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                                                                    EXHIBIT 13.1

                           AVALON HOLDINGS CORPORATION
                               2002 ANNUAL REPORT

[GRAPHIC APPEARS HERE]

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                              FINANCIAL HIGHLIGHTS

     (in thousands, except for per share amounts)

FOR THE YEAR                                  2002             2001
----------------------------------------------------------------------
Net operating revenues....................  $  66,590       $   73,870
Operating loss from continuing operations.     (5,406)          (3,740)
Net loss..................................     (5,838)          (3,330)
Net loss per share........................      (1.54)            (.88)
Net cash provided by (used in) operating
 activities from continuing operations....     (1,459)           3,758
Net cash used in investing activities from
 continuing operations....................     (1,292)          (8,989)

AT YEAR-END                                   2002              2001
----------------------------------------------------------------------
Working capital...........................  $  13,785       $   14,387
Total assets..............................     51,646           59,967
Shareholders' equity......................     42,634           48,398

                                   THE COMPANY

Avalon Holdings Corporation provides transportation services, waste disposal
brokerage and management services, and technical environmental services,
including environmental consulting, engineering, site assessment, remediation
and landfill management services to industrial, commercial, municipal and
governmental customers. Avalon Holdings Corporation also owns and operates a
golf course.

                                    CONTENTS

Financial Highlights...................1

Management's Discussion and
 Analysis of Financial Condition
 and Results of Operations.............2

Consolidated Balance Sheets...........10

Consolidated Statements of
 Operations ..........................11

Consolidated Statements of Cash
 Flows ...............................12

Consolidated Statements of
 Shareholders' Equity ................13

Consolidated Statements of
 Comprehensive Income.................13

Notes to Consolidated Financial
 Statements...........................14

Independent Auditors' Report..........24

Digest of Financial Data..............25

Company Location Directory............26

Directors and Officers................27

Shareholder Information...............28

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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

Avalon's capital expenditures in 2002 were $3.3 million, which related
principally to remodeling the corporate headquarters to include a clubhouse and
pro shop for the Avalon Lakes Golf Club. Avalon's aggregate capital expenditures
in 2003 are expected to be in the range of $.5 million to $1.5 million, which
relate principally to the purchase of transportation equipment, vehicles for the
technical environmental services operations, and upgrading computer equipment.

Working capital decreased to $13.8 million at December 31, 2002 compared with
$14.4 million at December 31, 2001. The decrease is primarily the result of
utilizing existing cash for capital expenditures and a decrease in accounts
receivable due to an increase in the allowance for doubtful accounts, partially
offset by a reclassification of certain noncurrent investments to short-term
investments. (See Note 4 to the Consolidated Financial Statements)

In 2002, Avalon recorded charges to the provision for losses on accounts
receivable of $3.1 million. The inability to collect these accounts receivable,
coupled with Avalon's use of existing cash to satisfy its obligations associated
with these receivables, has negatively affected its liquidity.

The decrease in accounts payable at December 31, 2002 compared with December 31,
2001 is primarily the result of a decrease in the amounts payable to vendors of
the remediation services business. The accounts payable of the remediation
services business at December 31, 2001 included payables to subcontractors
related to a certain large remediation project, which has been completed and for
which related obligations have been satisfied.

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

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

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While Avalon has not entered into any pending agreements for acquisitions, it
may do so at any time and will continue to consider acquisitions that make
economic sense. Such potential acquisitions could be financed by existing
working capital, secured or unsecured debt, issuance of common stock, or
issuance of a security with characteristics of both debt and equity, any of
which could impact liquidity in the future.

RESULTS OF OPERATIONS

Avalon's primary business segment provides transportation services which include
transportation of hazardous and nonhazardous waste, transportation of general
and bulk commodities, and transportation brokerage and management services. The
technical environmental services segment provides environmental consulting,
engineering, site assessment, remediation and captive landfill management
services. The waste disposal brokerage and management services segment provides
hazardous and nonhazardous waste disposal brokerage and management services. The
golf and related operations segment includes the operation of a golf course and
travel agency.

PERFORMANCE IN 2002 COMPARED WITH 2001

Overall Performance. Avalon's transportation services segment, technical
environmental services segment and waste disposal brokerage and management
services segment each experienced a decrease in net operating revenues in 2002
partially due to a slow economy. Avalon's net operating revenues decreased to
$66.6 million in 2002 compared with $73.9 million in 2001. The decrease is
primarily attributed to a 35% decrease in the net operating revenues of the
technical environmental services segment and a 9% decrease in the net operating
revenues of the waste disposal and management services segment. Costs of
operations as a percentage of net operating revenues increased slightly to 90.1%
in 2002 compared with 89.6% in 2001 primarily as a result of increased operating
costs as a percentage of net operating revenues of the transportation services
segment. Consolidated selling and general administrative expenses increased to
$12 million in 2002 compared with $11.4 million in 2001, primarily as a result
of increased charges to the provision for losses on accounts receivable. Avalon
recorded charges of $3.1 million in 2002 to the provision for losses on accounts
receivables compared with $2.5 million in 2001. During 2002, Avalon sold all the
operating assets of its analytical laboratory business and accordingly, the
results of Avalon's laboratory business including the loss on the disposal of
its assets are reported as discontinued operations. Avalon recorded a net loss
of $5.8 million in 2002 compared with a net loss of $3.3 million in 2001.

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

Net operating revenues of the transportation services segment decreased to $36.2
million in 2002 compared with $36.7 million in 2001. The decrease is primarily a
result of a decrease in the transportation of hazardous waste partially offset
by an increase in the net operating revenues of the transportation brokerage
operations and an increase in the transportation of municipal solid waste. The
decrease in the net operating revenues for the transportation of hazardous waste
was primarily due to a decline in the volume of hazardous waste transported for
a certain customer. The increase in net operating revenues of the transportation
brokerage operations is primarily as a result of increased business with a
single customer, while the increase in net operating revenues for the
transportation of municipal solid waste is primarily as a result of higher
volumes and increased pricing. The transportation services segment incurred a
loss before taxes of $2.2 million in 2002 compared with a loss before taxes of
$.2 million in 2001. The increased loss before taxes is primarily the result of
higher insurance costs and a charge of $1.9 million to the provision for losses
on accounts receivable resulting from the financial and operational decline of
one significant customer. The decrease in the level of transportation services
provided resulted in the under-utilization of many leased power units, thereby
increasing costs as a percentage of net operating revenues.

The net operating revenues of the technical environmental services segment
decreased to $12.3 million in 2002 compared with $19 million in 2001. The
decrease is primarily attributed to a decrease in the net operating revenues of
the remediation services business and the engineering and consulting business.
In 2001, the net operating revenues of the remediation services business were
significantly higher as a result of a large project which included a significant
amount of net operating revenues relating to subcontractor costs which were
billed at little or no

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markup. The decrease in the net operating revenues of the engineering and
consulting business is primarily the result of a decrease in the level of
services provided in 2002 compared with 2001. Income before taxes of the
technical environmental services segment was $.1 million in 2002 compared with a
loss before taxes of $.6 million in 2001. The improvement in income before taxes
is primarily as a result of the remediation services business incurring a
smaller loss before taxes in 2002 compared with 2001. In the fourth quarter of
2001, the customer for which the remediation services business was providing
services on the aforementioned large project experienced a financial and
operational decline and subsequently filed for protection from creditors under
the provisions of Chapter 11 of the United States Bankruptcy Code. As a result,
the remediation services business recorded a charge of $2.2 million to the
provision for losses on accounts receivable in the fourth quarter of 2001. The
improvement in income before taxes is partially offset by the engineering and
consulting business incurring a loss before taxes in 2002 compared with income
before taxes in 2001. During 2002, the net operating revenues and income before
taxes of the captive landfill business decreased slightly from the prior year
period.

As a result of the sale of the analytical laboratory operations in 2002, the
results of Avalon's analytical laboratory operations, which were previously
included in the technical environmental services segment, are reported as
discontinued operations. See Note 5 to the Consolidated Financial Statements.

Net operating revenues of the waste disposal brokerage and management services
segment decreased to $20.8 million in 2002 compared with $23 million in 2001.
The net operating revenues in 2001 included $2.4 million relating to a single
one-time project. Income before taxes was $.6 million in 2002 compared with $1.1
million in 2001. The decrease in income before taxes is primarily due to a $.4
million charge to the provision for losses on accounts receivable in the fourth
quarter of 2002.

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

INTEREST INCOME

Interest income decreased to $.3 million in 2002 compared with $.5 million in
2001, primarily due to a decline in the average amount of cash and cash
equivalents and investments during 2002 compared with the prior year as a result
of the utilization of cash and investments to fund capital expenditures.
Investment rates also decreased slightly in 2002 compared with 2001.

GENERAL CORPORATE EXPENSES

General corporate expenses increased to $3.2 million in 2002 compared with $3.1
million in 2001.

NET LOSS

Avalon incurred a net loss of $5.8 million in 2002 compared with a net loss of
$3.3 million in 2001. Although Avalon incurred a net loss in 2002, Avalon
recorded a net tax provision of $.5 million as a result of an increase in the
valuation allowance for deferred tax assets. A valuation allowance is provided
when it is more likely than not that the deferred tax assets will not be
realized. Avalon's overall effective tax rate, including the effect of state
income tax provisions, was 32.5% in 2001. The effective tax rate for 2001 is
different than the federal statutory rates due to state income taxes, the
nondeductibility for tax purposes of the amortization and write-down of costs in
excess of fair market value of net assets of acquired businesses, and other
nondeductible expenses.

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PERFORMANCE IN 2001 COMPARED WITH 2000

Overall Performance. Net operating revenues decreased to $73.9 million in 2001
compared with $80.3 million in 2000. The decrease was primarily the result of a
20.7% decrease in the net operating revenues of the transportation services
segment and an 18.5% decrease in the net operating revenues of the technical
environmental services segment partially offset by an increase in the net
operating revenues of the waste disposal brokerage and management services
segment and golf and related operations segment. Costs of operations as a
percentage of net operating revenues decreased slightly to 89.6% in 2001
compared with 90.3% in 2000 primarily as a result of improved gross margins of
the technical environmental services segment partially offset by lower gross
margins of the transportation services segment. Consolidated selling, general
and administrative expenses increased to $11.4 million in 2001 from $9.7 million
in 2000 primarily as a result of an increase in the provision for losses on
accounts receivable. As a result of a remediation services business customer's
financial and operational decline in the fourth quarter of 2001 and its
subsequent filing for protection from creditors under the provisions of Chapter
11 of the United States Bankruptcy Code, Avalon recorded a $2.2 million charge
to the provision for losses on accounts receivable in the fourth quarter of
2001. Interest income decreased primarily as a result of lower investment rates.
Avalon incurred a net loss of $3.3 million in 2001 compared with a net loss of
$2.4 million in 2000.

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

Net operating revenues of the transportation services segment decreased to $36.7
million in 2001 from $46.3 million in 2000. The decrease was primarily
attributable to a significant decrease in the net operating revenues of the
transportation brokerage operations and a decrease in the transportation of
hazardous waste. The decrease in net operating revenues of the transportation
brokerage operations was primarily because the net operating revenues for 2000
included significant revenues related to a one-time project in the New England
states. The decreased net operating revenues for the transportation of hazardous
waste was primarily a result of a decline in the volume of hazardous waste
transported for certain customers. The transportation services segment incurred
a loss before taxes of $.2 million in 2001 compared with income before taxes of
$1.1 million in 2000. The decrease in operating results was primarily the result
of the significant decrease in the level of business of both the transportation
brokerage operations and the transportation of hazardous waste. The significant
decrease in the level of transportation services provided resulted in the under
utilization of many leased power units, thereby increasing costs as a percentage
of net operating revenues.

Net operating revenues of the technical environmental services segment decreased
to $19 million in 2001 compared with $23.3 million in 2000 as a result of a
decline in the level of business of all operations except for the captive
landfill management operations. The technical environmental services segment
incurred a loss before taxes of $.6 million in 2001 compared with a loss before
taxes of $1.3 million in the prior year. Income before taxes of Avalon's captive
landfill management business in 2001 was relatively unchanged from 2000.

Although the total net operating revenues of the remediation services business
declined, the net operating revenues relating to services performed by employees
of the remediation services business increased, while the net operating revenues
relating to services performed by subcontractors at little or no mark up
declined. The increase in the net operating revenues for services performed by
employees of the remediation services business was primarily related to services
performed for a customer on a single significant project. As a result of such
customer's financial and operational decline in the fourth quarter of 2001 and
its subsequent filing for protection from creditors under the provisions of
Chapter 11 of the United States Bankruptcy Code, the remediation services
business recorded a charge to the provision for losses on accounts receivable of
$2.2 million in the fourth quarter of 2001. Consequently, the remediation
business incurred a loss before taxes primarily as a result of this charge to
the provision for losses on accounts receivable.

The engineering and consulting business recorded income before taxes in 2001 as
compared with a loss before taxes in the prior year primarily as a result of
improved operating margins and decreased selling and general administrative
expenses. In 2000 the engineering and consulting business of Avalon's technical
environmental services operations experienced a significant loss before taxes
due to increased competition, increased operating

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costs and a decline in net operating revenues compared with the prior year. As a
result, Avalon closed its engineering and consulting office in Akron, Ohio and
reduced its workforce by approximately 30% in January 2001. In accordance with
Avalon's asset impairment policy, Avalon performed an evaluation of the
long-lived assets, including goodwill, of the engineering and consulting
business to determine if the carrying value of such assets was recoverable. In
the fourth quarter of 2000 Avalon recorded a write-down of goodwill in the
amount of $1.1 million and a write-down of other long-lived assets of $.7
million.

Net operating revenues of the waste disposal brokerage and management services
segment increased to $23 million in 2001 compared with $22 million in 2000. The
increase in net operating revenues was primarily related to net operating
revenues of $2.4 million associated with a significant project during the third
quarter of 2001. Excluding the net operating revenues associated with this
project, there was a decrease in net operating revenues as a result of a decline
in the level of disposal brokerage and management services provided. Despite the
increase in net operating revenues, income before taxes was relatively unchanged
in 2001 compared with the prior year primarily as a result of higher selling and
administrative expenses due to an increase in the sales force.

Avalon's golf and related operations segment consists primarily of the operation
of a golf course and travel agency. Net operating revenues for the golf and
related operations segment increased to $1.2 million in 2001 compared with $.7
million in 2000. The net operating revenues in 2000 were primarily related to
the travel agency because the golf course was closed during most of 2000 to make
significant capital improvements. The golf course resumed operations in the
third quarter of 2000. Net operating revenues of the travel agency declined
slightly in 2001 compared with the prior year. The golf and related operations
segment incurred a loss before taxes of $.9 million in 2001 compared with a loss
before taxes of $1.1 million in the prior year. The improved results were
primarily a result of additional golf revenues in 2001 partially offset by
increased expenses of the golf course operations. The golf course, which is
located in Warren, Ohio, was closed during the first quarter and part of the
second quarter of 2001 due to seasonality. The golf course resumed operations
during May 2001. Although the redesigned golf course will continue to be
available to the general public, during 2001 Avalon created the Avalon Lakes
Golf Club. Membership requires payment of a one-time initiation fee as well as
annual dues. Members receive several benefits including reduced greens fees and
preferential tee times.

INTEREST INCOME

Interest income decreased to $.5 million in 2001 compared with $.9 million in
the prior year, primarily due to a decrease in investment rates during 2001
compared with the prior year.

GENERAL CORPORATE EXPENSES

General corporate expenses were $3.1 million in both 2001 and 2000.

NET LOSS

Avalon recorded a net loss of $3.3 million in 2001 compared with a net loss of
$2.4 million in the prior year primarily as a result of the foregoing. Avalon's
overall effective tax rate, including the effect of state income tax provisions,
was 32.5% in 2001 compared with 23.4% in the prior year. The effective tax rate
for the current and prior year period is different than the federal statutory
rates due to state income taxes, the nondeductibility for tax purposes of the
amortization and write-down of costs in excess of fair market value of net
assets of acquired businesses and other nondeductible expenses.

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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 it.

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

As is the case with any transportation company, an increase in fuel prices will
subject Avalon's transportation operations to increased operating expenses,
which, in light of competitive market conditions, Avalon may not be able to pass
on to its customers. During the first quarter of 2003, Avalon's transportation
operations experienced significant increases in fuel prices, some of which
Avalon will not be able to pass on to its customers.

Avalon's transportation operations utilize power units which are subject to
long-term leases. The decreased level of transportation services provided has
resulted in the under-utilization of many of these power units. The
under-utilization of these power units will continue to adversely impact the
future financial performance of the transportation operations.

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

In connection with the transportation of municipal solid waste, Avalon's
transportation operations provide loading services at several municipal solid
waste transfer stations. Because of the fixed costs associated with loading, the
profitability of such operations is dependent upon the volume of waste delivered
to each transfer station. The volume of waste delivered to each transfer station
is not within Avalon's control.

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

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

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

Avalon's waste disposal brokerage and management operations obtain and retain
customers by providing services and identifying cost-efficient disposal options
unique to a customer's needs. Consolidation within the solid waste

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

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

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

Avalon's golf course competes with many public courses and country clubs in the
area. Although the golf course will continue to be available to the general
public, it is anticipated that the primary source of revenues will arise from
members of the Avalon Lakes Golf Club.

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

MARKET RISK

Avalon does not have significant exposure to changing interest rates. A 10%
change in interest rates would have an immaterial effect on Avalon's income
before taxes for the next fiscal year. Avalon currently has no debt outstanding
and invests primarily in U.S. Treasury notes, short-term money market funds and
other short-term obligations. Avalon does not undertake any specific actions to
cover its exposure to interest rate risk and Avalon is not a party to any
interest rate risk management transactions.

Avalon does not purchase or hold any derivative financial instruments.

INFLATION IMPACT

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

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity
with generally accepted accounting principles requires management to make
judgments, assumptions, and estimates that affect reported amounts. Significant
accounting policies used in the preparation of Avalon's Consolidated Financial
Statements are described

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in Note 2. Estimates are used when accounting for, among other things, the
allowance for doubtful accounts, asset impairments, contingencies, lawsuits and
administrative proceedings, environmental matters, and taxes.

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

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

Avalon performs tests for impairment of goodwill annually or whenever
circumstances indicate a potential impairment. In determining whether an
impairment exists, Avalon compares the fair value of the reporting unit
associated with the goodwill to the carrying value of its net assets, including
goodwill. If the carrying amount of the reporting unit exceeds its fair value,
then the implied fair value of reporting unit goodwill is compared to the
carrying amount of that goodwill. If the carrying amount of reporting unit
goodwill exceeds the implied fair value of that goodwill, an impairment loss
shall be recognized in an amount equal to the excess. Avalon determines the fair
value using a variety of methods including quoted market prices, cash flow
analysis and estimates of earnings or revenues. Where applicable, an appropriate
discount rate is used.

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

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

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Avalon Holdings Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS
          (in thousands, except for share data)

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                       --------------------------------
                                                                                            2002                   2001
                                                                                       --------------------------------
<S>                                                                                    <C>                    <C>
ASSETS
Current Assets:
     Cash and cash equivalents..................................................       $   2,595              $   4,807
     Short-term investments (Note 4)............................................           5,965                  1,939
     Accounts receivable, less allowance for
      doubtful accounts of $5,547 in 2002 and $2,707 in 2001....................          11,776                 14,235
     Deferred income taxes (Note 7).............................................              --                  1,223
     Prepaid expenses...........................................................           1,781                  1,522
     Other current assets.......................................................             549                    569
     Current assets - discontinued operations (Note 5)..........................              --                    840
                                                                                       --------------------------------
            Total current assets................................................          22,666                 25,135

Noncurrent investments (Note 4).................................................              --                  5,956
Property and equipment, net (Notes 3 and 6).....................................          28,303                 27,493
Costs in excess of fair market value of net assets of acquired businesses, net
 (Note 3 )......................................................................             538                    538
Other assets, net...............................................................             139                    133
Noncurrent assets - discontinued operations (Note 5)............................              --                    712
                                                                                       --------------------------------
            Total assets........................................................       $  51,646              $  59,967
                                                                                       ================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Accounts payable...........................................................       $   5,852              $   7,091
     Accrued payroll and other compensation.....................................             827                    991
     Accrued income taxes.......................................................             236                    216
     Other accrued taxes........................................................             541                    424
     Other liabilities and accrued expenses (Note 8)............................           1,425                  1,578
     Current liabilities - discontinued operations (Note 5).....................              --                    448
                                                                                       --------------------------------
            Total current liabilities...........................................           8,881                 10,748

Deferred income taxes (Note 7)..................................................              --                    701
Other noncurrent liabilities (Note 11)..........................................             131                    120

Contingencies and commitments (Notes 11 and 12).................................              --                    --

Shareholders' Equity (Note 10):
     Class A Common Stock, $.01 par value, one vote per share; authorized
      10,500,000 shares, issued 3,185,240 shares at December 31, 2002 and
      December 31, 2001.........................................................              32                     32
     Class B Common Stock, $.01 par value, ten votes per share; authorized
      1,000,000 shares; issued 618,091 shares at December 31, 2002 and
      December 31, 2001.........................................................               6                      6
     Paid-in capital............................................................          58,096                 58,096
     Accumulated deficit........................................................         (15,574)                (9,736)
     Accumulated other comprehensive income.....................................              74                     --
                                                                                       --------------------------------

            Total shareholders' equity..........................................          42,634                 48,398
                                                                                       --------------------------------

            Total liabilities and shareholders' equity..........................       $  51,646              $  59,967
                                                                                       ================================
</TABLE>

See accompanying notes to consolidated financial statements.

10

<PAGE>

Avalon Holdings Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
          (in thousands, except for per share amounts)

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                         ----------------------------------------------
                                                                                2002             2001              2000
                                                                         ----------------------------------------------
<S>                                                                      <C>              <C>               <C>
Net operating revenues.................................................  $    66,590      $    73,870       $    80,320

Costs and expenses:
     Costs of operations...............................................       60,000           66,201            72,523
     Write-down of assets (Note 3).....................................           --               --               796
     Write-down of costs in excess of fair market value of net assets
      of acquired businesses (Note 3)..................................           --               --             1,093
     Selling, general and administrative expenses......................       11,996           11,409             9,723
                                                                         ----------------------------------------------
Operating loss from continuing operations..............................       (5,406)          (3,740)           (3,815)

Other income (expense):
     Interest income...................................................          254              533               875
     Other income (expense), net.......................................          421              (45)              517
                                                                         ----------------------------------------------
Loss from continuing operations before income taxes....................       (4,731)          (3,252)           (2,423)

Provision (benefit) for income taxes (Note 7):
     Current...........................................................           21             (408)             (241)
     Deferred..........................................................          142             (721)             (215)
                                                                         ----------------------------------------------
                                                                                 163           (1,129)             (456)

Loss from continuing operations........................................       (4,894)          (2,123)           (1,967)

Discontinued operations (Note 5)
     Loss from discontinued operations before income taxes
      (including loss on disposal of $104 in 2002).....................         (568)          (1,683)             (753)
     Provision (benefit) for income taxes..............................          376             (476)             (287)
                                                                         ----------------------------------------------
     Loss from discontinued operations.................................         (944)          (1,207)             (466)
                                                                         ----------------------------------------------

Net loss...............................................................  $    (5,838)     $    (3,330)      $    (2,433)
                                                                         ==============================================

Net loss per share from continuing operations..........................  $     (1.29)     $      (.56)      $      (.52)
                                                                         ----------------------------------------------
Net loss per share from discontinued operations........................  $      (.25)     $      (.32)      $      (.12)
                                                                         ----------------------------------------------
Net loss per share (Note 2)............................................  $     (1.54)     $      (.88)      $      (.64)
                                                                         ==============================================

Weighted average shares outstanding (Note 2)...........................        3,803            3,803             3,803
                                                                         ==============================================
</TABLE>

See accompanying notes to consolidated financial statements.

11

<PAGE>

Avalon Holdings Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                         ----------------------------------------------
                                                                                2002             2001              2000
                                                                         ----------------------------------------------
<S>                                                                      <C>              <C>               <C>
Operating activities:
     Loss from continuing operations...................................  $    (4,894)     $    (2,123)      $    (1,967)
     Reconciliation of loss from continuing operations to cash
      provided by operating activities:
         Depreciation..................................................        2,451            2,704             2,801
         Amortization..................................................            1               45               119
         Amortization of investments...................................          106               11                --
         Write-down of assets..........................................           --               --               796
         Write-down of costs in excess of fair market value of net
          assets of acquired businesses................................           --               --             1,093
         Provision (benefit) for deferred income taxes.................          142             (721)             (215)
         Provision for losses on accounts receivable...................        3,101            2,459               665
         (Gain) loss from disposal of property and equipment...........          (69)              57              (126)
         Purchases of trading investments..............................           --               --           (10,661)
         Sales of trading investments..................................           --              734             9,938
         Gain on sale of investments...................................           (2)              --                --
         Unrealized gain on short-term investments.....................           --               --               (11)
         Change in operating assets and liabilities:
              Accounts receivable......................................         (642)          (1,394)             (209)
              Refundable income taxes..................................           --              327              (327)
              Prepaid expenses.........................................         (259)               9               (27)
              Other current assets.....................................           20               (5)             (150)
              Other assets.............................................           (6)              40                (4)
              Accounts payable.........................................       (1,239)           2,056              (792)
              Accrued payroll and other compensation...................         (164)            (102)             (581)
              Accrued income taxes.....................................           20             (380)              (22)
              Other accrued taxes......................................          117              123              (422)
              Other liabilities and accrued expenses...................         (153)             (82)              232
              Other noncurrent liabilities.............................           11               --                --
                                                                         ----------------------------------------------
                 Net cash provided by (used in) operating activities
                  from continuing operations...........................       (1,459)           3,758               130
                 Net cash provided by (used in) operating activities
                  from discontinued operations.........................           54             (567)             (225)
                                                                         ----------------------------------------------
                 Net cash provided by (used in) operating activities...       (1,405)           3,191               (95)
                                                                         ----------------------------------------------

Investing activities:
     Purchases of held-to-maturity investments.........................           --           (7,907)               --
     Purchases of available-for-sale investments.......................           --              (32)           (1,765)
     Sales/maturities of available-for-sale investments................        1,900               57             1,740
     Capital expenditures..............................................       (3,285)          (1,460)           (7,631)
     Proceeds from disposal of property and equipment..................           93              353               427
                                                                         ----------------------------------------------

                 Net cash used in investing activities
                  from continuing operations...........................       (1,292)          (8,989)           (7,229)
                 Net cash provided by (used in) investing activities
                  from discontinued operations.........................          485              (95)             (492)
                                                                         ----------------------------------------------
                 Net cash used in investing activities.................         (807)          (9,084)           (7,721)
                                                                         ----------------------------------------------

Decrease in cash and cash equivalents..................................       (2,212)          (5,893)           (7,816)
Cash and cash equivalents at beginning of year.........................        4,807           10,700            18,516
                                                                         ----------------------------------------------
Cash and cash equivalents at end of year...............................  $     2,595      $     4,807       $    10,700
                                                                         ==============================================
</TABLE>

See accompanying notes to consolidated financial statements

12

<PAGE>

Avalon Holdings Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

<TABLE>
<CAPTION>
                                                  FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                                  --------------------------------------------------------------------------------------------
                                                                                                      ACCUMULATED
                                       SHARES           COMMON STOCK                                     OTHER
                                  ----------------    -----------------     PAID-IN   ACCUMULATED    COMPREHENSIVE
                                  CLASS A  CLASS B    CLASS A   CLASS B     CAPITAL     DEFICIT          INCOME         TOTAL
                                  -------  -------    -------   -------   ----------  -----------    -------------   ---------
<S>                                 <C>        <C>    <C>       <C>       <C>         <C>            <C>             <C>
Balance at January 1, 2000......    3,185      618    $    32   $     6   $   58,096  $    (3,973)   $      --       $  54,161

Net loss........................       --       --         --        --           --       (2,433)          --          (2,433)
                                  --------------------------------------------------------------------------------------------

Balance at December 31, 2000....    3,185      618         32         6       58,096       (6,406)          --          51,728

Net loss........................       --       --         --        --           --       (3,330)          --          (3,330)
                                  --------------------------------------------------------------------------------------------

Balance at December 31, 2001....    3,185      618         32         6       58,096       (9,736)          --          48,398

Net loss........................       --       --         --        --           --       (5,838)          --          (5,838)

Changes in unrealized gain on
 investments....................       --       --         --        --           --           --           74              74
                                  --------------------------------------------------------------------------------------------

Balance at December 31, 2002....    3,185      618    $    32   $     6   $   58,096  $   (15,574)   $      74       $  42,634
                                  ============================================================================================
</TABLE>

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

                                                 YEAR ENDED DECEMBER 31,
                                      --------------------------------------
                                       2002           2001           2000
                                      ---------   -----------   ------------
Net loss............................  $  (5,838)  $    (3,330)  $     (2,433)
Unrealized gain on investments......         74            --             --
                                      --------------------------------------

Comprehensive income................  $  (5,764)  $    (3,330)  $     (2,433)
                                      ======================================

See accompanying notes to consolidated financial statements.

13

<PAGE>

Avalon Holdings Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  DESCRIPTION OF THE BUSINESS

Avalon Holdings Corporation ("Avalon") was formed on April 30, 1998 as a
subsidiary of American Waste Services, Inc. ("AWS"). Pursuant to the terms of a
Contribution and Distribution Agreement dated as of May 7, 1998 between Avalon
and AWS, AWS contributed to Avalon its transportation operations, technical
environmental services operations, waste disposal brokerage and management
operations, and golf course and related operations together with certain other
assets including the headquarters of AWS and certain accounts receivable. In
connection with the contribution, Avalon also assumed certain liabilities of
AWS. On June 17, 1998 AWS distributed, as a special dividend, all of the
outstanding shares of capital stock of Avalon to the holders of AWS common stock
on a pro rata and corresponding basis (the "Spin-off").

Avalon provides transportation services, technical environmental services, and
waste disposal brokerage and management services to industrial, commercial,
municipal and governmental customers primarily in selected northeastern and
midwestern U.S. markets. Avalon also owns and operates a golf course and 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 2002 presentations.

PRINCIPLES OF CONSOLIDATION

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

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include money market instruments and other highly
liquid short-term investments that are stated at cost which approximates market
value. Such investments, which mature in three months or less from date of
purchase, are considered to be cash equivalents for purposes of the Consolidated
Statements of Cash Flows and Consolidated Balance Sheets. The balance of such
short-term investments was $1,833,000 and $3,971,000 at December 31, 2002 and
2001, respectively. Such investments were not insured by the Federal Deposit
Insurance Corporation.

Avalon maintains its cash balances in several financial institutions. These
balances may, at times, exceed federal insured limits. Avalon has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk relating to cash and cash equivalents.

INVESTMENT SECURITIES

Avalon classifies its investment securities into trading, available-for-sale, or
held-to-maturity categories. Securities are classified as trading when Avalon
has the intent of selling them in the near term. Trading securities are reported
at fair value on the balance sheet, with the change in fair value during the
period included in earnings. Securities are classified as held-to-maturity when
Avalon has the ability and intent to hold the securities to maturity.
Held-to-maturity securities are reported as either short-term or noncurrent on
the balance sheet based upon contractual maturity date and are stated at
amortized cost. Securities that are not classified as either trading or
held-to-maturity are classified as available-for-sale and reported at fair value
on the balance sheet with the change in fair value reported as a component of
other comprehensive income (see Note 4).

14

<PAGE>

FINANCIAL INSTRUMENTS

The fair value of financial instruments consisting of cash, cash equivalents,
receivables, and accounts payable at December 31, 2002 and 2001, approximates
carrying value due to the relative short maturity of these financial
instruments. The fair value of available-for-sale investments was $5,965,000 at
December 31, 2002 and the fair value of held-to-maturity investments was
$7,911,000 at December 31, 2001.

PROPERTY AND EQUIPMENT

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

Major additions and improvements are charged to the property and equipment
accounts while replacements, maintenance and repairs, which do not improve or
extend the life of the respective asset, are expensed currently. The cost of
assets retired or otherwise disposed of and the related accumulated depreciation
is eliminated from the accounts in the year of disposal. Gains or losses
resulting from disposals of property and equipment are credited or charged to
operations currently. Interest costs, if any, are capitalized on significant
construction projects.

COSTS IN EXCESS OF FAIR MARKET VALUE OF NET ASSETS
OF ACQUIRED BUSINESSES ("GOODWILL")

Effective January 1, 2002, in accordance with Statement of Financial Accounting
Standards (SFAS) 142 "Goodwill and Other Intangible Assets", goodwill is no
longer subject to amortization, but will be tested for impairment annually and
whenever there is an impairment indicator. Goodwill had been amortized on a
straight-line basis over 25 years prior to January 1, 2002. Amortization of
these costs was $58,000 and $149,000 in 2001 and 2000, respectively. During the
fourth quarter of 2000, in accordance with Avalon's asset impairment policy, a
portion of the goodwill was written off (see Note 3).

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.

REVENUE RECOGNITION

Avalon recognizes revenue for transportation services on the date of delivery.
Revenue for waste disposal brokerage and management services and technical
environmental services is recognized as services are performed. On contracts
where the percentage-of-completion method is used, revenue is recognized for a
portion of the total contract revenue, in the proportion that costs incurred
bear to management's estimate of total contract costs to be incurred, commencing
when progress reaches a point where experience is sufficient to estimate final
results with reasonable accuracy. Earnings and costs on contracts are subject to
revision throughout the term of the contract, and any required revisions are
made in the periods in which the revisions become known. Provision is made for
the full amount of anticipated losses in the period in which they are
determinable.

Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenues recognized on contracts for which billings will be presented
in accordance with contract provisions. Such revenues are generally expected to
be billed and collected within one year. Applicable amounts are included in
accounts receivable on the balance sheet.

ASSET IMPAIRMENTS

Effective January 1, 2002, Avalon adopted SFAS 142. In accordance with this
statement, Avalon performs tests for impairment of goodwill annually or whenever
circumstances indicate a potential impairment. In determining whether an
impairment exists, Avalon compares the fair value of the reporting unit
associated with the goodwill to the carrying value of its net assets, including
goodwill. If the carrying amount of the reporting unit exceeds its fair value,
then the implied fair value of reporting unit goodwill is compared to the
carrying amount of that goodwill. If the carrying amount of reporting unit
goodwill exceeds the implied fair value of that goodwill, an impairment loss
shall be recognized in an amount equal to the excess. Avalon determines the fair
value using a variety of methods including quoted market prices, cash flow
analysis and estimates of earnings or revenues. Where applicable, an appropriate
discount rate is used.

15

<PAGE>

Effective January 1, 2002, Avalon adopted SFAS 144, "Accounting for the
Impairment or Disposal of Long Lived Assets." In accordance with this statement,
Avalon reviews the carrying value of its long-lived assets (other than goodwill)
whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. If indicators of impairment exist, Avalon would
determine whether the estimated undiscounted sum of the future cash flows of
such assets is less than its carrying amount. If less, an impairment loss would
be recognized based on the excess of the carrying amount of such assets over
their respective fair values. Avalon would determine the fair value by using
quoted market prices, if available, for such assets; or if quoted market prices
are not available, Avalon would discount the expected estimated future cash
flows (See Note 3).

ENVIRONMENTAL LIABILITIES

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

BASIC NET INCOME (LOSS) PER SHARE

For the years ended December 31, 2002, 2001 and 2000 basic net income (loss) per
share has been computed using the weighted average number of common shares
outstanding during each period which was 3,803,331. There were no common
equivalent shares outstanding and therefore diluted per share amounts are equal
to basic per share amounts for 2002, 2001 and 2000.

NOTE 3.  LONG-LIVED ASSET IMPAIRMENTS

The engineering and consulting business of Avalon's technical environmental
services operations experienced a significant loss before taxes in 2000 due to
increased competition, increased operating costs and a decline in net operating
revenues compared with the prior year. As a result, Avalon closed its
engineering and consulting office in Akron, Ohio and reduced its workforce by
approximately 30% in January 2001. In accordance with Avalon's asset impairment
policy, Avalon performed an evaluation of the long-lived assets of the
engineering and consulting business including goodwill to determine if the
carrying value of such assets was recoverable.

To ascertain whether an impairment existed, Avalon estimated the undiscounted
sum of the expected future cash flows of the engineering and consulting business
to determine if such sum was less than the carrying value of the long-lived
assets. The evaluation indicated the existence of an impairment and Avalon
determined the fair value of the long-lived assets (and measured the extent of
the impairment) by discounting the expected future cash flows at the rate of 6%.
As a result, in the fourth quarter of 2000, Avalon recorded a write-down of
goodwill in the amount of $1,093,000 and a write-down of other long-lived assets
of $747,000. These amounts are included in the 2000 Consolidated Statement of
Operations under the captions "Write-down of costs in excess of fair market
value of net assets of acquired businesses" and "Write-down of assets",
respectively.

NOTE 4.  INVESTMENTS

Avalon held no trading securities at either December 31, 2002 or December 31,
2001. During the second quarter of 2002, Avalon sold certain securities that had
been classified as held-to-maturity. At the time of acquisition, Avalon intended
to hold these securities until maturity; however, because of the filing for
protection from creditors under the United States Bankruptcy Code by a customer
which owed Avalon $2.2 million, Avalon was forced to sell these held-to-maturity
securities to meet its operating and capital requirements. As a result of the
sale of a portion of the held-to-maturity securities, in accordance with SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity Securities",
Avalon transferred all the remaining securities from the held-to-maturity
category to the available-for-sale category. As a result of the classification
of these securities as available-for-sale, Avalon has recognized, in other
comprehensive income, unrealized gains, net of applicable income taxes, of $.1
million in 2002.

16

<PAGE>

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

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

Held-to-Maturity
U.S. Treasury Notes           --             --          --

                                December 31, 2001
                       ------------------------------------
                                     Gross        Estimated
                       Amortized     Unrealized   Fair
                       Cost          Gains        Value
                       ------------------------------------
Available-for-Sale
U.S. Treasury Notes           --             --          --

Held-to-Maturity
U.S. Treasury Notes    $   7,895     $       16   $   7,911

The amortized cost and estimated fair value of available-for-sale investments at
December 31, 2002, by contractual maturity, consist of the following (in
thousands):

                                Available-For-Sale
                         -------------------------------
                         Amortized            Estimated
                         Cost                 Fair Value
                         -------------------------------
Due in one year
 or less................ $     5,891          $    5,965
Due after one year
 through five years.....          --                  --
                         -------------------------------
     Total.............. $     5,891          $    5,965
                         ===============================

NOTE 5.  DISCONTINUED OPERATIONS

As a result of significant operating losses incurred by Avalon's analytical
laboratory business, during the second quarter of 2001, the laboratory
operations implemented a reduction and reorganization of its workforce. In
accordance with Avalon's asset impairment policy, Avalon performed an evaluation
of the long-lived assets of the Export, Pennsylvania analytical laboratory
operations including the costs in excess of fair market value of net assets of
acquired businesses ("goodwill") to determine if the carrying value of such
assets was recoverable. To ascertain whether an impairment existed, Avalon
estimated the undiscounted sum of the expected future cash flows of the Export,
Pennsylvania analytical laboratory operations to determine if such sum was less
than the carrying value of the long-lived assets. The evaluation indicated the
existence of an impairment and Avalon measured the extent of the impairment by
determining the fair value of the long-lived assets based upon quoted market
prices and consideration of discounted cash flows. As a result, Avalon recorded
a write-down of goodwill in the amount of $.5 million in the second quarter of
2001. Despite the foregoing, Avalon's analytical laboratory business continued
to experience significant operating losses as a result of a decline in net
operating revenues and operational inefficiencies. The inability to increase net
operating revenues continued to adversely impact the financial performance of
the analytical laboratory business because of the fixed nature of many of the
costs associated with the laboratory operations. Recognizing that the continuing
losses incurred by the analytical laboratory business would adversely impact its
future financial performance, in the second quarter of 2002, management
determined that it was in Avalon's best interest to discontinue operating the
analytical laboratory business. Accordingly, on May 1, 2002, Avalon sold all of
the operating assets of its Export, Pennsylvania analytical laboratory business.
Proceeds from the sale were approximately $.4 million, which equaled the net
book value of the assets that were sold. As part of the transaction, the
purchaser entered into a lease agreement with Avalon to remain in the Export
building. In addition, in anticipation of the sale of the operating assets of
its radio-chemistry laboratory business, Avalon recorded a charge of $.1 million
during the second quarter of 2002 for the write-down of such long-lived assets
to fair value. On September 1, 2002, Avalon sold all of the operating assets of
its radio-chemistry laboratory business for approximately $.1 million which
equaled the adjusted net book value of the assets that were sold. The results of
operations for the current and prior years of the analytical laboratory
operations, including the loss for the write-down of the long-lived assets to
fair value, have been included in discontinued operations.

NOTE 6.  PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2002 and 2001 consists of the following
(in thousands):

                                         2002           2001
                                   -------------------------
Land and land improvements.......  $   10,715   $     10,643
Buildings and improvements.......      13,603         11,879
Machinery and equipment..........       3,324          2,707
Transportation equipment and
 vehicles........................      13,206         13,232
Office furniture and equipment...       4,372          3,917
Construction in progress.........         133            309
                                   -------------------------
                                       45,353         42,687
Less accumulated depreciation and
 amortization....................     (17,050)       (15,194)
                                   -------------------------
Property and equipment, net......  $   28,303   $     27,493
                                   =========================

17

<PAGE>

NOTE 7.  INCOME TAXES

Income (loss) before income taxes for each of the three years in the period
ended December 31, 2002 was subject to taxation under United States
jurisdictions only.

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

                               2002      2001     2000
                             -------------------------
Continuing operations....... $  163  $ (1,129)  $ (456)
Discontinued operations.....    376      (476)    (287)
                             -------------------------
                             $  539  $ (1,605)  $ (743)
                             =========================

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

                                2002      2001     2000
                             --------------------------
Current:
Federal...................   $    --  $   (466)  $ (289)
State.....................        21        58       48
                             --------------------------
                                  21      (408)    (241)
                             --------------------------
Deferred:
Federal......................    (75)     (572)    (103)
State........................    217      (149)    (112)
                             --------------------------
                                 142      (721)    (215)
                             --------------------------
                             $   163  $ (1,129)  $ (456)
                             ==========================

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets (liabilities) at December 31, 2002 and 2001 are as
follows (in thousands):

                                          2002       2001
                                      -------------------
Deferred tax assets:
Accounts receivable, allowance for
 doubtful accounts.............       $  1,985   $    996
Reserves not deductible until paid         307        288
Net operating loss carry-forwards
    Federal.......................       1,841        919
    State.........................         667        460
Other.............................           1         56
                                      -------------------
Gross deferred tax assets.........       4,801      2,719
Less valuation allowance..........      (2,742)      (385)
                                      -------------------
Deferred tax assets net of
 valuation allowance..............       2,059      2,334
                                      -------------------

Deferred tax liabilities:
Property and equipment............    $ (1,936)  $ (1,752)
Other.............................        (123)       (60)
                                      -------------------
Gross deferred tax liabilities....      (2,059)    (1,812)
                                      -------------------

Net deferred tax asset ...........    $     --    $   522
                                      ===================

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

                                          2002       2001       2000
                                     -------------------------------
Loss before income taxes
 from continuing operations          $  (4,731)  $ (3,252)  $ (2,423)
Federal statutory tax rate.........         35%        35%        35%
                                     -------------------------------
                                        (1,656)    (1,138)      (848)
State income taxes, net
 of federal income tax
 benefits..........................       (114)       (59)       (42)
Change in valuation allowance            1,750        350         --
Nondeductible amortization
 and depreciation..................         --          9        411
Other nondeductible
 expenses..........................        131        138        109
Change in prior estimate...........         --       (465)      (100)
Other, net.........................         52         36         14
                                     -------------------------------
                                     $     163   $ (1,129)  $   (456)
                                     ===============================

Avalon made net income tax payments of $3,000 in 2002 and had net income tax
refunds of $343,000 and $118,000 in 2001 and 2000, respectively.

At December 31, 2002 Avalon has taxable loss carryforwards for federal income
tax purposes aggregating approximately $5,415,000, which are available to offset
future federal taxable income. These carryforwards expire in 2020 through 2022.
In addition, at December 31, 2002, certain subsidiaries of Avalon have net
operating loss carryforwards for state purposes aggregating approximately
$9,406,000, which are available to offset future state taxable income. These
carryforwards expire at various dates through 2022. A valuation allowance is
provided when it is more likely than not that the deferred tax assets relating
to certain of the federal and state loss carryforwards will not be realized.

NOTE 8. RETIREMENT BENEFITS

Avalon sponsors a defined contribution profit sharing plan that is a qualified
tax deferred benefit plan under Section 401(k) of the Internal Revenue Code (the
"Plan"). Substantially all employees are eligible to participate in the Plan.
The Plan provides for employer discretionary cash contributions as determined by
Avalon's Board of Directors. Discretionary contributions vest on a graduated
basis and become 100% vested after six years of service. Plan participants may
also contribute a portion of their annual compensation to the Plan, subject to
maximums imposed by the Internal Revenue Code and related regulations. Costs
charged to operations for Avalon's contributions were $296,000, $605,000 and
$624,000 for the years 2002, 2001 and 2000, respectively. These

18

<PAGE>

amounts are included in the Consolidated Balance Sheets under the caption "Other
liabilities and accrued expenses."

NOTE 9. STOCK OPTION PLAN

Effective July 1, 1998, Avalon adopted the 1998 Long-term Incentive Plan which
provides for the granting of options which are intended to be non-qualified
stock options ("NQSO's") for federal income tax purposes except for those
options designated as incentive stock options ("ISO's") which qualify under
Section 422 of the Internal Revenue Code. Avalon has reserved 1,300,000 shares
of Class A Common Stock for issuance to employees and non-employee directors.
NQSO's may be granted with an exercise price which is not less than 85% of the
fair market value of the Class A Common Stock on the date of grant. Options
designated as ISO's shall not be less than 110% of fair market value for
employees who are ten percent shareholders and not less than 100% of fair market
value for other employees. The Board of Directors may, from time to time, in its
discretion grant options to one or more outside directors, subject to such terms
and conditions as the Board of Directors may determine, provided that such terms
and conditions are not inconsistent with other applicable provisions of the 1998
Long-term Incentive Plan. Options shall have a term of no longer than ten years
from the date of grant; except that for an option designated as an ISO which is
granted to a ten percent shareholder, the option shall have a term no longer
than five years.

No option shall be exercisable prior to one year after its grant, unless
otherwise provided by the Option Committee of the Board of Directors (but in no
event before 6 months after its grant), and thereafter options shall become
exercisable in installments, if any, as provided by the Option Committee.
Options must be exercised for full shares of common stock. To the extent that
options are not exercised when they become initially exercisable, they shall be
carried forward and be exercisable until the expiration of the term of such
options.

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

NOTE 10. SHAREHOLDERS' EQUITY

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

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

NOTE 11. LEGAL MATTERS

In September 1995, certain subsidiaries of Avalon were informed that they had
been identified as potentially responsible parties by the Indiana Department of
Environmental Management with respect to a Fulton County, Indiana hazardous
waste disposal facility which facility is subject to remedial action under
Indiana Environmental Laws. Such identification was based upon the subsidiaries
having been involved in the transportation of hazardous substances to the
facility. During the fourth quarter of 1999, Avalon became a party to an Agreed
Order and a Participation Agreement regarding the remediation of a portion of
this site. The Participation Agreement provides for, among other things, the
allocation of all site remediation costs except for approximately $3 million.
Avalon's total liability for the allocated costs under the Participation
Agreement was approximately $71,000, which Avalon has paid.

The additional unallocated site remediation costs are currently estimated to be
approximately $3 million and Avalon's total accrued liability relating to the
remediation

19

<PAGE>

of this portion of the site on an undiscounted basis is estimated to be
$120,000, which amount is included in the Consolidated Balance Sheets under the
caption "Other noncurrent liabilities." The measurement of environmental
liabilities is inherently difficult and the possibility remains that
technological, regulatory or enforcement developments, the results of
environmental studies or other factors could materially alter Avalon's
expectations at any time. The extent of any ultimate liability of any of
Avalon's subsidiaries with respect to these additional costs is unknown.

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

NOTE 12. LEASE COMMITMENTS

Avalon leases certain office facilities, vehicles, machinery and equipment.
Future commitments under long-term, noncancellable operating leases at December
31, 2002 are as follows (in thousands):

YEAR ENDING DECEMBER 31,
-------------------------

2003 ......................................$ 2,944

2004 ......................................  2,264

2005 ......................................  1,852

2006 ......................................  1,191

2007 ......................................    342

After 2007.................................     --
                                           -------

                                           $ 8,593
                                           =======

Rental expense included in the Consolidated Statements of Operations amounted to
$4,719,000 in 2002, $4,877,000 in 2001, and $4,616,000 in 2000. Avalon's
transportation operations rent additional transportation equipment on a
short-term basis in order to meet its hauling obligations.

NOTE 13. BUSINESS SEGMENT INFORMATION

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

Avalon's primary business segment provides transportation services that include
transportation of hazardous and non-hazardous waste, transportation of general
and bulk commodities and transportation brokerage and management services. The
technical environmental services segment provides environmental consulting,
engineering, site assessments, remediation services and operates and manages a
captive landfill for an industrial customer. The waste disposal brokerage and
management services segment provides hazardous and nonhazardous disposal
brokerage and management services. The golf and related operations segment
includes the operations of a golf course and travel agency. Avalon does not have
significant operations located outside the United States and, accordingly,
geographical segment information is not presented.

In 2002, one customer accounted for approximately 21% of the transportation
services segments net operating revenues to external customers and approximately
10% of Avalon's consolidated net operating revenues. In 2001 and 2000, no
customer accounted for 10% or more of Avalon's consolidated net operating
revenues.

20

<PAGE>

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

                                           2002       2001       2000
                                       ------------------------------
NET OPERATING REVENUES FROM:
Transportation services:
   External customers revenues ......  $ 32,100   $ 31,570   $ 39,809
   Intersegment revenues.............     4,079      5,088      6,519
                                       ------------------------------
   Total transportation services ....    36,179     36,658     46,328
                                       ------------------------------

Technical environmental services:
   External customers revenues ......    12,326     18,951     23,262
   Intersegment revenues.............         1          5         29
                                       ------------------------------
   Total technical environmental
    services.........................    12,327     18,956     23,291
                                       ------------------------------

Waste disposal brokerage and
 management services:
   External customers revenues.......    20,335     22,282     16,650
   Intersegment revenues.............       422        689      5,331
                                       ------------------------------
   Total waste disposal brokerage
    and management services..........    20,757     22,971     21,981
                                       ------------------------------

Golf and related operations:
   External customer revenues........     1,829      1,067        516
   Intersegment revenues.............        88        140        228
                                       ------------------------------
   Total golf and related
    operations.......................     1,917      1,207        744
                                       ------------------------------

Other businesses:
   External customers revenues.......        --         --         83
   Intersegment revenues.............        --         --         --
                                       ------------------------------
   Total other businesses............        --         --         83
                                       ------------------------------

Segment operating revenues...........    71,180     79,792     92,427
Intersegment eliminations...........     (4,590)    (5,922)   (12,107)
                                       ------------------------------

Total net operating revenues.........  $ 66,590   $ 73,870   $ 80,320
                                       ==============================

INCOME (LOSS) FROM CONTINUING
 OPERATIONS BEFORE TAXES:
   Transportation services...........  $ (2,233)  $   (234)  $  1,057
   Technical environmental
    services.........................        65       (562)    (1,287)
   Waste disposal brokerage and
    management services..............       644      1,094      1,104
   Golf and related operations             (303)      (877)    (1,062)
   Other businesses..................        --         10       (192)
                                       --------   --------   --------
   Segment income (loss)
    before taxes.....................    (1,827)      (569)      (380)
   Corporate interest income.........       209        398        755
   Corporate other income, net.......       109          7        298
   General corporate expenses........    (3,222)    (3,088)    (3,096)
                                       ------------------------------

   Income (loss) from continuing
    operations before taxes..........  $ (4,731)  $ (3,252)  $ (2,423)
                                       ==============================

DEPRECIATION AND AMORTIZATION:

  Transportation services............  $  1,283   $  1,519   $ 1,622
   Technical environmental
     services........................       476        597        796
   Waste disposal brokerage and
     management services.............        28         23          9
   Golf and related operations.......       474        407        253
   Other businesses..................        --         --         32
   Corporate.........................       297        214        208
                                       ------------------------------
        Total........................  $  2,558   $  2,760   $  2,920
                                       ==============================

INTEREST INCOME:
   Transportation services...........  $     19   $     59   $     58
   Technical environmental
     services........................        10         31         23
   Waste disposal brokerage
     and management services.........        14         39         33
   Golf and related operations .....          2          6          6
   Other businesses.................         --         --         --
   Corporate........................        209        398        755
                                       ------------------------------
        Total........................  $    254   $    533   $    875
                                       ==============================

OTHER SIGNIFICANT NONCASH ITEMS:
  Write-down of assets:
  Technical environmental
        services.....................  $     --   $     --   $    747
  Other businesses...................        --         --         49
                                       ------------------------------
        Total........................  $     --   $     --   $    796
                                       ==============================

  Write-down of costs in excess of
   fair market value of net assets of
   acquired businesses:
     Technical environmental
       services......................  $     --   $     --   $  1,093
                                       ------------------------------
          Total......................  $     --   $     --   $  1,093
                                       ==============================

CAPITAL EXPENDITURES:
   Transportation services.            $    759   $    500   $  2,295
   Technical environmental
      services.......................        38         95        518
   Waste disposal brokerage and
      management services.. .........        42         16        104
   Golf and related operations ......     2,433        513      4,644
   Other businesses..................        --         --         --
   Corporate.........................        13        336         70
                                       ------------------------------
       Total.........................  $  3,285   $  1,460   $  7,631
                                       ==============================

IDENTIFIABLE ASSETS AT DECEMBER 31:
   Transportation services...........  $ 10,735   $ 13,349   $ 14,365
   Technical environmental
      services.......................     8,969     10,098     11,546
   Waste disposal brokerage and
      management services..               4,462      5,143      4,027
   Golf and related operations.......    14,376     12,292     12,238
   Other businesses..................        72         66         67
   Corporate.........................    28,239     31,080     30,925
   Discontinued operations...........        --      1,552      2,696
                                       ------------------------------
       Sub Total.....................    66,853     73,580     75,864
   Elimination of intersegment
      receivables ...................   (15,207)   (13,613)   (13,554)
                                       ------------------------------
        Total........................  $ 51,646   $ 59,967   $ 62,310
                                       ==============================

21

<PAGE>

Avalon Holdings Corporation and Subsidiaries

NOTE 14. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In May 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was issued. SFAS
145, which is effective for financial statements issued on or after May 15,
2002, rescinds the automatic treatment of gains and losses from extinguishments
of debt as extraordinary unless they meet the criteria for extraordinary items
as outlined in Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS 145 also requires sale-leaseback accounting for certain
lease modifications that have economic effects similar to a sale-leaseback
transaction and makes various corrections to existing pronouncements. The
adoption of SFAS 145 did not have an effect on Avalon's financial position or
results of operations.

In July 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002. Avalon has not yet adopted SFAS
146 nor determined the effect of the adoption of SFAS 146 will have on its
financial position or results of operations.

In October 2002, SFAS No. 147, "Acquisitions of Certain Financial Institutions:
An amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9",
was issued. This statement is effective for acquisitions of financial
institutions on or after October 1, 2002 and had no impact on Avalon's financial
position or results of operations.

In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, and amendment of FASB Statement No. 123", was issued.
SFAS 148 prescribes amendments to the disclosure and transition provisions of
SFAS 123, "Accounting for Stock-Based Compensation", and is effective for fiscal
years ending after December 15, 2002. As of December 31, 2002, no options have
been granted under Avalon's 1998 Long-Term Incentive Plan, and therefore, the
adoption of SFAS 148 had no impact on Avalon's financial position or result of
operations.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46) to provide guidance on when an investor
should consolidate another entity from which they receive benefits or are
exposed to risks when those other entities are not controlled based on
traditional voting interests or they are thinly capitalized. The provisions of
FIN 46 are effective beginning July 1, 2003. Although management is still
reviewing the provisions of FIN 46, its preliminary assessment is that this
interpretation will not have a material impact on Avalon's financial position or
results of operations.

22

<PAGE>

Avalon Holdings Corporation and Subsidiaries

NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for each quarter in 2002 and 2001 is as
follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 2002*
                                             -----------------------------------------------------------
                                               FIRST       SECOND        THIRD       FOURTH
                                              QUARTER      QUARTER      QUARTER     QUARTER      TOTAL
                                             -----------------------------------------------------------
<S>                                          <C>          <C>         <C>          <C>         <C>
Net operating revenues....................   $   15,721   $  16,248   $   19,116   $  15,505   $  66,590
Operating loss from continuing operations.       (1,413)       (741)      (1,730)     (1,522)     (5,406)
Loss from continuing operations...........       (1,304)       (465)      (1,573)     (1,552)     (4,894)
Income (loss) from discontinued operations         (327)       (370)         (63)       (184)       (944)
Net loss..................................       (1,631)       (835)      (1,636)     (1,736)     (5,838)
Basic net loss per share
 from continuing operations...............         (.35)       (.12)       (. 41)       (.41)      (1.29)
Basic net loss per share from
 discontinued operations..................         (.08)       (.10)       (. 02)       (.05)       (.25)
Basic net loss per share..................   $     (.43)  $    (.22)   $   (. 43)  $    (.46)  $   (1.54)
                                             -----------------------------------------------------------

<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 2001*
                                             -----------------------------------------------------------
                                               FIRST       SECOND        THIRD       FOURTH
                                              QUARTER      QUARTER      QUARTER     QUARTER      TOTAL
                                             -----------------------------------------------------------
<S>                                          <C>          <C>         <C>          <C>         <C>
Net operating revenues....................   $   16,012   $  16,666   $   21,414   $  19,778   $  73,870
Operating loss from continuing operations.         (787)       (482)         (83)     (2,388)     (3,740)
Income (loss) from continuing operations..         (341)       (194)         245      (1,833)     (2,123)
Loss from discontinued operations.........         (206)       (705)         (81)       (215)     (1,207)
Net income (loss).........................         (547)       (899)         164      (2,048)     (3,330)
Basic net income (loss) per share
 from continuing operations...............         (.09)       (.05)         .06        (.48)       (.56)
Basic net loss per share from
 discontinued operations..................         (.05)       (.19)        (.02)       (.06)       (.32)
Basic net income (loss) per share.........   $     (.14)  $    (.24)   $     .04   $    (.54)  $    (.88)
                                             -----------------------------------------------------------
</TABLE>

* The information in the above quarterly financial data for the year ended
December 31, 2001 and the first quarter of the year ended December 31, 2002 has
been reclassified from the information previously reported in the Avalon's
filings on Form 10-Q to reflect discontinued operations.

23

<PAGE>

Avalon Holdings Corporation and Subsidiaries

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors of Avalon Holdings Corporation

We have audited the accompanying consolidated balance sheets of Avalon Holdings
Corporation and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity, comprehensive
income, and cash flows for each of the three years in the period ended December
31, 2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Avalon
Holdings Corporation and subsidiaries as of December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, effective January 1, 2002,
the Company changed its method of accounting for goodwill for the adoption of
SFAS No. 142.

Grant Thornton LLP

/s/ Grant Thornton LLP

Cleveland, Ohio
February 28, 2003

24

<PAGE>

Avalon Holdings Corporation and Subsidiaries

DIGEST OF FINANCIAL DATA

<TABLE>
<CAPTION>
                                                          (All amounts are in thousands, except per share data, percentages
                                                                                and number of employees)
                                                          -----------------------------------------------------------------
                                                                2002          2001       2000          1999          1998
                                                          -----------------------------------------------------------------
<S>                                                       <C>              <C>         <C>           <C>           <C>
SELECTED STATEMENT OF OPERATIONS INFORMATION
Net operating revenues....................................$      66,590    $  73,870   $   80,320    $  77,017     $ 70,982
Operating income (loss) from continuing operations........       (5,406)      (3,740)      (3,815)         866       (1,071)
Interest expense..........................................           --           --           --            2           45
Income (loss) from continuing operations..................       (4,894)      (2,123)      (1,967)       1,162         (699)
Income (loss) from discontinued operations................         (944)      (1,207)        (466)          61           52
Net income (loss).........................................       (5,838)      (3,330)      (2,433)       1,223         (647)
Net income (loss) per share from continuing operations....       (1.29)         (.56)        (.52)         .30         (.18)
Net income (loss) per share from discontinued operations..         (.25)        (.32)        (.12)         .02          .01
Net income (loss) and pro forma net loss per share (*)....       (1.54)         (.88)        (.64)         .32         (.17)
Dividends per Class A share...............................           --           --           --           --           --
Dividends per Class B share...............................           --           --           --           --           --
Weighted average shares used to calculate net income and..
 pro forma net (loss) per share (*).......................        3,803        3,803        3,803        3,803        3,803

SELECTED CASH FLOW INFORMATION
Net cash provided by (used in)
 operating activities from continuing operations..........       (1,459)       3,758          130        1,630        1,377
Cash used for capital expenditures........................        3,285        1,460        7,631        5,626        1,814

SELECTED YEAR-END BALANCE SHEET INFORMATION
Cash and cash equivalents.................................        2,595        4,807       10,700       18,516       21,973
Current assets............................................       22,666       25,135       30,952       37,738       40,666
Current liabilities.......................................        8,881       10,748        9,223       10,769       11,693
Working capital...........................................       13,785       14,387       21,729       26,969       28,973
Properties less accumulated
 depreciation and amortization............................       28,303       27,493       29,147       25,418       22,569
Total assets..............................................       51,646       59,967       62,310       66,404       66,685
Current portion of long-term debt.........................           --           --           --           --           --
Long-term debt............................................           --           --           --           --           --
Deferred income tax liability (non-current)...............           --          701        1,239        1,354        1,209
Shareholders' equity......................................       42,634       48,398       51,728        54,161      52,938

OTHER INFORMATION
Working capital ratio.....................................        2.6:1        2.3:1        3.4:1        3.5:1        3.5:1
Quoted market price-Class A Shares:
   High...................................................         3.40         3.55       5 3/4       7 1/4        9 1/2
   Low....................................................         1.96         2.20       2 5/16      4 13/16      5 11/16
   Year-end...............................................         2.00         2.85       2 3/4       5            7 1/16
Number of employees at year-end...........................          346          422       450         470          441
</TABLE>

(*)  In accordance with Securities and Exchange Commission regulations, pro
     forma per share data has been presented only for 1998, the year in which
     the Spin-off occurred, and the preceding year. For purposes of determining
     the pro forma per share data, all of Avalon's common stock issued as a
     result of the Spin-off is deemed to have been outstanding since the
     beginning of 1998.

25

<PAGE>

Avalon Holdings Corporation and Subsidiaries

COMPANY LOCATION DIRECTORY

<TABLE>
<S>                              <C>                            <C>
CORPORATE OFFICE                 TRANSPORTATION OFFICES         TECHNICAL
                                                                ENVIRONMENTAL
                                                                SERVICES
AVALON HOLDINGS CORPORATION      DARTAMERICA, INC.
One American Way                 DART TRUCKING COMPANY, INC.
Warren, Ohio 44484-5555          DART SERVICES, INC.            EARTH SCIENCES
(330) 856-8800                   TRB NATIONAL SYSTEMS, INC.     CONSULTANTS, INC.
                                 One American Way               One Triangle Lane
WASTE DISPOSAL                   Warren, Ohio 44484-5555        Export, Pennsylvania  15632
BROKERAGE AND                    (330) 856-8430                 (724) 733-3000
MANAGEMENT SERVICES
                                 TRANSPORTATION
American Waste Management        TERMINALS                      AWS REMEDIATION, INC.
Services, Inc.                                                  One Triangle Lane
One American Way                 DART TRUCKING COMPANY, INC.    Export, Pennsylvania  15632
Warren, Ohio 44484-5555          61 Railroad Street             (724) 733-1009
(330) 856-8800                   Canfield, Ohio 44406
                                                                AMERICAN LANDFILL
GOLF AND RELATED                 DART TRUCKING COMPANY, INC.    MANAGEMENT, INC.
OPERATIONS                       200 Old Webster Road           One American Way
                                 Oxford, Massachusetts 01540    Warren, Ohio 44484-5555
AVALON LAKES GOLF, INC.                                         (330) 856-8800
One American Way                 DART TRUCKING COMPANY, INC.
Warren, Ohio 44484-5555          1807A Route 7                  AMERICAN CONSTRUCTION SUPPLY, INC.
(330) 856-8898                   Kenova, West Virginia 25530    One American Way
                                                                Warren, Ohio 44484-5555
AVALON TRAVEL, INC.              DART TRUCKING COMPANY, INC.    (330) 856-8800
One American Way                 11861 S. Cottage Grove Ave.
Warren, Ohio 44484-5555          Chicago, Illinois 60628
(330) 856-8400
                                 DART TRUCKING COMPANY, INC.
                                 11 Riverway Place
                                 Building 1
                                 Bedford, New Hampshire 03110
</TABLE>

26

<PAGE>

Avalon Holdings Corporation and Subsidiaries

DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
DIRECTORS                                OFFICERS

<S>                                      <C>
RONALD E. KLINGLE                        TED WESOLOWSKI
Chairman of the Board                    Chief Executive Officer
   Executive Committee (Chairman)        and President
   Compensation Committee (Chairman)
                                         TIMOTHY C. COXSON
TED WESOLOWSKI                           Treasurer and Chief Financial Officer
Chief Executive Officer                  Chief Executive Officer of DartAmericA, Inc.
and President
   Executive Committee                   JEFFREY M. GRINSTEIN
   Compensation Committee                Secretary

SANFORD B. FERGUSON                      FRANCES R. KLINGLE
Partner, Kirkpatrick & Lockhart, LLP     Chief Administrative Officer
   Audit Committee (Chairman)
   Executive Committee                   KENNETH R. NICHOLS
   Option Plan Committee (Chairman)      Vice President, Taxes

ROBERT M. ARNONI                         FRANK LAMANNA
President, Arnoni Development            Controller
Company, Inc.
   Compensation Committee
   Audit Committee
   Option Plan Committee

STEPHEN L. GORDON
Partner, Beveridge & Diamond, P.C.
   Audit Committee
   Option Plan Committee
</TABLE>

27

<PAGE>

Avalon Holdings Corporation and Subsidiaries

SHAREHOLDER INFORMATION

ANNUAL MEETING OF SHAREHOLDERS

The annual meeting of shareholders will be held at the Grand Pavilion, One
American Way, Warren, Ohio, on Wednesday, April 30, 2003, at 10:00 a.m.

COMMON STOCK INFORMATION

Avalon's Class A Common Stock is listed on the American Stock Exchange (symbol:
AWX). Quarterly stock information for 2002, 2001 and 2000 as reported by The
Wall Street Journal is as follows:

2002:
QUARTER ENDED           HIGH        LOW        CLOSE
-------------------------------------------------------
March 31                3.40        2.75       2.90
June 30                 2.94        2.40       2.40
September 30            2.56        2.05       2.05
December 31             2.50        1.96       2.00

2001:
QUARTER ENDED            HIGH         LOW      CLOSE
-------------------------------------------------------
March 31                 3.55       2.75       3.17
June 30                  3.30       2.37       3.00
September 30             3.10       2.20       2.45
December 31              3.00       2.20       2.85

2000:
QUARTER ENDED            HIGH         LOW      CLOSE
-------------------------------------------------------
March 31                  53/4      4 5/8       4 3/4
June 30                   43/4      3 3/8       3 1/2
September 30              31/2      3           3 1/16
December 31               3 3/16    2 5/16      2 3/4

No dividends were paid during 2002.

There are 625 Class A and 12 Class B Common Stock shareholders of record as of
the close of business March 4, 2003. The number of holders is based upon the
actual holders registered on the records of Avalon's transfer agent and
registrar and does not include holders of shares in "street names" or persons,
partnerships, associations, corporations or other entities identified in
security position listings maintained by depository trust companies.

DIVIDEND POLICY

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

ANNUAL REPORT ON FORM 10-K

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

TRANSFER AGENT AND REGISTRAR

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

INVESTOR INQUIRIES

Security analysts, institutional investors, shareholders, news media
representatives and other 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.

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