Exhibit 13.1

Avalon Holdings Corporation

LOGO

2010 Annual Report



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Financial Highlights (in thousands, except for per share amounts)  For the year

2010


2009Net operating revenues

$
43,453


$
36,920Loss before income taxes


(502
)


(750
)Net loss


(543
)


(774
)Net loss per share


(.14
)


(.20
)At year-end

2010


2009Working capital

$
6,590


$
5,712Total assets


47,337



47,757Shareholders equity


38,977



39,400   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 golf courses and related facilities.


Contents  Financial Highlights


1Managements Discussion and Analysis of Financial Condition and Results of Operations


2Consolidated Balance Sheets


9Consolidated Statements of Operations


10Consolidated Statements of Cash Flows


11Consolidated Statements of Shareholders Equity


12Notes to Consolidated Financial Statements


13Report of Independent Registered Public Accounting Firm


20Managements Report on Internal Controls over Financial Reporting


21Company Location Directory


22Directors and Officers


23Shareholder Information


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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 2010, Avalon utilized cash provided by
operations and existing cash to fund capital expenditures and meet operating needs.

Avalons aggregate capital expenditures in 2010 were
$.4 million. Such expenditures related principally to purchases of equipment and building improvements for the golf and related operations segment. Avalons aggregate capital expenditures in 2011 are expected to be in the range of $.3 million
to $.5 million, which will principally relate to building improvements and equipment purchases for the golf and related operations.

On
November 1, 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease 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 $7.5 million of leasehold improvements as of December 31, 2010. 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.

Working capital was $6.6 million at December 31, 2010 compared with $5.7 million at December 31, 2009. The increase was primarily due to an increase in accounts receivable and a decrease in
accrued payroll and other compensation.

The increase in accounts receivable of $1.1 million at December 31, 2010 compared with
December 31, 2009 is primarily due to significantly higher net operating revenues of the waste management services segment in the fourth quarter of 2010 compared with the fourth quarter of 2009.

The decrease in accrued payroll and other compensation of $.2 million at December 31, 2010 compared with December 31, 2009 is primarily the
result of a decrease in accrued bonuses of the waste brokerage and management services business due to the timing of payments and a decrease in the amount of accrued payroll at yearend.

On March 21, 2008, Avalon entered into a $3.5 million unsecured line of credit agreement with The Huntington National Bank. Interest on borrowings accrues at LIBOR plus 1.75%. The agreement was
amended in April 2009 to provide for a minimum interest rate of 3.25%. The line of credit contains certain financial and other covenants, customary representations, warranties and events of defaults. Avalon was in compliance with the debt covenants
at December 31, 2010 and expects to meet the covenants throughout 2011. At December 31, 2010 and December 31, 2009, there were no borrowings under the line of credit.



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Management believes that anticipated cash provided from future operations and existing working capital,
as well as Avalons ability to borrow money under its credit facility, will be, for the foreseeable future, sufficient to meet operating requirements and fund capital expenditure programs.

Growth Strategy: Our growth strategy for the waste management services segment will focus on increasing revenue, gaining market share and
enhancing shareholder value through internal growth. Although we are a waste management services company, we do not own any landfills or provide waste collection services. However, because of our many relationships with various disposal facilities
and transporters, we are able to be more flexible and provide alternative solutions to a customers waste disposal or recycling needs. We intend to capitalize on our management and sales staff which has extensive experience in all aspects of
the waste business. As such, we intend to manage our internal growth as follows:



| |  | Sales and Marketing Activities. We will focus on retaining existing customers and obtaining new business through our well-managed sales
and marketing activities. We seek to manage our sales and marketing activities to enable us to capitalize on our position in many of the markets in which we operate. We provide a tailored program to all of our customers in response to their
particular needs. We accomplish this by centralizing services to effectively manage their needs, such as minimizing their procurement costs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We currently have a number of professional sales and marketing employees in the field who are compensated using a commission structure that is focused on generating high levels of quality revenue. For the
most part, these employees directly solicit business from existing and prospective customers. We emphasize our rate and cost structures when we train new and existing sales personnel.



| |  | Pricing Activities. We seek to secure price increases necessary to offset increased costs, to improve our operating margins and to obtain
adequate returns on our investments in assets.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Long-Term Agreements. We seek to obtain long-term agreements with all of our customers. By obtaining such long-term agreements, we will
have the opportunity to grow our revenue base at the same rate as the underlying revenue growth of these customers. We believe this positions us to minimize revenue deterioration and experience internal growth rates that are generally higher than
our industrys overall growth rate. Additionally, we believe that by securing a base of long-term recurring revenue, we are better able to protect our market position from competition and our business may be less susceptible to downturns in
economic conditions.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Development Activities. We will seek to identify opportunities to further position us as an integrated service provider in markets where
we provide services. In addition, we will continue to utilize the extensive experience of our management and sales staff to bid on significant one-time projects and those that require special expertise. Where appropriate, we may seek to obtain
permits that would provide vertically integrated waste services or expand the service offerings or leverage our existing volumes with current vendors to provide for long term, cost competitive strategic positioning within our existing markets.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the golf and related operations, 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. 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, utilizing its line of credit, secured or unsecured debt, issuance of common stock, or issuance of a security with characteristics of both debt and
equity, any of which could impact liquidity in the future.

Results of Operations

Avalons primary business segment, 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 golf courses and related facilities and a travel agency.



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Performance in 2010 compared with 2009

Overall Performance

Net operating revenues increased to $43.5 million in 2010
compared with $36.9 million in 2009. The increase is primarily the result of a significant increase in the net operating revenues of the waste management services segment. Costs of operations increased to $35.8 million in 2010 compared with $30.1
million in 2009. The increase is primarily due to higher transportation and disposal costs of the waste management services segment, as these costs vary directly with the net operating revenues. Fixed costs relating to depreciation and amortization
expense were $1.7 million in both 2010 and 2009. Consolidated selling, general and administrative expenses increased to $6.8 million in 2010 compared with $6.1 million in 2009. The increase is primarily due to an increase in salary and wages due to
the hiring of Mr. Steven M. Berry as Chief Executive Officer, compensation costs relating to stock options granted in the first quarter of 2010 and $.1 million of non-recurring maintenance expenses at the corporate headquarters building.
Additionally, in 2009, the results were favorably impacted by the Board of Directors decision to eliminate the 2008 employer discretionary contribution of $.1 million to Avalons 401k plan, which was scheduled to be made in the third
quarter of 2009. Avalon incurred a net loss of $.5 million or $.14 per share in 2010 compared with a net loss of $.8 million or $.20 per share in 2009.

Segment Performance. Segment performance should be read in conjunction with Note 12 to the Consolidated Financial Statements.

Net operating revenues of the waste management services segment increased to $33.9 million in 2010 compared with $27.5 million in 2009. Net operating revenues of the waste brokerage and management
services increased to $31.3 million in 2010 from $25.3 million in 2009 and the net operating revenues of the captive landfill management operations increased to $2.6 million in 2010 from $2.2 million in 2009. The increase in net operating revenues
of the waste brokerage and management services was primarily due to an increase of 47% in event work and a 4% increase in continuous or ongoing work. Event work is defined as bid projects under contract that occurs on a one-time basis over a short
period of time. Such work can fluctuate significantly from year to year. The increase in event work was primarily due to an increase in the number and size of the projects won in 2010 compared with 2009. Net operating revenues of the captive
landfill management operations increased in 2010 compared with 2009 primarily as a result of an increase in the sales of construction mats and an increase in the volume of waste disposed at the landfill. The volume of waste disposed of at the
landfill is entirely dependent upon the amount of waste generated by the owner of the landfill for whom Avalon manages the facility.

Income
before taxes of the waste management services segment increased to $2.8 million in 2010 compared with $2.2 million in 2009. The increase is primarily due to the aforementioned increase in net operating revenues of the waste brokerage and management
services business. Income before taxes of the waste brokerage and management services business was $2.3 million in 2010 compared with $1.7 million in 2009. Income before taxes of the captive landfill management operations was $.5 million in both
2010 and 2009. Although the net operating revenues of the captive landfill management operations increased, income before income taxes remained the same as a result of additional incentive bonuses during 2010 and higher operating costs.

Net operating revenues of the golf and related operations segment were $9.6 million in 2010 compared with $9.4 million in 2009. Due to adverse weather
conditions, net operating revenues relating to the golf courses, which are located in northeast Ohio and western Pennsylvania, were minimal during the first three months of 2010 and 2009. The average number of members during 2010 increased to 2,804
compared with 2,645 in 2009. The average net operating revenues per member from membership dues decreased slightly in 2010 compared with the prior year due to a change in the mix between social and golf members and promotional membership programs.
As such, net operating revenues from membership dues increased only slightly in 2010 compared with 2009. Net operating revenues associated with golfing activities decreased in 2010 while food and beverage, tennis, and net operating revenues related
to spa services increased. The golf and related operations segment incurred a loss before taxes of $.6 million in 2010 compared with a loss before taxes of $.8 million in 2009. The results in 2010 improved compared to 2009 primarily as a result of
an increase in net operating revenues and decreases in advertising and sales promotion expenses which were partially offset by increases in various operating expenses. The ability to attract and retain members is very important to the success of the
golf and related operations segment. Avalon is continually using



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different marketing strategies to attract and retain members, such as local television advertising and/or various membership promotions. However, due to the state of the economy, retaining
members and attracting new members has been difficult. A significant decline in members could adversely impact the financial results of the golf and related operations segment.

Interest Income

Interest income was $24,000 in 2010 compared with $33,000 in 2009.
The decrease is primarily the result of lower average investment rates.

Other Income, net

Other income, net was $253,000 in 2010 compared with $210,000 in 2009. Other income, net consists primarily of rental income, service charges to members
and gas and oil royalty payments received. The increase in 2010 is primarily due to an increase in gas and oil royalties paid to Avalon.

General Corporate Expenses

General corporate expenses were $2.7 million in 2010 compared with $2.3 million in 2009. The increase is primarily due to increased salary and wages as a
result of hiring Mr. Steven M. Berry as Chief Executive Officer on March 1, 2010, compensation costs relating to stock options granted in the first quarter of 2010 and approximately $.1 million of non-recurring maintenance expenses at
the corporate headquarters building.

Net Income

Avalon incurred a net loss of $.5 million in 2010 compared with a net loss of $.8 million in 2009. Excluding the minor effect of state income tax provisions and some minor tax credits, Avalons
overall effective tax rate was 0% for 2010 and 2009. The overall effective tax rate is different than statutory rates primarily due to a change the valuation allowance. As such, Avalons income tax benefit in 2010 and 2009 was offset by a
change in the valuation allowance. A valuation allowance has been provided when it is more likely than not that the deferred tax assets relating to certain federal and state loss carryforwards will not be realized. Avalon continues to maintain a
valuation allowance against the majority of its deferred tax amounts until it is evident that the deferred tax asset will be utilized in the future.

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 liquidity, 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 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 business obtains and retains 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 may cause disposal pricing to increase. Avalons waste brokerage and management services business may not be
able to pass these price increases onto some of its customers, which, in turn, may adversely impact Avalons future financial performance.

A significant portion of Avalons business is generated from waste brokerage and management services provided to customers and is not subject to
long-term contracts. In light of current economic, regulatory



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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.

Avalons captive
landfill management business is dependent upon a single customer as its sole source of revenue. If the captive landfill management business is unable to retain this customer, Avalons future financial performance could be adversely impacted.

Economic challenges throughout the industries served by Avalon have resulted 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 would have a material adverse impact upon Avalons future financial performance.

The Avalon Golf and Country Club has golf courses and clubhouses at each of its three facilities. The Squaw Creek and Sharon facilities each
have a swimming pool, a fitness center and dining and banquet facilities. The Squaw Creek facility has tennis courts and Sharon offers spa services. The Avalon Golf and Country Club competes with many public courses and country clubs in the area.
Although the golf courses continue to be available for use by the general public, the primary source of revenues will be generated by the members of the Avalon Golf and Country Club. Avalon believes that the combination of its three facilities will
result in additional memberships in the Avalon Golf and Country Club. Due to the state of the economy, the ability to retain current members and attract new members has been difficult. Although Avalon has been able to retain and increase the number
of members of the Avalon Golf and Country Club, as of December 31, 2010, Avalon has not attained its membership goals. There can be no assurance as to when such goals will be attained or when the golf and related operations will ultimately
become profitable. Avalon is continually using different marketing strategies to attract new members, such as local television advertising and/or various membership promotions. A significant decline in members could adversely affect the future
financial performance of Avalon.

All three of Avalons golf course operations currently hold liquor licenses for their respective
facilities. If, for some reason, any one of these facilities were to lose its liquor license, the financial performance of the golf and related operations would be adversely affected.

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

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 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, compensation costs relating to stock options granted, 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 receivable 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



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trade accounts receivable are past due, Avalons previous accounts receivable 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. 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. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the
allowance for doubtful accounts, or to income, as appropriate under the circumstances.

Avalon recognizes share-based compensation expense
related to stock options issued to employees and directors. Avalon estimates the fair value of the stock options granted using a Monte Carlo simulation. The Monte Carlo simulation was selected to determine the fair value because it incorporates six
minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees expected exercise and post-vesting employment termination
behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the
expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.

The expected term, or time until the option is exercised is typically based on historical exercising behavior of previous option holders of a companys stock. Due to the fact there were no options
previously granted and, therefore no historical exercising behavior available, we estimated the expected term of each award to be half the maximum term. Avalon amortizes the fair value of the stock options over the expected term or requisite service
period. If accelerated vesting occurs based on the market performance of Avalons common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting.

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 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.

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 at 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.



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Avalons estimates are revised, as deemed necessary, as additional information becomes known. Such revisions may impact future operating results. Although Avalon is not currently aware of
any environmental liability, there can be no assurance that in the future an environmental liability will not occur.

Avalon recognizes
deferred tax assets and liabilities based on differences between financial statement carrying amounts and the tax bases of assets and liabilities. Avalon also records tax benefits when it believes that it is more likely than not that the benefit
will be sustained by the tax authority. Avalon regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based upon historical taxable income, projected future taxable income and the expected timing of the
reversals of existing temporary differences to reduce its deferred assets to the amount that it believes is more likely than not to be realized. Avalon has considered future taxable income in assessing the need for the valuation allowance. The
$2,024,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the $2,032,000 of deferred tax assets. Avalon has not provided a valuation allowance on
the amount of deferred tax assets that it estimates will be utilized as a result of these reviews. The net deferred tax asset of $8,000 as of December 31, 2010 is likely to be utilized upon the filing of certain state tax returns. If future
taxable income is less than the amount that has been assumed in assessing the recoverability of the deferred tax assets, then an increase in the valuation allowance will be required, with a corresponding increase to income tax expense. Likewise,
should Avalon ascertain in the future that it is more likely than not that deferred tax assets will be realized in excess of the net deferred tax assets, all or a portion of the $905,000 valuation allowance as of December 31, 2010, of which
$625,000 relates to a net operating loss carryforward, would be reversed as a benefit to the provision for income taxes in the period such determination was made.



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Consolidated Balance Sheets

(in thousands, except for share data)



|                                                                                                                                                                           |  |              |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                           |  | December 31, |        
|                                                                                                                                                                           |  | 2010         |         |   | 2009 |  
|Assets                                                                                                                                                                     |  |              |         |   |      |   |         |  
|Current Assets:                                                                                                                                                            |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                  |  | $            | 5,565   |   |      | $ | 5,862   |  
|Accounts receivable, less allowance for doubtful accounts of $168 in 2010 and $165 in 2009                                                                                 |  |              | 8,202   |   |      |   | 7,094   |  
|Prepaid expenses                                                                                                                                                           |  |              | 341     |   |      |   | 291     |  
|Refundable income taxes                                                                                                                                                    |  |              | 14      |   |      |   | 25      |  
|Other current assets                                                                                                                                                       |  |              | 600     |   |      |   | 568     |  
|                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Total current assets                                                                                                                                                       |  |              | 14,722  |   |      |   | 13,840  |  
|Property and equipment,                                                                                                                                                    |  |              | 27,265  |   |      |   | 28,277  |  
|Leased property under capital leases, net                                                                                                                                  |  |              | 5,314   |   |      |   | 5,574   |  
|Noncurrent deferred tax asset                                                                                                                                              |  |              | 8       |   |      |   | 8       |  
|Other assets, net                                                                                                                                                          |  |              | 28      |   |      |   | 58      |  
|                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Total assets                                                                                                                                                               |  | $            | 47,337  |   |      | $ | 47,757  |  
|                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Liabilities and Shareholders Equity                                                                                                                                       |  |              |         |   |      |   |         |  
|Current Liabilities:                                                                                                                                                       |  |              |         |   |      |   |         |  
|Current portion of obligations under capital leases                                                                                                                        |  | $            | 1       |   |      | $ | 1       |  
|Accounts payable                                                                                                                                                           |  |              | 5,173   |   |      |   | 5,119   |  
|Accrued payroll and other compensation                                                                                                                                     |  |              | 383     |   |      |   | 545     |  
|Other accrued taxes                                                                                                                                                        |  |              | 269     |   |      |   | 274     |  
|Deferred Revenues                                                                                                                                                          |  |              | 1,988   |   |      |   | 1,943   |  
|Other liabilities and accrued expenses                                                                                                                                     |  |              | 318     |   |      |   | 246     |  
|                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                  |  |              | 8,132   |   |      |   | 8,128   |  
|Obligations under capital leases                                                                                                                                           |  |              | 228     |   |      |   | 229     |  
|Contingencies and commitments                                                                                                                                              |  |              |        |   |      |   |        |  
|Shareholders Equity:                                                                                                                                                      |  |              |         |   |      |   |         |  
|Class A Common Stock, $.01 par value, one vote per share; authorized 10,500,000 shares; issued and outstanding 3,191,038
shares at December 31, 2010 and December 31, 2009 |  |              | 32      |   |      |   | 32      |  
|Class B Common Stock, $.01 par value, ten votes per share; authorized 1,000,000 shares; issued and outstanding 612,293 shares at
December 31, 2010 and December 31, 2009   |  |              | 6       |   |      |   | 6       |  
|Paid-in capital                                                                                                                                                            |  |              | 58,216  |   |      |   | 58,096  |  
|Accumulated deficit                                                                                                                                                        |  |              | (19,277 | ) |      |   | (18,734 | )
|                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Total shareholders equity                                                                                                                                                 |  |              | 38,977  |   |      |   | 39,400  |  
|                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                                                                 |  | $            | 47,337  |   |      | $ | 47,757  |  
|                                                                                                                                                                           |  |              |         |   |      |   |         |  

See accompanying notes to consolidated financial statements.



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Consolidated Statements of Operations

(in thousands, except for per share amounts)



|                                             |  |                         |        |   |      |   |        |  
|-------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                             |  | Year Ended December 31, |       
|                                             |  | 2010                    |        |   | 2009 |  
|                                             |  |                        
|Net operating revenues                       |  | $                       | 43,453 |   |      | $ | 36,920 |  
|Costs and expenses:                          |  |                         |        |   |      |   |        |  
|Costs of operations                          |  |                         | 35,751 |   |      |   | 30,114 |  
|Depreciation and amortization                |  |                         | 1,684  |   |      |   | 1,688  |  
|Selling, general and administration expenses |  |                         | 6,783  |   |      |   | 6,096  |  
|                                             |  |                         |        |   |      |   |        |  
|Operating loss                               |  |                         | (765   | ) |      |   | (978   | )
|Other income (expense):                      |  |                         |        |   |      |   |        |  
|Interest expense                             |  |                         | (14    | ) |      |   | (15    | )
|Interest income                              |  |                         | 24     |   |      |   | 33     |  
|Other income, net                            |  |                         | 253    |   |      |   | 210    |  
|                                             |  |                         |        |   |      |   |        |  
|Loss before income taxes                     |  |                         | (502   | ) |      |   | (750   | )
|Provision for income taxes                   |  |                         | 41     |   |      |   | 24     |  
|                                             |  |                         |        |   |      |   |        |  
|Net loss                                     |  | $                       | (543   | ) |      | $ | (774   | )
|                                             |  |                         |        |   |      |   |        |  
|Net loss per share basic and diluted        |  | $                       | (.14   | ) |      | $ | (.20   | )
|                                             |  |                         |        |   |      |   |        |  
|Weighted average shares outstanding          |  |                         | 3,803  |   |      |   | 3,803  |  
|                                             |  |                         |        |   |      |   |        |  

See accompanying notes to consolidated financial statements.



10



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Consolidated Statements of Cash Flows

(in thousands)



|                                                                               |  |                         |        |   |      |   |       |  
|------------------------------------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ----- | -
|                                                                               |  | Year Ended December 31, |       
|                                                                               |  | 2010                    |        |   | 2009 |  
|Operating activities:                                                          |  |                         |        |   |      |   |       |  
|Net loss                                                                       |  | $                       | (543   | ) |      | $ | (774  | )
|Reconciliation of net loss to cash provided by (used in) operating activities: |  |                         |        |   |      |   |       |  
|Depreciation                                                                   |  |                         | 1,683  |   |      |   | 1,687 |  
|Amortization                                                                   |  |                         | 1      |   |      |   | 1     |  
|Compensation costs  stock options                                             |  |                         | 120    |   |      |   |      |  
|Provision for losses on accounts receivable                                    |  |                         | 14     |   |      |   | 93    |  
|Provision for deferred taxes                                                   |  |                         |       |   |      |   | 17    |  
|Gain from disposal of property and equipment                                   |  |                         | (24    | ) |      |   | (2    | )
|Change in operating assets and liabilities:                                    |  |                         |        |   |      |   |       |  
|Accounts receivable                                                            |  |                         | (1,122 | ) |      |   | 2,117 |  
|Prepaid expenses                                                               |  |                         | (50    | ) |      |   | 18    |  
|Refundable income taxes                                                        |  |                         | 11     |   |      |   | (25   | )
|Other current assets                                                           |  |                         | (32    | ) |      |   | 68    |  
|Other assets, net                                                              |  |                         | 29     |   |      |   |      |  
|Accounts payable                                                               |  |                         | 54     |   |      |   | 288   |  
|Accrued payroll and other compensation                                         |  |                         | (162   | ) |      |   | (166  | )
|Accrued income taxes                                                           |  |                         |       |   |      |   | (19   | )
|Other accrued taxes                                                            |  |                         | (5     | ) |      |   | (7    | )
|Deferred revenues                                                              |  |                         | 45     |   |      |   | (57   | )
|Other liabilities and accrued expenses                                         |  |                         | 72     |   |      |   | (220  | )
|                                                                               |  |                         |        |   |      |   |       |  
|Net cash provided by operating activities                                      |  |                         | 91     |   |      |   | 3,019 |  
|                                                                               |  |                         |        |   |      |   |       |  
|Investing activities:                                                          |  |                         |        |   |      |   |       |  
|Capital expenditures                                                           |  |                         | (411   | ) |      |   | (219  | )
|Proceeds from disposal of property and equipment                               |  |                         | 24     |   |      |   | 2     |  
|                                                                               |  |                         |        |   |      |   |       |  
|Net cash used in investing activities                                          |  |                         | (387   | ) |      |   | (217  | )
|                                                                               |  |                         |        |   |      |   |       |  
|Financing activities:                                                          |  |                         |        |   |      |   |       |  
|Principal payments on capital lease obligations                                |  |                         | (1     | ) |      |   | (1    | )
|                                                                               |  |                         |        |   |      |   |       |  
|Net cash used in financing activities                                          |  |                         | (1     | ) |      |   | (1    | )
|                                                                               |  |                         |        |   |      |   |       |  
|(Decrease) increase in cash and cash equivalents                               |  |                         | (297   | ) |      |   | 2,801 |  
|Cash and cash equivalents at beginning of year                                 |  |                         | 5,862  |   |      |   | 3,061 |  
|                                                                               |  |                         |        |   |      |   |       |  
|Cash and cash equivalents at end of year                                       |  | $                       | 5,565  |   |      | $ | 5,862 |  
|                                                                               |  |                         |        |   |      |   |       |  
|Supplemental disclosures of cash flow information:                             |  |                         |        |   |      |   |       |  
|Cash paid during the year for interest expense                                 |  | $                       | 14     |   |      | $ | 15    |  
|Cash received during the year as interest income                               |  | $                       | 24     |   |      | $ | 33    |  

For supplemental cash
flow information regarding income taxes, see Note 6.

See accompanying notes to consolidated financial statements.



11



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Avalon Holdings Corporation and Subsidiaries





Consolidated Statements of Shareholders Equity

(in thousands)



|                                   |  |                                           |       |  |              |  |     |         |  |   |             |  |  |         |   |  |         |   |        |       |  |   |         |   |  |   |        |  
|---------------------------------- |  | ----------------------------------------- | ----- |  | ------------ |  | --- | ------- |  | - | ----------- |  |  | ------- | - |  | ------- | - | ------ | ----- |  | - | ------- | - |  | - | ------ | -
|                                   |  | For The Two Years Ended December 31, 2010 |      
|                                   |  | Shares                                    |       |  | Common Stock |  |     | Paid-in |  |   | Accumulated |  |  |         |  
|                                   |  | Class A                                   |       |  | Class B      |  |     | Class A |  |   | Class B     |  |  | Capital |   |  | Deficit |   |        | Total | 
|Balance at January 1, 2009         |  |                                           | 3,191 |  |              |  | 612 |         |  | $ | 32          |  |  | $       | 6 |  |         | $ | 58,096 |       |  | $ | (17,960 | ) |  | $ | 40,174 |  
|Net loss                           |  |                                           |      |  |              |  |    |         |  |   |            |  |  |         |  |  |         |   |       |       |  |   | (774    | ) |  |   | (774   | )
|                                   |  |                                           |       |  |              |  |     |         |  |   |             |  |  |         |   |  |         |   |        |       |  |   |         |   |  |   |        |  
|Balance at December 31, 2009       |  |                                           | 3,191 |  |              |  | 612 |         |  | $ | 32          |  |  | $       | 6 |  |         | $ | 58,096 |       |  | $ | (18,734 | ) |  | $ | 39,400 |  
|Stock options  Compensation costs |  |                                           |      |  |              |  |    |         |  |   |            |  |  |         |  |  |         |   | 120    |       |  |   |        |   |  |   | 120    |  
|Net loss                           |  |                                           |      |  |              |  |    |         |  |   |            |  |  |         |  |  |         |   |       |       |  |   | (543    | ) |  |   | (543   | )
|                                   |  |                                           |       |  |              |  |     |         |  |   |             |  |  |         |   |  |         |   |        |       |  |   |         |   |  |   |        |  
|Balance at December 31, 2010       |  |                                           | 3,191 |  |              |  | 612 |         |  | $ | 32          |  |  | $       | 6 |  |         | $ | 58,216 |       |  | $ | (19,277 | ) |  | $ | 38,977 |  
|                                   |  |                                           |       |  |              |  |     |         |  |   |             |  |  |         |   |  |         |   |        |       |  |   |         |   |  |   |        |  

See accompanying notes to consolidated financial statements.



12



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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). 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. Avalon provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S.
markets and manages a captive landfill for an industrial customer. In addition, Avalon owns the Avalon Golf and Country Club, which has golf courses and clubhouses at each of its three facilities. The Squaw Creek and Sharon facilities each have a
swimming pool, a fitness center and dining and banquet facilities. The Squaw Creek facility also has tennis courts, while the Sharon facility offers spa services. Avalon also owns and operates a travel agency. 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 2010 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 that are stated at cost, which approximate market value. 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. Such investments were not insured by the Federal Deposit Insurance Corporation. The balance of cash and cash equivalents was
$5.6 million and $5.9 million at December 31, 2010 and 2009, respectively. Avalon maintains its cash balances in various 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 its cash and cash equivalents. Financial instruments The fair value of financial instruments consisting of cash, cash
equivalents, accounts receivable, and accounts payable at December 31, 2010 and 2009 approximates carrying value due to the relative short maturity of these financial instruments. 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 0 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 5). Major additions and improvements are charged to the property and equipment accounts while replacements,
maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed currently. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the
year of disposal. Gains or losses resulting from disposals of property and equipment are credited or charged to operations currently. Interest costs, if any, would be capitalized on significant construction projects. 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 management believes it is more likely than not that such deferred
tax assets will not be realized. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. Revenue recognition Avalon recognizes revenue for waste management services as services
are performed. Revenues for the golf operations are recognized as services are provided with the exception of membership dues which are recognized proportionately over twelve months based upon each members anniversary date. The deferred
revenues relating






13



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Avalon Holdings Corporation and Subsidiaries





to membership dues at December 31, 2010 and December 31, 2009 were $2.0 million and $1.9 million, respectively. Accounts Receivable The majority of Avalons accounts receivable is 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 accounts receivable 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. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the circumstances. Leases Avalon applies the accounting rules for leases to categorize leases at their
inception as either operating or capital leases depending on certain defined criteria. Leasehold improvements are capitalized at cost and are amortized over the lesser of their expected useful life or the life of the lease (See Notes 3, 5 and 11). Stock-Based compensation Avalon recognizes share-based compensation expense related to stock options issued to employees and directors. Avalon estimates the fair value of the
stock options granted using a Monte Carlo simulation. The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option,
taking into account both the contractual term of the option, the effects of employees expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the
option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of
the option and 6) the risk-free interest rate(s) for the expected term of the option. The expected term, or time until the option is
exercised is typically based on historical exercising behavior of previous option holders of a companys stock. Due to the fact there were no options previously granted and, therefore no historical exercising behavior available, we estimated
the expected term of each award to be half the maximum term.


Avalon amortizes the fair value of the stock options over the expected term or requisite service period. If
accelerated vesting occurs based on the market performance of Avalons common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting. Asset impairments Avalon reviews the
carrying value of its long-lived assets 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 and their eventual disposition 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 value.
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. Avalon does not believe there was a
triggering event in 2010 or 2009 as the golf operations future cash flows have not changed significantly and asset values have remained relatively stable. 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, 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. Although Avalon is not currently aware of any environmental liability, there can be no assurance
that in the future an environmental liability will not occur. Basic net loss per share Basic net loss per share has been computed using the weighted average number of common shares outstanding each period, which were 3,803,331. Although
there are common equivalent shares outstanding, no diluted per share amounts are reported because Avalon was in a net loss position for the year ended December 31, 2010. As a result, such dilution would be considered anti-dilutive. Therefore,
diluted per share amounts are equal to basic per share amounts for the years ended December 31, 2010 and 2009.






14



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Avalon Holdings Corporation and Subsidiaries





Subsequent Events Avalon evaluated subsequent events through the date the financial statements were issued. On January 12, 2011, Avalon announced the resignation of Mr. Steven M. Berry effective
February 15, 2011 as a director, President and Chief Executive Officer of Avalon Holdings Corporation. As a result, Mr. Berry will forfeit his 450,000 stock options. The compensation costs related to these options, which totaled $.1
million though the first nine months of 2010, were reversed in the fourth quarter of 2010. Note 3. Capital Leased Assets On November 1, 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related
facilities. The lease 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 $7.5
million of leasehold improvements as of December 31, 2010. 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. Note 4. Credit Facility On
March 21, 2008, Avalon entered into a $3.5 million unsecured line of credit agreement with The Huntington National Bank. Interest on borrowings accrues at LIBOR plus 1.75%. The agreement was amended in April 2009 to provide for a minimum
interest rate of 3.25%. The line of credit contains certain financial covenants, customary representations, warranties and events of defaults. At December 31, 2010 and December 31, 2009, there were no borrowings under the line of credit
and Avalon was in compliance with all covenants. Note 5. Property and Equipment Property and equipment at December 31, 2010 and 2009 consists of the following (in thousands):  2010


2009Land and land improvements

$
11,799


$
11,759Buildings and improvements


19,764



19,742Machinery and equipment


2,794



2,757Vehicles


222



165Office furniture and equipment


2,909



2,89637,488



37,319Less: accumulated depreciation and amortization


(10,223
)


(9,042
)Property and equipment, net

$
27,265


$
28,277


Leased property under capital leases at December 31, 2010 and 2009 consists of the following (in
thousands):  2010


2009Leased property under capital leases

$
7,481


$
7,348Less: accumulated amortization


(2,167
)


(1,774
)Leased property under capital leases, net

$
5,314


$
5,574 Note 6. Income Taxes Loss before income taxes for each of the two years in the period ended December 31, 2010 was subject to taxation under United States jurisdictions only. The provision for income taxes consists of the following (in thousands): 2010


2009Current:Federal

$
(1
)

$
(14
)State


42



2141



7Deferred:Federal






23State






(6
)



17$
41


$
24 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at
December 31, 2010 and 2009 are as follows (in thousands):  2010


2009Deferred tax assets:Accounts receivable, allowance for doubtful accounts

$
62


$
61Reserves not deductible until paid


47



6Net operating loss carryforwardsFederal


2,323



2,188State


356



262Federal Tax Credit


139



107Other


10



Gross deferred tax assets


2,937



2,624Less valuation allowance


(905
)


(656
)Deferred tax assets net of valuation allowance

$
2,032


$
1,968Deferred tax liabilities:Property and equipment

$
(2,024
)

$
(1,960
)Other






Gross deferred tax liabilities

$
(2,024
)

$
(1,960
)Net deferred tax asset

$
8


$
8 The $2,024,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as
the temporary differences giving rise to the $2,032,000 of deferred tax assets. Avalon has not provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized as a result of these reviews. The net deferred tax
asset of $8,000 as of December 31, 2010 is likely to be utilized upon the filing of certain state tax returns. If future taxable income is less than the amount that has been assumed in assessing the recoverability of the deferred tax assets,
then an increase in the valuation






15



---

Avalon Holdings Corporation and Subsidiaries





allowance will be required, with a corresponding increase to income tax expense. Likewise, should Avalon ascertain in the future that it is more likely than not that deferred tax assets will be
realized in excess of the net deferred tax assets, all or a portion of the $905,000 valuation allowance as of December 31, 2010, of which $625,000 relates to a net operating loss carry-forward, would be reversed as a benefit to the provision
for income taxes in the period such determination was made. In 2009, the capital loss carryforward of $2.9 million expired and as such, the valuation allowance relating to this capital loss carryforward was reversed. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to loss
before income taxes as a result of the following differences (in thousands):  2010


2009Loss before income taxes

$
(502
)

$
(750
)Federal statutory tax rate


35
%


35
%(176
)


(263
)State income taxes, net of federal income tax benefits


27



43Change in valuation allowance


249



(3,302
)Expired capital loss carryforward






2,934Increase in available federal tax credit


(32
)


(87
)Other deferred asset adjustments



374Other nondeductible expenses


45



49(Increase) decrease in net operating loss carryforward: state


(83
)


329federal


5



(5
)Other, net


6



(48
)$
41


$
24 Avalon is subject to income taxes in the U.S. federal and various states jurisdictions. With few exceptions, Avalon is no
longer subject to U.S. federal, state and local income tax examinations by taxing authorities for the years before 2006. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense,
respectively. There were no accruals for the payment of interest and penalties for 2010 and 2009. Avalon made net income tax payments of
$32,000 and $48,000 in 2010 and 2009, respectively. At December 31, 2010, Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately $6,831,000 which are available to offset future federal taxable income.
These carryforwards expire in 2021 through 2030. In addition, at December 31, 2010, certain subsidiaries of Avalon have net operating loss carryforwards for state purposes which are available to offset future state taxable income. These
carryforwards expire at various dates through 2031. 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 7. Retirement Benefits Avalon sponsors a defined contribution profit sharing plan that is a qualified tax deferred benefit plan under Section 401(k) of the Internal Revenue Code (the Plan). Substantially all
employees are eligible to participate in the Plan. The Plan provides for employer discretionary cash contributions as determined by Avalons Board of Directors. Discretionary contributions vest on a graduated basis and become 100% vested after
five 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. In August 2009, the Board of Directors of Avalon
decided to eliminate the employer discretionary contribution for the years 2009 and 2008. As a result, the discretionary contribution of $126,000 costs charged to operations in 2008 was not paid and the expense was reversed in 2009. In November
2010, the Board also decided not to make a discretionary employer contribution for 2010. Note 8. Long-term Incentive Plan On August 12, 2009, the Board of Directors of Avalon approved the renewal of the expired 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. The name of the plan was changed to the 2009 Long-term Incentive Plan (the Option Plan) to reflect the year of approval. On October 6, 2009, at a Special Meeting of Shareholders, the
shareholders approved the Option Plan. 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 100% 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 Option 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






16



---

Avalon Holdings Corporation and Subsidiaries





exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such options. No option may be exercised by an optionee
after his or her termination of employment for any reason with Avalon or an affiliate, except in certain situations provided by the Option Plan. During the first quarter of 2010, Avalon granted 980,000 stock options, which were the first stock options granted under the Option Plan. These stock options, vest ratably over a five year period and have
a contractual term of ten years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within three years
following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended
at the discretion of the Board of Directors. Mr. Steven M. Berry resigned effective February 15, 2011 as a director, President
and Chief Executive Officer of Avalon Holdings Corporation. None of Mr. Berrys stock options were vested and as a result, Mr. Berry will forfeit his 450,000 stock options. The compensation costs related to this forfeiture, which
amounted to $.1 million through the first nine months of 2010, were reversed in the fourth quarter of 2010. Compensation costs were
approximately $120,000 for the year ended December 31, 2010 based upon the estimated fair value calculation. The deferred tax benefit recorded was offset by an increase to the valuation allowance. As of December 31, 2010, there was approximately $.4 million of total unrecognized compensation costs related to non-vested share-based compensation
arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.71 years. The Monte Carlo
Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects
of employees expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity,
4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of
the option. The expected term, or time until the option is exercised is typically based on historical exercising behavior of previous option
holders of a companys stock. Due to the fact there were no options previously granted and, therefore no historical


exercising behavior available, we estimated the expected term to be half the maximum term. Because of the nature of the vesting as described above, the options were separated into five blocks,
with each block having its own vesting period and expected term. Assuming the vesting occurs ratably over the vesting period for each option block, the average vesting term (requisite service period) for each option block was calculated to be 2.54,
3.54, 4.54, 5.54 and 6.54 years for option blocks 1 through 5, respectively. As such, the expected terms were calculated to be 6.27, 6.77, 7.27, 7.77 and 8.27 years, for option blocks 1 through 5, respectively. The current fair value of the underlying equity was determined to be equal to Avalons publicly traded stock price as of the grant dates times the
sum of the Class A and Class B common shares outstanding. The expected volatility was based on the observed volatility of Avalon common
stock for a five year period prior to the grant dates. The expected volatility that was used ranged from 60.9% to 61.5% with a weighted average expected volatility of 60.9%. There were no expected dividends and the risk-free interest rate(s) which ranged from 2.28% to 2.44% were based on yield data for U. S. Treasury securities over a period consistent with the expected term. The following table is a summary of the stock option activity during 2010:  Number ofOptionsGranted


WeightedAverageExercisePrice


WeightedAverageFairValue atGrantDateOutstanding  January 1, 2010










Granted


980,000


$
2.52


$
3.56Exercised










Expired










Forfeited (a)










Outstanding  December 31, 2010


980,000


$
2.52


$
3.56Exercisable  December 31, 2010










  (a)
450,000 stock options will be forfeited in 2011 due to Mr. Steven Berrys resignation effective February 15, 2011. The stock options vest and become exercisable based upon achieving two critical metrics as follows:  1)
Contract Vesting Term: The stock options vest ratably over a five year period.  2)
The Avalon common stock price traded on a public stock exchange (NYSE Amex) must reach the predetermined vesting price within three years after the options become
vested under the Contract Vesting Term.






17



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Avalon Holdings Corporation and Subsidiaries





The table below represents the period and predetermined stock price needed for vesting.  BeginsVesting

EndsVesting

PredeterminedVesting PriceBlock 1

12 mo. after Grant Dates

48 mo. after Grant Dates

$
3.43Block 2

24 mo. after Grant Dates

60 mo. after Grant Dates

$
4.69Block 3

36 mo. after Grant Dates

72 mo. after Grant Dates

$
6.43Block 4

48 mo. after Grant Dates

84 mo. after Grant Dates

$
8.81Block 5

60 mo. after Grant Dates

96 mo. after Grant Dates

$
12.07 Note 9. Shareholders Equity Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all
matters submitted to a vote of the shareholders. Except for the election of Avalons Board of Directors, the Class A Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote to the
shareholders. However, with regard to the election of directors, for as long as the outstanding Class B Common Stock has more than 50% of the total outstanding voting power of all common stock, the holders of the Class A Common Stock, voting as
a separate class, will elect the number of directors equal to at least 25% of the total Board of Directors and the holders of the Class B Common Stock, voting as a separate class, will elect the remaining directors. Thereafter, the holders of the
Class A Common Stock (one vote per share) and Class B Common Stock (ten votes per share) will vote together as a single class for the election of directors. The holders of a majority of all outstanding shares of Class A Common Stock or
Class B Common Stock, voting as separate classes, must also approve amendments to the Articles of Incorporation that adversely affect the shares of their class. Shares of Class A Common Stock and Class B Common Stock do not have cumulative
voting rights. Each share of Class B Common Stock is convertible, at any time, at the option of the shareholder, into one share of
Class A Common Stock. Shares of Class B Common Stock are also automatically converted into shares of Class A Common Stock on the transfer of such shares to any person other than Avalon, another holder of Class B Common Stock or a Permitted
Transferee, as defined in Avalons Articles of Incorporation. The Class A Common Stock is not convertible.


Note 10. Legal Matters In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and governmental investigations, including those related to environmental matters. Some
of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and financial condition. Although the outcome of such lawsuits or other proceedings cannot be
predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings, individually or in the aggregate, would have a material adverse effect on its liquidity, financial
position or results of operations. Note 11. Lease Commitments Avalon leases golf carts, machinery and equipment, and copiers under operating leases and land and land improvements under a capital lease. Future commitments under long-term, operating leases and capital
lease at December 31, 2010 are as follows (in thousands):  Capital


Operating


Total2011

$
15


$
335


$
3502012


15



334



3492013


15



256



2712014


15



76



912015


15







15After 2015


555







555Total minimum lease payments


630


$
1,001


$
1,631Less: Amounts representing interest


401Present value of minimum payments


229Less: Current portion of obligations under capital leases


1Long-term portion of obligations under capital leases

$
228 Rental expense included in the Consolidated Statements of Operations amounted to $421,000 in 2010 and $418,000 in
2009.






18



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Avalon Holdings Corporation and Subsidiaries





Note 12. Business Segment Information Avalons reportable segments include waste management services and golf and related operations. In determining the segment 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 golf courses and related facilities and a travel agency. Revenue for the golf and related operations segment
consists primarily of membership dues, greens fees, cart rentals, merchandise, tennis, spa services and food and beverage sales. Avalon does not have significant operations located outside the United States and, accordingly, geographical segment
information is not presented. In 2010, one customer accounted for 12% of the waste management services segments net operating revenues to external customers and 9% of the consolidated net operating revenues. In 2009, no customer individually
accounted for 10% or more of Avalons consolidated net operating revenues. 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) before taxes.


Business segment information including the reconciliation of segment income to consolidated income (loss)
before taxes is as follows (in thousands):  2010


2009Net operating revenues from:Waste management services:External customers revenues

$
33,888


$
27,531Intersegment revenues






Total waste management services


33,888



27,531Golf and related operations:External customer revenues


9,565



9,389Intersegment revenues


56



39Total golf and related operations


9,621



9,428Segment operating revenues


43,509



36,959Intersegment eliminations


(56
)


(39
)Total net operating revenues

$
43,453


$
36,920Income (loss) before taxes:Waste management services

$
2,791


$
2,246Golf and related operations


(595
)


(757
)Segment income before taxes


2,196



1,489Corporate interest income


24



32Corporate other income, net


(21
)


13General corporate expenses


(2,701
)


(2,284
)Income before taxes

$
(502
)

$
(750
)Depreciation and amortization:Waste management services

$
25


$
25Golf and related operations


1,536



1,535Corporate


123



128Total

$
1,684


$
1,688Interest income:Waste management services

$



$
1Corporate


24



32Total

$
24


$
33Capital expenditures:Waste management services

$
95


$
6Golf and related operations


269



182Corporate


47



31Total

$
411


$
2192010


2009Identifiable assets at December 31:Waste management services

$
11,648


$
10,300Golf and related operations


30,233



31,443Corporate


40,006



40,160Sub Total


81,887



81,903Elimination of intersegment receivables


(34,550
)


(34,146
)Total

$
47,337


$
47,757 The increase of $1.3 million in identifiable assets of the waste management services segment is primarily the result of an
increase in accounts receivable due to higher net operating revenues in the fourth quarter of 2010 compared with the fourth quarter of 2009. The decrease of $1.2 million in identifiable assets of the golf and related operations segment is primarily
due to the depreciation of property and equipment.






19



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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, 2010 and 2009, and the related consolidated statements of operations, shareholders equity and cash flows for the years then ended.
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these 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 financial position of Avalon Holdings Corporation and subsidiaries as of
December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Cleveland, Ohio

March 11, 2011



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Avalon Holdings Corporation and Subsidiaries





Managements Annual Report on Internal Control over Financial Reporting

The management of Avalon, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rules 13a-15(f) of the Securities and Exchange Act of 1934, as amended. Avalons internal control system was designed to provide reasonable assurance as to the reliability of the
preparation and presentation of the consolidated financial statements for external reporting and the safeguarding of assets from unauthorized use or disposition.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

With our participation, an evaluation of the effectiveness of our internal control over
financial reporting was conducted as of December 31, 2010, based upon the framework and criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of
December 31, 2010.

This annual report does not include an attestation report of the Companys registered public accounting firm
regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company
to provide only managements report in this annual report.



|                        |  |  |  |                        
|----------------------- |  |  |  | -----------------------
|/s/ Ronald E. Klingle   |  |  |  | /s/ Timothy C. Coxson  
|Chief Executive Officer |  |  |  | Chief Financial Officer
|                        |  | 
|March 11, 2011          |  |  |  |                        



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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
Country Club at Sharon, Inc. 1030 Forker Blvd. Hermitage, PA 16148-1566 (724) 981-6700
 Avalon Travel, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8400
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Directors and Officers



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Directors 
Ronald E. Klingle Chairman of the Board
and Chief Executive Officer Executive Committee (Chairman) Compensation Committee
 Timothy C. Coxson Treasurer, Chief Financial Officer and Secretary Compensation
Committee  Kurtis D. Gramley
Chairman and Chief Executive Officer, Edgewood
Surgical Hospital Audit Committee (Chairman) Executive Committee Option Plan Committee
 Stephen L. Gordon Partner, Beveridge & Diamond, P.C. Compensation Committee
Audit Committee Option Plan Committee (Chairman)  David G. Bozanich Director of Finance, City of Youngstown
Audit Committee Executive Committee Option Plan Committee |  | Officers 
Ronald E. Klingle Chairman of the Board
and Chief Executive Officer  Timothy C. Coxson
Treasurer, Chief Financial Officer and Secretary 
Frances R. Klingle Chief Administrative
Officer  Richard R. Fees
Controller
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23



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Avalon Holdings Corporation and Subsidiaries





Shareholder Information Common stock information Avalons Class A Common Stock is listed on the NYSE Amex (symbol: AWX). Quarterly stock information for 2010 and 2009 as reported by The Wall
Street Journal is as follows:  2010:Quarter Ended

High


Low


CloseMarch 31

$
3.89


$
2.16


$
3.41June 30


3.55



2.33



2.50September 30


2.97



2.34



2.90December 31


2.99



2.65



2.73  2009:Quarter Ended

High


Low


CloseMarch 31

$
1.82


$
1.23


$
1.60June 30


2.85



1.32



2.63September 30


2.80



2.27



2.80December 31


3.08



2.08



2.10 No dividends were paid during 2010. There are 441 Class A and 10 Class B Common Stock shareholders of record as of the close of business March 4, 2011. 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
Timothy C. Coxson, Treasurer and Chief Financial Officer, telephone (330) 856-8800.   Policy statement on equal employment
opportunity and affirmative action Avalon is firmly committed to a policy of equal employment opportunity and affirmative action. Toward
this end, Avalon will continue to recruit, hire, train and promote persons in all job titles, without regard to race, color, religion, sex, national origin, age, handicap, ancestry or Vietnam-era or disabled veteran status. We will base all
decisions on merit so as to further the principle of equal employment opportunity. This policy extends to promotions and to all actions regarding employment including compensation, benefits, transfers, layoffs, returns from layoff, company-sponsored
training and social programs.






24