##### Table of Contents

2004

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UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended March 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



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AVALON HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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



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Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



The registrant had 3,185,240 shares of its Class A Common Stock and 618,091 shares of its
Class B Common Stock outstanding as of May 11, 2004.



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##### Table of Contents

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES



INDEX



|                              |  |                                                                                                                |  |                                                                                       |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                |  |                                                                                       |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                               
|                              |  |                                                                                                                | 
|                              |  | Item 1.                                                                                                        |  | Financial Statements                                                                  |  |     
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 (Unaudited) |  | 3                                                                                    
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Balance Sheets at March 31, 2004 (Unaudited) and December 31, 2003                      |  | 4                                                                                    
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (Unaudited) |  | 5                                                                                    
|                              |  |                                                                                                               
|                              |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                               |  | 6                                                                                    
|                              |  |                                                                                                                | 
|                              |  | Item 2.                                                                                                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12  
|                              |  |                                                                                                                | 
|                              |  | Item 4.                                                                                                        |  | Controls and Procedures                                                               |  | 18  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                               
|                              |  |                                                                                                                | 
|                              |  | Item 1.                                                                                                        |  | Legal Proceedings                                                                     |  | 19  
|                              |  |                                                                                                                | 
|                              |  | Item 2.                                                                                                        |  | Changes in Securities and Use of Proceeds                                             |  | 19  
|                              |  |                                                                                                                | 
|                              |  | Item 3.                                                                                                        |  | Defaults upon Senior Securities                                                       |  | 19  
|                              |  |                                                                                                                | 
|                              |  | Item 4.                                                                                                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 19  
|                              |  |                                                                                                                | 
|                              |  | Item 5.                                                                                                        |  | Other Information                                                                     |  | 19  
|                              |  |                                                                                                                | 
|                              |  | Item 6.                                                                                                        |  | Exhibits and Reports on Form 8-K                                                      |  | 19  
|                              | 
|SIGNATURE                     |  | 20                                                                                                            



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
(Unaudited)

(in thousands, except per share amounts)



|                                                               |  |                              |        |   |      |   |        |  
|-------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                               |  | Three Months Ended March 31, |       
|                                                               |  | 2004                         |        |   | 2003 |  
|Net operating revenues                                         |  | $                            | 13,791 |   |      | $ | 11,585 |  
|                                                               |  |                             
|Costs and expenses:                                            |  |                              |        |   |      |   |        |  
|Costs of operations                                            |  |                              | 12,690 |   |      |   | 10,753 |  
|Selling, general and administrative expenses                   |  |                              | 1,871  |   |      |   | 1,982  |  
|                                                               |  |                              |        |   |      |   |        |  
|Operating loss from continuing operations                      |  |                              | (770   | ) |      |   | (1,150 | )
|                                                               |  |                             
|Other income:                                                  |  |                              |        |   |      |   |        |  
|Interest income                                                |  |                              | 41     |   |      |   | 51     |  
|Other income, net                                              |  |                              | 46     |   |      |   | 79     |  
|                                                               |  |                              |        |   |      |   |        |  
|Loss from continuing operations before income taxes            |  |                              | (683   | ) |      |   | (1,020 | )
|                                                               |  |                             
|Provision (benefit) for income taxes                           |  |                              |       |   |      |   |       |  
|                                                               |  |                              |        |   |      |   |        |  
|Loss from continuing operations                                |  |                              | (683   | ) |      |   | (1,020 | )
|                                                               |  |                             
|Discontinued operations:                                       |  |                              |        |   |      |   |        |  
|(Loss) income from discontinued operations before income taxes |  |                              | (375   | ) |      |   | 41     |  
|Provision (benefit) for income taxes                           |  |                              |       |   |      |   |       |  
|                                                               |  |                              |        |   |      |   |        |  
|(Loss) income from discontinued operations                     |  |                              | (375   | ) |      |   | 41     |  
|                                                               |  |                              |        |   |      |   |        |  
|Net loss                                                       |  | $                            | (1,058 | ) |      | $ | (979   | )
|                                                               |  |                              |        |   |      |   |        |  
|Net loss per share from continuing operations                  |  | $                            | (.18   | ) |      | $ | (.27   | )
|                                                               |  |                              |        |   |      |   |        |  
|Net income (loss) per share from discontinued operations       |  | $                            | (.10   | ) |      | $ | .01    |  
|                                                               |  |                              |        |   |      |   |        |  
|Net loss per share (Note 3)                                    |  | $                            | (.28   | ) |      | $ | (.26   | )
|                                                               |  |                              |        |   |      |   |        |  
|Weighted average shares outstanding (Note 3)                   |  |                              | 3,803  |   |      |   | 3,803  |  
|                                                               |  |                              |        |   |      |   |        |  



See accompanying notes to condensed
consolidated financial statements.



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##### Table of Contents

AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)



|                                                                                                              |  |                |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                              |  | March 31, 2004 |         |   | December 31, 2003 |  
|                                                                                                              |  | (Unaudited)    |         |   |                   |  
|Assets:                                                                                                       |  |                |         |   |                   |   |         |  
|Current Assets:                                                                                               |  |                |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                     |  | $              | 4,129   |   |                   | $ | 4,656   |  
|Short-term investments                                                                                        |  |                | 3,013   |   |                   |   |        |  
|Accounts receivable, net                                                                                      |  |                | 8,557   |   |                   |   | 7,803   |  
|Prepaid expenses                                                                                              |  |                | 1,470   |   |                   |   | 1,953   |  
|Other current assets                                                                                          |  |                | 644     |   |                   |   | 623     |  
|Current assets  discontinued operations                                                                      |  |                | 1,006   |   |                   |   | 2,444   |  
|                                                                                                              |  |                |         |   |                   |   |         |  
|Total current assets                                                                                          |  |                | 18,819  |   |                   |   | 17,479  |  
|                                                                                                              |  |               
|Noncurrent investments                                                                                        |  |                | 1,306   |   |                   |   | 6,009   |  
|Property and equipment, less accumulated depreciation and amortization of $15,003 in 2004 and $14,560 in 2003 |  |                | 21,370  |   |                   |   | 21,871  |  
|Costs in excess of fair market value of net assets of acquired businesses, net                                |  |                | 538     |   |                   |   | 538     |  
|Noncurrent prepaid rent                                                                                       |  |                | 2,206   |   |                   |   | 324     |  
|Other assets, net                                                                                             |  |                | 124     |   |                   |   | 124     |  
|Noncurrent assets  discontinued operations                                                                   |  |                | 2,549   |   |                   |   | 2,709   |  
|                                                                                                              |  |                |         |   |                   |   |         |  
|Total assets                                                                                                  |  | $              | 46,912  |   |                   | $ | 49,054  |  
|                                                                                                              |  |                |         |   |                   |   |         |  
|Liabilities and Shareholders Equity                                                                          |  |                |         |   |                   |   |         |  
|Current Liabilities:                                                                                          |  |                |         |   |                   |   |         |  
|Accounts payable                                                                                              |  | $              | 5,309   |   |                   | $ | 5,938   |  
|Accrued payroll and other compensation                                                                        |  |                | 643     |   |                   |   | 582     |  
|Accrued income taxes                                                                                          |  |                | 233     |   |                   |   | 242     |  
|Other accrued taxes                                                                                           |  |                | 135     |   |                   |   | 415     |  
|Other liabilities and accrued expenses                                                                        |  |                | 2,017   |   |                   |   | 1,828   |  
|Current liabilities  discontinued operations                                                                 |  |                | 706     |   |                   |   | 1,129   |  
|                                                                                                              |  |                |         |   |                   |   |         |  
|Total current liabilities                                                                                     |  |                | 9,043   |   |                   |   | 10,134  |  
|                                                                                                              |  |               
|Shareholders Equity:                                                                                         |  |                |         |   |                   |   |         |  
|Class A Common Stock, $.01 par value                                                                          |  |                | 32      |   |                   |   | 32      |  
|Class B Common Stock, $.01 par value                                                                          |  |                | 6       |   |                   |   | 6       |  
|Paid-in capital                                                                                               |  |                | 58,096  |   |                   |   | 58,096  |  
|Accumulated deficit                                                                                           |  |                | (20,276 | ) |                   |   | (19,218 | )
|Accumulated other comprehensive income                                                                        |  |                | 11      |   |                   |   | 4       |  
|                                                                                                              |  |                |         |   |                   |   |         |  
|Total shareholders equity                                                                                    |  |                | 37,869  |   |                   |   | 38,920  |  
|                                                                                                              |  |                |         |   |                   |   |         |  
|Total liabilities and shareholders equity                                                                    |  | $              | 46,912  |   |                   | $ | 49,054  |  
|                                                                                                              |  |                |         |   |                   |   |         |  



See accompanying notes to condensed
consolidated financial statements.



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AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)

(in thousands)



|                                                                                            |  |                              |        |   |      |   |        |  
|------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                            |  | Three Months Ended March 31, |       
|                                                                                            |  | 2004                         |        |   | 2003 |  
|Operating activities:                                                                       |  |                              |        |   |      |   |        |  
|Loss from continuing operations                                                             |  | $                            | (683   | ) |      | $ | (1,020 | )
|Reconciliation of loss from continuing operations to cash provided by operating activities: |  |                              |        |   |      |   |        |  
|Depreciation and amortization                                                               |  |                              | 484    |   |      |   | 515    |  
|Amortization of investments                                                                 |  |                              | 3      |   |      |   | 18     |  
|Provision (benefit) for losses on accounts receivable                                       |  |                              | (18    | ) |      |   | 42     |  
|Loss (gain) from disposal of property and equipment                                         |  |                              | 2      |   |      |   | (39    | )
|Gain on sale of investments                                                                 |  |                              | (9     | ) |      |   |       |  
|Change in operating assets and liabilities:                                                 |  |                              |        |   |      |   |        |  
|Accounts receivable                                                                         |  |                              | (736   | ) |      |   | 403    |  
|Prepaid expenses                                                                            |  |                              | 483    |   |      |   | 359    |  
|Other current assets                                                                        |  |                              | (21    | ) |      |   | (103   | )
|Noncurrent prepaid rent                                                                     |  |                              | (1,882 | ) |      |   |       |  
|Accounts payable                                                                            |  |                              | (629   | ) |      |   | (266   | )
|Accrued payroll and other compensation                                                      |  |                              | 61     |   |      |   | 60     |  
|Accrued income taxes                                                                        |  |                              | (9     | ) |      |   | 11     |  
|Other accrued taxes                                                                         |  |                              | (280   | ) |      |   | (88    | )
|Other liabilities and accrued expenses                                                      |  |                              | 189    |   |      |   | 469    |  
|Other noncurrent liabilities                                                                |  |                              |       |   |      |   | (120   | )
|                                                                                            |  |                              |        |   |      |   |        |  
|Net cash (used in) provided by operating activities from continuing operations              |  |                              | (3,045 | ) |      |   | 241    |  
|Net cash provided by operating activities from discontinued operations                      |  |                              | 566    |   |      |   | 98     |  
|                                                                                            |  |                              |        |   |      |   |        |  
|Net cash (used in) provided by operating activities                                         |  |                              | (2,479 | ) |      |   | 339    |  
|                                                                                            |  |                              |        |   |      |   |        |  
|Investing activities:                                                                       |  |                              |        |   |      |   |        |  
|Proceeds from sale of available-for-sale investments                                        |  |                              | 1,703  |   |      |   |       |  
|Capital expenditures                                                                        |  |                              | (60    | ) |      |   | (93    | )
|Proceeds from disposal of property and equipment                                            |  |                              | 75     |   |      |   | 44     |  
|                                                                                            |  |                              |        |   |      |   |        |  
|Net cash provided by (used in) investing activities from continuing operations              |  |                              | 1,718  |   |      |   | (49    | )
|Net cash provided by (used in) investing activities from discontinued operations            |  |                              | 234    |   |      |   | (2     | )
|                                                                                            |  |                              |        |   |      |   |        |  
|Net cash provided by (used in) investing activities                                         |  |                              | 1,952  |   |      |   | (51    | )
|                                                                                            |  |                              |        |   |      |   |        |  
|(Decrease) increase in cash and cash equivalents                                            |  |                              | (527   | ) |      |   | 288    |  
|Cash and cash equivalents at beginning of year                                              |  |                              | 4,656  |   |      |   | 1,929  |  
|                                                                                            |  |                              |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                                  |  | $                            | 4,129  |   |      | $ | 2,217  |  
|                                                                                            |  |                              |        |   |      |   |        |  



See accompanying notes to condensed
consolidated financial statements.



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AVALON HOLDINGS CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

March 31, 2004



Note 1. Basis of Presentation



The unaudited condensed consolidated financial statements of Avalon Holdings Corporation and
subsidiaries (collectively Avalon) and related notes included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted consistent with such rules and regulations. The accompanying unaudited condensed consolidated financial statements and
related notes should be read in conjunction with the consolidated financial statements and related notes included in Avalons 2003 Annual Report to Shareholders.



In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial position of Avalon as of March 31, 2004, and the results of its operations and cash flows for the interim periods presented.



The operating results for the interim periods are not necessarily indicative of the results
to be expected for the full year.



Note 2.
Revenue Recognition for Golf Operations



With the addition of the Squaw Creek
Country Club 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 Country Club facilities. As a result, net operating revenues associated with membership dues will be 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.



Note 3. Basic Net Income (Loss) Per Share



Basic net income (loss) per share has been computed using the weighted average number of common shares outstanding 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 the three months ended March 31, 2004 and 2003.



Note 4. Investment Securities



Avalon held available-for-sale securities of $4,319,000 and $6,009,000 at March 31, 2004 and December 31, 2003, respectively. At March 31, 2004, $3,013,000 is included in
the Condensed Consolidated Balance Sheets under the caption Short-term investments and $1,306,000 is included under the caption Noncurrent investments. At December 31, 2003, $6,009,000 is included in the Condensed
Consolidated Balance Sheets under the caption Noncurrent investments. As a result of the classification of these securities as available-for-sale, Avalon has recognized unrealized gains, net of applicable income taxes, of $7,000 during
the three month period ended March 31, 2004 and unrealized losses of $20,000 during the three month period ended March 31, 2003 as a component of other comprehensive income. Accumulated comprehensive income was $11,000 at March 31, 2004.



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



|                    |  |                |       |                      |   |                    |  |               |       |                      |   |                    |  |   |   |  |   |      
|------------------- |  | -------------- | ----- | -------------------- | - | ------------------ |  | ------------- | ----- | -------------------- | - | ------------------ |  | - | - |  | - | -----
|                    |  | March 31, 2004 |       | December 31, 2003   
|                    |  | AmortizedCost  |       | GrossUnrealizedGains |   | EstimatedFairValue |  | AmortizedCost |       | GrossUnrealizedGains |   | EstimatedFairValue
|Available-for-Sale: |  |                |       |                      |   |                    |  |               |       |                      |   |                    |  |   |   |  |   |      
|U.S. Treasury Notes |  | $              | 4,308 |                      | $ | 11                 |  | $             | 4,319 |                      | $ | 6,005              |  | $ | 4 |  | $ | 6,009



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



|                                      |  |                    |       |                     |   |      
|------------------------------------- |  | ------------------ | ----- | ------------------- | - | -----
|                                      |  | Available-for-Sale
|                                      |  | AmortizedCost      |       | EstimatedFair Value
|Due in one year or less               |  | $                  | 3,009 |                     | $ | 3,013
|Due after one year through five years |  |                    | 1,299 |                     |   | 1,306
|                                      |  |                    |       |                     |   |      
|Total                                 |  | $                  | 4,308 |                     | $ | 4,319
|                                      |  |                    |       |                     |   |      



Note
5. Comprehensive Income (Loss)



Comprehensive income (loss) is comprised of
two components: net income (loss) and other comprehensive income (loss). Comprehensive income (loss) is the change in equity during a period from transactions and other events and circumstances from non-owner sources. The unrealized gains and
losses, net of applicable taxes, related to available-for-sale securities is the only component of Accumulated other comprehensive income in the Condensed Consolidated Balance Sheets for Avalon. Comprehensive income (loss), net of
related tax effects, is as follows (in thousands):



|                                                        |  |                              |        |   |      |   |      |  
|------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ---- | -
|                                                        |  | Three Months Ended March 31, |       
|                                                        |  | 2004                         |        |   | 2003 |  
|Net loss                                                |  | $                            | (1,058 | ) |      | $ | (979 | )
|Unrealized gain (loss) on available-for-sale securities |  |                              | 7      |   |      |   | (20  | )
|                                                        |  |                              |        |   |      |   |      |  
|Comprehensive loss                                      |  | $                            | (1,051 | ) |      | $ | (999 | )
|                                                        |  |                              |        |   |      |   |      |  



Note
6. Prepaid Rent



Avalon entered into a long-term agreement with Squaw Creek
Country Club to lease and operate its golf course and related facilities. The lease, which commenced November 1, 2003, has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by
Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for improvements during a given year in excess of $150,000 will be carried forward and
applied to future obligations and classified as prepaid rent. At March 31, 2004, the balance of prepaid rent is $2,356,000 of which $150,000 is included in the Condensed Consolidated Balance Sheets under the caption



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Prepaid expenses, and $2,206,000 is included under the caption Noncurrent prepaid rent. At December 31, 2003 the balance of prepaid
rent was $474,000 of which $150,000 was included in the Condensed Consolidated Balance Sheets under the caption Prepaid expenses and $324,000 was included under the caption Noncurrent prepaid rent.



Note 7. Discontinued Operations



Avalons environmental remediation operation had continued to experience operating
losses as a result of a decline in net operating revenues and operational inefficiencies. Recognizing that the continuing losses incurred by the environmental remediation business would adversely impact Avalons future financial performance, in
the fourth quarter of 2003, management determined that it was in Avalons best interest to sell or discontinue the operation of the environmental remediation business. In January 2004, Avalon sold all of the fixed assets of the remediation
business for $.2 million 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.



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



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 operation of the building are included in discontinued operations.



Note 8. Legal Matters



In the ordinary course of conducting its business, Avalon also 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.



Note 9. Business Segment Information.



In applying Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures About Segments of an Enterprise and Related Information, Avalon considered
its operating and management structure and the types of information subject to regular review by its chief operating decision maker. On this basis, Avalons reportable segments include transportation services, waste management
services, and golf and related operations. Avalon accounts for intersegment net operating revenues as if the transactions were with third parties. The segment disclosures are presented on this basis for all periods presented.



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##### Table of Contents

Avalons primary business segment provides transportation services that include transportation of hazardous and
nonhazardous waste, transportation of general and bulk commodities, and transportation brokerage and management services. The waste management services segment provides hazardous and nonhazardous waste disposal 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 a travel agency. Avalon does not have
significant operations located outside the United States and, accordingly, geographical segment information is not presented.



For the three months ended March 31, 2004, one customer and its affiliates accounted for approximately 20% of the transportation services segments net operating
revenues to external customers and approximately 11% of Avalons consolidated net operating revenues. For the three months ended March 31, 2003, one customer and its affiliates accounted for approximately 23% of the transportation services
segments net operating revenues to external customers and approximately 13% of Avalons consolidated net operating revenues.



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##### Table of Contents

The accounting policies of the segments are consistent with those described for the consolidated financial statements in
the summary of significant accounting policies. 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
(loss) to consolidated income (loss) from continuing operations before taxes is as follows (in thousands):



|                                                       |  |                             |        |   |      |   |        |  
|------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                       |  | Three Months EndedMarch 31, |       
|                                                       |  | 2004                        |        |   | 2003 |  
|Net operating revenues from:                           |  |                             |        |   |      |   |        |  
|Transportation services:                               |  |                             |        |   |      |   |        |  
|External customers revenues                            |  | $                           | 7,551  |   |      | $ | 6,482  |  
|Intersegment revenues                                  |  |                             | 699    |   |      |   | 885    |  
|                                                       |  |                             |        |   |      |   |        |  
|Total transportation services                          |  |                             | 8,250  |   |      |   | 7,367  |  
|                                                       |  |                             |        |   |      |   |        |  
|Waste management services:                             |  |                             |        |   |      |   |        |  
|External customers revenues                            |  |                             | 5,715  |   |      |   | 4,990  |  
|Intersegment revenues                                  |  |                             | 41     |   |      |   | 50     |  
|                                                       |  |                             |        |   |      |   |        |  
|Total waste management services                        |  |                             | 5,756  |   |      |   | 5,040  |  
|                                                       |  |                             |        |   |      |   |        |  
|Golf and related operations:                           |  |                             |        |   |      |   |        |  
|External customers revenues                            |  |                             | 525    |   |      |   | 113    |  
|Intersegment revenues                                  |  |                             | 7      |   |      |   | 15     |  
|                                                       |  |                             |        |   |      |   |        |  
|Total golf and related operations                      |  |                             | 532    |   |      |   | 128    |  
|                                                       |  |                             |        |   |      |   |        |  
|Segment operating revenues                             |  |                             | 14,538 |   |      |   | 12,535 |  
|Intersegment eliminations                              |  |                             | (747   | ) |      |   | (950   | )
|                                                       |  |                             |        |   |      |   |        |  
|Total net operating revenues                           |  | $                           | 13,791 |   |      | $ | 11,585 |  
|                                                       |  |                             |        |   |      |   |        |  
|Income (loss) from continuing operations before taxes: |  |                             |        |   |      |   |        |  
|Transportation services                                |  | $                           | (239   | ) |      | $ | (260   | )
|Waste management services                              |  |                             | 515    |   |      |   | 360    |  
|Golf and related operations                            |  |                             | (142   | ) |      |   | (281   | )
|Other business                                         |  |                             | (1     | ) |      |   | (2     | )
|                                                       |  |                             |        |   |      |   |        |  
|Segment income (loss) before taxes                     |  |                             | 133    |   |      |   | (183   | )
|Corporate interest income                              |  |                             | 20     |   |      |   | 45     |  
|Corporate other income, net                            |  |                             | 13     |   |      |   | 13     |  
|General corporate expenses                             |  |                             | (849   | ) |      |   | (895   | )
|                                                       |  |                             |        |   |      |   |        |  
|Loss from continuing operations before taxes           |  | $                           | (683   | ) |      | $ | (1,020 | )
|                                                       |  |                             |        |   |      |   |        |  



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Business Segment Information (continued)



|                                        |  |                             |         |   |                   |   |         |  
|--------------------------------------- |  | --------------------------- | ------- | - | ----------------- | - | ------- | -
|                                        |  | Three Months EndedMarch 31, |        
|                                        |  | 2004                        |         |   | 2003              |  
|Interest income:                        |  |                             |         |   |                   |   |         |  
|Transportation services                 |  | $                           | 4       |   |                   | $ | 3       |  
|Waste management services               |  |                             | 16      |   |                   |   | 2       |  
|Golf and related operations             |  |                             | 1       |   |                   |   | 1       |  
|Corporate                               |  |                             | 20      |   |                   |   | 45      |  
|                                        |  |                             |         |   |                   |   |         |  
|Total                                   |  | $                           | 41      |   |                   | $ | 51      |  
|                                        |  |                             |         |   |                   |   |         |  
|                                        |  |                            
|                                        |  | March 31, 2004              |         |   | December 31, 2003 |  
|Identifiable assets:                    |  |                             |         |   |                   |   |         |  
|Transportation services                 |  | $                           | 9,315   |   |                   | $ | 9,003   |  
|Waste management services               |  |                             | 7,230   |   |                   |   | 5,821   |  
|Golf and related operations             |  |                             | 16,517  |   |                   |   | 14,825  |  
|Other businesses                        |  |                             | 557     |   |                   |   | 557     |  
|Corporate                               |  |                             | 27,999  |   |                   |   | 30,137  |  
|Discontinued operations                 |  |                             | 3,555   |   |                   |   | 5,153   |  
|                                        |  |                             |         |   |                   |   |         |  
|Subtotal                                |  |                             | 65,173  |   |                   |   | 65,496  |  
|Elimination of intersegment receivables |  |                             | (18,261 | ) |                   |   | (16,442 | )
|                                        |  |                             |         |   |                   |   |         |  
|Total                                   |  | $                           | 46,912  |   |                   | $ | 49,054  |  
|                                        |  |                             |         |   |                   |   |         |  



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion provides information which management believes is relevant to an assessment and understanding of the operations and financial condition of
Avalon Holdings Corporation and its subsidiaries. As used in this report, the term Avalon means Avalon Holdings Corporation and its wholly owned subsidiaries, taken as a whole, unless the context indicates otherwise.



Statements included in Managements Discussion and Analysis of Financial Condition
and Results of Operations which are not historical in nature are intended to be, and are hereby identified as, forward looking statements. Avalon cautions readers that forward looking statements, including, without limitation, those
relating to Avalons future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to risks and factors identified herein and from time to time in Avalons reports filed with the Securities and Exchange Commission.



Liquidity and Capital Resources



For the first three months of 2004, Avalon utilized existing cash and cash provided by the
sale of investment securities to fund capital expenditures and meet operating needs.



Avalons aggregate capital expenditures in 2004 are expected to be in the range of $.2 million to $.3 million, which relate principally to the purchase of golf, transportation and computer equipment. During the first three months of
2004, capital expenditures for Avalon totaled approximately $60,000 which was principally related to the development of software for the golf course operations.



Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease, which commenced
November 1, 2003, has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold
improvements of $150,000 per year. Amounts expended by Avalon for improvements during a given year in excess of $150,000 will be carried forward and applied to future obligations and classified as prepaid rent. Avalon has commenced construction of
certain initial improvements to the Squaw Creek facility, which are anticipated to be completed during the second quarter of 2004 and are currently estimated to cost between $3 million and $4 million.



Working capital was $9.8 million at March 31, 2004 compared with $7.3 million at December 31,
2003. The increase is primarily the result of the reclassification of noncurrent investments to short-term investments based upon the maturity dates of such investments.



The increase in the accounts receivable at March 31, 2004 compared with December 31, 2003 is a result of increased net operating revenues of
the waste management and brokerage operations and transportation operations in March 2004 compared with December 2003.



The increase in other noncurrent prepaid rent at March 31, 2004 compared with December 31, 2003 is a result of the amounts expended by Avalon for leasehold improvements
to the Squaw Creek facility in excess of $150,000 which will be carried forward and applied to future obligations.



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The decrease in prepaid expenses and accounts payable at March 31, 2004 compared with December 31, 2003 is primarily due
to the payment of insurance premiums for Avalons insurance program.



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



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



Several private country clubs in the Warren, Ohio vicinity 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.



Results of Operations



Overall performance



Net operating
revenues in the first quarter of 2004 increased to $13.8 million compared with $11.6 million in the prior years first quarter. Costs of operations increased to $12.7 million in the first quarter of 2004 compared with $10.8 million in the prior
year quarter. Avalon recorded a loss from continuing operations of $.7 million or $.18 per share for the first quarter of 2004 compared with a loss from continuing operations of $1 million or $.27 per share for the first quarter of 2003.



Performance in the First Quarter of 2004 compared with the First Quarter of
2003



Segment performance



Segment performance should be read in conjunction with Note 9 to the Condensed Consolidated
Financial Statements.



Net operating revenues of the transportation services
segment increased to $8.3 million in the first quarter of 2004 compared with $7.4 million in the first quarter of the prior year. The increase in net operating revenues is primarily attributable to a significant increase in the transportation and
brokerage of general commodities partially offset by a decrease in the transportation of hazardous and municipal waste. The increase in net operating revenues relating to the transportation of general



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commodities is primarily the result of a significant increase in the number of owner operators contracted to haul general
commodities. The decrease in the net operating revenues relating to the transportation of hazardous and municipal waste was primarily due to severe weather conditions in the New England states during the first two months of 2004. The transportation
services segment incurred a loss from continuing operations before taxes of $.2 million in the first quarter of 2004 compared with a loss from continuing operations before taxes of $.3 million in the first quarter of the prior year. The improvement
is primarily the result of the increased net operating revenues and certain cost reductions.



Net operating revenues of the waste management services segment increased to $5.8 million in the first quarter of 2004 compared with $5 million in the first quarter of the prior year. 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 $.5 million in the first quarter of 2004 compared with $.4 million in the first quarter of the prior year primarily as a result of an increase in the level of business of the waste
brokerage and management business, partially offset by a slight decrease in the captive landfill management operations as a result of the decreased net operating revenues.



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 course will continue to be available to the general public, the primary source of revenue will arise from members of the Avalon Golf and Country Club. With the addition of the Squaw Creek Country Club
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 Country Club facilities. As a result, net operating revenues associated with membership dues will be 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 for the golf and related operations were $.5 million in the first quarter of 2004 compared with $.1 million in the first quarter of the prior year.
The golf courses, which are located in Warren, Ohio and Vienna, Ohio were closed during the first quarter of 2004 and 2003 due to seasonality. The increase in net operating revenues is primarily the result of a significant increase in members during
the first quarter of 2004 compared with the first quarter of 2003 and the fact that the net operating revenues associated with membership dues are prorated monthly over the entire year instead of the golf season. The golf and related operations
segment incurred a loss from continuing operations before taxes of $.1 million in the first quarter of 2004 compared with a loss from continuing operations before taxes of $.3 million in the first quarter of the prior year. The decrease in the loss
from continuing operations before taxes is primarily due to the recognition of membership dues over the entire year as opposed to being recognized over the golf season as mentioned above.



Interest income



Interest income was $41,000 in the first quarter of 2004 compared with $51,000 in the first quarter of 2003.



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General corporate expenses



General corporate expenses were $.8 million in the first quarter of 2004 compared with $.9 million in the first quarter of 2003.



Net loss



Avalon recorded a net loss of $1.1 million in the first quarter of 2004 compared with a net loss of $1 million in the first quarter of the
prior year. Avalons overall effective tax rate, including the effect of state income tax provisions, was 0% in the first quarter of 2004 and 2003. The deferred tax benefit arising from the loss before income taxes was offset by a valuation
allowance. Avalon recorded a valuation allowance because Avalon believes it is more likely than not that deferred tax assets relating to certain federal and state loss carryforwards will not be realized. The overall effective tax rate is different
than statutory rates primarily due to the increase in the valuation allowance.



Trends and Uncertainties



In the ordinary course of conducting
its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those relating to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed
against Avalon that, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, management assesses the probability of loss and
accrues a liability as appropriate. Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, will have a material adverse effect on it.



The federal government and numerous state and local governmental bodies are continuing to
consider legislation or regulations to either restrict or impede the disposal and/or transportation of waste. A significant portion of Avalons transportation and waste disposal brokerage and management revenues is derived from the disposal or
transportation of out-of-state waste. Any law or regulation restricting or impeding the transportation of waste or the acceptance of out-of-state waste for disposal could have a significant negative effect on Avalon.



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



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



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



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



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



In connection with the transportation of municipal solid waste, Avalons transportation
operations provide loading services at several municipal solid waste transfer stations. Because of the fixed costs associated with loading, the profitability of such operations is dependent upon the volume of waste delivered to each transfer
station. The volume of waste delivered to each transfer station is not within Avalons control and has been less than anticipated. During the second quarter of 2004, Avalon ceased transportation operations at two Massachusetts municipal
solid waste transfer stations being serviced by Avalon and intends to close transportation operations at the third transfer station in June 2004. Accordingly, during the second quarter of 2004, Avalon closed its Oxford, Massachusetts terminal.



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



From time to time, Avalon 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.



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



Avalons waste brokerage and management operations
obtain and retain customers by providing services and identifying cost-efficient disposal options unique to a customers needs. Consolidation within the solid waste industry has resulted in reducing the number of disposal options available to
waste generators and has caused disposal pricing to increase. Avalon does not believe that industry pricing changes alone will have a material effect upon its waste brokerage and management operations. However, consolidation has had the effect of
reducing the number of competitors offering disposal alternatives that may adversely impact the future financial performance of Avalons waste brokerage and management operations.



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



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A significant portion of Avalons business is not subject to long-term contracts. In light of current economic,
regulatory and competitive conditions, there can be no assurance that Avalons current customers will continue to transact business with Avalon at historical levels. Failure by Avalon to retain its current customers or to replace lost business
could adversely impact the future financial performance of Avalon.



Current
economic challenges throughout the industries served by Avalon have resulted in a reduction of revenues coupled with an increase in payment defaults by customers. While Avalon continuously endeavors to limit customer credit risks, customer-specific
financial downturns are not controllable by management. Significant customer payment defaults in the future could continue to have a material adverse impact upon Avalons future financial performance.



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



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



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



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



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.



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Avalon does not purchase or hold any derivative financial instruments.



Item 4. 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 quarterly 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.



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings



Reference is made to Item 3. Legal Proceedings in Avalons Annual Report on Form 10-K for the year ended December 31, 2003 for a description of legal proceedings.



Item 2. Changes in Securities and Use of Proceeds



None



Item 3. Defaults upon Senior Securities



None



Item 4. Submission of Matters to a Vote of Security Holders



Avalons Annual Meeting of Shareholders was held on April 29, 2004; however, no vote of security holders occurred with respect to any matters reportable under this Item 4.



Item 5. Other Information



None



Item 6. Exhibits and Reports on Form 8-K



| | (a) | Exhibits
| | --- | --------



Exhibit 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



Exhibit 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



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.



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.



| | (b) | Reports on Form 8-K
| | --- | -------------------



None



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SIGNATURE



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                             |  |                                                                                                                                  
|------------------ |  | --------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|                   |  | AVALON HOLDINGS CORPORATION
|                   |  | (Registrant)               
|                   |  |                            
|Date: May 14, 2004 |  | By:                         |  | /s/ Timothy C. Coxson                                                                                                            
|                   |  |                             |  | Timothy C. Coxson, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer and Duly Authorized Officer)



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