EX-13.1 2 ex13-1.htm EXHIBIT 13.1

Exhibit 13.1

Financial Highlights

(in thousands, except for per share amounts)

For the year |  | 2014 |  |  | 2013 |
Net operating revenues |  | $ | 51,472 |  |  | $ | 59,470 |
Income (loss) before income taxes |  |  | (1,185 | ) |  |  | 535 |
Net income (loss) of Avalon Holdings Corporation common shareholders |  |  | (1,080 | ) |  |  | 438 |
Net income (loss) per share attributable to Avalon Holdings Corporation common shareholders |  |  | (0.28 | ) |  |  | 0.12 |

At year-end |  | 2014 |  |  | 2013 |
Working capital |  | $ | 4,002 |  |  | $ | 9,537 |
Total assets |  |  | 57,844 |  |  |  | 55,579 |
Avalon Holdings Corporation Shareholders' Equity |  |  | 39,437 |  |  |  | 40,420 |

The Company

Avalon Holdings Corporation provides waste management services to industrial, commercial, municipal and governmental customers in selected northeastern and midwestern U.S. markets, captive landfill management services and salt water injection well operations. Avalon Holdings Corporation also owns the Avalon Golf and Country Club, which includes the operation of golf courses, country clubs and related facilities and The Avalon Resort and Spa which operates a hotel and tennis facility.

1

Contents
Financial Highlights | 1
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3
Consolidated Balance Sheets | 13
Consolidated Statements of Operations | 14
Consolidated Statements of Cash Flows | 15
Consolidated Statements of Shareholders’ Equity | 16
Notes to Consolidated Financial Statements | 17
Report of Independent Registered Public Accounting Firm | 30
Management’s Annual Report on Internal Controls over Financial Reporting | 31
Company Location Directory | 32
Directors and Officers | 33
Shareholder Information | 34

2

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” or the “Company”). 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 ended December 31, 2014, Avalon utilized existing cash, cash provided by operations and borrowings under the line of credit facility to meet operating needs, fund capital expenditures and to fund the acquisition and associated renovations of The Avalon Resort and Spa described below. In addition, during 2014, Avalon received $0.7 million through the private placement offering, described below, to finalize the drilling and construction of the salt water injection wells and related facilities.

In October 2013, AWMS Holdings, LLC, which was formed to act as a holding company to own a series of wholly owned subsidiaries to own and operate salt water injection wells and related facilities, began accepting subscriptions, through a private placement offering to accredited investors, for the purchase of membership units in AWMS Holdings, LLC. As of December 31, 2014, AWMS Holdings, LLC had received $3.75 million from the sale of membership units to accredited investors. The monies raised through the private placement offering plus cash contributed by Avalon were used to construct the facilities necessary for the operation of two salt water injection wells. As a result of the private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC; however, due to the managerial control of Avalon, the financial statements of AWMS Holdings, LLC and subsidiaries are included in the Avalon consolidated financial statements. At December 31, 2014, Avalon owned approximately 47% of AWMS Holdings, LLC. During the year ended December 31, 2014, AWMS Holdings, LLC incurred $3.1 million in capital expenditures relating to the drilling and construction of the two salt water injection wells and related facilities. The wells commenced operations by accepting brine water for disposal in April 2014.

In August 2014, Avalon, through a newly created subsidiary, The Avalon Resort and Spa LLC, completed the acquisition of The Magnuson Grand Hotel (formerly The Avalon Inn) in Howland, Ohio for approximately $3.1 million in cash and the assumption of certain operating leases and some rental payment relief. The acquisition was primarily funded from borrowings under our line of credit facility of $2.9 million and cash on hand of approximately $0.2 million. Subsequent to the acquisition, The Magnuson Grand Hotel was renamed The Avalon Resort and Spa. The primary assets include the 144 room hotel, indoor swimming pool and adjoining tennis center. The Avalon Resort and Spa is located adjacent to Avalon’s corporate headquarters and the Avalon Lakes Golf Course.

The Avalon Resort and Spa is currently in operation and is being renovated. The renovations include a complete renovation of the existing facility and indoor junior Olympic sized swimming pool. The Avalon Resort and Spa will also be expanded to include a 12,000 square foot addition which will provide for new restaurants, bars, a full service spa and salon, extensive conference facilities, complete fitness center and a resort style pool.

3

Avalon Holdings Corporation and Subsidiaries

The acquisition is consistent with the Company's business strategy in that The Avalon Resort and Spa will provide guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allow its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club will also have access to all of the amenities offered by The Avalon Resort and Spa. The Avalon Resort and Spa earns revenues through room rentals and from tennis activities. Upon completion of the expansion and renovation, other revenue-generating resort amenities will include restaurants, bars, a full service spa and salon and extensive banquet and conference facilities. The operating results of The Avalon Resort and Spa have been included within the Company’s Consolidated Statement of Operations and within Avalon's golf and related operations segment since the date of acquisition.

The Company accounted for the acquisition of The Avalon Resort and Spa using the acquisition method of accounting, which requires among other things, the recognition of the assets acquired and the liabilities assumed at their respective fair values as of the acquisition date. As of December 31, 2014, the entire purchase price allocation is preliminary. The Company has received a preliminary third-party valuation of the acquired property, buildings, furniture and fixtures and any intangible assets of The Avalon Resort and Spa and, therefore, the values attributed to those acquired assets in the consolidated financial statements are subject to adjustment. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional adjustments will be recorded during the measurement period.

In 2014 Avalon incurred capital expenditures of $7.7 million and paid vendors $6.8 million for such expenditures. Such expenditures related principally to the renovation of The Avalon Resort and Spa, drilling of two salt water injection wells and the construction of related facilities, building improvements and equipment for the golf and related operations segment. Avalon’s aggregate capital expenditures in 2015 are expected to be in the range of $6 million to $10 million, which will principally relate to the renovation and expansion of The Avalon Resort and Spa, building improvements and equipment purchases.

In November 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. Based upon the amount of leasehold improvements already made, Avalon expects to exercise all of its renewal options.

Working capital was $4.0 million at December 31, 2014 compared with $9.5 million at December 31, 2013. The decrease in working capital is primarily due to a decrease in cash and cash equivalents and accounts receivable partially offset by a decrease in accounts payable described below. Cash and cash equivalents decreased primarily as a result of the utilization of funds associated with the renovation of The Avalon Resort and Spa and the drilling and construction of the two salt water injection wells and related facilities.

Accounts receivable decreased to $8.8 million at December 31, 2014 compared with $10.2 million at December 31, 2013 primarily as the result of a reduction in the number of days outstanding of receivables from some of the larger customers of the waste brokerage and management services business partially offset by an increase in net operating revenues of the waste management segment in the fourth quarter of 2014 compared to the same period in the prior year.

Accounts payable decreased to $6.4 million at December 31, 2014 compared with $8.1 million at December 31, 2013 primarily as the result of a decrease in amounts due to disposal facilities and transportation carriers of the waste brokerage and management services as a result of timing of payments to vendors in the ordinary course of business and payments made to vendors during 2014 for the construction and drilling of the two salt water injection well facilities accrued at December 31, 2013. The decrease in accounts payable was partially offset by an increase in amounts owed to vendors for the renovation of The Avalon Resort and Spa.

During July 2014, Avalon increased its unsecured line of credit agreement with The Huntington National Bank from $1 million to $5 million. Interest on borrowings accrues at LIBOR plus 2.70% and has a .25% nonuse fee. In March 2015 the maturity date on the line of credit agreement was extended to April 30, 2016. The line of credit agreement contains certain financial and other covenants, customary representations, warranties and events of defaults. Avalon was in compliance with the debt covenants at December 31, 2014. At December 31, 2014, the outstanding borrowings under the line of credit agreement were approximately $3.8 million. Amounts borrowed under the line of credit agreement were utilized to fund the acquisition of The Avalon Resort and Spa and related renovations. As of December 31, 2014, the Company had $1.2 million available under the line of credit agreement. At December 31, 2013, there were no borrowings under the line of credit agreement. The weighted average interest rate on outstanding borrowings under the line of credit agreement was 2.86% during 2014. At December 31, 2014, the interest rate was 2.85%.

4

Avalon Holdings Corporation and Subsidiaries

Management believes that anticipated cash provided from future operations, will be, for the foreseeable future, sufficient to meet operating requirements. If business conditions warrant additional monies needed to fund capital expenditure programs, Avalon will take actions such as refinancing or restructuring our current debt agreement, incurring additional indebtedness, issuance of common stock or issuance of a security with characteristics of both debt and equity.

Growth Strategy

Waste Management Segment

Our growth strategy for the waste management services segment focuses on increasing revenue, gaining market share and enhancing shareholder value through internal growth. Although we are a waste management services company, we do not own any landfills or provide waste collection services. However, because of our many relationships with various disposal facilities and transporters, we are able to be more flexible and provide alternative solutions to a customer’s waste disposal or recycling needs. In addition, Avalon has purchased options on a number of properties for the purpose of drilling salt water injections wells for the disposal of the brine waters from oil and gas drilling. As previously mentioned Avalon has commenced the operation of salt water injection wells on one of these properties. It is the intent of Avalon to acquire or construct additional salt water injection wells, if business conditions warrant such opportunities. We intend to capitalize on our management and sales staff which has extensive experience in all aspects of the waste business. As such, we intend to manage our internal growth as follows:

• Sales and Marketing Activities. We will focus on retaining existing customers and obtaining new business through our well-managed sales and marketing activities. We seek to manage our sales and marketing activities to enable us to capitalize on our position in many of the markets in which we operate. We provide a tailored program to all of our customers in response to their particular needs. We accomplish this by centralizing services to effectively manage their needs, such as minimizing their procurement costs. We also intend to utilize our sales and marketing capabilities to secure customers for the salt water injection well business who will utilize our wells to dispose of brine water from oil and gas drilling.

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. We intend to hire additional qualified professional sales personnel to expand into different geographical areas.

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

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

5

Avalon Holdings Corporation and Subsidiaries

Golf and Related Operations Segment

For the golf and related operations segment, as previously mentioned, in August 2014, the Company acquired The Avalon Resort and Spa. The acquisition is consistent with the Company's business strategy in that The Avalon Resort and Spa will provide guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allow its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club will also have access to all of the amenities offered by The Avalon Resort and Spa. The Avalon Resort and Spa earns revenues through room rentals and from tennis activities. Upon completion of the expansion and renovation, other revenue-generating resort amenities including restaurants, bars, a full service spa and salon, tennis courts and extensive banquet and conference facilities. Our resort is open year-round and provides a consistent, comfortable environment where our guests can enjoy our various amenities and activities.

In addition, several private country clubs in the northeast Ohio area are experiencing economic difficulties. Avalon believes some of these clubs may represent an attractive investment opportunity. While Avalon has not entered into any pending agreements for acquisitions, it may do so at any time and will continue to consider acquisitions that make economic sense.

Results of Operations

Avalon’s primary business segment, the waste management services segment, provides hazardous and nonhazardous waste brokerage and management services, captive landfill management services and salt water injection well operations. The golf and related operations segment includes the operation of golf courses, country clubs and related facilities, a hotel and a travel agency.

Performance in 2014 compared with 2013

Overall Performance

Net operating revenues decreased 13% to $51.5 million in 2014 compared with $59.5 million in 2013. The decrease is primarily the result of a decrease in net operating revenues of the waste management services segment. Costs of operations decreased to $42.7 million in 2014 compared with $49.6 million in 2013. Such decrease is primarily due to the lower net operating revenues of the waste management services segment, which resulted in less transportation and disposal costs, as these costs vary directly with the associated net operating revenues. Fixed costs relating to depreciation and amortization expense were $2.2 million in 2014 and $1.6 million in 2013. The increase is primarily the result of depreciation expense associated with the salt water injection wells which commenced operations by accepting brine water for disposal in April 2014. Consolidated selling, general and administrative expenses were $8.0 million in both 2014 and 2013. Avalon recorded a net loss of $1.1 million, or $.28 per share in 2014 compared with net income of $0.4 million or $.12 per share in 2013.

Segment Performance

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

Net operating revenues of the waste management services segment decreased approximately 18% to $38.6 million in 2014 compared with $47.2 million in 2013. The waste management services segment includes waste disposal brokerage and management services, captive landfill management operations and salt water injection well operations. The net operating revenues of the waste brokerage and management services business decreased to $35.7 million in 2014 from $44.9 million in 2013. This decrease was primarily due to a 30% decrease in net operating revenues associated with event work and a 56% decrease in the net operating revenues relating to managerial, consulting and clerical services that are provided for a single customer. Such services are entirely dependent on that customer’s needs and declined by $4.2 million in 2014. 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 net operating revenues from event work declined by $5.2 million in 2014 due to four large event work projects that accounted for approximately $5.0 million in net operating revenues in 2013. The net operating revenues of the captive landfill management operations decreased slightly to $2.2 million in 2014 from $2.3 million in 2013 primarily due to a decrease in the volume of waste required to be disposed of, partially offset by construction mat sales. The net operating revenues of the captive landfill operations are almost entirely dependent upon the volume of waste generated by the owner of the landfill for whom Avalon manages the facility. The net operating revenues of the salt water injection wells, which began operating in the second quarter of 2014, were $0.7 million.

6

Avalon Holdings Corporation and Subsidiaries

As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells were located in close proximity to the area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division could further evaluate the wells.

On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well. The Division reviewed all the information submitted by Avalon and additional data. Based upon this review, the Division concluded that with reasonable scientific certainty, the injection operations of AWMS #1 were not related to the deep seismic event that occurred on August 31, 2014. As a result, the Order suspending all operations of AWMS #1 was terminated effective September 18, 2014. As such, Avalon resumed injection operations of AWMS #1 consistent with all terms and conditions of the permit issued on July 18, 2013. On September 19, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #2 injection well.

On October 3, 2014, Avalon filed an appeal to the Orders of the Chief disputing the basis for suspending operations and also the authority of the Chief to immediately suspend such operations. Currently, the operations of Avalon’s second injection well are still suspended. As a result the net operating revenues and results of the saltwater injection wells have been adversely affected. Avalon is currently seeking relief in the form of an order from the Commission that vacates the Orders. An appeal hearing is tentatively scheduled to occur in March of 2015.

Income before income taxes for the waste management services segment decreased to $2.9 million in 2014 compared with $3.8 million in the prior year. The decrease is primarily due to decreased net operating revenues of the waste brokerage and management services business partially offset by improved gross margins. Income before income taxes of the waste brokerage and management services business was approximately $2.9 million in 2014 compared with $3.4 million in 2013 primarily as a result of the aforementioned items. The overall average gross margins of the waste brokerage and management services business increased to approximately 20% in 2014 compared with 17% in the prior year. The improvement is primarily the result of less net operating revenues from managerial, consulting and clerical services, which have a lower gross margin than our traditional waste brokerage and management services’ margins. Income before income taxes of the captive landfill operations was $0.4 million in both 2014 and 2013. During 2014, the salt water injection wells, which began operating in the second quarter, incurred a loss before income taxes of $0.4 million due to the limited amount water accepted for disposal as a result of a seismic event described above.

Net operating revenues of the golf and related operations segment were $13.0 million in 2014 compared with $12.3 million in 2013. Due to adverse weather conditions, net operating revenues relating to the golf courses, which are located in northeast Ohio and western Pennsylvania, were minimal during the first three months of 2014 and 2013. Net operating revenues increased primarily as a result of the inclusion of $0.6 million of net operating revenues of the hotel operations. In addition, net operating revenues from membership dues and food and beverage sales increased but such increase was partially offset by a decrease in the net operating revenues from greens fees, cart rentals and merchandise sales. The average number of members during 2014 was 3,749 compared with 3,613 in the prior year. Although the net operating revenues from membership dues increased in 2014 compared with 2013, the average net operating revenues per member from membership dues decreased slightly due to a change in the mix between social and golf members and from promotional membership programs.

7

Avalon Holdings Corporation and Subsidiaries

The golf and related operations segment incurred a loss before income taxes of $1.2 million in 2014 compared with a loss before taxes of $0.3 million in 2013. The increased loss was primarily due to significantly higher employee costs, higher food costs as a percentage of food revenue, substantially higher utility costs as a result of the inclement weather and higher costs for operating supplies. In addition, The Avalon Resort and Spa recorded a loss before income taxes of approximately $0.1 million in 2014. The ability to attract new members 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/or various membership promotions. A significant decline in members could adversely impact the financial results of the golf and related operations segment.

General Corporate Expenses

General corporate expenses were $2.9 million in 2014 compared with $3.0 million in 2013. The decrease is primarily due to the accumulated net decrease in various corporate administrative expenses.

Net Income (loss)

Avalon recorded a net loss of $1.1 million in 2014 compared with net income of $0.4 million in 2013. Excluding the effect of state income tax provisions and some minor tax credits, Avalon’s overall effective tax rate was 0% for both 2014 and 2013. The overall effective tax rate is different than statutory rates primarily due to a change in the valuation allowance. As such, Avalon’s income tax benefit in 2014 and income tax provision in 2013 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 liquidity, financial position or results of operations.

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

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

A significant portion of Avalon’s business is generated from waste brokerage and management services provided to customers that are 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.

8

Avalon Holdings Corporation and Subsidiaries

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.

The saltwater disposal business is a startup business for Avalon. Avalon has no history of operating saltwater disposal wells, although Avalon has successfully operated waste disposal facilities and waste brokering businesses for over 20 years. To be successful, Avalon must, among other things, acquire and/or develop and construct disposal wells; attract and maintain customers; provide disposal services at attractive prices; and respond to competitive developments. The failure to do so could have a material adverse effect on the business and financial results of Avalon.

The recent increase in the use of hydrofracturing in both Pennsylvania and Ohio has substantially increased the need for saltwater disposal wells and it is likely that the number of saltwater disposal wells being permitted and constructed will increase. As such, the price charged to customers to dispose of the saltwater brine may fluctuate with the increase in competition. In addition, alternative methods for the disposal of saltwater brine may be developed. Both a price decline and/or alternative methods for the disposal of saltwater brine could adversely impact the financial results of Avalon.

Saltwater disposal wells are regulated by the Ohio Department of Natural Resources (“ODNR”), with portions of the disposal facilities regulated by the Ohio EPA. As exploitation of the Marcellus and Utica shale formations by the hydrofracturing process develops, regulatory and public awareness of the environmental risks of saltwater brine and its disposal in saltwater disposal wells is growing and consequently, it is expected that regulation governing the construction and operation of saltwater disposal wells will increase in scope and complexity. Increased regulation may result in increased construction and/or operating costs, which could adversely affect the financial results of Avalon.

There is a continuing risk during the saltwater disposal well’s operation of an environmental event causing contamination to the water tables in the surrounding area, or seismic events. The occurrence of a spill or contamination at a disposal well site could result in remedial expenses and/or result in the operations at the well site being suspended and/or terminated by the Ohio EPA or the ODNR. Incurring remedial expenses and /or a suspension or termination of Avalon’s right to operate one or more saltwater disposal wells at the well site could have an adverse effect on Avalon’s financial results.

As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells are located in close proximity to the area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division could further evaluate the wells.

On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well. The Division reviewed all the information submitted by Avalon and additional data. Based upon this review, the Division concluded that with reasonable scientific certainty, the injection operations of AWMS #1 were not related to the deep seismic event that occurred on August 31, 2014. As a result, the Order suspending all operations of AWMS #1 was terminated effective September 18, 2014. As such, Avalon resumed injection operations of AWMS #1 consistent with all terms and conditions of the permit issued on July 18, 2013.

On September 19, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #2 injection well. On October 3, 2014, Avalon filed an appeal to the Orders of the Chief disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. Currently, the operations of Avalon’s second injection well are still suspended. Avalon is seeking relief in the form of an order from the Commission that vacates the Orders. An appeal hearing is tentatively scheduled to occur in March of 2015.

9

Avalon Holdings Corporation and Subsidiaries

If Avalon is unable to obtain a favorable decision and resume operations of AWMS #2, the Company will assess the recoverability of the carrying value of the wells and recognize an impairment loss to the extent the carrying value exceeds the fair value.

Economic challenges throughout the industries served by Avalon may result 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 operates golf courses and related clubhouses at each of its three facilities. The Avalon Golf and Country Club facilities also offer swimming pools, fitness centers, tennis courts, dining and banquet facilities and spa services. In addition, The Avalon Resort and Spa will provide guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allow its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club will also have access to all of the amenities offered by The Avalon Resort and Spa. The Avalon Golf and Country Club competes with many public courses and country clubs in the area. Although the golf courses continue to be available 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 its three facilities and the addition of The Avalon Resort and Spa will result in additional memberships in the Avalon Golf and Country Club. The ability to retain current members and attract new members has been an ongoing challenge. Although Avalon was able to increase the number of members of the Avalon Golf and Country Club, as of December 31, 2014, 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 golf course operations and The Avalon Resort and Spa currently hold liquor licenses for their respective facilities. If, for some reason, any one of these facilities were to lose their 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 accounting principles generally accepted in the United States requires management to make judgments, assumptions, and estimates that affect reported amounts. Significant accounting policies used in the preparation of Avalon’s Consolidated Financial Statements are described in Note 2 to the consolidated financial statements. Estimates are used when accounting for, among other things, the allowance for doubtful accounts, asset impairments, compensation costs relating to stock options granted, contingencies and administrative proceedings, environmental matters and taxes.

The majority of Avalon’s accounts receivable is due from industrial and commercial customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Avalon determines its allowance by considering a number of factors, including the length of time 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.

10

Avalon Holdings Corporation and Subsidiaries

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

The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the first options granted were in 2010 and 2011 and at that time, no historical exercising behavior was available, we estimated the expected term of each award to be half the maximum term.

Avalon amortizes the fair value of the stock options over the expected term or requisite service period. If accelerated vesting occurs based on the market performance of Avalon’s common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting.

Certain events or changes in circumstances may indicate that the recoverability of the carrying value of long-lived assets should be assessed. Such events or changes may include a significant decrease in market value, a significant change in the business climate in a particular market, or a current-period operating or cash flow loss combined with historical losses or projected future losses. If an event occurs or changes in circumstances are present, Avalon estimates the future cash flows expected to result from the use of the applicable groups of long-lived assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value, Avalon would recognize an impairment loss to the extent the carrying value of the groups of long-lived assets exceeds their fair value. Avalon would determine the fair value by using quoted market prices, if available, for such assets; or if quoted market prices are not available, Avalon would discount the expected estimated future cash flows.

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

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

11

Avalon Holdings Corporation and Subsidiaries

Avalon recognizes deferred tax assets and liabilities based on differences between financial statement carrying amounts and the tax bases of assets and liabilities. Avalon also records tax benefits when it believes that it is more likely than not that the benefit will be sustained by the tax authority. Avalon regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based upon historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences to reduce its deferred assets to the amount that it believes is more likely than not to be realized. Avalon has considered future taxable income in assessing the need for the valuation allowance. The $2,245,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the $2,253,000 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, 2014 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 $1,418,000 valuation allowance as of December 31, 2014, would be reversed as a benefit to the provision for income taxes in the period such determination was made.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance, effective for Avalon on January 1, 2017, establishes a five-step approach for the recognition of revenue. Avalon is currently evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures and does not anticipate that the new guidance will fundamentally change our revenue recognition policies, practices or systems.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. Under ASU 2014-15, management will be required to perform interim and annual assessments of the Company’s ability to continue as a going concern within one year of the date the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of this standard is not expected to have an impact on Avalon’s financial statement disclosures.

12

Avalon Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except for share data)

|  | December 31, |
|  | 2014 |  |  | 2013 |
Assets |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 4,329 |  |  | $ | 9,798 |
Accounts receivable, less allowance for doubtful accounts of $168 at December 31, 2014 and 2013 |  |  | 8,750 |  |  |  | 10,201 |
Inventories |  |  | 947 |  |  |  | 815 |
Prepaid expenses |  |  | 474 |  |  |  | 349 |
Refundable income taxes |  |  | 8 |  |  |  | 3 |
Other current assets |  |  | 45 |  |  |  | 15 |
Total current assets |  |  | 14,553 |  |  |  | 21,181 |
Property and equipment, net |  |  | 35,954 |  |  |  | 27,563 |
Leased property under capital leases, net |  |  | 6,418 |  |  |  | 6,719 |
Noncurrent deferred tax asset |  |  | 8 |  |  |  | 8 |
Other assets, net |  |  | 911 |  |  |  | 108 |
Total assets |  | $ | 57,844 |  |  | $ | 55,579 |
Liabilities and Equity |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Current portion of obligations under capital leases |  | $ | 58 |  |  | $ | 56 |
Accounts payable |  |  | 6,429 |  |  |  | 8,101 |
Accrued payroll and other compensation |  |  | 714 |  |  |  | 549 |
Accrued income taxes |  |  | 8 |  |  |  | 1 |
Other accrued taxes |  |  | 379 |  |  |  | 307 |
Deferred revenues |  |  | 2,256 |  |  |  | 2,265 |
Other liabilities and accrued expenses |  |  | 707 |  |  |  | 365 |
Total current liabilities |  |  | 10,551 |  |  |  | 11,644 |
Revolving line of credit |  |  | 3,800 |  |  |  | - |
Obligations under capital leases |  |  | 333 |  |  |  | 390 |
Asset retirement obligation |  |  | 100 |  |  |  | 75 |
Deferred rental income |  |  | 138 |  |  |  | - |
Contingencies and commitments |  |  | - |  |  |  | - |
Equity: |  |  |  |  |  |  |  |
Avalon Holdings Corporation Shareholders' Equity: |  |  |  |  |  |  |  |
Class A Common Stock, $.01 par value, one vote per share: authorized 10,500,000 shares; issued and outstanding 3,191,100 shares at December 31, 2014 and 2013 |  |  | 32 |  |  |  | 32 |
Class B Common Stock, $.01 par value, ten votes per share: authorized 1,000,000 shares; issued and outstanding 612,231 shares at December 31, 2014 and 2013 |  |  | 6 |  |  |  | 6 |
Paid-in capital |  |  | 58,868 |  |  |  | 58,771 |
Accumulated deficit |  |  | (19,469 | ) |  |  | (18,389 | )
Total Avalon Holdings Corporation Shareholders' Equity |  |  | 39,437 |  |  |  | 40,420 |
Non-controlling interest in subsidiary |  |  | 3,485 |  |  |  | 3,050 |
Total equity |  |  | 42,922 |  |  |  | 43,470 |
Total liabilities and equity |  | $ | 57,844 |  |  | $ | 55,579 |

See accompanying notes to consolidated financial statements.

13

Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands, except for per share amounts)

|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |
Net operating revenues |  | $ | 51,472 |  |  | $ | 59,470 |
Costs and expenses: |  |  |  |  |  |  |  |
Costs of operations |  |  | 42,687 |  |  |  | 49,598 |
Depreciation and amortization expense |  |  | 2,155 |  |  |  | 1,636 |
Selling, general and administrative expenses |  |  | 8,026 |  |  |  | 7,965 |
Operating income (loss) |  |  | (1,396 | ) |  |  | 271 |
Other income (expense): |  |  |  |  |  |  |  |
Interest expense |  |  | (58 | ) |  |  | (22 | )
Interest income |  |  | 1 |  |  |  | 1 |
Other income, net |  |  | 268 |  |  |  | 285 |
Income (loss) before income taxes |  |  | (1,185 | ) |  |  | 535 |
Provision for income taxes |  |  | 73 |  |  |  | 97 |
Net income (loss) |  |  | (1,258 | ) |  |  | 438 |
Less net loss attributable to non-controlling interest in subsidiary |  |  | (178 | ) |  |  | - |
Net income (loss) of Avalon Holdings Corporation common shareholders |  | $ | (1,080 | ) |  | $ | 438 |
Income (loss) per share attributable to Avalon Holdings Corporation common shareholders: |  |  |  |  |  |  |  |
Basic net income (loss) per share |  | $ | (0.28 | ) |  | $ | 0.12 |
Dilutive net income (loss) per share |  | $ | (0.28 | ) |  | $ | 0.11 |
Weighted average shares outstanding - basic |  |  | 3,803 |  |  |  | 3,803 |
Weighted average shares outstanding - diluted |  |  | 3,803 |  |  |  | 4,090 |

See accompanying notes to consolidated financial statements.

14

Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |
Operating activities: |  |  |  |  |  |  |  |
Net income (loss) |  | $ | (1,258 | ) |  | $ | 438 |
Reconciliation of net income (loss) to cash provided by (used in) operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization expense |  |  | 2,155 |  |  |  | 1,636 |
Compensation costs - stock options |  |  | 80 |  |  |  | 118 |
Deferred rental income |  |  | (38 | ) |  |  | - |
Provision for losses on accounts receivable |  |  | 56 |  |  |  | 18 |
Gain from disposal of property and equipment |  |  | (2 | ) |  |  | (23 | )
Accretion of asset retirement obligation |  |  | 25 |  |  |  | - |
Change in operating assets and liabilities, net of effect of acquisition: |  |  |  |  |  |  |  |
Accounts receivable |  |  | 1,395 |  |  |  | (975 | )
Inventories |  |  | (132 | ) |  |  | (72 | )
Prepaid expenses |  |  | (125 | ) |  |  | (62 | )
Refundable income taxes |  |  | (5 | ) |  |  | 6 |
Other current assets |  |  | (30 | ) |  |  | - |
Other assets, net |  |  | 12 |  |  |  | (4 | )
Accounts payable |  |  | (2,566 | ) |  |  | 86 |
Accrued payroll and other compensation |  |  | 165 |  |  |  | 63 |
Accrued income taxes |  |  | 7 |  |  |  | (1 | )
Other accrued taxes |  |  | 72 |  |  |  | 4 |
Deferred revenues |  |  | (9 | ) |  |  | 85 |
Other liabilities and accrued expenses |  |  | 252 |  |  |  | (59 | )
Net cash provided by operating activities |  |  | 54 |  |  |  | 1,258 |
Investing activities: |  |  |  |  |  |  |  |
Capital expenditures |  |  | (6,790 | ) |  |  | (2,370 | )
Acquisition of Avalon Resort and Spa |  |  | (3,122 | ) |  |  | - |
Proceeds from disposal of property and equipment |  |  | 14 |  |  |  | 25 |
Net cash used in investing activities |  |  | (9,898 | ) |  |  | (2,345 | )
Financing activities: |  |  |  |  |  |  |  |
Proceeds from subsidiary private placement offering |  |  | 700 |  |  |  | 3,050 |
Borrowings under line of credit facility |  |  | 3,800 |  |  |  | - |
Cash distributions to non-controlling interest in subsidiary |  |  | (87 | ) |  |  | - |
Principal payments on capital lease obligation |  |  | (55 | ) |  |  | (60 | )
Contribution to paid-in capital |  |  | 17 |  |  |  | 7 |
Net cash provided by financing activities |  |  | 4,375 |  |  |  | 2,997 |
Increase (decrease) in cash and cash equivalents |  |  | (5,469 | ) |  |  | 1,910 |
Cash and cash equivalents at beginning of year |  |  | 9,798 |  |  |  | 7,888 |
Cash and cash equivalents at end of year |  | $ | 4,329 |  |  | $ | 9,798 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |
Significant non-cash operating and investing activities: |  |  |  |  |  |  |  |
Capital expenditures included in accounts payable |  | $ | 894 |  |  | $ | 1,338 |
Asset retirement obligation |  | $ | - |  |  | $ | 75 |
Significant non-cash investing and financing activities: |  |  |  |  |  |  |  |
Capital lease obligations incurred |  | $ | - |  |  | $ | 280 |
Cash paid during the year for interest |  | $ | 58 |  |  | $ | 22 |

For supplemental cash flow information regarding income taxes, see Note 7.

See accompanying notes to consolidated financial statements

15

Avalon Holdings Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(in thousands)

|  | For the Years Ended December 31, 2014 and 2013 |
|  | Shares |  |  | Common Stock |  |  | Paid-in |  |  | Accumulated |  |  | Total Avalon Shareholders' |  |  | Non-controlling Interest in |  |  |  |  |
|  | Class A |  |  | Class B |  |  | Class A |  |  | Class B |  |  | Capital |  |  | Deficit |  |  | Equity |  |  | Subsidiary |  |  | Total |
Balance at January 1, 2013 |  |  | 3,191 |  |  |  | 612 |  |  | $ | 32 |  |  | $ | 6 |  |  | $ | 58,646 |  |  | $ | (18,827 | ) |  | $ | 39,857 |  |  | $ | - |  |  | $ | 39,857 |
Stock options - compensation costs |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 118 |  |  |  | - |  |  |  | 118 |  |  |  | - |  |  |  | 118 |
Investment in subsidiary from accredited investors |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,050 |  |  |  | 3,050 |
Contribution to paid-in capital |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7 |  |  |  | - |  |  |  | 7 |  |  |  | - |  |  |  | 7 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 438 |  |  |  | 438 |  |  |  | - |  |  |  | 438 |
Balance at December 31, 2013 |  |  | 3,191 |  |  |  | 612 |  |  |  | 32 |  |  |  | 6 |  |  |  | 58,771 |  |  |  | (18,389 | ) |  |  | 40,420 |  |  |  | 3,050 |  |  |  | 43,470 |
Stock options - compensation costs |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 80 |  |  |  | - |  |  |  | 80 |  |  |  | - |  |  |  | 80 |
Investment in subsidiary from accredited investors |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 700 |  |  |  | 700 |
Cash distributions to non-controlling interest in subsidiary |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (87 | ) |  |  | (87 | )
Contribution to paid-in capital |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 17 |  |  |  | - |  |  |  | 17 |  |  |  | - |  |  |  | 17 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,080 | ) |  |  | (1,080 | ) |  |  | (178 | ) |  |  | (1,258 | )
Balance at December 31, 2014 |  |  | 3,191 |  |  |  | 612 |  |  | $ | 32 |  |  | $ | 6 |  |  | $ | 58,868 |  |  | $ | (19,469 | ) |  | $ | 39,437 |  |  | $ | 3,485 |  |  | $ | 42,922 |

See accompanying notes to consolidated financial statements.

16

Avalon Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Description of the Business

Avalon Holdings Corporation (“Avalon” or the “Company”) 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, captive landfill management for an industrial customer and salt water injection well operations. In addition, Avalon owns the Avalon Golf and Country Club, which includes the operation and management of three golf courses and associated clubhouses, fitness centers, tennis courts, spa services, dining and banquet facilities and a travel agency. Avalon also owns The Avalon Resort and Spa which operates a hotel and tennis facility.

Note 2. Summary of Significant Accounting Policies

The significant accounting policies of Avalon, which are summarized below, are consistent with accounting principles generally accepted in the United States and reflect practices appropriate to the businesses in which they operate. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Subsequent Events

Avalon evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued.

Reclassifications

Certain reclassifications of prior year amounts have been made to the Consolidated Balance Sheets and Consolidated Statement of Cash Flows to conform to current year classification.

Principles of consolidation

The consolidated financial statements include the accounts of Avalon, its wholly owned subsidiaries and those companies in which Avalon has managerial control.

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 fair 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 are not insured by the Federal Deposit Insurance Corporation. The balance of cash and cash equivalents was $4.3 million and $9.8 million at December 31, 2014 and 2013, 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 Company follows the guidance included in the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities. The fair value of financial instruments consisting of cash, cash equivalents, accounts receivable, and accounts payable at December 31, 2014 and 2013 approximates carrying value due to the relative short maturity of these financial instruments.

17

Avalon Holdings Corporation and Subsidiaries

The fair value of debt under the Company’s credit facility approximates carrying value due to the floating interest rates and relative short maturity of the revolving borrowings under this agreement.

Property and equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the asset which varies from 0 to 30 years for land improvements; 5 to 50 years in the case of buildings and improvements; and from 3 to 10 years for machinery and equipment, vehicles and office furniture and equipment (See Note 5).

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

Income taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against net deferred tax assets when management believes it is more likely than not that such deferred tax assets will not be realized. Avalon recognizes any interest and penalty assessed by taxing authorities as a component of interest expense and other expense, respectively.

Revenue recognition

Avalon recognizes revenue for waste management services as services are performed. Revenues for the golf operations are recognized as services are provided with the exception of membership dues which are recognized proportionately over twelve months based upon each member’s anniversary date. The deferred revenue relating to membership dues was approximately $2.3 million at December 31, 2014 and 2013, respectively.

Accounts Receivable

The majority of Avalon’s accounts receivable is due from industrial and commercial customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. Customer accounts that are 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 6 and 12).

Noncontrolling Interest

Avalon owns approximately 47% of AWMS Holdings, LLC at December 31, 2014. Due to the managerial control of American Water Management Services, LLC, the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. US GAAP requires noncontrolling interests to be reported as a separate component of equity. The amount of net loss attributable to the noncontrolling interest is recorded in “net loss attributable to noncontrolling interest” in our consolidated statements of operations (See Note 14).

18

Avalon Holdings Corporation and Subsidiaries

Stock-Based compensation

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

The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the first options granted were in 2010 and 2011, and at that time no historical exercising behavior was available, we estimated the expected term of each award to be half the maximum term.

Avalon amortizes the fair value of the stock options over the expected term or requisite service period. If accelerated vesting occurs based on the market performance of Avalon’s common stock, the compensation costs related to the vested stock options that have not previously been amortized are recognized upon vesting.

Asset retirement obligation

Avalon recorded an estimated asset retirement obligation of approximately $0.1 million at December 31, 2014 and 2013, respectively, to plug and abandon the two salt water injection wells based upon an estimate from an experienced and qualified third party.

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 2014 or 2013 relating to the golf operations as future cash flows have not changed significantly and asset values have remained relatively stable. If Avalon is unable to obtain a favorable decision and resume operations of AWMS #2, the Company will assess the recoverability of the carrying value of the wells and recognize an impairment loss to the extent the carrying value exceeds the fair value (See Note 14).

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.

19

Avalon Holdings Corporation and Subsidiaries

Basic and dilutive net income (loss) per share

Basic net income (loss) per share for the years ended December 31, 2014 and 2013 is computed by dividing net income (loss) by the weighted average number of common shares outstanding, which were 3,803,331 for each period. Dilutive net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus any weighted common equivalent shares determined to be outstanding during the period using the treasury method. The weighted common equivalent shares included in the calculation are related to stock options granted by Avalon where the weighted average market price of Avalon’s common stock for the period presented is greater than the option exercise price of the stock option. For the year ended December 31, 2014, the diluted per share amounts reported are equal to basic per share amounts because Avalon was in a net loss position and as a result, such dilution would be considered anti-dilutive. Assuming dilution, the weighted average number of common shares outstanding for the year ended December 31, 2014 was 4,091,862. For the year ended December 31, 2013, the dilutive weighted average number of shares outstanding was 4,089,679. The earnings per share calculations for the years ended December 31, 2014 and 2013 are as follows (in thousands, except per share amounts):

|  | 2014 |  |  | 2013 |
Net income (loss) of Avalon Holdings Corporation common shareholders |  | $ | (1,080 | ) |  | $ | 438 |
Shares used in computing basic income (loss) per share |  |  | 3,803 |  |  |  | 3,803 |
Potentially dilutive shares from stock options |  |  | - |  |  |  | 287 |
Shares used in computing dilutive income (loss) per share |  |  | 3,803 |  |  |  | 4,090 |
Income (loss) per share attributable to Avalon Holdings Corporation common shareholders |  |  |  |  |  |  |  |
Basic net income (loss) per share |  | $ | (0.28 | ) |  | $ | 0.12 |
Dilutive net income (loss) per share |  | $ | (0.28 | ) |  | $ | 0.11 |

Recent accounting pronouncements

In May 2014, FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance, effective for Avalon on January 1, 2017, establishes a five-step approach for the recognition of revenue. Avalon is currently evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures and does not anticipate that the new guidance will fundamentally change our revenue recognition policies, practices or systems.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. Under ASU 2014-15, management will be required to perform interim and annual assessments of the Company’s ability to continue as a going concern within one year of the date the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of this standard is not expected to have an impact on Avalon’s financial statement disclosures.

20

Avalon Holdings Corporation and Subsidiaries

Note 3. Acquisition

In August 2014, Avalon, through a newly created subsidiary, The Avalon Resort and Spa LLC, completed the acquisition of The Magnuson Grand Hotel (formerly The Avalon Inn) in Howland, Ohio for approximately $3.1 million in cash and the assumption of certain operating leases and some rental payment relief. The acquisition was primarily funded from borrowings under our line of credit facility of $2.9 million and cash on hand of approximately $0.2 million. Subsequent to the acquisition, The Magnuson Grand Hotel was renamed The Avalon Resort and Spa. The primary assets of The Avalon Resort and Spa include the 144 room hotel, indoor swimming pool and adjoining tennis center. The Avalon Resort and Spa is located adjacent to Avalon’s corporate headquarters and the Avalon Lakes Golf Course.

The Avalon Resort and Spa is currently in operation and is being renovated. The renovations include a complete renovation of the existing facility and indoor junior Olympic sized swimming pool. The Avalon Resort and Spa will also be expanded to include a 12,000 square foot addition which will provide for new restaurants, bars, a full service spa and salon, extensive conference facilities, complete fitness center and a resort style pool.

The acquisition is consistent with the Company's business strategy in that The Avalon Resort and Spa will provide guests with a self-contained vacation experience, offering hotel guests golf packages to all of the golf courses of the Avalon Golf and Country Club and allow its guests to utilize the facilities at each of the clubhouses. Members of the Avalon Golf and Country Club will also have access to all of the amenities offered by The Avalon Resort and Spa. The Avalon Resort and Spa earns revenues through room rentals and from tennis activities. Upon completion of the expansion and renovation, other revenue-generating resort amenities will include restaurants, bars, a full service spa and salon and extensive banquet and conference facilities. The operating results of The Avalon Resort and Spa have been included within the Company’s Consolidated Statement of Operations and within Avalon's golf and related operations segment since the date of acquisition. The Consolidated Statement of Operations for the year ended December 31, 2014 includes net operating revenues of $0.6 million and a loss before income taxes of less than $0.1 million related to The Avalon Resort and Spa. Included in The Avalon’s operating results were approximately $0.1 million in acquisition related costs included in selling, general and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2014.

The Company accounted for the acquisition of The Avalon Resort and Spa using the acquisition method of accounting, which requires among other things, the recognition of the assets acquired and the liabilities assumed at their respective fair values as of the acquisition date. As of December 31, 2014, the entire purchase price allocation is preliminary. The Company has received a preliminary third-party valuation of the acquired property, buildings, furniture and fixtures and any intangible assets of The Avalon Resort and Spa and, therefore, the values attributed to those acquired assets in the consolidated financial statements are subject to adjustment. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional adjustments will be recorded during the measurement period.

The Avalon Resort and Spa’s assets and liabilities are recorded at fair value as of the date of acquisition. The purchase consideration and related preliminary estimated allocations are as follows (in thousands):

Assets acquired: |  |  |  |
Property and equipment |  | $ | 2,570 |
Other intangible assets |  |  | 818 |
Assets acquired |  | $ | 3,388 |
Liabilities assumed: |  |  |  |
Deferred rental income |  | $ | 266 |
Total liabilities assumed |  | $ | 266 |
Total consideration |  | $ | 3,122 |

Pro forma net operating revenues and results of operations for the acquisition of The Avalon Resort and Spa, had the acquisition occurred at the beginning of the applicable year ended December 31, 2014 or 2013, are not significant and, accordingly, are not provided.

21

Avalon Holdings Corporation and Subsidiaries

Note 4. Credit Facility

During July 2014, Avalon increased its unsecured line of credit agreement with The Huntington National Bank from $1 million to $5 million. Interest on borrowings accrues at LIBOR plus 2.70% and has a .25% nonuse fee. In March 2015 the maturity date on the line of credit agreement was extended to April 30, 2016. The line of credit agreement contains certain financial and other covenants, customary representations, warranties and events of defaults. Avalon was in compliance with the debt covenants at December 31, 2014. At December 31, 2014, the outstanding borrowings under the line of credit agreement were approximately $3.8 million. Amounts borrowed under the line of credit agreement were utilized to fund the acquisition of The Avalon Resort and Spa and related renovation and expansion. As of December 31, 2014, the Company had $1.2 million available under the line of credit agreement. At December 31, 2013, there were no borrowings under the line of credit agreement. The weighted average interest rate on outstanding borrowings under the line of credit agreement was 2.86% during 2014. At December 31, 2014, the interest rate was 2.85%.

Note 5. Property and Equipment

Property and equipment at December 31, 2014 and 2013 consists of the following (in thousands):

|  | 2014 |  |  | 2013 |
Land and land improvements |  | $ | 12,924 |  |  | $ | 11,887 |
Buildings and improvements |  |  | 22,054 |  |  |  | 19,610 |
Machinery and equipment |  |  | 8,559 |  |  |  | 3,088 |
Vehicles |  |  | 493 |  |  |  | 455 |
Office furniture and fixtures |  |  | 4,135 |  |  |  | 3,488 |
Construction in progress |  |  | 2,961 |  |  |  | 2,591 |
|  |  | 51,126 |  |  |  | 41,119 |
Less accumulated depreciation and amortization |  |  | (15,172 | ) |  |  | (13,556 | )
Property and equipment, net |  | $ | 35,954 |  |  | $ | 27,563 |

Note 6. Capital Leased Assets

In November 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. 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.

In addition, the captive landfill operations lease a piece of equipment that was determined to be a capital lease. The amount capitalized in the Consolidated Balance Sheets under the caption “Leased property under capital leases, net” was approximately $0.2 million and $0.3 million at December 31, 2014 and 2013, respectively.

Leased property under capital leases at December 31, 2014 and 2013 consists of the following (in thousands):

|  | 2014 |  |  | 2013 |
Leased property under capital leases |  | $ | 10,285 |  |  | $ | 10,116 |
Less accumulated amortization |  |  | (3,867 | ) |  |  | (3,397 | )
Leased property under capital leases, net |  | $ | 6,418 |  |  | $ | 6,719 |

22

Avalon Holdings Corporation and Subsidiaries

Note 7. Income Taxes

Income (loss) before income taxes for each of the two years in the period ended December 31, 2014 was subject to taxation under United States jurisdictions only. The provision for income taxes consists of the following (in thousands):

|  | 2014 |  |  | 2013 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | (2 | ) |  | $ | (2 | )
State |  |  | 75 |  |  |  | 99 |
|  |  | 73 |  |  |  | 97 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | - |  |  |  | - |
State |  |  | - |  |  |  | - |
|  |  | - |  |  |  | - |
|  | $ | 73 |  |  | $ | 97 |

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2014 and 2013 are as follows (in thousands):

|  | 2014 |  |  | 2013 |
Deferred tax assets: |  |  |  |  |  |  |  |
Accounts receivable, allowance for doubtful accounts |  | $ | 63 |  |  | $ | 63 |
Reserves not deductible until paid |  |  | 269 |  |  |  | 236 |
Net operating loss carryforwards |  |  |  |  |  |  |  |
Federal |  |  | 2,252 |  |  |  | 1,851 |
State |  |  | 726 |  |  |  | 604 |
Federal tax credit |  |  | 340 |  |  |  | 296 |
Capital loss carryforward |  |  | 10 |  |  |  | 10 |
Other |  |  | 11 |  |  |  | 31 |
Gross deferred tax assets |  |  | 3,671 |  |  |  | 3,091 |
Less valuation allowance |  |  | (1,418 | ) |  |  | (942 | )
Deferred tax assets net of valuation allowance |  | $ | 2,253 |  |  | $ | 2,149 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Property and equipment |  | $ | (2,188 | ) |  | $ | (2,141 | )
Other |  |  | (57 | ) |  |  | - |
Gross deferred tax liabilities |  | $ | (2,245 | ) |  | $ | (2,141 | )
Net deferred tax asset |  | $ | 8 |  |  | $ | 8 |

The $2,245,000 of deferred tax liabilities will reverse in the same period and jurisdiction and is of the same character as the temporary differences giving rise to the $2,253,000 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. 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 $1,418,000 valuation allowance as of December 31, 2014, would be reversed as a benefit to the provision for income taxes in the period such determination was made.

23

Avalon Holdings Corporation and Subsidiaries

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 (loss) before income taxes as a result of the following differences (in thousands):

|  | 2014 |  |  | 2013 |
Income (loss) before income taxes |  | $ | (1,185 | ) |  | $ | 535 |
Less net loss attributable to non-controlling interest in subsidiary |  |  | (178 | ) |  |  | - |
Income (loss) before income taxes of Avalon Holdings Corporation common shareholders |  |  | (1,007 | ) |  |  | 535 |
Federal statutory rate |  |  | 35 | % |  |  | 35 | %
|  |  | (352 | ) |  |  | 187 |
State income taxes, net of federal income tax benefits |  |  | 49 |  |  |  | 64 |
Change in valuation allowance |  |  | 476 |  |  |  | (54 | )
Increase in available federal tax credit |  |  | (44 | ) |  |  | (47 | )
Other nondeductible expenses |  |  | 49 |  |  |  | 52 |
Increase in net operating loss carryforward: |  |  |  |  |  |  |  |
State |  |  | (122 | ) |  |  | (77 | )
Federal |  |  | (9 | ) |  |  | - |
Other, net |  |  | 26 |  |  |  | (28 | )
|  | $ | 73 |  |  | $ | 97 |

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 2011. 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 2014 and 2013.

Avalon made net income tax payments of approximately $68,000 and $100,000 in 2014 and 2013, respectively. At December 31, 2014, Avalon has taxable loss carryforwards for federal income tax purposes aggregating approximately $6,624,000 which are available to offset future federal taxable income. These carryforwards expire in 2021 through 2034. Avalon has a capital loss carryforward for federal tax purposes of approximately $29,000 which is available to offset future federal capital gain income. This carryforward expires in 2016. In addition, at December 31, 2014, 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 2035. 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.

In September 2013 and August 2014 the Internal Revenue Service issued final regulations governing the income tax treatment of acquisitions, dispositions, and repairs of tangible property. Taxpayers are required to follow the new regulations for taxable years beginning on or after January 1, 2014. Management has concluded that the impact of these new regulations did not have a material impact to the financial statements for the year ended December 31, 2014.

Note 8. Retirement Benefits

Avalon sponsors a defined contribution profit sharing plan that is a qualified tax deferred benefit plan under Section 401(k) of the Internal Revenue Code (the “Plan”). Substantially all employees are eligible to participate in the Plan. The Plan provides for employer discretionary cash contributions as determined by Avalon’s Board of Directors. Discretionary contributions vest on a graduated basis and become 100% vested after 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. The Board decided not to make a discretionary employer contribution for 2014 or 2013.

Note 9. Long-term Incentive Plan

On August 12, 2009, the Board of Directors of Avalon approved the renewal of the expired 1998 Long-term Incentive Plan which provides for the granting of options which are intended to be non-qualified stock options (“NQSO’s”) for federal income tax purposes except for those options designated as incentive stock options (“ISO’s”) which qualify under Section 422 of the Internal Revenue Code. The name of the plan was changed to the 2009 Long-term Incentive Plan (“the Option Plan”) to reflect the year of approval. On October 6, 2009, at a Special Meeting of Shareholders, the shareholders approved the Option Plan. Avalon has reserved 1,300,000 shares of Class A Common Stock for issuance to employees and non-employee directors. NQSO’s may be granted with an exercise price which is not less than 100% of the fair market value of the Class A Common Stock on the date of grant. Options designated as ISO’s shall not be less than 110% of fair market value for employees who are ten percent shareholders and not less than 100% of fair market value for other employees. The Board of Directors may, from time to time in its discretion, grant options to one or more outside directors, subject to such terms and conditions as the Board of Directors may determine, provided that such terms and conditions are not inconsistent with other applicable provisions of the Option Plan. Options shall have a term of no longer than ten years from the date of grant; except that for an option designated as an ISO which is granted to a ten percent shareholder, the option shall have a term no longer than five years.

24

Avalon Holdings Corporation and Subsidiaries

No option shall be exercisable prior to one year after its grant, unless otherwise provided by the Option Committee of the Board of Directors (but in no event before 6 months after its grant), and thereafter options shall become exercisable in installments, if any, as provided by the Option Committee. Options must be exercised for full shares of common stock. To the extent that options are not exercised when they become initially exercisable, they shall be carried forward and be exercisable until the expiration of the term of such options. No option may be exercised by an optionee after his or her termination of employment for any reason with Avalon or an affiliate, except in certain situations provided by the Option Plan.

The purpose of the Avalon Holdings Corporation 2009 Long-term Incentive Plan (the “Plan”) is (a) to improve individual employee performance by providing long-term incentives and rewards to employees of Avalon, (b) to assist Avalon in attracting, retaining and motivating employees and non-employee directors with experience and ability, and (c) to associate the interests of such employees and directors with those of the Avalon shareholders. Under the Plan, 1,300,000 shares have been reserved for the issuance of stock options. There are 760,000 stock options granted under the Plan. The stock options vest ratably over a five year period and have a contractual term of ten years from the date of grant. At the end of each contractual vesting period, the share price of the Avalon common stock, traded on a public stock exchange (NYSE Amex), must reach a predetermined price within three years following such contractual vesting period before the stock options are exercisable (See table below). If the Avalon common stock price does not reach the predetermined price, the stock options will either be cancelled or the period will be extended at the discretion of the Board of Directors.

The Monte Carlo Simulation was selected to determine the fair value because it incorporates six minimum considerations; 1) the exercise price of the option, 2) the expected term of the option, taking into account both the contractual term of the option, the effects of employees’ expected exercise and post-vesting employment termination behavior, as well as the possibility of change in control events during the contractual term of the option agreements, 3) the current fair value of the underlying equity, 4) the expected volatility of the value of the underlying share for the expected term of the option, 5) the expected dividends on the underlying share for the expected term of the option and 6) the risk-free interest rate(s) for the expected term of the option.

The expected term, or time until the option is exercised, is typically based on historical exercising behavior of previous option holders of a company’s stock. Due to the fact that the first options granted were in 2010 and 2011, and at that time, no historical exercising behavior was available, we estimated the expected term of each award to be half the maximum term. Because of the nature of the vesting as described above, the options were separated into five blocks, with each block having its own vesting period and expected term. Assuming the vesting occurs ratably over the vesting period for each option block, the average vesting term (requisite service period) for each option block was calculated to be 2.54, 3.54, 4.54, 5.54 and 6.54 years for option blocks 1 through 5, respectively. As such, the expected terms were calculated to be 6.27, 6.77, 7.27, 7.77 and 8.27 years, for option blocks 1 through 5, respectively.

The current fair value of the underlying equity was determined to be equal to Avalon’s publicly traded stock price as of the grant dates times the sum of the Class A and Class B common shares outstanding.

The expected volatility was based on the observed volatility of Avalon common stock for a five year period prior to the grant dates. The expected volatility that was used ranged from 60.9% to 61.7% with a weighted average expected volatility of 61.2%. There were no expected dividends and the risk-free interest rate(s), which ranged from 2.06% to 2.28%, were based on yield data for U. S. Treasury securities over a period consistent with the expected term.

25

Avalon Holdings Corporation and Subsidiaries

The following table is a summary of the stock option activity during 2014 and 2013:

|  | Number of Options Granted |  |  | Weighted Average Exercise Price |  |  | Weighted Average Fair Value at Grant Date |
Outstanding at January 1, 2013 |  |  | 760,000 |  |  | $ | 2.63 |  |  | $ | 1.09 |
Options granted |  |  | - |  |  |  | - |  |  |  | - |
Options exercised |  |  | - |  |  |  | - |  |  |  | - |
Options cancelled or forfeited |  |  | - |  |  |  | - |  |  |  | - |
Outstanding at December 31, 2013 |  |  | 760,000 |  |  |  | 2.63 |  |  |  | 1.09 |
Options granted |  |  | - |  |  |  | - |  |  |  | - |
Options exercised |  |  | - |  |  |  | - |  |  |  | - |
Options cancelled or forfeited |  |  | - |  |  |  | - |  |  |  | - |
Outstanding at December 31, 2014 |  |  | 760,000 |  |  | $ | 2.63 |  |  | $ | 1.09 |
Options Vested |  |  | 552,000 |  |  |  |  |  |  |  |  |
Exercisable at December 31, 2014 |  |  | 304,000 |  |  |  |  |  |  |  |  |

The stock options vest and become exercisable based upon achieving two critical metrics as follows:

| 1) | Contract Vesting Term: The stock options vest ratably over a five year period.

| 2) | The Avalon common stock price traded on a public stock exchange (NYSE Amex) must reach the predetermined vesting price within three years after the options become vested under the Contract Vesting Term.

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

| Begins Vesting |  | Ends Vesting |  | Predetermined Vesting Price |
Block 1 | 12 months after Grant Dates |  | 48 months after Grant Dates |  | $ | 3.43 |
Block 2 | 24 months after Grant Dates |  | 60 months after Grant Dates |  | $ | 4.69 |
Block 3 | 36 months after Grant Dates |  | 72 months after Grant Dates |  | $ | 6.43 |
Block 4 | 48 months after Grant Dates |  | 84 months after Grant Dates |  | $ | 8.81 |
Block 5 | 60 months after Grant Dates |  | 96 months after Grant Dates |  | $ | 12.07 |

Compensation costs were approximately $0.1 million for both the years ended December 31, 2014 and December 31, 2013, respectively, based upon the estimated fair value calculation. For the year ended December 31, 2013 additional compensation expense was recorded due to the Avalon common stock reaching the predetermined vesting price for Block 2 stock options that had vested, but had not yet become exercisable. The deferred tax benefit recorded was offset by an increase to the valuation allowance. As of December 31, 2014, there was approximately $0.1 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.26 years.

Note 10. Shareholders’ Equity

Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters submitted to a vote of the shareholders. Except for the election of Avalon’s Board of Directors, the Class A Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote 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.

26

Avalon Holdings Corporation and Subsidiaries

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

Note 11. Legal Matters

In 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 12. Lease Commitments

Avalon leases golf carts, machinery and equipment, and copiers under operating leases. Under capital leases, Avalon leases one piece of equipment and land and land improvements. Future commitments under long-term, operating leases and capital leases at December 31, 2014 are as follows (in thousands):

|  | Capital |  |  | Operating |  |  | Total |
2015 |  | $ | 76 |  |  | $ | 344 |  |  | $ | 420 |
2016 |  |  | 76 |  |  |  | 344 |  |  |  | 420 |
2017 |  |  | 76 |  |  |  | 307 |  |  |  | 383 |
2018 |  |  | 15 |  |  |  | 228 |  |  |  | 243 |
2019 |  |  | 15 |  |  |  | 71 |  |  |  | 86 |
Thereafter |  |  | 495 |  |  |  | - |  |  |  | 495 |
Total minimum lease payments |  |  | 753 |  |  | $ | 1,294 |  |  | $ | 2,047 |
Less: amounts representing interest |  |  | 362 |  |  |  |  |  |  |  |  |
Present value of minimum lease payments |  |  | 391 |  |  |  |  |  |  |  |  |
Less: current portion of obligations under capital leases |  |  | 58 |  |  |  |  |  |  |  |  |
Long-term portion of obligations under capital leases |  | $ | 333 |  |  |  |  |  |  |  |  |

Rental expense included in the Consolidated Statements of Operations amounted to $0.4 million in 2014 and $0.3 million in 2013.

Note 13. 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.” Using the criteria of ASC 280 Segment Reporting, 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, captive landfill management for an industrial customer and salt water injection well operations. The golf and related operations segment includes the operations of golf courses, country clubs and related facilities, a hotel and travel agency. Revenue for the golf and related operations segment consists primarily of membership dues, greens fees, cart rentals, room rentals, merchandise sales, tennis, spa services and food and beverage sales. Avalon does not have significant operations located outside the United States and, accordingly, geographical segment information is not presented. In 2014, no customer individually accounted for 10% or more of Avalon’s consolidated net operating revenues. In 2013, one customer accounted for 17% of the waste management services segment’s net operating revenues to external customers and 13% of the 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.

27

Avalon Holdings Corporation and Subsidiaries

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

|  | 2014 |  |  | 2013 |
Net operating revenues from: |  |  |  |  |  |  |  |
Waste management services: |  |  |  |  |  |  |  |
External customer revenues |  | $ | 38,603 |  |  | $ | 47,243 |
Intersegment revenues |  |  | - |  |  |  | - |
Total waste management services |  |  | 38,603 |  |  |  | 47,243 |
Golf and related operations: |  |  |  |  |  |  |  |
External customer revenues |  |  | 12,869 |  |  |  | 12,227 |
Intersegment revenues |  |  | 92 |  |  |  | 89 |
Total golf and related operations |  |  | 12,961 |  |  |  | 12,316 |
Segment operating revenues |  |  | 51,564 |  |  |  | 59,559 |
Intersegment eliminations |  |  | (92 | ) |  |  | (89 | )
Total net operating revenues |  | $ | 51,472 |  |  | $ | 59,470 |
Income (loss) before income taxes: |  |  |  |  |  |  |  |
Waste management services |  | $ | 2,899 |  |  | $ | 3,787 |
Golf and related operations |  |  | (1,175 | ) |  |  | (336 | )
Segment income before taxes |  |  | 1,724 |  |  |  | 3,451 |
Corporate interest income |  |  | 1 |  |  |  | 1 |
Corporate interest expense |  |  | (38 | ) |  |  | - |
Corporate other income, net |  |  | 32 |  |  |  | 35 |
General corporate expenses |  |  | (2,904 | ) |  |  | (2,952 | )
Income (loss) before income taxes |  | $ | (1,185 | ) |  | $ | 535 |
Depreciation and amortization expense: |  |  |  |  |  |  |  |
Waste management services |  | $ | 506 |  |  | $ | 99 |
Golf and related operations |  |  | 1,475 |  |  |  | 1,400 |
Corporate |  |  | 174 |  |  |  | 137 |
Total |  | $ | 2,155 |  |  | $ | 1,636 |
Capital expenditures: |  |  |  |  |  |  |  |
Waste management services |  | $ | 3,112 |  |  | $ | 2,939 |
Golf and related operations |  |  | 4,459 |  |  |  | 797 |
Corporate |  |  | 113 |  |  |  | 327 |
Total |  | $ | 7,684 |  |  | $ | 4,063 |

28

Avalon Holdings Corporation and Subsidiaries

|  | December 31, |
|  | 2014 |  |  | 2013 |
Identifiable assets: |  |  |  |  |  |  |  |
Waste management services |  | $ | 19,381 |  |  | $ | 16,252 |
Golf and related operations |  |  | 36,449 |  |  |  | 29,821 |
Corporate |  |  | 44,613 |  |  |  | 43,997 |
Subtotal |  |  | 100,443 |  |  |  | 90,070 |
Elimination of intersegment receivables |  |  | (42,599 | ) |  |  | (34,491 | )
Total |  | $ | 57,844 |  |  | $ | 55,579 |

The increase of $3.1 million in identifiable assets of the waste management services segment is primarily due to an increase in properties and equipment as result of the construction and drilling of two salt water injection well facilities. The increase of $6.6 million in identifiable assets of the golf and related operations is primarily due to the acquisition of The Avalon Resort and Spa and associated renovations on the facility.

Note 14. Certain Relationships and Related Transactions

In August 2013, Avalon created a new Ohio limited liability company, AWMS Holdings, LLC, to act as a holding company to form and own a series of wholly owned subsidiaries that will own and operate salt water injection wells and facilities (together the “facilities”). AWMS Holdings, LLC, offers investment opportunities to accredited investors by selling membership units of AWMS Holdings, LLC through private placement offerings. The monies received from these offerings, along with internally contributed capital, are used to construct the facilities necessary for the operation of salt water injection wells. American Water Management Services, LLC, a wholly owned subsidiary of Avalon, manages all the salt water injection well operations, including the marketing and sales function and all decisions regarding the well operations for a percentage of the gross revenues. As a result of the private placement offering, Avalon is not the majority owner of AWMS Holdings, LLC; however, due to the managerial control of American Water Management Services, LLC, the financial statements of AWMS Holdings, LLC and subsidiaries are included in Avalon’s consolidated financial statements. At December 31, 2014, Avalon owned approximately 47% of AWMS Holdings, LLC. At December 31, 2014, AWMS Holdings, LLC received approximately $1.0 million from management and outside directors of Avalon, who qualified as accredited investors.

In August 2013, AWMS Holdings, LLC formed its first wholly owned subsidiary, AWMS Rt. 169, LLC, to own and operate two salt water injection wells. AWMS Rt. 169, LLC leases 5.2 acres on which the salt water injection wells are located. Construction of the wells began in the fourth quarter of 2013, and in April 2014, the wells commenced operations accepting brine water for disposal.

As a result of a seismic event with a magnitude of 2.1 occurring on August 31, 2014, the Chief of the Division of Oil and Gas Resources Management (“Chief” or “Division”) issued Orders on September 3, 2014, to immediately suspend all operations of both of Avalon’s saltwater injection wells. The Orders were based on the findings that the two saltwater injection wells are located in close proximity to the area of known seismic activity and also that the saltwater injection wells pose a risk of increasing or creating seismic activity. The two saltwater injection wells are located approximately 112 feet apart. Based on these findings, the Chief ordered the immediate suspension of all operations of the two saltwater injection wells, until the Division can further evaluate the wells.

On September 5, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #1 injection well. The Division reviewed all the information submitted by Avalon and additional data. Based upon this review, the Division concluded that with reasonable scientific certainty, the injection operations of AWMS #1 were not related to the deep seismic event that occurred on August 31, 2014. As a result, the Order suspending all operations of AWMS #1 was terminated effective September 18, 2014. As such, Avalon resumed injection operations of AWMS #1 consistent with all terms and conditions of the permit issued on July 18, 2013.

On September 19, 2014, Avalon submitted the information required by the Chief’s Order in regards to its AWMS #2 injection well. On October 3, 2014, Avalon filed an appeal to the Orders of the Chief disputing the basis for suspending operations of AWMS #2 and also the authority of the Chief to immediately suspend such operations. Currently, the operations of Avalon’s second injection well are still suspended. Avalon is seeking relief in the form of an order from the Commission that vacates the Orders. An appeal hearing is tentatively scheduled to occur in March of 2015.

29

Avalon Holdings Corporation and Subsidiaries

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Avalon Holdings Corporation

We have audited the accompanying consolidated balance sheets of Avalon Holdings Corporation and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the two 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits 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, 2014 and 2013, and the results of their operations and their cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/GRANT THORNTON LLP

Cleveland, Ohio

March 12, 2015

30

Avalon Holdings Corporation and Subsidiaries

Management’s Annual R eport on Internal Control o ver 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, 2014, based upon the framework and criteria established in Internal Control – Integrated Framework (2013 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, 2014.

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

/s/ Ronald E. Klingle |  | /s/ Bryan P. Saksa
Chief Executive Officer |  | Chief Financial Officer
March 12, 2015 |  |

31

Avalon Holdings Corporation and Subsidiaries

Company Location Directory
Corporate Office | Golf and Related Operations
Avalon Holdings Corporation | Avalon Golf and Country Club
One American Way | One American Way
Warren, Ohio 44484-5555 | Warren, Ohio 44484-5555
(330) 856-8800 | (330) 856-8898
Waste Management Services | Avalon Lakes Golf Course
| One American Way
American Waste Management Services, Inc. | Warren, Ohio 44484-5555
One American Way | (330) 856-8898
Warren, Ohio 44484-5555 |
(330) 856-8800 | Squaw Creek Golf Course
| 761 Youngstown-Kingsville Road
American Landfill Management, Inc. | Vienna, Ohio 44473
One American Way | (330) 539-5103
Warren, Ohio 44484-5555 |
(330) 856-8800 | Avalon Country Club at Sharon, Inc.
| 1030 Forker Blvd.
American Construction Supply, Inc. | Hermitage, PA 16148-1566
One American Way | (724) 981-6700
Warren, Ohio 44484-5555 |
(330) 856-8800 | The Avalon Resort and Spa LLC
| 9519 East Market Street
American Water Management Services, LLC | Warren, OH 44484-5555
One American Way | (330) 856-1900
Warren, Ohio 44484-5555 |
(330) 856-8800 | Avalon Travel, Inc.
| One American Way
AWMS Holdings, LLC | Warren, Ohio 44484-5555
One American Way | (330) 856-8400
Warren, Ohio 44484-5555 |
(330) 856-8800 |
AWMS Rt. 169, LLC |
One American Way |
Warren, Ohio 44484-5555 |
(330) 856-8800 |

32

Avalon Holdings Corporation and Subsidiaries

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

33

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 2014 and 2013 as reported by The Wall Street Journal is as follows:

2014: Quarter Ended |  | High |  |  | Low |  |  | Close |
March 31 |  | $ | 5.93 |  |  | $ | 5.01 |  |  | $ | 5.22 |
June 30 |  |  | 5.49 |  |  |  | 3.81 |  |  |  | 4.31 |
September 30 |  |  | 5.11 |  |  |  | 3.52 |  |  |  | 3.72 |
December 31 |  |  | 3.96 |  |  |  | 2.62 |  |  |  | 2.62 |

2013: |  |  |  |  |  |  |  |  |
Quarter Ended |  | High |  |  | Low |  |  | Close |
March 31 |  | $ | 4.22 |  |  | $ | 3.73 |  |  | $ | 4.12 |
June 30 |  |  | 4.06 |  |  |  | 3.29 |  |  |  | 3.74 |
September 30 |  |  | 5.91 |  |  |  | 3.41 |  |  |  | 5.38 |
December 31 |  |  | 5.62 |  |  |  | 4.97 |  |  |  | 5.20 |

No dividends were paid during 2014.

There are 338 Class A and 9 Class B Common Stock shareholders of record as of the close of business March 6, 2015. 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 Broadridge Corporate Issuer Solutions, Inc. Regular mail correspondence should be sent to P.O. Box 1342, Brentwood, NY 11717 and overnight correspondence to ATTN: IWS, 1155 Long Island Avenue, Edgewood, NY 11717

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 Bryan P. Saksa, Chief Financial Officer and Treasurer, 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.

34