Exhibit 13.1

LOGO

2009 Annual Report

Avalon Holdings Corporation



---

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

2009


2008Net operating revenues

$
36,920


$
48,978(Loss) income before income taxes


(750
)


774Net (loss) income


(774
)


738Net (loss) income per share


(.20
)


.19At year-end

2009


2008Working capital

$
5,712


$
5,001Total assets


47,757



48,713Shareholders equity


39,400



40,174   The Company Avalon Holdings Corporation provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and
midwestern U.S. markets. Avalon Holdings Corporation also owns the Avalon Golf and Country Club, which operates golf courses and related facilities.


Contents  Financial Highlights

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

2Consolidated Balance Sheets

9Consolidated Statements of Operations

10Consolidated Statements of Cash Flows

11Consolidated Statements of Shareholders Equity

12Notes to Consolidated Financial Statements

13Report of Independent Registered Public Accounting Firm

20Managements Report on Internal Controls over Financial Reporting

21Company Location Directory

22Directors and Officers

23Shareholder Information

24




1



---

Avalon Holdings Corporation and Subsidiaries





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

The following discussion provides information which management believes is relevant to an assessment and understanding of
the operations and financial condition of Avalon Holdings Corporation and its Subsidiaries (collectively Avalon). This discussion should be read in conjunction with the consolidated financial statements and accompanying notes.

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

Liquidity and Capital Resources

For the year 2009, Avalon utilized cash provided by operations and existing cash to fund
capital expenditures and meet operating needs.

Avalons aggregate capital expenditures in 2009 were $.2 million. Such expenditures
related principally to building improvements and the purchase of equipment for the golf and related operations segment. Avalons aggregate capital expenditures in 2010 are expected to be in the range of $.3 million to $.8 million, which will
principally relate to building improvements and equipment purchases for the golf and related operations.

On November 1, 2003, Avalon
entered into a long-term agreement with Squaw Creek Country Club to lease and operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options
unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of
$150,000 will be carried forward and applied to future leasehold improvement obligations. Avalon has made $7.3 million of leasehold improvements as of December 31, 2009. Based upon the amount of leasehold improvements already made and leasehold
improvements anticipated to be made in the future, Avalon expects to exercise all of its renewal options.

Working capital was $5.7 million at
December 31, 2009 compared with $5.0 million at December 31, 2008. The increase is primarily due to an increase in cash and cash equivalents, a decrease in other liabilities and accrued expenses and a decrease in accrued payroll and other
compensation, partially offset by a decrease in accounts receivable and a slight increase in accounts payable.

The decrease in accounts
receivable of $2.2 million at December 31, 2009 compared with December 31, 2008 is primarily the result of significantly lower net operating revenues of the waste management segment in the fourth quarter of 2009 compared with the fourth
quarter of 2008.

The increase in accounts payable of $.3 million at December 31, 2009 compared with December 31, 2008 is primarily
due to the timing of payments to vendors in the ordinary course of business.

The decrease in accrued payroll and other compensation of $.2
million at December 31, 2009 compared with December 31, 2008 is primarily due to a decrease in accrued bonuses relating to the waste brokerage and management services business.

The decrease in other liabilities and accrued expenses of $.3 million at December 31, 2009 compared with December 31, 2008 is primarily due to a decrease in the discretionary employer
contribution to the Companys 401(k) plan which was eliminated in the third quarter of 2009 for the years 2009 and 2008.



2



---

Avalon Holdings Corporation and Subsidiaries





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

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

Growth Strategy

The waste industry is a local and highly competitive business, requiring
substantial labor and capital resources. The participants compete for accounts primarily on the basis of price and quality of service, and compete for disposal and processing business on the basis of tipping fees, geographic location and quality of
operations. The waste industry has been consolidating and continues to consolidate as a result of a number of factors, including the increasing costs and complexity associated with waste management operations, lower volumes, and regulatory
compliance. Many small independent operators and municipalities lack the capital resources, management, operating skills and technical expertise necessary to operate effectively in such an environment. Avalon believes that this pressure will
continue to fuel the consolidation within the waste industry and has positioned itself well to capitalize on these opportunities in the future, either through acquisitions or strategic partnerships.

Our growth strategy will focus on increasing revenue, gaining market share and enhancing shareholder value through internal growth and acquisitions. We will
manage our growth strategy as follows:

Internal Growth: Our internal growth strategy focuses on retaining existing customers
and obtaining new business through our well-managed sales and marketing activities.



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



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



| |  | Sales and Marketing Activities. We seek to manage our sales and marketing activities to enable us to capitalize on our position in many
of the markets in which we operate. We provide a tailored program to all of our customers in response to their needs by centralizing services to effectively manage their needs, such as minimizing their procurement costs. We currently have a number
of professional sales and marketing employees in the field who are compensated using a commission structure that is focused on generating high levels of quality revenue. For the most part, these employees directly solicit business from existing and
prospective customers. We emphasize our rate and cost structures when we train new and existing sales personnel.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Development Activities. We will seek to identify opportunities to further position us as an integrated service provider in markets where
we provide services. Where appropriate, we may seek to obtain permits that would provide vertically integrated waste services or expand the service offerings or leverage our existing volumes with current vendors to provide for long term, cost
competitive strategic positioning within our existing markets. Development projects, while generally less capital intensive than acquiring such projects, typically require extensive permitting efforts that can take years to complete with no
assurance of success. We may undertake development
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3



---

Avalon Holdings Corporation and Subsidiaries





| | projects when we believe there is a reasonable probability of success and where reasonably priced acquisition opportunities are not available.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

Acquisition Growth: We will look to acquire businesses that complement our existing business platform. Our acquisition growth strategy will
focus primarily on privately held companies and the waste operations of municipal and other local governmental authorities. We believe that our ability to acquire privately held companies is enhanced by increasing competition in the waste industry,
increasing capital requirements as a result of changes in waste regulatory requirements, and the limited number of exit strategies for these privately held companies owners. We also seek to acquire operations and facilities from municipalities
that are privatizing, as they seek to increase available capital and reduce risk. In addition, we will continue to evaluate opportunities to acquire operations and facilities that are being divested by other publicly owned waste companies. In sum,
our acquisition growth strategy will focus primarily on the following:



| |  | acquiring privately held businesses that position us for growth in existing markets;
|- |  | ------------------------------------------------------------------------------------



| |  | acquiring well-managed companies and, when appropriate, retaining local management; and
|- |  | ---------------------------------------------------------------------------------------



| |  | acquiring operations and facilities from municipalities that are privatizing and/or from publicly owned companies that are divesting assets.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------

Our primary focus will be to acquire facilities that operate in markets that we are already servicing in order to fully
integrate our operations. We believe these activities allow us to increase our revenue and market share, lower our cost of operations as a percentage of revenue, and maximize cost efficiencies and economies of scale.

Several private country clubs in the northeast Ohio area are experiencing economic difficulties. Avalon believes some of these clubs may represent an
attractive investment opportunity and is giving consideration to the possibility of acquiring one or more additional golf courses. While Avalon has not entered into any pending agreements for acquisitions, it may do so at any time and will continue
to consider acquisitions that make economic sense. Such potential acquisitions could be financed by existing working capital, utilizing its line of credit, secured or unsecured debt, issuance of common stock, or issuance of a security with
characteristics of both debt and equity, any of which could impact liquidity in the future.

Results of Operations

Avalons primary business segment, the waste management services segment, provides hazardous and nonhazardous waste brokerage and management services
and captive landfill management services. The golf and related operations segment includes the operation of golf courses and related facilities and a travel agency.

Performance in 2009 compared with 2008

Overall Performance

Net operating revenues decreased to $36.9 million in 2009 compared with $49.0 million in 2008. The decrease is primarily the result of a significant decrease
in the net operating revenues of the waste management services segment. Costs of operations decreased to $30.1 million in 2009 compared with $39.9 million in 2008. The decrease is primarily due to lower transportation and disposal costs of the waste
management services segment; as such costs vary directly with the net operating revenues. Fixed costs relating to depreciation and amortization expense were $1.7 million in 2009 compared to $1.5 million in 2008. Consolidated selling, general and
administrative expenses declined to $6.1 million in 2009 compared with $7.0 million in 2008 primarily due to a decrease in the management and salesmen incentive bonuses of the waste management services segment and the elimination of the 2008 and
2009 employer discretionary contributions to Avalons 401(k) plan. Avalon incurred a net loss of $.8 million or $.20 per share in 2009 compared with net income of $.7 million or $.19 per share in 2008.



4



---

Avalon Holdings Corporation and Subsidiaries





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

Net operating revenues of the waste management services segment decreased to $27.5 million in 2009
compared with $39.4 million in 2008. Net operating revenues of the waste brokerage and management services decreased to $25.3 million in 2009 from $36.9 million in 2008 and the net operating revenues of the captive landfill management operations
decreased to $2.2 million in 2009 from $2.5 million in 2008. The decrease in net operating revenues of the waste brokerage and management services was primarily due to a decrease of 38% in continuous or ongoing work and a 21% decrease in event work.
The decrease in continuous work was primarily a result of the slowdown in the economy which negatively affected the production and manufacturing of many of the industrial customers which generate hazardous and nonhazardous waste at their operating
facilities. Event work is defined as bid projects under contract that occurs on a one-time basis over a short period of time. Such work can fluctuate significantly from year to year. The decrease in event work was due to a decline in the number and
size of the projects won in 2009 compared with 2008. Net operating revenues of the captive landfill management operations decreased in 2009 compared with 2008 primarily as a result of a decline in the amount of waste generated and disposed of by the
landfill owner and a decrease in special project work performed for the landfill owner.

Income before taxes of the waste management services
segment decreased to $2.2 million in 2009 compared with $3.6 million in 2008. The decrease is primarily due to the significant decline in net operating revenues of the waste brokerage and management services business. Income before taxes of the
waste brokerage and management services business was $1.7 million in 2009 compared with $3.0 million in 2008. Income before taxes of the captive landfill management operations was $.5 million in 2009 compared with $.6 million in 2008. The decrease
is primarily due to the decline in the volume of waste disposed of at the landfill.

Net operating revenues of the golf and related operations
segment were $9.4 million in 2009 compared with $9.6 million in 2008. The golf courses, which are located in northeast Ohio and western Pennsylvania, were unavailable for play during the first three months of 2009 and 2008 due to adverse weather
conditions. The dining and banquet facilities at Sharon were closed during the first two months of 2008 for renovation. The decrease in net operating revenues is primarily due to a slight decrease in revenues from membership dues, lower merchandise
sales and decreased golf related revenues, partially offset by an increase in fitness and spa related revenues. The average number of members during 2009 increased to 2,645 compared with 2,589 in 2008. Although the average number of members
increased, due to the mix between social and golf members, net operating revenues from membership dues decreased by $.1 million. Due to the state of the economy, retaining members and attracting new members is becoming more difficult. A significant
decline in members could adversely impact the financial results of the golf and related operations segment. The ability to attract and retain members is very important to the success of the golf and related operations segment. Avalon is continually
using different marketing strategies to attract and retain members, such as local television advertising and various membership promotions. Avalon believes these marketing strategies have been successful in maintaining the membership and revenues
during these difficult times. The golf and related operations segment incurred a loss before taxes of $.8 million in 2009 compared with a loss before taxes of $.4 million in 2008. The increased loss before taxes is primarily due to higher
depreciation expense and increased advertising expense, decreased membership dues as mentioned above and a decrease in net operating revenues from green fees and cart rentals.

Interest Income

Interest income was $33,000 in 2009 compared with $49,000 in 2008.
The decrease is primarily the result of lower average investment rates.

General Corporate Expenses

General corporate expenses were $2.3 million in 2009 compared with $2.5 million in 2008. The decrease is primarily due to lower employee related expenses.



5



---

Avalon Holdings Corporation and Subsidiaries





Net Income

Avalon incurred a net loss of $.8 million in 2009 compared with net income of $.7 million in 2008. Excluding the minor effect of state income tax provisions and in 2009, minor adjustments as a result of
refundable federal tax payments and credits relating to prior years, Avalons overall effective tax rate was 0% for 2009 and 2008. The overall effective tax rate is different than statutory rates primarily due to a change the valuation
allowance. As such, Avalons income tax benefit in 2009 and income tax provision in 2008 were offset by a change in the valuation allowance. A valuation allowance has been provided when it is more likely than not that the deferred tax assets
relating to certain federal and state loss carryforwards will not be realized. Avalon continues to maintain a valuation allowance against the majority of its deferred tax amounts until it is evident that the deferred tax asset will be utilized in
the future.

Trends and Uncertainties

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

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

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

Avalons waste
disposal brokerage and management services business obtains and retains customers by providing services and identifying cost-efficient disposal options unique to a customers needs. Consolidation within the solid waste industry has resulted in
reducing the number of companies offering disposal options to waste generators and may cause disposal pricing to increase. Avalons waste brokerage and management services business may not be able to pass these price increases onto its
customers, which, in turn, may adversely impact Avalons future financial performance.

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

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

The Avalon Golf and Country Club has golf courses and clubhouses at each of its three facilities. The Squaw Creek and Sharon facilities each have a swimming
pool, a fitness center and dining and banquet facilities. The Squaw Creek facility also has tennis courts. The Avalon Golf and Country Club competes with many public courses and



6



---

Avalon Holdings Corporation and Subsidiaries





country clubs in the area. Although the golf courses continue to be available to the general public, the primary source of revenues is derived from the members of the Avalon Golf and Country
Club. Avalon believes that the combination of these three facilities will result in additional memberships in the Avalon Golf and Country Club. Due to the state of the economy, the ability to retain current members and attract new members is
becoming more difficult. Although Avalon was able to retain and slightly increase the number of members of the Avalon Golf and Country Club in 2009, as of December 31, 2009, Avalon has not attained its membership goals. There can be no
assurance as to when such goals will be attained and when the golf and related operations will ultimately become profitable. Avalon is continually using different marketing strategies to attract new members, such as local television advertising and
various membership promotions. A significant decline in members could adversely affect the future financial performance of Avalon.

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

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

Inflation Impact

Avalon has not entered into any long-term fixed price contracts that could have a material adverse impact upon its financial performance in
periods of inflation. In general, management believes that rising costs resulting from inflation could be passed on to customers; however, Avalon may need to absorb all or a portion of these cost increases depending upon competitive conditions at
the time.

Critical Accounting Policies

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

The majority of Avalons accounts receivable are due from industrial and commercial customers. Credit is extended based on an evaluation of a customers financial condition and, generally, collateral is not required. Accounts
receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of
factors, including the length of time trade accounts receivable are past due, Avalons previous accounts receivable loss history, the customers current ability to pay its obligation to Avalon and the condition of the general economy and
the industry as a whole. Bankruptcy or economic challenges of a particular customer represent uncertainties that are not controllable by management. If managements assessments change due to different assumptions or if actual collections differ
from managements estimates, future operating results could be impacted. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful
accounts, or to income, as appropriate under the circumstances.

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



7



---

Avalon Holdings Corporation and Subsidiaries





eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value, Avalon would recognize an impairment loss to the
extent the carrying value of the groups of long-lived assets exceeds their fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would
discount the expected estimated future cash flows.

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

When Avalon concludes that it is probable that an environmental
liability has been incurred, a provision is made in Avalons financial statements for Avalons best estimate of the liability based on managements judgment and experience, information available from regulatory agencies, and the
number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site, as well as, the typical allocation of costs among such parties. If a range
of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, then Avalon provides for the minimum amount within the range, in accordance with generally accepted accounting principles. The liability
is recognized on an undiscounted basis. Avalons estimates are revised, as deemed necessary, as additional information becomes known. Such revisions may impact future operating results. Although Avalon is not currently aware of any
environmental liability, there can be no assurance that in the future an environmental liability will not occur.

Avalon recognizes deferred
tax assets and liabilities based on differences between financial statement carrying amounts and the tax bases of assets and liabilities. Avalon also records tax benefits when it believes that it is more likely than not that the benefit will be
sustained by the tax authority. Avalon regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based upon historical taxable income, projected future taxable income and the expected timing of the reversals
of existing temporary differences to reduce its deferred assets to the amount that it believes is more likely than not to be realized. Avalon has considered future taxable income in assessing the need for the valuation allowance. The $1,960,000 of
deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the $1,968,000 of deferred tax assets. Avalon has not provided a valuation allowance on the amount of
deferred tax assets that it estimates will be utilized as a result of these reviews. The net deferred tax asset of $8,000 as of December 31, 2009 is likely to be utilized upon the filing of certain state tax returns. If future taxable income is
less than the amount that has been assumed in assessing the recoverability of the deferred tax assets, then an increase in the valuation allowance will be required, with a corresponding increase to income tax expense. Likewise, should Avalon
ascertain in the future that it is more likely than not that deferred tax assets will be realized in excess of the net deferred tax assets, all or a portion of the $656,000 valuation allowance as of December 31, 2009, of which $490,000 relates
to a net operating loss carryforward, would be reversed as a benefit to the provision for income taxes in the period such determination was made.



8



---

Avalon Holdings Corporation and Subsidiaries





Consolidated Balance Sheets

(in thousands, except for share data)



|                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                        |  | December 31, |        
|                                                                                                                                                                                        |  | 2009         |         |   | 2008 |  
|Assets                                                                                                                                                                                  |  |              |         |   |      |   |         |  
|Current Assets:                                                                                                                                                                         |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                               |  | $            | 5,862   |   |      | $ | 3,061   |  
|Accounts receivable, less allowance for doubtful accounts of $165 in 2009 and $369 in 2008                                                                                              |  |              | 7,094   |   |      |   | 9,304   |  
|Prepaid expenses                                                                                                                                                                        |  |              | 291     |   |      |   | 309     |  
|Refundable income taxes                                                                                                                                                                 |  |              | 25      |   |      |   |        |  
|Other current assets                                                                                                                                                                    |  |              | 568     |   |      |   | 636     |  
|                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|Total current assets                                                                                                                                                                    |  |              | 13,840  |   |      |   | 13,310  |  
|                                                                                                                                                                                        |  |             
|Property and equipment,                                                                                                                                                                 |  |              | 28,277  |   |      |   | 29,437  |  
|Leased property under capital leases, net                                                                                                                                               |  |              | 5,574   |   |      |   | 5,882   |  
|Noncurrent deferred tax asset                                                                                                                                                           |  |              | 8       |   |      |   | 25      |  
|Other assets, net                                                                                                                                                                       |  |              | 58      |   |      |   | 59      |  
|                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|Total assets                                                                                                                                                                            |  | $            | 47,757  |   |      | $ | 48,713  |  
|                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|                                                                                                                                                                                        |  |             
|Liabilities and Shareholders Equity                                                                                                                                                    |  |              |         |   |      |   |         |  
|Current Liabilities:                                                                                                                                                                    |  |              |         |   |      |   |         |  
|Current portion of obligations under capital leases                                                                                                                                     |  | $            | 1       |   |      | $ | 1       |  
|Accounts payable                                                                                                                                                                        |  |              | 5,119   |   |      |   | 4,831   |  
|Accrued payroll and other compensation                                                                                                                                                  |  |              | 545     |   |      |   | 711     |  
|Accrued income taxes                                                                                                                                                                    |  |              |        |   |      |   | 19      |  
|Other accrued taxes                                                                                                                                                                     |  |              | 274     |   |      |   | 281     |  
|Other liabilities and accrued expenses                                                                                                                                                  |  |              | 2,189   |   |      |   | 2,466   |  
|                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                               |  |              | 8,128   |   |      |   | 8,309   |  
|                                                                                                                                                                                        |  |             
|Obligations under capital leases                                                                                                                                                        |  |              | 229     |   |      |   | 230     |  
|Contingencies and commitments                                                                                                                                                           |  |              |        |   |      |   |        |  
|                                                                                                                                                                                        |  |             
|Shareholders Equity:                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Class A Common Stock, $.01 par value, one vote per share; authorized 10,500,000 shares; issued and outstanding 3,191,038
shares at December 31, 2009 and 3,190,786 at December 31, 2008 |  |              | 32      |   |      |   | 32      |  
|Class B Common Stock, $.01 par value, ten votes per share; authorized 1,000,000 shares; issued and outstanding 612,293 shares at
December 31, 2009 and 612,545 at December 31, 2008     |  |              | 6       |   |      |   | 6       |  
|Paid-in capital                                                                                                                                                                         |  |              | 58,096  |   |      |   | 58,096  |  
|Accumulated deficit                                                                                                                                                                     |  |              | (18,734 | ) |      |   | (17,960 | )
|                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|                                                                                                                                                                                        |  |             
|Total shareholders equity                                                                                                                                                              |  |              | 39,400  |   |      |   | 40,174  |  
|                                                                                                                                                                                        |  |              |         |   |      |   |         |  
|                                                                                                                                                                                        |  |             
|Total liabilities and shareholders equity                                                                                                                                              |  | $            | 47,757  |   |      | $ | 48,713  |  
|                                                                                                                                                                                        |  |              |         |   |      |   |         |  

See accompanying notes to consolidated financial statements.



9



---

Avalon Holdings Corporation and Subsidiaries





Consolidated Statements of Operations

(in thousands, except for per share amounts)



|                                             |  |                         |        |   |      |   |        |  
|-------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                             |  | Year Ended December 31, |       
|                                             |  | 2009                    |        |   | 2008 |  
|                                             |  |                        
|Net operating revenues                       |  | $                       | 36,920 |   |      | $ | 48,978 |  
|                                             |  |                        
|Costs and expenses:                          |  |                         |        |   |      |   |        |  
|Costs of operations                          |  |                         | 30,114 |   |      |   | 39,948 |  
|Depreciation and amortization                |  |                         | 1,688  |   |      |   | 1,546  |  
|Selling, general and administration expenses |  |                         | 6,096  |   |      |   | 6,958  |  
|                                             |  |                         |        |   |      |   |        |  
|Operating (loss) income                      |  |                         | (978   | ) |      |   | 526    |  
|                                             |  |                        
|Other income (expense):                      |  |                         |        |   |      |   |        |  
|Interest expense                             |  |                         | (15    | ) |      |   | (14    | )
|Interest income                              |  |                         | 33     |   |      |   | 49     |  
|Other income, net                            |  |                         | 210    |   |      |   | 213    |  
|                                             |  |                         |        |   |      |   |        |  
|(Loss) income before income taxes            |  |                         | (750   | ) |      |   | 774    |  
|Provision for income taxes                   |  |                         | 24     |   |      |   | 36     |  
|                                             |  |                         |        |   |      |   |        |  
|Net (loss) income                            |  | $                       | (774   | ) |      | $ | 738    |  
|                                             |  |                         |        |   |      |   |        |  
|                                             |  |                        
|Net (loss) income per share                  |  | $                       | (.20   | ) |      | $ | .19    |  
|                                             |  |                         |        |   |      |   |        |  
|Weighted average shares outstanding          |  |                         | 3,803  |   |      |   | 3,803  |  
|                                             |  |                         |        |   |      |   |        |  

See accompanying notes to consolidated financial statements.



10



---

Avalon Holdings Corporation and Subsidiaries





Consolidated Statements of Cash Flows

(in thousands)



|                                                                                        |  |                         |       |   |      |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ------ | -
|                                                                                        |  | Year Ended December 31, |      
|                                                                                        |  | 2009                    |       |   | 2008 |  
|Operating activities:                                                                   |  |                         |       |   |      |   |        |  
|Net (loss) income                                                                       |  | $                       | (774  | ) |      | $ | 738    |  
|Reconciliation of net (loss) income to cash provided by (used in) operating activities: |  |                         |       |   |      |   |        |  
|Depreciation                                                                            |  |                         | 1,687 |   |      |   | 1,545  |  
|Amortization                                                                            |  |                         | 1     |   |      |   | 1      |  
|Provision for losses on accounts receivable                                             |  |                         | 93    |   |      |   | 116    |  
|Provision (benefit) for deferred taxes                                                  |  |                         | 17    |   |      |   | (6     | )
|Gain from disposal of property and equipment                                            |  |                         | (2    | ) |      |   | (2     | )
|Change in operating assets and liabilities:                                             |  |                         |       |   |      |   |        |  
|Accounts receivable                                                                     |  |                         | 2,117 |   |      |   | (1,716 | )
|Prepaid expenses                                                                        |  |                         | 18    |   |      |   | (22    | )
|Refundable income taxes                                                                 |  |                         | (25   | ) |      |   |       |  
|Other current assets                                                                    |  |                         | 68    |   |      |   | (270   | )
|Accounts payable                                                                        |  |                         | 288   |   |      |   | (182   | )
|Accrued payroll and other compensation                                                  |  |                         | (166  | ) |      |   | 117    |  
|Accrued income taxes                                                                    |  |                         | (19   | ) |      |   | (24    | )
|Other accrued taxes                                                                     |  |                         | (7    | ) |      |   | 21     |  
|Other liabilities and accrued expenses                                                  |  |                         | (277  | ) |      |   | 195    |  
|                                                                                        |  |                         |       |   |      |   |        |  
|Net cash provided by operating activities                                               |  |                         | 3,019 |   |      |   | 511    |  
|                                                                                        |  |                         |       |   |      |   |        |  
|                                                                                        |  |                        
|Investing activities:                                                                   |  |                         |       |   |      |   |        |  
|Capital expenditures                                                                    |  |                         | (219  | ) |      |   | (2,541 | )
|Proceeds from disposal of property and equipment                                        |  |                         | 2     |   |      |   | 6      |  
|                                                                                        |  |                         |       |   |      |   |        |  
|Net cash used in investing activities                                                   |  |                         | (217  | ) |      |   | (2,535 | )
|                                                                                        |  |                         |       |   |      |   |        |  
|Financing activities:                                                                   |  |                         |       |   |      |   |        |  
|Principal payments on capital lease obligations                                         |  |                         | (1    | ) |      |   | (1     | )
|                                                                                        |  |                         |       |   |      |   |        |  
|Net cash used in financing activities                                                   |  |                         | (1    | ) |      |   | (1     | )
|                                                                                        |  |                         |       |   |      |   |        |  
|                                                                                        |  |                        
|Increase (decrease) in cash and cash equivalents                                        |  |                         | 2,801 |   |      |   | (2,025 | )
|Cash and cash equivalents at beginning of year                                          |  |                         | 3,061 |   |      |   | 5,086  |  
|                                                                                        |  |                         |       |   |      |   |        |  
|Cash and cash equivalents at end of year                                                |  | $                       | 5,862 |   |      | $ | 3,061  |  
|                                                                                        |  |                         |       |   |      |   |        |  

See accompanying notes to consolidated financial statements.



11



---

Avalon Holdings Corporation and Subsidiaries





Consolidated Statements of Shareholders Equity

(in thousands)



|                             |  |                                           |  |              |  |         |    |             |   |         |  |         |        |  |       |         |   |  |   |        |  
|---------------------------- |  | ----------------------------------------- |  | ------------ |  | ------- | -- | ----------- | - | ------- |  | ------- | ------ |  | ----- | ------- | - |  | - | ------ | -
|                             |  | For The Two Years Ended December 31, 2009 | 
|                             |  | Shares                                    |  | Common Stock |  | Paid-in |    | Accumulated |   |         |  |        
|                             |  | Class A                                   |  | Class B      |  | Class A |    | Class B     |   | Capital |  | Deficit |        |  | Total |        
|                             |  |                                           |  |              |  |         |   
|Balance at January 1, 2008   |  | 3,191                                     |  | 612          |  | $       | 32 |             | $ | 6       |  | $       | 58,096 |  | $     | (18,698 | ) |  | $ | 39,436 |  
|                             |  |                                           |  |              |  |         |    |             |   |         |  |         |        |  |       |         |   |  |   |        |  
|                             |  |                                           |  |              |  |         |   
|Net income                   |  |                                          |  |             |  |         |   |             |   |        |  |         |       |  |       | 738     |   |  |   | 738    |  
|                             |  |                                           |  |              |  |         |   
|Balance at December 31, 2008 |  | 3,191                                     |  | 612          |  | $       | 32 |             | $ | 6       |  | $       | 58,096 |  | $     | (17,960 | ) |  | $ | 40,174 |  
|                             |  |                                           |  |              |  |         |    |             |   |         |  |         |        |  |       |         |   |  |   |        |  
|                             |  |                                           |  |              |  |         |   
|Net loss                     |  |                                          |  |             |  |         |   |             |   |        |  |         |       |  |       | (774    | ) |  |   | (774   | )
|                             |  |                                           |  |              |  |         |   
|Balance at December 31, 2009 |  | 3,191                                     |  | 612          |  | $       | 32 |             | $ | 6       |  | $       | 58,096 |  | $     | (18,734 | ) |  | $ | 39,400 |  
|                             |  |                                           |  |              |  |         |    |             |   |         |  |         |        |  |       |         |   |  |   |        |  

See accompanying notes to consolidated financial statements.



12



---

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). On June 17, 1998, AWS distributed, as a special
dividend, all of the outstanding shares of capital stock of Avalon to the holders of AWS common stock on a pro rata and corresponding basis. Avalon provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets. Avalon also owns the Avalon Golf and Country Club, which operates golf courses
and related facilities. On November 1, 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and
operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. The Squaw Creek Country Club is part of
the Avalon Golf and Country Club. On October 23, 2006, Avalon completed the acquisition of the Sharon Country Club assets for
approximately $1 million in cash and the assumption of accounts receivable, certain leases and accounts payable. The primary assets of the Sharon Country Club include the golf course and clubhouse. The clubhouse has been renovated and additional
recreational facilities have been constructed. The Sharon Country Club, which is now known as the Avalon Country Club at Sharon, is part of
the Avalon Golf and Country Club. 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 2009 presentation. Principles of consolidation The consolidated financial statements include the accounts of Avalon and its wholly owned subsidiaries.


All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and cash equivalents Cash and cash
equivalents include money market instruments that are stated at cost, which approximate market value. Investments with original maturities of three months or less from date of purchase are considered to be cash equivalents for purposes of the
Consolidated Statements of Cash Flows and Consolidated Balance Sheets. Such investments were not insured by the Federal Deposit Insurance Corporation. The balance of cash and cash equivalents was $5.9 million and $3.1 million at December 31,
2009 and 2008, respectively. Avalon maintains its cash balances in various financial institutions. These balances may, at times, exceed
federal insured limits. Avalon has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk relating to its cash and cash equivalents. Financial instruments The fair value of financial instruments consisting of cash, cash
equivalents, accounts receivable, and accounts payable at December 31, 2009 and 2008 approximates carrying value due to the relative short maturity of these financial instruments. Property and equipment Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful life of the asset which varies from 0 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office
furniture and equipment (See Note 5). Major additions and improvements are charged to the property and equipment accounts while replacements,
maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed currently. The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts in the
year of disposal. Gains or losses resulting from disposals of property and equipment are credited or charged to operations currently. Interest costs, if any, would be capitalized on significant construction projects. Income taxes Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit
carryforwards. Deferred tax




13



---

Avalon Holdings Corporation and Subsidiaries





assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against net deferred tax assets when management believes it is more likely than not that such deferred tax assets will not be realized. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. Revenue recognition Avalon recognizes revenue for waste management services as services
are performed. Revenues for the golf operations are recognized as services are provided with the exception of membership dues which are recognized proportionately over twelve months based upon each members anniversary date. The deferred
revenues relating to membership dues at December 31, 2009 and December 31, 2008 were $1.9 million and $2.0 million, respectively, and are included in the Consolidated Balance Sheets under the caption Other liabilities and accrued
expenses. Accounts Receivable The majority of Avalons accounts receivable are due from industrial and commercial customers. Credit is extended based on an evaluation of a customers financial condition and, generally, collateral is not required. Accounts
receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of
factors, including the length of time trade accounts receivable are past due, Avalons previous accounts receivable loss history, the customers current ability to pay its obligation to Avalon and the condition of the general economy and
the industry as a whole. Avalon writes off accounts receivable when they become uncollectible. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts, or to income, as appropriate under the
circumstances. Leases Avalon applies the accounting rules for leases to categorize leases at their inception as either operating or capital leases depending on certain defined criteria. Leasehold improvements are capitalized at cost and are amortized over the
lesser of their expected useful life or the life of the lease (See Notes 3, 5 and 11).


Asset impairments Avalon reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, Avalon
would determine whether the estimated undiscounted sum of the future cash flows of such assets and their eventual disposition is less than its carrying amount. If less, an impairment loss would be recognized if, and to the extent that the carrying
amount of such assets exceeds their respective fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated
future cash flows. Avalon does not believe there was a triggering event in 2009 or 2008 as the golf operations future cash flows have not changed significantly and asset values have remained relatively stable. Environmental liabilities When Avalon
concludes that it is probable that a liability has been incurred with respect to a site, a provision is made in Avalons financial statements for Avalons best estimate of the liability based on managements judgment and experience,
information available from regulatory agencies, and the number, financial resources and relative degree of responsibility of other potentially responsible parties who are jointly and severally liable for remediation of that site, as well as, the
typical allocation of costs among such parties. If a range of possible outcomes is estimated and no amount within the range appears to be a better estimate than any other, Avalon provides for the minimum amount within the range, in accordance with
generally accepted accounting principles. The liability is recognized on an undiscounted basis. Avalons estimates are revised, as deemed necessary, as additional information becomes known. Although Avalon is not currently aware of any
environmental liability, there can be no assurance that in the future an environmental liability will not occur. Basic net (loss) income
per share For the years ended December 31, 2009 and 2008, basic net income per share has been computed using the weighted average
number of common shares outstanding during each period, which were 3,803,331. There were no common equivalent shares outstanding and therefore, diluted per share amounts are equal to basic per share amounts for all years presented. Subsequent Events Avalon evaluated
subsequent events through the date the financial statements were issued. On March 1, 2010, the Board of Directors appointed Steven M. Berry as President and Chief Executive Officer. In addition, on March 1, 2010, the Board granted 930,000
options under the 2009




14



---

Avalon Holdings Corporation and Subsidiaries





Long-term Incentive Plan to certain officers, directors and employees. Note 3.
Capital Leased Assets On November 1, 2003, Avalon entered into a long-term agreement with Squaw Creek Country Club to lease and
operate its golf course and related facilities. The lease has an initial term of ten (10) years with four (4) consecutive ten (10) year renewal term options unilaterally exercisable by Avalon. Under the lease, Avalon is obligated to
pay $15,000 in annual rent and make leasehold improvements of $150,000 per year. Amounts expended by Avalon for leasehold improvements during a given year in excess of $150,000 will be carried forward and applied to future leasehold improvement
obligations. Avalon has made $7.3 million of leasehold improvements as of December 31, 2009. Based upon the amount of leasehold improvements already made and leasehold improvements anticipated to be made in the future, Avalon expects to
exercise all its renewal options. Note 4. Credit Facility On March 21, 2008, Avalon entered into a $3.5 million unsecured line of credit agreement with The Huntington National Bank. Interest on borrowings accrues at LIBOR plus 1.75%. The agreement was
amended in April 2009 to provide for a minimum interest rate of 3.25%. The line of credit contains certain financial covenants, customary representations, warranties and events of defaults. At December 31, 2009, there were no borrowings under
the line of credit and Avalon was in compliance with all covenants. Note 5. Property and Equipment Property and equipment at December 31, 2009 and 2008 consists of the following (in thousands):  2009


2008Land and land improvements

$
11,759


$
11,740Buildings and improvements


19,742



19,708Machinery and equipment


2,757



2,768Vehicles


165



145Office furniture and equipment


2,896



2,83737,319



37,198Less: accumulated depreciation and amortization


(9,042
)


(7,761
)Property and equipment, net

$
28,277


$
29,437 Leased property under capital leases at December 31, 2009 and 2008 consists of the following (in thousands):  2009


2008Leased property under capital leases

$
7,348


$
7,266Less: accumulated amortization


(1,774
)


(1,384
)Leased property under capital leases, net

$
5,574


$
5,882


Note 6. Income Taxes Income (loss) before taxes for each of the two years in the period ended December 31, 2009 was subject to taxation under United States jurisdictions only. The provision for income taxes consists of the following (in thousands):  2009


2008Current:Federal

$
(14
)

$
State


21



407



40Deferred:Federal


23



State


(6
)


(4
)17



(4
)$
24


$
36 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at
December 31, 2009 and 2008 are as follows (in thousands):  2009


2008Deferred tax assets:Accounts receivable, allowance for doubtful accounts

$
61


$
130Reserves not deductible until paid


6



201Net operating loss carryforwardsFederal


2,188



1,781State


262



591Capital loss carryforward






2,851Federal Tax Credit


107



Other






63Gross deferred tax assets


2,624



5,617Less valuation allowance


(656
)


(3,958
)Deferred tax assets net of valuation allowance

$
1,968


$
1,659Deferred tax liabilities:Property and equipment

$
(1,960
)

$
(1,634
)Other






Gross deferred tax liabilities

$
(1,960
)

$
(1,634
)Net deferred tax asset

$
8


$
25 The $1,960,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as
the temporary differences giving rise to the $1,968,000 of deferred tax assets. Avalon has not provided a valuation allowance on the amount of deferred tax assets that it estimates will be utilized as a result of these reviews. The net deferred tax
asset of $8,000 as of December 31, 2009 is likely to be utilized upon the filing of certain state tax returns. If future taxable income is less than the amount that has been assumed in assessing the recoverability of the deferred tax assets,
then an increase in the valuation allowance will be required, with a corresponding increase to income tax expense. Likewise, should Avalon ascertain in the future that it is more likely than not that deferred tax assets will be realized in excess of
the net deferred tax assets, all or a portion of the $656,000 valuation allowance as of December 31, 2009, of which $490,000 relates to a net operating loss carry-forward, would be reversed as a




15



---

Avalon Holdings Corporation and Subsidiaries





benefit to the provision for income taxes in the period such determination was made. In 2009, the capital loss carryforward of $2,851,000 expired. As such, the valuation allowance relating to
this capital loss carryforward was reversed. The provision for income taxes differs from the amount of income tax determined by applying the
applicable U.S. statutory federal income tax rate to income from continuing operations before income taxes as a result of the following differences (in thousands):  2009


2008Income before income taxes

$
(750
)

$
774Federal statutory tax rate


35
%


35
%(263
)


271State income taxes, net of federal income tax benefits


43



24Change in valuation allowance


(3,302
)


(18
)Expired capital loss carryforward


2,934



Increase in available federal tax credit


(87
)


(20
)Other deferred asset adjustments


374



Other nondeductible expenses


49



37Increase in net operating loss carryforward: state


329



(84
)federal


(5
)


(165
)Other, net


(48
)


(9
)$
24


$
36 Avalon adopted the FASB guidance regarding Accounting for Uncertainty in Income Taxes on January 1, 2007. The
adoption had no material impact on Avalons financial position or results of operations and, as such, no adjustments were recorded for prior year tax positions, settlements or as a result of a lapse in the statue of limitations. Avalon is subject to income taxes in the U.S. federal and various states jurisdictions. With few exceptions, Avalon is no longer subject to U.S. federal,
state and local income tax examinations by taxing authorities for the years before 2005. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively. There were no
accruals for the payment of interest and penalties for 2009 and 2008. Avalon made net income tax payments of $48,000 and $66,000 in 2009 and
2008, respectively. At December 31, 2009, Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately
$6,436,000 which are available to offset future federal taxable income. These carryforwards expire in 2021 through 2029. In addition, at December 31, 2009, certain subsidiaries of Avalon have net operating loss carryforwards for state purposes
which are available to offset future state taxable income. These carryforwards expire at various dates through 2030. A valuation allowance has been provided because it is more likely than not that the deferred tax assets relating to


certain of the federal and state loss carryforwards will not be realized. Note 7.
Retirement Benefits Avalon sponsors a defined contribution profit sharing plan that is a qualified tax deferred benefit plan under
Section 401(k) of the Internal Revenue Code (the Plan). Substantially all employees are eligible to participate in the Plan. The Plan provides for employer discretionary cash contributions as determined by Avalons Board of
Directors. Discretionary contributions vest on a graduated basis and become 100% vested after five years of service. Plan participants may also contribute a portion of their annual compensation to the Plan, subject to maximums imposed by the
Internal Revenue Code and related regulations. In August 2009, the Board of Directors of Avalon decided to eliminate the employer discretionary contribution for the years 2009 and 2008. As a result, the discretionary contribution of $126,000 costs
charged to operations in 2008 and not paid was reversed in 2009. Note 8. Stock Option Plan On August 12, 2009, the Board of Directors of Avalon approved the renewal of the expired 1998 Long-term Incentive Plan which provides for the granting
of options which are intended to be non-qualified stock options (NQSOs) for federal income tax purposes except for those options designated as incentive stock options (ISOs) which qualify under Section 422 of
the Internal Revenue Code. The name of the plan was changed to the 2009 Long-term Incentive Plan (the Option Plan) to reflect the year of approval. On October 6, 2009, at a Special Meeting of Shareholders, the shareholders approved
the Option Plan. Avalon has reserved 1,300,000 shares of Class A Common Stock for issuance to employees and non-employee directors. NQSOs may be granted with an exercise price which is not less than 100% of the fair market value of the
Class A Common Stock on the date of grant. Options designated as ISOs shall not be less than 110% of fair market value for employees who are ten percent shareholders and not less than 100% of fair market value for other employees. The
Board of Directors may, from time to time in its discretion, grant options to one or more outside directors, subject to such terms and conditions as the Board of Directors may determine, provided that such terms and conditions are not inconsistent
with other applicable provisions of the Option Plan. Options shall have a term of no longer than ten years from the date of grant; except that for an option designated as an ISO which is granted to a ten percent shareholder, the option shall have a
term no longer than five years. No option shall be exercisable prior to one year after its grant, unless otherwise provided by the Option
Committee of the Board of Directors (but in no event before 6 months after its grant), and thereafter options shall become exercisable in installments, if any, as provided by the Option Committee. Options must be exercised for full




16



---

Avalon Holdings Corporation and Subsidiaries





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. At December 31, 2009 no options have been granted under the 2009 Long-term Incentive Plan. Note 9. Shareholders
Equity Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on
all matters submitted to a vote of the shareholders. Except for the election of Avalons Board of Directors, the Class A Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote to the
shareholders. However, with regard to the election of directors, for as long as the outstanding Class B Common Stock has more than 50% of the total outstanding voting power of all common stock, the holders of the Class A Common Stock, voting as
a separate class, will elect the number of directors equal to at least 25% of the total Board of Directors and the holders of the Class B Common Stock, voting as a separate class, will elect the remaining directors. Thereafter, the holders of the
Class A Common Stock (one vote per share) and Class B Common Stock (ten votes per share) will vote together as a single class for the election of directors. The holders of a majority of all outstanding shares of Class A Common Stock or
Class B Common Stock, voting as separate classes, must also approve amendments to the Articles of Incorporation that adversely affect the shares of their class. Shares of Class A Common Stock and Class B Common Stock do not have cumulative
voting rights. Each share of Class B Common Stock is convertible, at any time, at the option of the shareholder, into one share of
Class A Common Stock. Shares of Class B Common Stock are also automatically converted into shares of Class A Common Stock on the transfer of such shares to any person other than Avalon, another holder of Class B Common Stock or a Permitted
Transferee, as defined in Avalons Articles of Incorporation. The Class A Common Stock is not convertible. Note 10. Legal
Matters In the ordinary course of conducting its business, Avalon becomes involved in lawsuits, administrative proceedings and
governmental investigations, including those related to environmental matters. Some of these proceedings may result in fines, penalties or judgments being assessed against Avalon which, from time to time, may have an impact on its business and
financial condition. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, Avalon does not believe that any uninsured ultimate liabilities, fines or penalties resulting from such pending proceedings,
individually or in the aggregate, would have a material adverse effect on its liquidity, financial position or results of operations.


Note 11. Lease Commitments Future commitments under long-term, operating leases and capital leases at December 31, 2009 are as follows (in thousands):  Capital

Operating

Total2010

$
15

$
343

$
3582011


15


310


3252012


15


309


3242013


15


241


2562014


15





15After 2014


570





570Total minimum lease payments


645

$
1,203

$
1,848Less: Amounts representing interest


415Present value of minimum payments230Less: Current portion of obligations under capital leases


1Long-term portion of obligations under capital leases

$
229 Rental expense included in the Consolidated Statements of Operations amounted to $418,000 in 2009 and $531,000 in
2008.




17



---

Avalon Holdings Corporation and Subsidiaries





Note 12. Business Segment Information Avalons reportable segments include waste management services and golf and related operations. In determining the segment information, Avalon considered its operating and management structure and
the types of information subject to regular review by its chief operating decision maker. On this basis, Avalons reportable segments include waste management services and golf and related operations. Avalon accounts for
intersegment net operating revenues as if the transactions were to third parties. The segment disclosures are presented on this basis for all years presented. Avalons primary business segment, the waste management services segment, provides hazardous and nonhazardous brokerage and management services to industrial, commercial, municipal and governmental
customers and manages a captive landfill for an industrial customer. The golf and related operations segment includes the operations of golf courses and related facilities and a travel agency. Revenue for the golf and related operations segment
consists primarily of membership dues, greens fees, cart rentals, merchandise, and food and beverage sales. Avalon does not have significant operations located outside the United States and, accordingly, geographical segment information is not
presented. In 2009 and 2008, no customer individually accounted for 10% or more of Avalons consolidated net operating revenues. The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of
significant accounting policies (see Note 2). Avalon measures segment profit for internal reporting purposes as income (loss) before taxes.


Business segment information including the reconciliation of segment income to consolidated income (loss)
before taxes is as follows (in thousands):  2009


2008Net operating revenues from:Waste management services:External customers revenues

$
27,531


$
39,381Intersegment revenues






Total waste management services


27,531



39,381Golf and related operations:External customer revenues


9,389



9,597Intersegment revenues


39



48Total golf and related operations


9,428



9,645Segment operating revenues


36,959



49,026Intersegment eliminations


(39
)


(48
)Total net operating revenues

$
36,920


$
48,978Income (loss) before taxes:Waste management services

$
2,246


$
3,648Golf and related operations


(757
)


(391
)Segment income before taxes


1,489



3,257Corporate interest income


32



12Corporate other income, net


13



13General corporate expenses


(2,284
)


(2,508
)Income before taxes

$
(750
)

$
774Depreciation and amortization:Waste management services

$
25


$
25Golf and related operations


1,535



1,387Corporate


128



134Total

$
1,688


$
1,546Interest income:Waste management services

$
1


$
34Golf and related operations






3Corporate


32



12Total

$
33


$
49Capital expenditures:Waste management services

$
6


$
18Golf and related operations


182



2,477Corporate


31



46Total

$
219


$
2,541Identifiable assets at December 31:Waste management services

$
10,300


$
13,823Golf and related operations


31,443



32,841Corporate


40,160



35,444Sub Total


81,903



82,108Elimination of intersegment receivables


(34,146
)


(33,395
)Total

$
47,757


$
48,713 The decrease of $3.5 million in identifiable assets of the waste management services segment is primarily the result of a
decrease in accounts receivable and a decrease in intersegment transactions which are eliminated in consolidation. The increase of $4.7 million in identifiable assets of corporate is primarily due to an increase in cash and an increase in
intersegment transactions which are eliminated in consolidation. The decrease of $1.4 million in identifiable assets of the golf and related operations segment is primarily due to the depreciation of property and equipment.




18



---

Avalon Holdings Corporation and Subsidiaries





Note 13. Recently Issued Financial Accounting Standards On July 1, 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (the Codification). The Codification
became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA)), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the
previous US GAAP hierarchy and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. The Statement is effective for financial statements issued for interim and annual periods ending after
September 15, 2009. Avalon adopted the Codification for the quarter ending September 30, 2009. There was no impact on the consolidated financial results as this change is disclosure-only in nature. In May 2009, the FASB issued guidelines on subsequent event accounting which sets forth: 1) the period after the balance sheet date during which management
of a reporting entity should evaluate events or transactions that may occur for potential recognition of disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after
June 15, 2009. Avalon adopted this Statement in the quarter ended June 30, 2009. This Statement did not impact the consolidated financial results.






19



---

Avalon Holdings Corporation and Subsidiaries







Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors of
Avalon Holdings Corporation

We have audited the accompanying consolidated balance sheets of Avalon Holdings Corporation and subsidiaries
as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Avalon Holdings Corporation and subsidiaries as of December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.

Grant Thornton LLP

/s/ Grant Thornton LLP

Cleveland, Ohio

March 18, 2010



20



---

Avalon Holdings Corporation and Subsidiaries





Managements Annual Report on Internal Control Over Financial Reporting

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

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

With our participation, an evaluation of the effectiveness of our internal control over
financial reporting was conducted as of December 31, 2009, based upon the framework and criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of
December 31, 2009.

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



|                                                           |  |                         |  |                      
|---------------------------------------------------------- |  | ----------------------- |  | ---------------------
|/s/ Ronald E. Klingle                                      |  |                         |  | /s/ Timothy C. Coxson
|Chief Executive Officer  For year ended December 31, 2009 |  | Chief Financial Officer
|                                                           |  |                        
|March 18, 2010                                             |  |                         |  |                      



21



---

Avalon Holdings Corporation and Subsidiaries





Company Location Directory



|                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Corporate Office  Avalon Holdings Corporation One American Way Warren, Ohio 44484-5555 (330)
856-8800  Waste Management Services  American Waste Management Services, Inc. One American Way Warren, Ohio 44484-5555
(330) 856-8800  American Landfill Management, Inc. One American Way Warren, Ohio 44484-5555 (330) 856-8800
 American Construction Supply, Inc. One American Way Warren, Ohio 44484-5555
(330) 856-8800 |  | Golf and Related Operations  Avalon Golf and Country Club One American
Way Warren, Ohio 44484-5555 (330)
856-8898  Avalon Lakes Golf Course One American Way Warren, Ohio 44484-5555
(330) 856-8898  Squaw Creek Golf Course 761 Youngstown-Kingsville Road Vienna, Ohio 44473 (330) 539-5103  Avalon Country Club at Sharon, Inc. 1030 Forker Blvd. Hermitage, PA
16148-1566 (724) 981-6700  Avalon Travel, Inc. One American
Way Warren, Ohio 44484-5555 (330)
856-8400
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                          



22



---

Avalon Holdings Corporation and Subsidiaries





Directors and Officers



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



23



---

Avalon Holdings Corporation and Subsidiaries





Shareholder Information Common stock information Avalons Class A Common Stock is listed on the NYSE Amex (symbol: AWX). Quarterly stock information for 2009 and 2008 as reported by The Wall
Street Journal is as follows:  2009:Quarter Ended

High

Low

CloseMarch 31

$
1.82

$
1.23

$
1.60June 30


2.85


1.32


2.63September 30


2.80


2.27


2.80December 31


3.08


2.08


2.10  2008:Quarter Ended

High

Low

CloseMarch 31

$
6.24

$
4.23

$
5.97June 30


6.18


4.01


4.33September 30


4.50


3.25


3.25December 31


3.30


.92


1.48 No dividends were paid during 2009. There are 467 Class A and 10 Class B Common Stock shareholders of record as of the close of business March 4, 2010. The number of
holders is based upon the actual holders registered on the records of Avalons transfer agent and registrar and does not include holders of shares in street names or persons, partnerships, associations, corporations or other
entities identified in security position listings maintained by depository trust companies. Dividend policy Avalon presently intends to retain earnings for use in the operation and expansion of its business and therefore, does not anticipate paying
any cash dividends in the foreseeable future.


Annual report on Form 10-K Copies of Avalons annual report on Form 10-K can be obtained free of charge by writing to Avalon Holdings Corporation, One American Way, Warren, Ohio 44484-5555, Attention: Shareholder Relations or
by visiting Avalons web-site at www.avalonholdings.com. Transfer agent and registrar The transfer agent and registrar for Avalon is American Stock Transfer and Trust Company. All correspondence concerning stock transfers should be directed to
them at 59 Maiden Lane, New York, New York 10038. Investor inquiries Security analysts, institutional investors, shareholders, news media representatives and others seeking financial information or general information about Avalon are invited to direct their inquiries to
Timothy C. Coxson, Treasurer and Chief Financial Officer, telephone (330) 856-8800.   Policy statement on equal employment opportunity
and affirmative action Avalon is firmly committed to a policy of equal employment opportunity and affirmative action. Toward this end,
Avalon will continue to recruit, hire, train and promote persons in all job titles, without regard to race, color, religion, sex, national origin, age, handicap, ancestry or Vietnam-era or disabled veteran status. We will base all decisions on merit
so as to further the principle of equal employment opportunity. This policy extends to promotions and to all actions regarding employment including compensation, benefits, transfers, layoffs, returns from layoff, company-sponsored training and
social programs.




24