business was awarded, after offsets for counterclaims, the net amount of $1.4 million, plus interest of $.1 million for its claim. Such amount was recorded as income in discontinued operations in the third quarter of 2004. Such monies were received in February 2005.

The financial results of Avalon’s technical environmental engineering and consulting business had been at a level lower than expected. The business began to experience losses and Avalon believed that the losses were likely to

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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 are included in discontinued operations.

Concurrent with the decision to discontinue the technical environmental engineering and consulting business, Avalon decided to sell the building associated with the technical environmental services operations. As a result, the building is classified as held-for-sale and the expenses related to the maintenance and operations of the building are included in discontinued operations.

Based upon quoted estimated market prices, Avalon recorded a $.2 million write-down of the building in 2004 and a $1.6 million write-down of the building in 2003. Such write-downs are included in discontinued operations.

Note 6. Property and Equipment

Property and equipment at December 31, 2004 and 2003 consists of the following (in thousands):

	2004			2003
Land and land improvements	$	10,341		$	10,389
Buildings and improvements		9,256			9,256
Machinery and equipment		1,202			1,185
Vehicles		166			166
Office furniture and equipment		1,139			1,125
Construction in progress		162			26
		22,266			22,147
Less accumulated depreciation and amortization		(4,492	)		(3,755	)
Property and equipment, net	$	17,774		$	18,392

Leased property under capital leases at December 31, 2004 and 2003 consists of the following (in thousands):

	2004		2003
Leased property under capital leases	$	5,647	$	474
Accumulated amortization		128		—
Leased property under capital leases, net	$	5,519	$	474

Note 7. Income Taxes

Loss before income taxes for each of the three years in the period ended December 31, 2004 was subject to taxation under United States jurisdictions only.

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

	2004		2003			2002
Continuing operations	$	—	$	4		$	10
Discontinued operations		—		(30	)		529
	$	—	$	(26	)	$	539

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

	2004		2003		2002
Current:
Federal	$	—	$	—	$	—
State		—		4		10
		—		4		10
Deferred:
Federal		—		—		—
State		—		—		—
		—		—		—
	$	—	$	4	$	10

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2004 and 2003 are as follows (in thousands):

	2004			2003
Deferred tax assets:
Accounts receivable, allowance for doubtful accounts	$	201		$	1,900
Reserves not deductible until paid		173			243
Net operating loss carry-forwards
Federal		2,000			2,533
State		456			808
Capital loss carry-forward		2,903			—
Other		3			23
Gross deferred tax assets		5,736			5,507
Less valuation allowance		(5,088	)		(4,050	)
Deferred tax assets net of valuation allowance	$	648		$	1,457
Deferred tax liabilities:
Property and equipment	$	(648	)	$	(1,335	)
Other		—			(122	)
Gross deferred tax liabilities	$	(648	)	$	(1,457	)
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):

	2004			2003			2002
Loss before income taxes from continuing operations	$	(845	)	$	(1,812	)	$	(2,161	)
Federal statutory tax rate		35	%		35	%		35	%
		(296	)		(634	)		(756	)
State income taxes, net of federal income tax benefits		—			1			7
Change in valuation allowance		253			583			705
Other nondeductible expenses		33			31			34
Other, net		10			23			20
	$	—		$	4		$	10

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Avalon received net income tax refunds of $3,000 and $35,000 in 2004 and 2003, respectively. Avalon made net income tax payments of $3,000 in 2002.

At December 31, 2004, Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately $5,882,000, which are available to offset future federal taxable income. These carryforwards expire in 2020 through 2024. Avalon has a capital loss carryforward for federal income tax purposes of approximately $8,538,000 which is available to offset future federal capital gain income. This carryforward expires in 2009. In addition, at December 31, 2004, certain subsidiaries of Avalon have net operating loss carryforwards for state purposes aggregating to approximately $6,826,000, which are available to offset future state taxable income. These carryforwards expire at various dates through 2024. 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.

Note 8. 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 $79,000, $84,000 and $83,000 for the years 2004, 2003 and 2002, respectively. These amounts are contributed in the year subsequent to the year expensed and are included in the respective Consolidated Balance Sheets under the caption “Other liabilities and accrued expenses.”

Note 9. 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 10. 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

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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 11. 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 its financial position or results of operations.

Note 12: Lease Commitments

Future commitments under long-term, operating leases and capital leases at December 31, 2004 are as follows (in thousands):

	Capital		Operating		Total
2005	$	15	$	341	$	356
2006		15		289		304
2007		15		229		244
2008		15		226		241
2009		15		26		41
After 2009		645		0		645
Total minimum lease payments	$	720	$	1,111	$	1,831
Less: Amounts representing interest		485
Present value of minimum payments		235
Less: Current portion of obligations under capital leases		1
Long-term portion of obligations under capital leases	$	234

Rental expense included in the Consolidated Statements of Operations amounted to $332,000 in 2004, $194,000 in 2003, and $145,000 in 2002.

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 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, 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 2004, one customer accounted for approximately 14% of the waste management services segment’s net operating revenues to external customers, and approximately 12% of Avalon’s consolidated net operating revenues. In 2003 and 2002, no customers individually accounted for 10% or more of Avalon’s consolidated net operating revenues.

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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):

	2004			2003			2002
Net operating revenues from:
Waste management services:
External customers revenues	$	25,493		$	22,137		$	22,100
Intersegment revenues		163			201			422
Total waste management services		25,656			22,338			22,522
Golf and related operations:
External customer revenues		4,509			2,597			1,829
Intersegment revenues		38			78			88
Total golf and related operations		4,547			2,675			1,917
Segment operating revenues		30,203			25,013			24,439
Intersegment eliminations		(201	)		(279	)		(510	)
Total net operating revenues	$	30,002		$	24,734		$	23,929
Income (loss) from continuing operations before taxes:
Waste management services	$	2,488		$	1,512		$	1,140
Golf and related operations		24			66			(303	)
Other businesses		—			(13	)		—
Segment income before taxes		2,512			1,565			837
Corporate interest income		92			154			209
Corporate other income, net		(7	)		30			35
General corporate expenses		(3,442	)		(3,561	)		(3,242	)
Loss from continuing operations before taxes	$	(845	)	$	(1,812	)	$	(2,161	)
Depreciation and amortization:
Waste management services	$	60		$	84		$	94
Golf and related operations		650			524			473
Corporate		185			243			298
Total	$	895		$	851		$	865
	2004			2003			2002
Interest income:
Waste management services	$	92		$	12		$	16
Golf and related operations		11			2			2
Corporate		92			154			209
Total	$	195		$	168		$	227
Capital expenditures:
Waste management services	$	18		$	6		$	42
Golf and related operations		5,092			575			2,433
Corporate		44			26			13
Total	$	5,154		$	607		$	2,488
Identifiable assets at December 31:
Waste management services	$	4,609		$	5,821		$	6,100
Golf and related operations		19,574			14,825			14,376
Other businesses		731			557			566
Corporate		33,838			28,704			26,835
Discontinued operations		4,128			15,589			19,458
Sub Total		62,880			65,496			67,335
Elimination of intersegment receivables		(19,340	)		(16,442	)		(15,689	)
Total	$	43,540		$	49,054		$	51,646

Note 14. Recently Issued Financial Accounting Standards

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”. This statement revises FASB Statement No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123 (revised 2004) focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123 (revised 2004) requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). The provisions for this statement are effective for the beginning of the first interim or annual reporting period that begins after June 15, 2005. Although management is still reviewing the provisions of SFAS No. 123 (revised 2004), its preliminary assessment is that this statement will not have a material impact on Avalon’s financial position or results of operations.

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Note 15. Quarterly financial data (Unaudited)

Selected quarterly financial data for each quarter in 2004 and 2003 is as follows (in thousands except for per share amounts):

	Year Ended December 31, 2004*, restated
	First** Quarter			Second** Quarter			Third** Quarter			Fourth Quarter			Total
Net operating revenues	$	6,239		$	7,262		$	8,448		$	8,053		$	30,002
Operating income (loss) from continuing operations		(487	)		(151	)		(609	)		32			(1,215	)
Income (loss) from continuing operations		(411	)		(84	)		(463	)		113			(845	)
Income (loss) from discontinued operations		(614	)		(2,414	)		1,500			(282	)		(1,810	)
Net income (loss)		(1,025	)		(2,498	)		1,037			(169	)		(2,655	)
Basic net income (loss) per share from continuing operations		(.11	)		(.02	)		(.13	)		.04			(.22	)
Basic net income (loss) per share from discontinued operations		(.16	)		(.64	)		.40			(.08	)		(.48	)
Basic net income (loss) per share	$	(.27	)	$	(.66	)	$	.27		$	(.04	)	$	(.70	)

	Year Ended December 31, 2004*, previously reported
	First Quarter			Second Quarter			Third Quarter
Net operating revenues	$	6,239		$	7,262		$	8,448
Operating income (loss) from continuing operations		(524	)		(173	)		(592	)
Income (loss) from continuing operations		(444	)		(103	)		(442	)
Income (loss) from discontinued operations		(614	)		(2,414	)		1,500
Net income (loss)		(1,058	)		(2,517	)		1,058
Basic net income (loss) per share from continuing operations		(.12	)		(.02	)		(.12	)
Basic net income (loss) per share from discontinued operations		(.16	)		(.64	)		.40
Basic net loss per share	$	(.28	)	$	(.66	)	$	.28

	Year Ended December 31, 2003*
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
Net operating revenues	$	5,103		$	7,213		$	6,524		$	5,894		$	24,734
Operating loss from continuing operations		(849	)		(462	)		(257	)		(621	)		(2,189	)
Loss from continuing operations		(761	)		(384	)		(150	)		(521	)		(1,816	)
Income (loss) from discontinued operations		(218	)		(3	)		102			(1,709	)		(1,828	)
Net loss		(979	)		(387	)		(48	)		(2,230	)		(3,644	)
Basic net loss per share from continuing operations		(.20	)		(.10	)		(.04	)		(.14	)		(.48	)
Basic net income (loss) per share from discontinued operations		(.06	)		—			.03			(.45	)		(.48	)
Basic net loss per share	$	(.26	)	$	(.10	)	$	(.01	)	$	(.59	)	$	(.96	)

 ^* The information in the above quarterly financial data for the first two quarters of the year ended December 31, 2004 and for 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.

^** The information in the above quarterly financial data for the first three quarters of the year ended December 31, 2004 has been adjusted to reflect the reclassification of the lease for the Squaw Creek facilities from an operating lease to a capital lease.

23

Avalon Holdings Corporation and Subsidiaries

Report of Independent Registered Public Accounting Firm

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, 2004 and 2003, 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, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

Grant Thornton LLP

/s/ Grant Thornton LLP

Cleveland, Ohio

February 18, 2005

24

Avalon Holdings Corporation and Subsidiaries

Digest of Financial Data

	(All amounts are in thousands, except per share data, percentages and number of employees )
	2004			2003			2002			2001			2000
SELECTED STATEMENT OF OPERATIONS INFORMATION
Net operating revenues	$	30,002		$	24,734		$	23,929		$	25,178		$	19,028
Operating loss from continuing operations		(1,215	)		(2,189	)		(2,536	)		(2,659	)		(3,093	)
Interest expense		15			—			—			—			—
Loss from continuing operations		(845	)		(1,816	)		(2,171	)		(956	)		(1,248	)
Loss from discontinued operations		(1,810	)		(1,828	)		(3,667	)		(2,374	)		(1,185	)
Net loss		(2,655	)		(3,644	)		(5,838	)		(3,330	)		(2,433	)
Net loss per share from continuing operations		(.22	)		(.48	)		(.57	)		(.25	)		(.33	)
Net loss per share from discontinued operations		(.48	)		(.48	)		(.97	)		(.63	)		(.31	)
Net loss per share		(.70	)		(.96	)		(1.54	)		(.88	)		(.64	)
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		(1,199	)		1,475			(153	)		(1,062	)		(2,387	)
Cash used for capital expenditures		5,154			607			2,488			874			4,819
SELECTED YEAR-END BALANCE SHEET INFORMATION
Cash and cash equivalents		7,861			3,224			1,190			2,290			8,953
Current assets		16,871			17,329			22,666			25,135			30,952
Current liabilities		7,026			10,134			8,881			10,748			9,223
Working capital		9,845			7,195			13,785			14,387			21,729
Properties less accumulated depreciation and amortization		17,774			18,392			19,085			17,358			17,268
Leased property under capital leases, net		5,519			474			—			—			—
Total assets		43,540			49,054			51,646			59,967			62,310
Current portion of obligation under capital leases		1			—			—			—			—
Long-term obligations under capital leases		234			—			—			—			—
Deferred income tax liability		—			—			—			701			1,239
Shareholders’ equity		36,259			38,920			42,634			48,398			51,728
OTHER INFORMATION
Working capital ratio		2.4:1			1.7:1			2.6:1			2.3:1			3.4:1
Quoted market price-Class A Shares:
High		4.09			2.70			3.40			3.55			5 3/4
Low		2.43			1.70			1.96			2.20			2 5/16
Year-end		3.16			2.63			2.00			2.85			2 3/4
Number of employees at year-end		120			321			346			422			450

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 44484-5555

(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

(330) 539-5103

Avalon Travel, Inc.

One American Way

Warren, Ohio 44484-5555

(330) 856-8400

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

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 (Chairman)

Officers

Ronald E. Klingle

Chief Executive Officer

Frank Lamanna

Treasurer and Chief Financial Officer

Ted Wesolowski

Secretary

Frances R. Klingle

Chief Administrative Officer

Kenneth R. Nichols

Vice President, Taxes

Richard Fees

Controller

27

Avalon Holdings Corporation and Subsidiaries

Shareholder Information

Common stock information

Avalon’s Class A Common Stock is listed on the American Stock Exchange (symbol: AWX). Quarterly stock information for 2004, 2003 and 2002 as reported by The Wall Street Journal is as follows:

2004: Quarter Ended	High	Low	Close
March 31	4.09	2.58	3.00
June 30	3.20	2.43	2.90
September 30	3.32	2.80	2.85
December 31	3.30	2.78	3.16
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

No dividends were paid during 2004.

There are 561 Class A and 11 Class B Common Stock shareholders of record as of the close of business March 7, 2005. 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 or by visiting Avalon’s web-site at www.avalonholdings.com.

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 Frank Lamanna, 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
•      TBG, 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

CERTIFICATION 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: April 14, 2005

/s/ Ronald E. Klingle

Ronald E. Klingle

Chief Executive Officer

EX-31.2

Exhibit 31.2

AVALON HOLDINGS CORPORATION

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Frank Lamanna, 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: April 14, 2005

/s/ Frank Lamanna

Frank Lamanna

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, 2004 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

April 14, 2005

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, 2004 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/ Frank Lamanna

Frank Lamanna

Chief Financial Officer

April 14, 2005