AVALON COMMUNITY SERVICES INC, POS AM, 1996-05-08

AVALON COMMUNITY SERVICES INC
POS AM, 1996-05-08
FACILITIES SUPPORT MANAGEMENT SERVICES

Previous: LINCOLN NATIONAL INTERNATIONAL FUND INC, 497, 1996-05-08

Next: FUISZ TECHNOLOGIES LTD, S-8, 1996-05-08

<PAGE> 1
REGISTRATION NO. 33-83932

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

________________

POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

________________

AVALON COMMUNITY SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)

________________

NEVADA 8999 13-3592263
(State of Incorporation (Primary Standard Industrial (I.R.S. Employer
or Organization) Classification Code No.) Identification No.)

13401 RAILWAY DRIVE
OKLAHOMA CITY, OKLAHOMA 73114
(405) 752-8802
(Name, address, including zip code and telephone number,
including area code, of Registrant's principal executive office)

<TABLE>
<S> <C>
DONALD E. SMITH WITH COPIES TO:
Chief Executive Officer MARK A. ROBERTSON, ESQ.
AVALON COMMUNITY SERVICES, INC. ROBERTSON & WILLIAMS
13401 RAILWAY DRIVE 3033 N.W. 63RD STREET, SUITE 160
OKLAHOMA CITY, OKLAHOMA 73114 OKLAHOMA CITY, OK 73116
(405) 752-8802 (405) 848-1944
(Name, address, including zip code and telephone number,
including area code, of agent for service)
</TABLE>

___________________

================================================================================

<PAGE> 2
AVALON COMMUNITY SERVICES, INC.

CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS,
FILED AS PART OF REGISTRATION STATEMENT, OF
INFORMATION REQUIRED BY FORM SB-2

<TABLE>
<CAPTION>
ITEM
NUMBER IN
FORM SB-2 ITEM CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
- --------- ------------------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . . . Front Cover Page

2. Inside Front and Outside Back
Cover Pages of Prospectus . . . . . . . . . . . . . . Back Cover Page

3. Summary Information and Risk Factors . . . . . . . . . Summary of Prospectus; Risk
Factors

4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . Use of Proceeds

5. Determination of Offering Price . . . . . . . . . . . . Front Cover Page

6. Dilution . . . . . . . . . . . . . . . . . . . . . . . Not Applicable

7. Selling Security Holders . . . . . . . . . . . . . . . Selling Security Holders

8. Plan of Distribution . . . . . . . . . . . . . . . . . Front Cover Page; Plan of
Distribution

9. Legal Proceedings . . . . . . . . . . . . . . . . . . . The Company

10. Directors and Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . . . . . . Management; The Company

11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . Principal Shareholders

12. Description of the Securities . . . . . . . . . . . . Summary of Prospectus;
Description of Securities

13. Interest of Named Experts and Counsel . . . . . . . . . Not Applicable

14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . . . . . . Management
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NUMBER IN
FORM SB-2 ITEM CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
- --------- ------------------------- ----------------------
<S> <C> <C>
15. Organization within Last Five Years . . . . . . . . . . Management

16. Description of Business . . . . . . . . . . . . . . . . Front Cover Page; Summary of
Prospectus; The Company;
Business

17. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . . . . . . Management's Discussion and
Analysis of Financial
Condition

18. Description of Property . . . . . . . . . . . . . . . . Business

19. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . Management

20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . Price Range of Common Stock
and Dividends

21. Executive Compensation . . . . . . . . . . . . . . . . Management

22. Financial Statements . . . . . . . . . . . . . . . . . Index to Financial Statements

23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . Experts

24. Indemnification of Directors and Officers . . . . . . . Part II of Registration Statement

25. Other Expenses of Issuance and
Distribution . . . . . . . . . . . . . . . . . . . . Part II of Registration Statement

26. Recent Sales of Unregistered Securities . . . . . . . . Part II of Registration Statement

27. Exhibits . . . . . . . . . . . . . . . . . . . . . . . Exhibits to Registration Statement

28. Undertakings . . . . . . . . . . . . . . . . . . . . . Part II of Registration Statement
</TABLE>
<PAGE> 4
AMENDED
PROSPECTUS

AVALON COMMUNITY SERVICES, INC.

1,475,100 SHARES OF COMMON STOCK

310,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

Of the 1,475,100 shares of Common Stock (the "Common Stock") and the
310,000 Redeemable Common Stock Purchase Warrants (the "Warrants") of Avalon
Community Services, Inc. (the "Company") offered hereby, 310,000 Warrants are
being sold by certain security holders of the Company. In addition, 100,000
shares of Common Stock and 100,000 Warrants are reserved for issuance by the
Company to Westminster Securities Corporation and its permitted assigns
("Westminster") upon the exercise by Westminster of a warrant previously issued
by the Company to Westminster in connection with a private placement of
securities in 1994. Upon issuance, the resale by Westminster of such shares
and Warrants is registered hereby. The balance of 1,375,100 shares of Common
Stock are issuable by the Company upon the exercise of the Warrants, except for
shares acquired by Class C Warrant holders and Westminster who purchased such
Warrants in the recent private placement, in which case such shares are sold by
the Selling Shareholders. Unless the context otherwise requires, the holders
of the Common Stock and Warrants who are selling securities hereunder are
hereinafter collectively referred to as the "Selling Shareholders." The
Company will not receive any proceeds from the sale of the Common Stock or the
Warrants by the Selling Shareholders. See "Selling Shareholders," "Plan of
Distribution" and "Use of Proceeds."

The Company's Common Stock is listed on the NASDAQ SmallCap Market
System under the symbol "CITY." The average of the bid and asked price for the
Common Stock, as reported on the NASDAQ SmallCap Market System, was $4.625 per
share on May 6, 1996. There is no established trading market for the Warrants.

INVESTMENT IN THE SECURITIES IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=============================================================================================================
Underwriting Proceeds to
Price to Discounts and Selling Proceeds to
Public Commissions Shareholders Company(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Offering by Selling Shareholders(2) See Text See Text See Text See Text
Per share . . . . . . . . . . . . . . . Note (2) Note (2) Note (2) Note (2)
Per warrant . . . . . . . . . . . . . .
- -------------------------------------------------------------------------------------------------------------
Offering by Company:(3)
Per Share from Placement Agent
Warrant . . . . . . . . . . . . . . . . 1.50 $-0- $-0- $1.50
Offering Price per Share of
Common Stock Underlying 6.00 (B) $-0- $-0- 6.00 (B)
Warrants(4) . . . . . . . . . . . . . . 3.50 (C) $-0- $-0- 3.50 (C)
Total . . . . . . . . . . . . . . . . $5,930,600.00 $-0- $-0- $5,930,600.00
=============================================================================================================
</TABLE>
(See Notes on Following Page)

This Prospectus also relates to such additional securities as may be
issued to the Selling Shareholders and Westminster because of future stock
dividends, stock distributions, stock splits or similar capital readjustments.

The date of this Amended Prospectus is May __, 1996.

<PAGE> 5
(1) Before deducting expenses payable by the Company and Selling
Shareholders, which are estimated at $32,000 and before the payment of
any Warrant solicitation fees due on the Class C Warrants to
Westminster Securities of 5% of the exercise price, estimated at
$179,000.

(2) The Selling Shareholders have advised the Company that they propose to
offer for sale and to sell the Warrants from time to time during the
next 12 months through brokers in the over-the-counter market, in
private transactions, or otherwise, at market prices then prevailing
or obtainable. Accordingly, sales prices and proceeds to the Selling
Shareholders will depend upon price fluctuations and the manner of
sale. If the Warrants are sold through brokers, the Selling
Shareholders will pay brokerage commissions and other charges (which
compensation as to a particular broker-dealer might be in excess of
customary commissions). Except for the payment of such brokerage
commissions and charges, their share of the offering expenses and the
legal fees, if any, of the Selling Shareholders, the Company will bear
the balance of all expenses in connection with registering the
securities offered hereby. Such expenses are estimated to total
approximately $32,000. See "Plan of Distribution."

(3) The offering of Common Stock by the Company is adjusted to reduce the
number of shares sold by the Company and correspondingly increase the
number of shares offered by Selling Shareholders by the number of
shares issued to Class C Warrant holders who acquired such Warrants as
a part of the original private placement of such Warrants. The
exercise of such Warrants by the original holders would be considered
a part of the original private placement and not registered hereby.
In such case, the resale of the Common Stock by these holders is being
registered for sale by Selling Shareholders hereby.

(4) Classified by B and C Warrants.

AVAILABLE INFORMATION

The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and, in accordance therewith,
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Chicago, Illinois 60661. Copies of such material
can also be obtained at prescribed rates by writing to the Securities and
Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549.

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act of 1933, as
amended with respect to the securities offered hereby. This Prospectus, filed
as a part of the Registration Statement, does not contain information set forth
in or annexed as exhibits to the Registration Statement, and reference is made
to such exhibits to the Registration Statement for the complete text thereof.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and to the exhibits
filed as part thereof, which may be inspected at the office of the Commission
without charge, or copies thereof may be obtained therefrom upon payment of a
fee prescribed by the Commission.

2
<PAGE> 6
PROSPECTUS SUMMARY

The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the detailed information and
Consolidated Financial Statements (including the Notes thereto) appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety.

THE COMPANY

Avalon Community Services, Inc. (the "Company") operates (through its
wholly owned subsidiaries) minimum security private correctional services,
substance abuse treatment services, residential care services, outpatient
mental health services and assisted living centers. These services include the
following: (a) the Company provides private correctional services to the State
of Oklahoma through the operation of a 250-bed facility in Oklahoma City,
Oklahoma and a 255-bed facility in Tulsa, Oklahoma for inmates classified as
minimum security level; (b) the Company through its wholly owned subsidiaries,
owns two residential care facilities, and provides contract management services
for a third residential care facility; (c) the Company manages four outpatient
mental health clinics; and (d) the Company is developing and has contracted to
operate two assisted living centers. The Company has entered into a joint
venture with Kansas City Community Center, Inc., a Missouri not-for-profit
corporation, to provide substance abuse treatment services for inmates in
Nebraska and Florida. See "THE COMPANY" and "BUSINESS."

THE OFFERING

<TABLE>
<S> <C>
Securities Offered by
Company . . . . . . . . . . . . Up to 1,375,100 shares of Common Stock upon the exercise of all outstanding
Warrants.

Securities Offered by Selling
Securities Holders . . . . . . 310,000 Class C Warrants, plus any shares of Common Stock issued pursuant to the
exercise of Class C Warrants by any persons who acquired the Warrants in the
original private placement of such Warrants or by the placement agent upon its
exercise of its placement agent warrant. The Class A Warrants previously
registered have expired. 100,000 shares of Common Stock and 100,000 Class C
Warrants issuable pursuant to and upon the exercise of a placement agent's
warrant agreement. In addition to the 1,000,000 Class C Warrants issued in the
original private placement of such Warrants, an additional 80,000 Class C
Warrants were issued as a part of a settlement of certain litigation pending
against the Company. These additional warrants are not registered hereby.

Terms of Warrants . . . . . . . . Each Class B Warrant will entitle the holder to purchase one share of Common
Stock at a price of $6.00 per share, subject to certain adjustments. The
Warrants are exercisable at any time until their expiration in March, 1999. The
Warrants are subject to redemption by the Company at a price of $0.01 per Warrant
upon the satisfaction of certain conditions. See "DESCRIPTION OF SECURITIES --
Warrants."

Each Class C Warrant will entitle the holder to purchase one share of Common
Stock at a price of $3.50 per share, subject to certain adjustments. The
Warrants are exercisable at any time until their expiration in December, 1999.
The Warrants are subject to redemption

</TABLE>

3
<PAGE> 7

<TABLE>
<S> <C>
by the Company at a price of $0.01 per Warrant upon the satisfaction of certain
conditions. See "DESCRIPTION OF SECURITIES -- Warrants."

Common Stock Outstanding
prior to this Offering . . . . 2,496,905 Shares

Common Stock Outstanding
after to this Offering . . . . 4,052,005 Shares if all Warrants are exercised.

Use of Proceeds . . . . . . . . The proceeds of this offering may be used by the Company to fund new projects,
expand existing operations, retire existing indebtedness, for working capital and
general corporate purposes. See "USE OF PROCEEDS."

Risk Factors . . . . . . . . . . An investment in the Company involves certain risks, including operational risks
associated with the various businesses owned by the Company, dependence on key
individuals, competition, the risk of illiquidity and other risks as more fully
set forth under "RISK FACTORS."

NASDAQ Symbol . . . . . . . . . . "CITY" on the NASDAQ SmallCap Market System.
</TABLE>

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Revenues From Continuing Operations . . . . . . . . . $2,254,490 $2,536,136 $3,056,032
Income (Loss) From Continuing Operations . . . . . . 60,905 66,893 (31,942)
Income (Loss) From Continuing Operations
Per Common Share . . . . . . . . . . . . . . . . . 0.04 0.03 (0.01)
Income (Loss) From Discontinued Operations . . . . . - (59,539) (52,898)
Income (Loss) From Discontinued Operations
Per Common Share . . . . . . . . . . . . . . . . . - (0.03) (0.02)
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:

Total Assets . . . . . . . . . . . . . . . . . . . . $3,222,581 $4,725,616 $6,450,199
Long-Term Debt,
less Current Maturities . . . . . . . . . . . . . . 1,085,907 1,512,797 3,449,275
Stockholder's Equity . . . . . . . . . . . . . . . . 1,086,604 2,425,666 2,340,826

</TABLE>

4
<PAGE> 8
RISK FACTORS

An investment in the Company is speculative and involves a high degree
of risk. Prior to making an investment, prospective investors should carefully
consider the following risk factors inherent in and affecting the business of
the Company and this offering.

LIMITED CUSTOMER BASE; NO COMMITMENT FOR MINIMUM NUMBER OF INMATE
REFERRALS; UNCERTAINTY OF FUTURE CONTRACTS. Approximately 68% percent of the
Company's business is derived from contracts with the Oklahoma Department of
Corrections ("ODOC") relating to the Company's private correctional facilities
in Oklahoma City ("Carver Center") and Tulsa ("Avalon Correctional Center").
The Company's contracts with the ODOC do not specify a commitment by ODOC to
send a minimum number of inmates to the Company's private correctional
facilities. There is no guarantee that government funds will continue to be
available for the housing of inmates in halfway houses such as Carver Center
and Avalon Correctional Center, or that the State of Oklahoma will not find an
alternate means of alleviating prison overcrowding without the use of outside
contractors such as the Company. Further, there is a financial risk to the
Company that the expansion of the Carver Center and Avalon Correctional Center
will not generate additional numbers of inmates and revenues to justify such
expansion. The Company's private correctional operations are dependent upon
the continuation of its existing contractual relationships with the State of
Oklahoma, as to which no guarantees can be given. The Company's contracts have
typically been one year renewable contracts. Further, there is no guarantee
that the ODOC will contract for any particular number of beds during the term
of any contract. The Company would have no recourse in the event that funding
for the types of services rendered to inmates at Carver Center and Avalon
Correctional Center were to be decreased or even discontinued by the State of
Oklahoma, which would result in termination of the Company's existing
contracts. See "BUSINESS -- Correctional Services."

SIGNIFICANT GOVERNMENT REGULATION: OVERSIGHT, AUDITS AND
INVESTIGATIONS. The Company's business is highly regulated by a variety of
governmental authorities such as the ODOC, the Oklahoma Department of Mental
Health and Substance Abuse Services, the Oklahoma Health Department and various
municipal zoning authorities, with oversight occurring continuously. Failure
by the Company to comply with contract terms or applicable regulations could
expose it to substantial penalties. In addition, changes in existing
regulations could require the Company to modify substantially the manner in
which it conducts business and, therefore, could have a material adverse effect
on the Company. See "BUSINESS -- Regulation."

Additionally, the Company's contracts give the contracting agency the
right to conduct audits of the facilities and operations managed by the Company
for the agency, and such audits occur routinely. An audit involves a
governmental agency's review of the Company's compliance with the prescribed
policies and procedures established with respect to the facility. Further, the
Company may be subject to investigations as a result of an audit, an inmate's
complaint or other causes. See "BUSINESS -- Legal Proceedings."

LACK OF ACCEPTANCE OF PRIVATIZED CORRECTIONAL AND DETENTION
FACILITIES. Management of correctional and detention facilities by private
entities has not achieved complete acceptance by either governments or the
public. Some sectors of the Federal government and some state governments are
legally unable to delegate their traditional management responsibilities for
correctional and detention facilities to private companies. The operation of
correctional and detention facilities by private entities is a relatively new
concept and is not widely understood by the public and has encountered
resistance from certain groups, such as labor unions, local sheriffs
departments, and groups that believe that correctional and detention facility
operations should only be conducted by governmental agencies. Moreover,
changes in dominant political parties in any of the markets in which the
Company operates could result in significant changes to previously established
views of privatization in such market. See "BUSINESS -- Correctional
Services."

REQUIREMENTS OF ACCREDITATION; INSPECTION AND RISK OF LOSS OF
ACCREDITATION. In order to maintain its existing contracts with agencies of
the State of Oklahoma, the Company must remain accredited by the American
Correctional Association (the "ACA"), a not-for-profit organization which has
developed uniformity and industry standards for inmate care and operations of
correctional facilities and agencies. Accreditation involves a very extensive
audit and compliance procedure, and is generally granted for a three-year
period. Carver Center has been

5
<PAGE> 9
accredited since 1990 and the current three-year accreditation expires in 1996.
Avalon Correction Center is scheduled for its initial accreditation survey in
1996. Management is not aware of any facts or circumstances which might impair
or jeopardize accreditation or reaccreditation. In addition to the ACA
accreditation, the Company must undergo periodic inspections of its premises by
agencies of the State of Oklahoma, as well as annual inspections by the City
and State Fire Marshal's Office. See "BUSINESS."

WORKING CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING. The
Company may require additional capital to finance its operations and continued
growth. There can be no assurance that the Company will be able to obtain such
working capital or financing if and when needed, or that if obtained, it will
be sufficient or on terms and conditions acceptable to the Company.

BROAD DISCRETION AS TO USE OF PROCEEDS. Assuming all Warrants are
exercised, the Company would receive net proceeds of approximately $5,730,000.
Due to the contingent nature of the exercise of the Warrants, it is impossible
to determine at this time what specific projects or uses would be made of the
funds. The net proceeds may be used to fund new projects, expand existing
operations, retire indebtedness or for working capital and other general
corporate purposes. Management will have broad discretion with respect to the
expenditure of such funds. See "USE OF PROCEEDS."

POTENTIAL LEGAL LIABILITY. The Company's management of correctional
and residential care facilities exposes it to potential third-party claims or
litigation by prisoners, residents or other persons for personal injury or
other damage resulting from contact with Company-managed facilities, programs,
personnel or prisoners, including damages arising from a prisoner's escape or
from a disturbance or riot at a Company-managed facility. The Company
participates in an insurance program that provides coverage for certain
liability risks faced by the Company, including accident and personal injury
and bodily injury or property damage to a third party where the Company is
found to be negligent. There can be no assurance, however, that the Company's
insurance will be adequate to cover all potential third-party claims. See
"BUSINESS -- Insurance."

ADVERSE PUBLICITY. Both the Company's correctional business and its
residential care business are subject to public scrutiny. Any disturbances at
a Company-managed facility or another privately-managed facility may result in
publicity adverse to the Company and the industry in which it operates, which
could materially adversely affect the Company's business.

NON-ARM'S LENGTH TRANSACTIONS. The Company and its subsidiaries have
engaged in transactions with its Chief Executive Officer and principal
stockholder which may be considered as not having occurred at arm's length.
The terms of such transactions may not have been as favorable as the Company
might have received from unrelated third parties on an arms-length basis. No
guarantee can be given, however, that the Company will not engage in any
non-arm's length transactions with its officers and directors in the future.
See "BUSINESS," "CERTAIN TRANSACTIONS," and "FINANCIAL STATEMENTS."

CONFLICTS OF INTEREST. The Company's Chief Executive Officer and
principal stockholder is involved in other ventures and activities and he will
spend a portion of his time performing services for such activities. Conflicts
of interest may arise in the allocation of resources and time between the
Company and such activities and ventures. See "MANAGEMENT -- Conflicts of
Interest."

DEPENDENCE ON KEY PERSONNEL; NO KEY MAN INSURANCE. The Company is
heavily dependent upon its officers and directors for its continued operation,
and in particular on its Chief Executive Officer, Donald E. Smith. The loss of
Mr. Smith's services could have a serious impact on the operation of the
Company's business. While the Company currently pays the premiums on a policy
of life insurance pertaining to Mr. Smith, the beneficiary of the policy is a
banking institution which is a lender to the Company. The Company has no
present intention to purchase a policy of key-man life insurance pertaining to
Mr. Smith. See "BUSINESS."

EMPLOYMENT CONTRACTS. The Company has entered into a written
employment agreement with only one of its executive officers, its Chief
Executive Officer, Donald E. Smith. Mr. Smith's contract is for a five-year
term and commenced in June, 1992, providing for first-year salary of $60,000
and subsequent-year salaries to be

6
<PAGE> 10
determined by the Board of Directors of the Company. The agreement also
contains provisions for severance pay and disability payments, as well as a
non-compete agreement preventing him from engaging in a business deemed similar
to that of the Company for a period of one year from the cessation of his
employment. The Company's other officers and directors are employed by the
Company pursuant to verbal agreements.

COMPETITION. A number of other corporations operate both private
correctional facilities and residential care facilities in the same geographic
region as the Company, and still others compete directly with the Company for
contracts with agencies of the State of Oklahoma. While the Company believes
that it has certain advantages in competing for State contracts, some of the
companies eligible to compete may have longer operating histories and greater
financial resources available to them. Since the award of State contracts is
pursuant to competitive bidding, it is possible that the greater financial
resources of the companies eligible to compete might enable them to underbid
the Company for such contracts.

LOSS OF RESIDENTIAL CARE CONTRACTS. Effective July 1, 1995 certain
Oklahoma state contracts for the Company to provide residential care services
in its residential care facilities were not renewed. While Management of the
Company believes the contracts will be reinstated, the loss of these contracts
has a negative impact on the Company's revenues and cash flow. The loss of
revenues from these contracts would not be significant, amounting to
approximately 3% of the Company's revenues for 1995. See "SELECTED FINANCIAL
DATA," "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION," and
"BUSINESS -- Legal Proceedings."

CONTINUED CONTROL BY DONALD E. SMITH. The Company's Chief Executive
Officer, Donald E. Smith, controls the Company through his ownership of
1,053,500 shares of Common Stock which is approximately 42% of all Common Stock
presently outstanding. As a result of his ownership of Class B Common Stock as
discussed under "DESCRIPTION OF SECURITIES -- Class B Common Stock," Mr. Smith
will be able to vote an additional 1,210,000 shares which increases his current
voting percentage to approximately 61% before any Warrants are exercised, and
approximately 42% of the voting rights after the exercise of all Warrants.
Additional shares of Class B common stock may be issued to Mr. Smith upon his
guarantee of Company obligations which would further increase his voting
percentage. As of the date of this Prospectus, Mr. Smith is entitled to an
additional 2,220,000 shares of Class B Common Stock which can be issued
immediately for guaranteed debt. See "DESCRIPTION OF SECURITIES -- Warrants."

CORPORATE ACTION POSSIBLE WITHOUT STOCKHOLDER VOTE. Pursuant to
Nevada corporate statutes, the holders of a majority of the Company's Common
Stock may authorize or take corporate action without notice to or the consent
of the stockholders. The Company's stockholders may not have the opportunity
to approve or consent to the Company's involvement in an acquisition or other
transaction, or to the terms of such transaction. A shareholder vote may not
be made available, and in any event, such a shareholder vote would be
controlled by Management.

LARGE AMOUNT OF AUTHORIZED BUT UNISSUED SHARES. It is also possible
that the Company could issue additional shares of its common stock in the
future to finance the acquisition of businesses or properties. The Company's
Articles of Incorporation authorize the issuance of 24,000,000 shares of common
stock (both Common Stock and Class B Common Stock) and 1,000,000 of preferred
stock, of which 2,496,905 were issued and outstanding on the date of the
Prospectus (excluding Class B Common Stock). Additional shares might be issued
without shareholder approval which could have a dilutive effect on the current
shareholders. On the date of the Prospectus there were no commitments or
understandings of any kind pertaining to the Company's acquisition of
businesses or properties, or the issuance of additional shares other than as
disclosed in the Prospectus. See "DESCRIPTION OF SECURITIES" and "BUSINESS."

NO DIVIDENDS. The Company has never paid cash dividends on its
Common Stock and has no plans to pay cash dividends in the foreseeable future.
The policy of the Company's Board of Directors is to retain all available
earnings for use in the operation and expansion of the Company's business.
Therefore, this investment is not appropriate for investors seeking income.
See "DIVIDEND POLICY."

7
<PAGE> 11
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS. The Warrants registered in this Offering are not exercisable
unless, at the time of exercise, the Company has a current prospectus covering
the shares of Common Stock issuable upon exercise of the Warrants and such
shares have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the exercising holder of the
Warrants. Although the Company will use its best efforts to have all the
shares of Common Stock issuable upon the exercise of the Warrants registered or
qualified on or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of the Warrants, there is no assurance
that it will be able to do so. In this event, the Company would be unable to
issue shares to those persons desiring to exercise their Warrants unless and
until the shares and Warrants could be qualified for sale in jurisdictions in
which such purchasers reside, or an exemption from such qualification exists in
such jurisdictions, and Warrant holders would have no choice but to attempt to
sell the Warrants in a jurisdiction where such sale is permissible or allow
them to expire unexercised. See "DESCRIPTION OF SECURITIES -- Warrants."

SHARES ELIGIBLE FOR FUTURE SALE. A substantial portion (1,067,910
shares) of the Company's currently issued and outstanding shares of common
stock are "restricted" securities. Restricted securities may be sold only upon
compliance with Rule 144 adopted under the Securities Act of 1933 as amended,
or pursuant to a registration statement filed under the Act. Generally
speaking, Rule 144 provides that a person must hold restricted securities for a
period of two years, and may then sell those securities in unsolicited
brokerage transactions or in transactions with a market maker. The holder may
sell an amount equal to one percent of the Company's outstanding common stock
every three months or the average weekly reported volume of trading during the
four calendar weeks preceding the filing of a Notice of Proposed Sale,
whichever is greater. To comply with Rule 144, an issuer must make available
adequate current public information with respect to the issuer. Under certain
circumstances, the sale of shares by a person who has satisfied a three year
holding period is permitted without any quantity limitation and whether or not
there is adequate public information available. Any such sales will likely
have a depressive effect on the market price of the Company's Common Stock.

DETERMINATION OF EXERCISE PRICE OF WARRANTS. The exercise price of
the Class C Warrants was determined as part of the structuring of the recently
completed private placement through negotiations between the Company and its
placement agent, Westminster Securities Corporation ("Westminster"). The
exercise prices of the Class B Warrants was determined by negotiations between
the Company and Westminster as a part of the initial public offering of the
Company's securities. Accordingly, the exercise prices do not necessarily bear
any relationship to the assets, operating performance, or other criteria of
value applicable to the Company.

REDEMPTION OF WARRANTS. The Class B Warrants are subject to
redemption at $0.01 per Warrant upon 30 days written notice if a registration
statement covering the Warrants and the underlying Common Stock is effective.
Class C Warrants are subject to redemption at $0.01 per Warrant on 30 days
written notice if a registration statement covering said Warrants is in effect
and if the bid price of the Common Stock, for a period of 30 consecutive
trading days prior to the notice of redemption, equals or exceeds $5.00 per
share, and if a Registration Statement of the Company covering the Class C
Warrants and the shares of Common Stock issuable upon the exercise of the
Warrants is current at all times during the 30-day notice period and for the 30
days immediately preceding the notice period. In the event the Company
exercises the right to redeem the Class C Warrants, such Warrants would be
exercisable until the close of business on the date fixed for redemption in
such notice. If any Warrant called for redemption is not exercised by such
date, it will cease to be exercisable and the holder will be entitled only to
the redemption price. See "DESCRIPTION OF SECURITIES -- Warrants."

EFFECT OF CLASSES B AND C WARRANTS. The holders of the Company's
outstanding Class B and Class C Warrants have the opportunity to profit from a
rise in the market value of the Common Stock of the Company, if any, at the
expense of the holders of Common Stock. A Warrant holder may be expected to
exercise Warrants at a time when the Company, in all likelihood, would be able
to obtain equity capital, if it so desired, by a public sale of new Common
Stock on terms more favorable than those provided in the Warrants. Exercise of
the Warrants could dilute the equity interest of other stockholders in the
Company. See "DESCRIPTION OF SECURITIES -- Warrants."

8
<PAGE> 12
ILLIQUIDITY. Although the Company's Common Stock is publicly traded,
the trading is very thin and may not be an indication of the value of the
Common Stock. There is presently no established trading market for the
Warrants. While there are several securities broker-dealers making a market in
the Company's Common Stock, there is no assurance that a public market for the
Company's securities will continue to be made.

LOSS FOR 1995. The Company incurred a net loss of $84,800 for the
year ended December 31, 1995 of which $31,900 was from continuing operations
and $52,900 from discontinued operations. The new correctional facility in
Tulsa, Oklahoma had a start-up loss in 1995 of $101,000. See "MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -- Results of Operations."

LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS; INDEMNIFICATION.
The Company's Articles of Incorporation empower the Company to indemnify the
officers and directors against judgments, fines, and other amounts and costs
resulting from actions or proceedings in which they may be involved by reason
of their having held such positions, to the fullest extent permitted pursuant
to the laws of the State of Nevada. The Articles of Incorporation also limit
the personal liability of the Company's directors to the fullest extent
permitted by the Nevada Revised Statutes. The Nevada Revised Statutes contain
provisions entitling directors and officers to indemnification from judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, as a result of an action or proceeding in which they may be involved by
reason of being or having been a director or officer of the Company; provided
said officers or directors acted in good faith. See "MANAGEMENT -- Limitation
of Officer and Director Liabilities." The Company's By-Laws state that such
indemnification may not be provided in relation to matters as to which the
person seeking indemnification is adjudged to be liable for negligence or
misconduct in the performance of duty. The Company's policy, therefore, is
that no indemnification will be provided for bad faith actions and/or breaches
of management's fiduciary duties, including in connection with shareholder
derivative suits.

THE COMPANY

Avalon Community Services, Inc. (the "Company") provides various
services that have historically been provided by governmental agencies. Avalon
Enterprises, Inc. ("Avalon") was incorporated in Nevada in September, 1990. On
June 15, 1992, Avalon acquired Southern Correction Systems, Inc. ("SCS"). SCS,
which was incorporated in 1990, was engaged in the business of providing
private correctional services. In June, 1992, Avalon's name was changed to
Avalon Community Services, Inc. The Company acquired two affiliated companies,
Elk City Properties, Inc. ("ECP") and Central Oklahoma Properties Corp.
("COP"), effective December 31, 1993. ECP is engaged in the business of
providing residential care services and COP owns and leases certain related
real estate. See "BUSINESS."

The Company, through its wholly-owned subsidiaries, provides minimum
security private correctional services, substance abuse treatment services,
residential care services, outpatient mental health services and assisted
living centers. These services include the following: (a) the Company
provides private correctional services to the State of Oklahoma through the
operation of a 250-bed facility in Oklahoma City, Oklahoma and a 255-bed
facility in Tulsa, Oklahoma for inmates classified as minimum security level;
(b) the Company through its wholly owned subsidiaries, owns two residential
care facilities, and provides contract management services for a third
residential care facility; (c) the Company manages four outpatient mental
health clinics; and (d) the Company is developing and has contracted to operate
two assisted living centers. The Company has entered into a joint venture with
Kansas City Community Center, Inc., a Missouri not-for-profit corporation, to
provide substance abuse treatment services for inmates in Nebraska and Florida.
The Company terminated its park management services operations in 1995. A
significant portion of the Company's revenues are derived through contracts
with the State of Oklahoma.

The Company's executive office is located at 13401 Railway Drive,
Oklahoma City, Oklahoma 73114. The Company's telephone number is (405)
752-8802.

9
<PAGE> 13
USE OF PROCEEDS

Assuming all Warrants are exercised, the Company would receive net
proceeds of approximately $5,730,600 after paying approximately $200,000 in
legal fees, accounting fees, printing and selling expenses and other offering
costs. Receipt of proceeds by the Company is contingent on the exercise of the
Warrants which in turn is contingent on the market price of the Company's
Common Stock. Therefore, it is impossible at this time to determine specific
project's expenditures or use of funds. The net proceeds may be used by the
Company to fund new projects in the correctional, residential care, assisted
living or in other areas of privatization of traditional government services,
expand existing operations, retire existing indebtedness, or for working
capital and general corporate purposes. For a description of existing
indebtedness, see Note 6 to the Consolidated Financial Statements of the
Company.

The Company will not receive any of the proceeds from the sale of
shares of Common Stock and the Warrants by the Selling Shareholders.

DIVIDEND POLICY

The Company has paid no dividends as of the date of this Prospectus
nor does it intend to pay dividends on its Common Stock in the foreseeable
future. See "DESCRIPTION OF SECURITIES." The Company currently intends to
retain future earnings to fund development and growth of its business. In the
future, any payment of dividends on Common Stock will be dependent upon the
financial condition, capital requirements and earnings of the Company and any
other factors the Board of Directors may deem relevant. Therefore, this
investment is not appropriate for investors seeking income.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed for trading on the NASDAQ
SmallCap Market System under the trading symbol "CITY". The following table
reflects the range of high and low bid prices, as reported by the NASDAQ, for
each quarterly period during 1994 and 1995 and the first quarter of 1996. The
prices represent inter-dealer prices, without mark-up, mark-down or commission
and may not represent actual transactions.

<TABLE>
<CAPTION>
Quarterly Period Ended High Low
-----------------------------------------------------------------
<S> <C> <C>
March 31, 1994 2 1/4 1
June 30, 1994 2 1/8 3/4
September 30, 1994 3 1/8 1 5/8
December 31, 1994 3 1/8 2
March 31, 1995 2 1/8 1
June 30, 1995 2 11/16 1
September 30, 1995 3 1/8 1
December 31, 1995 3 3/8 2 1/4
March 31, 1996 2 1/2 2
</TABLE>

The average of the bid and asked prices for the Common Stock, as
reported on the NASDAQ SmallCap Market System was $4.625 per share on May 6,
1996. The Company had approximately 420 holders of its common stock as of May
6, 1996.

CAPITALIZATION

The following table sets forth the historical capitalization of the
Company as of December 31, 1995, as derived from the Consolidated Financial
Statements of the Company. The information shown below should be read in
conjunction with "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION"
and the Consolidated Financial Statements and Notes and other financial
information included elsewhere herein.

10
<PAGE> 14
<TABLE>
<CAPTION>
December 31, 1995
-----------------
<S> <C>

Current Maturities
of Long-Term Debt . . . . . . . . . . . . . . . . . . . $278,837
========

Long-Term Debt, less Current Maturities . . . . . . . . . $3,449,275
==========
Stockholders' Equity
Common Stock, 24,000,000 shares authorized:
Class A, par value $.001, 2,496,905
shares issued and outstanding . . . . . . . . . . . 2,497
Class B, no par, 1,210,000
shares issued and outstanding . . . . . . . . . . . --
Paid-In Capital . . . . . . . . . . . . . . . . . . . . 2,678,214
Accumulated Deficit . . . . . . . . . . . . . . . . . . (339,885)
----------
Total Stockholders' Equity . . . . . . . . . . . . . $2,340,826
==========
</TABLE>

SELECTED FINANCIAL DATA

The following selected financial data for the years ended December 31,
1994 and 1995, are derived from the audited Consolidated Financial Statements
of the Company. The data should be read in conjunction with the Consolidated
Financial Statements, related notes, and other financial information included
herein.

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
December 31,
------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES -

The Company's net cash provided by operations was $55,600 in 1995 as
compared to net cash of $9,000 used for operations in 1994. Working capital
was a positive $56,600 and $387,200 at December 31, 1995, and 1994. Working
capital was primarily used for the retirement of existing debt and construction
of the Avalon Correctional Center in Tulsa, Oklahoma.

11
<PAGE> 15
Capital expenditures totaled $2.6 million during 1995, compared to
$1.2 million during 1994. The most significant expenditures during 1995 were
the remaining $381,000 for the expansion of Carver Center to a 250-bed
facility, and $1.9 million to complete the construction of the Avalon
Correctional Center, a 255-bed minimum security correctional facility in Tulsa,
Oklahoma. Proceeds from asset dispositions, primarily park property management
equipment, totaled $71,000 in 1995 and were utilized to retire related debt.

Current maturities of long-term debt was reduced by $173,900 during
1995 by a combination of cash payments and refinancing to long term debt. The
Company's $380,000 revolving bank line of credit was renewed to mature in
February, 1997. Existing debt related to the administrative building was
refinanced on a five-year term note. Long-term debt borrowed during 1995
totaled $2.3 million and consisted primarily of financing for the Carver Center
addition and Avalon Correctional Center in Tulsa, Oklahoma. Repayments of
long-term debt for $558,000 were primarily the result of the application of
proceeds from working capital and asset dispositions.

The Company believes it has sufficient cash reserves and ample cash
flow from operations to meet its current cash requirements. Additional sources
of funding may be required for future expansion. The Company will explore
other sources of funding such as additional bank borrowings or the sale of
equity securities for future expansion. Additional funds may also be available
through the exercise of the Company's outstanding stock purchase warrants.

NEW ACCOUNTING PRONOUNCEMENTS -

In March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed of
("SFAS No. 121"). SFAS No. 121 sets forth standards for recognition and
measurement of impairment of long-lived assets. SFAS No. 121 is effective for
the Company in 1996. The Company does not believe the adoption of SFAS No. 121
will have a material effect on its consolidated financial statements in 1996.

In October, 1995, the Financial Accounting Standards Board issued
Statement Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"). SFAS No. 123 prescribes a fair value-based
method of determining compensation expense related to stock-based awards
granted to employees or associates. The recognition provisions of SFAS No. 123
are optional; however, entities electing not to adopt SFAS No. 123 are required
to make disclosures of proforma net income and earnings per share as if SFAS
No. 123 had been applied. The Company does not plan to adopt the recognition
provision of SFAS No.123. Pursuant to the pronouncement, the disclosure
requirements for the Company are effective in 1996.

RESULTS OF OPERATIONS -

YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994 -

The Company had a net loss in 1995 of $84,800 or $.03 per share, as
compared to net income in 1994 of $7,400 or $.00 per share. The majority of
the loss incurred in 1995, $52,900 or $.02 per share, was due to discontinued
park property management operations. The loss from discontinued operations in
1994 was $59,600 or $.03 per share. The new correctional facility, Avalon
Correctional Center, had a start up loss in 1995 of $101,000, and the
residential care facilities had a net operating loss in 1995 of $52,300 as
compared to a net operating gain in 1994 of $140,600.

Total revenues for 1995 increased by 21% from $2,536,000 to
$3,056,000, primarily due to an increase in revenue from corrections, offset by
a decrease in revenue from residential care. Operating expenses increased by
26%, due to the increase in correctional operations and an increase in
residential care expenses.

CORRECTIONS. Operating income for 1995 was $865,700 as compared to
$596,800 in 1994, an increase of approximately 45%. Revenues increased from
$1,364,000 in 1994 to $2,106,000 in 1995 directly as a result of the expansion
of the Carver Center and the opening of Avalon Correctional Center. The average
inmate census increased from 143 in 1994 to 198 in 1995. The average revenue
per inmate day rate increased from approximately $26 in

12
<PAGE> 16
1994 to approximately $29 in 1995. Operating expenses increased by 62% also as
a result of the expansion of the facilities. Avalon Correctional Center
incurred an operating start up loss of approximately $101,000 in 1995.

RESIDENTIAL CARE. Operating loss for 1995 was $52,300 as compared to
an operating gain of $140,600 in 1994. Revenues decreased by 11% in 1995 from
$1,007,600 in 1994 to $896,900 in 1995 primarily as a result of a 9% decrease
in census and a loss of state contracts of approximately $60,000. State
contract revenues accounted for approximately 3% of total revenues in 1995.
Operating expenses increased by 9% primarily due to an increase in staffing.
Effective January 1, 1996, the operations were contracted to a tax exempt
organization.

PARK MANAGEMENT. The Company ceased operations and canceled its park
management contract in June, 1995. The loss on the disposal of operations,
net of income tax benefit of $27,400, was $34,100. Loss from operations in
1994 was $59,500 as compared to a loss from operations in 1995 of $18,800.
Management believes that it is in the Company's best interest to devote
available resources to opportunities in other areas of the Company's business.

CORPORATE. General and administrative expenses increased in 1995 by
14% from $529,100 to $603,300. The increase was a result of additional
staffing, increased legal expenses, and an increase in advertising, marketing,
and promotional costs. The increase in 1995 of $110,700 in interest expense
was primarily due to interest on the funds borrowed for the expansion of the
Carver Center ($39,000) and the construction of Avalon Correctional Center
($69,000). Depreciation and amortization expense increased by $91,900
primarily as a result of the expansion of Carver Center and the opening of
Avalon Correctional Center.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993 -

CORRECTIONS. Revenues increased 7% in 1994 from $1,276,000 to
$1,364,000 as a result of both increases in contract rates and total inmate
days. The rate increases were effective July 1, 1993 and 1994. Operating
expenses increased 5% in 1994 from $665,000 to $696,000 due to additional
personnel, food and other variable costs associated with the increase in total
inmate days. Depreciation increased $10,000 resulting from facility
improvements and additional transportation equipment.

RESIDENTIAL CARE. Revenues increased 13% in 1994 from $894,000 to
$1,008,000 primarily as a result of rate escalations in monthly fees effective
January 1, 1994 and reimbursements of additional expenses incurred for the
benefit of the certain residents. Operating expenses increased 11% in 1994
from $733,000 to $810,000 principally as a result of additional personnel
costs, increased facility rent and additional repairs and maintenance. The
increase of $7,000 in depreciation expense in 1994 was primarily attributable
to the upgrading of furnishings for both facilities during 1994.

PARK MANAGEMENT. The Company's park management operations commenced
in April, 1994 generating revenues of $83,000 and incurring related costs and
expenses, including depreciation, of $171,000.

CORPORATE. General and administrative expenses increased 19% in 1994
from $443,000 to $529,000. The primary factors accounting for this increase
were: a) increases in salaries for officers and administrative personnel; b)
additional staffing of administrative personnel and; c) legal and professional
fees incurred in 1994 in connection with December 31, 1993 acquisitions. These
factors were partially offset by an increase of $30,000 in administrative fees
charged to affiliates. Depreciation expense increased $16,000 due to
improvements made to the Company's administrative offices and additional
transportation equipment. The increase of $19,000 in interest expense was due
to: (a) indebtedness of $280,000 incurred in the second quarter of 1993 and;
(b) short-term indebtedness of $310,000 incurred in late 1993.

13
<PAGE> 17
BUSINESS

GENERAL

The Company, through its wholly-owned subsidiaries, provides private
minimum security correctional services, substance abuse treatment services,
residential care services for persons in need of supportive assistance, out
patient mental health services and develops and manages assisted living
centers. The Company is the largest provider in Oklahoma of community
correction services (505 beds), residential care services (224 beds), and
outpatient mental health and substance abuse services (approximately 200
patients per day). The Company is the only provider of substance abuse
treatment services for incarcerated inmates in Nebraska.

Avalon Enterprises, Inc. ("Avalon") was incorporated in Nevada in
September, 1990 and acquired Southern Correction Systems, Inc. ("SCS") on June
15, 1992. SCS was incorporated in 1990 and was engaged in the business of
providing private correctional services. Avalon's name was changed to Avalon
Community Services, Inc in June, 1992. The Company acquired two affiliated
companies, Elk City Properties, Inc. ("ECP") and Central Oklahoma Properties
Corp. ("COP") effective December 31, 1993. Both ECP and COP were incorporated
in 1990. ECP is in the business of providing residential care services and COP
owns and leases certain related real estate.

CORRECTIONAL SERVICES

The trend in the United States toward privatization of government
services and functions has increased as governments have faced continuing
pressure to control costs and improve the quality of services. Governmental
agencies responsible for correctional and detention facilities have privatized
facilities in an attempt to address these pressures.

The Company believes the overcrowding in correctional and detention
facilities will be made worse by the perceived public demand for longer prison
sentences and prison terms for juvenile offenders. Fiscal pressures have
forced some governments to limit public services and to seek more
cost-effective means of providing the remaining services. Correctional and
detention facilities are viewed as an essential service and fiscal pressures
have pushed governments to seek to deliver these services more cost
effectively. Certain courts and other governmental entities in the United
States have mandated that services offered to inmates be expanded and living
conditions be improved. Many governments do not have the readily-available
resources to make the changes necessary to meet such mandates and must seek
private providers.

A combination of factors in many states (i.e., decreasing revenues,
increasing prison population, legal battles arising from substandard prison
conditions and overcrowding) has led to a revamping of the corrections
processes and a reallocation of limited prison resources. Among the innovative
methods created to ease the burdens on state prisons is the move toward
utilizing private contractors to provide private correctional services.
Private correctional services provide a substantial economic saving to the
state, allow the state to comply with legislative and judicial pressure to
reduce prison populations, and create significant profit opportunities for
private entities, which are able to provide comparable or better services at
lower cost. Private correctional facilities operating as contractors for
government agencies, pursuant to court order or otherwise, exist in virtually
every state.

The Company owns and operates two minimum-security correctional
centers, Carver Center and Avalon Correction Center. The correctional centers
provide complete correctional administration, correctional officer staffing,
room and board, vocational assistance, transportation, and rehabilitation
services.

The Company's contracts with the Oklahoma Department of Corrections
are one year in duration and extend through June 30, 1996, with the option to
renew for two (2) additional one year periods. The State of Oklahoma's
performance under the contracts is subject to annual appropriation by the
legislature. The Company provides services for more minimum security inmates
in Oklahoma than any other contractor providing services to the State of
Oklahoma.

Carver Center is a 250-bed minimum security correctional facility
located in Oklahoma City, Oklahoma. Carver Center has been expanded from its
initial capacity of 25 beds in 1985, to its current capacity of 250 beds to

14
<PAGE> 18
accommodate the increasing needs of the Oklahoma Department of Corrections.
During 1995, the average number of inmates residing at Carver Center was 175.

Avalon Correctional Center is a 255-bed minimum security correctional
facility located in Tulsa, Oklahoma. The construction of the 40,000 square
foot facility was completed in July, 1995. The Avalon Correctional Center
opened in July, 1995. The average number of inmates residing at Avalon
Correctional Center during the month of December was 79.

The Carver Center is accredited by the American Correctional
Association ("ACA") as an Adult Community Correctional Facility. Avalon
Correctional Center is at the candidacy stage for ACA accreditation. ACA
accreditation or candidacy is required to contract with the State of Oklahoma
for correctional services. The ACA, a private not-for-profit organization,
was established to develop uniformity and industry standards for inmate care.
Candidates for ACA accreditation must submit to an extensive audit and ongoing
compliance procedures. Accreditation is generally granted for a three-year
period. Carver Center has been accredited since 1990 and is currently
accredited through 1996. The Company anticipates the Avalon Correction Center
will be accredited in 1996.

The Company was awarded a contract in February, 1996, with the State
of Nebraska Department of Correctional Services to provide substance abuse
treatment services. The services will be co-managed with Kansas City Community
Center, Inc., a Missouri corporation ("KCCC"). The Nebraska contract has a
fifteen-month term with two (2), two year renewal options. The contract is to
provide substance abuse treatment services in five Nebraska prisons; the
Nebraska State Penitentiary, The Lincoln Correctional Center, The Omaha
Correctional Center, The Nebraska Diagnostic and Evaluation Center, and The
Nebraska Community Corrections Center at Lincoln. The Company began providing
the contract services in March, 1996.

In January, 1996 the Company entered into an agreement with KCCC to
co-manage contracts to provide substance abuse treatment services for 10
Florida correctional facilities beginning in July, 1996.

The Company is currently evaluating additional correctional projects
in Oklahoma, Nebraska, Colorado, Florida, and other states.

ASSISTED LIVING

The assisted living industry evolved to fill a gap in the long-term
care industry and has been an outgrowth of the nursing home industry and
independent living. The growing demand for available beds coupled with the
shrinkage of available nursing home beds, has provided a window of opportunity
for the industry. Longer life expectancy and more people becoming elderly has
dramatically increased the need for elderly care. The cost of long-term care
has become a national health concern. The cost of assisted living care is
approximately 35% lower than nursing home care. Prior to entering a market,
the Company prepares a survey of available facilities in each community in
which a center will be purchased or constructed to determine the competition in
the surrounding area.

The Company's development plan for assisted living is based upon
knowledge and experience gained through ten years of operating as a
cost-effective provider of residential care services. The Company's specific
targeted market for assisted living is focused upon providing services to the
group representing the majority of the elderly. This majority includes those
elderly individuals with the ability to pay, usually from multiple sources,
approximately $1,200 per month for complete care and services. As competition
increases in the assisted living industry, a majority of the competition has
focused on those elderly individuals with the ability to pay, generally from
private funds, monthly fees in the range of $1,800 to $3,000. The majority of
the competition has utilized facilities with 20 to 30 beds. The Company's
management believes that the number of individuals with the ability to pay
those higher amounts is significantly lower than the number that can pay $1,200
per month. The Company will utilize the economies of scale created by
operating modern and energy efficient facilities with a minimum of 60 beds.
Utilizing a minimum of 60 beds allows the fixed costs associated with the
facility and basic operations, such as administration, food service,
activities, and transportation to be allocated over a large number of beds and
accordingly, per unit costs are significantly reduced. The Company provides
quality and cost effective services to those individuals with the ability to
pay $1,200 per month for a private apartment with complete 24 hour services.

15
<PAGE> 19
Assisted living centers are designed for ambulatory elderly
individuals requiring assistance with daily living services, but not requiring
the intensive medical services provided by a nursing home. The Centers will
provide complete daily living services including housing, food services, 24
hours per day staffing, medication monitoring, housekeeping, laundry services,
transportation, and activities for the residents.

The Company entered into an agreement in 1995 to develop and operate
an assisted living center for the elderly in Oklahoma City, Oklahoma. The
center is owned by Avalon Retirement Centers, LLC, an affiliate. The
construction of Emerald Square Assisted Living Center began in December, 1995
and is scheduled to open in the second half of 1996.

The Company entered into an agreement in 1996 with Avalon Retirement
Centers, LLC, an affiliate, to develop and operate an assisted living center
for the elderly in Fort Collins, Colorado. The construction of the assisted
living center is scheduled to begin in the second half of 1996 and be completed
in the first quarter for 1997.

RESIDENTIAL CARE

Wholly owned subsidiaries of the Company own two residential care
facilities ("RCFs") and provide related contract management services for
another residential care operation owned by an affiliate. Effective January 1,
1996 the Company contracted with a tax exempt organization to provide operation
services to operate RCFs. RCFs provide a structured environment with daily
activities, room and board, monitoring of medications, transportation, and
daily living skills classes for residents requiring supportive assistance. The
majority of the residents at the RCFs have a history of mental illness. The
Oklahoma Health Department licenses RCFs in Oklahoma.

Elk City Properties, Inc., a wholly owned subsidiary of the Company,
owns Connections Supportive Living Center ("Connections"), a 60-bed facility
located in Norman, Oklahoma, and Westcare Supportive Living Center
("Westcare"), a 76-bed facility located in Elk City, Oklahoma.

The Company also provides contract management services for Pathways
Supportive Living Center ("Pathways"), an 88 bed facility located in Oklahoma
City, Oklahoma. Pathways is owned by Southern Community Services, Inc.
("Community"). The building utilized by Pathways is owned by the Company and
leased to Community. Financial statements of Community have not been provided
in this Prospectus as management believes that the Company's financial
statements alone provide investors with adequate financial information with
which to make an investment decision.

COMPETITION

Contracts for correctional services are awarded by agencies of the
State of Oklahoma based upon competitive bidding. The Company presently
contracts for more minimum security inmates in Oklahoma than any other
contractor providing services for the State of Oklahoma. Management believes
that the Company has certain competitive advantages in contracting for
correctional services in the State of Oklahoma including: (a) an approximate
eleven year history of providing quality services to the Oklahoma Department of
Corrections, (b) the Company's geographic location allows for lower
administrative overhead charges when bidding against out-of-state competitors,
and (c) the Company has utilized the services of the same government relations
firm for over five years which has resulted in the development of an effective
relationship with the Oklahoma legislature. However, companies with greater
financial resources and longer operation histories are eligible to compete with
the Company for available contracts. Companies with access to greater
financial resources could underbid the Company for available contracts both
within the State of Oklahoma and in other states. See "RISK FACTORS."

The substantial amount of ongoing press and media coverage directed to
the problems of prison overcrowding could result in the establishment of other
companies seeking to compete with the Company for the limited number of state
contracts presently available.

The Company considers its status as a public entity, with increased
disclosure and reporting obligations, to be a competitive advantage. Two other
corporations with substantial assets and significant operating histories in the
area of private correctional facilities, The Wackenhut Corporation and
Corrections Corporation of America, are also

16
<PAGE> 20
public companies. These companies could become competitors of the Company for
limited available contracts. It can be anticipated that any expansion by the
Company into other states or regions will be accompanied by increased
competition.

The long-term care industry is highly competitive and the Company
expects that the assisted living business will continue to be competitive in
the future. Competition for assisted living includes numerous other companies
providing long-term care alternatives such as home health agencies, life care
at home, community-based services programs, retirement communities, and
convalescent centers. The Company's management expects that as assisted living
receives increased attention and the number of states including assisted living
in their Medicaid Waiver Programs increase, competition will grow from new
market entrants focusing on assisted living.

The Company's care facilities are subject to competition from other
companies already involved in the operation of similar facilities. Oklahoma
has approximately 80 RCFs with approximately 30 of those facilities providing
services to persons with a history of mental illness. The Company provides
residential services to approximately 230 persons with a history of mental
illness. The Company estimates its facilities provide services to
approximately 20% of the mental patients living in RCFs in the State. The
Company provides residential services to more persons with a history of mental
illness than any other provider in the state of Oklahoma. Companies with
access to greater financial resources are eligible to compete with the Company
in the RCF business. See "RISK FACTORS."

DESCRIPTION OF PROPERTIES

Carver Center is a 250-bed minimum security correctional facility
located in Oklahoma City, Oklahoma. The facility is located on a five-acre
tract of land and includes five buildings. The Company completed construction
of a new 16,000 square foot dormitory at Carver Center in the second quarter of
1995.

Avalon Correctional Center is 255-bed minimum security correctional
facility located in Tulsa, Oklahoma. The construction of the 40,000 square
foot facility was completed in July, 1995. The Avalon Correctional Center
opened in July, 1995.

Avalon's Westcare residential care facility is located in a 60,000
square foot recently remodeled building in Elk City, Oklahoma.

The Company owns a 32,000 square foot building in Oklahoma City,
Oklahoma. The building is leased through December, 1996 to Southern Community
Services, Inc. and is utilized for the operation of Pathways Supportive Living
Center. The building was extensively renovated in 1992. The building is zoned
for the operation of a residential care facility or a community based
correctional center for female inmates.

The Company's administrative office is located in Oklahoma City,
Oklahoma, in a commercial building at 13401 Railway Drive, Oklahoma City,
Oklahoma 73114.

Substantially all property owned by the Company is pledged as
collateral on Company debt. See Note 6 to the Consolidated Financial
Statements.

INSURANCE

The Company currently has the following insurance coverages: general
liability insurance ($1,000,000 per occurrence); property and contents
(estimated replacement cost); worker's compensation; director and officer
liability insurance; and $1,000,000 automobile liability (plus physical
damage). The Company believes these coverages are adequate. There can be no
guarantee that the policy limits would be sufficient in the event of damage due
to accident or otherwise, or in the event that a judgment were to be rendered
against the Company, in connection with a litigation or other matters. See
"RISK FACTORS."

Inmates at Carver Center and Avalon Correctional Center remain under
the legal custody and control of the State of Oklahoma while at the facility.
The inmates' presence and activities could subject the Company to litigation,

17
<PAGE> 21
both on their own behalf (for injury, damage, etc.) and perhaps on behalf of
other Company employees or others in the community who could be injured or
damaged due to the actions of the inmates. There is no guarantee that the
present types or amounts of insurance coverage would be sufficient to protect
the Company in the event of injury, accident, damage or liability arising out
of the operation of a facility and the presence of the inmates.

The Company presently pays the premiums on a life insurance policy in
the amount of $350,000, pertaining to the Company's Chief Executive Officer,
Donald Smith; the beneficiary is Bank One in Oklahoma City. The Company has
outstanding indebtedness to Bank One of approximately $2,727,000 as of December
31, 1995. The Company has no plans to purchase a key man life insurance policy
pertaining to Mr. Smith, the loss of whose services could have a serious impact
upon the Company's business. See "RISK FACTORS."

REGULATIONS

The corrections and residential care industries are subject to
Federal, state and local regulations administered by a variety of regulatory
authorities. As discussed above under "-- Correctional Services," the
correctional services offered by the Company are subject to oversight by the
ODOC. The residential care facilities are licensed by the Oklahoma Health
Department. Generally, prospective providers of corrections services must
comply with a variety of applicable state and local regulations, including
education, health care and safety regulations. The Company's contracts
frequently include extensive reporting requirements and may require supervision
and on-site monitoring by representatives of contracting governmental agencies.

Many state and local governments are required to enter into a
competitive bidding procedure before awarding contracts for products or
services. The laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with business owned
by women or members of minority groups.

The failure to comply with any applicable laws, rules or regulations
or the loss of any required license could have a material adverse effect on the
Company's business, financial condition and results of operations. All of the
Company's licenses to do business are currently in effect and the Company is
unaware of any potential loss of any such license. The current and future
operations of the Company may be subject to additional regulations as a result
of, among other factors, new statutes and regulations and changes in the manner
in which existing statutes and regulations are or may be interpreted or
applied. Any such additional regulations could have a material adverse effect
on the Company's business, financial condition and results of operations.

Management believes that the Company is currently in compliance with
all applicable laws and regulations affecting the Company's business.

LEGAL PROCEEDINGS

An action was filed on August 5, 1994 in the Superior Court of Los
Angeles County, California styled Roy Allenstein, et al. vs. Southern Community
Services, Inc., Avalon Community Services, Inc., Donald E. Smith, Teresa Smith
and Does 1-50. This action arose out of a dispute involving promissory notes
executed by Southern Community Services, Inc. (a company owned by the Chief
Executive Officer and members of his family) to the plaintiffs in the aggregate
amount of $100,000. Avalon Community Services, Inc. was not an obligor in any
manner under the notes. Plaintiffs' claim against Avalon is that they assert
that Mr. Smith represented that a right to convert the indebtedness of Southern
Community Services into common stock in Avalon existed as an option to
repayment of the indebtedness and seeks the Court's Order directing that such
conversion be made. No written agreement for such conversion exists and Mr.
Smith denies ever making such an oral representation. The parties have agreed
to settle this action. As a part of the settlement, the Company agreed to the
issuance 80,000 Class C Warrants. The Company is not liable for any other
payments.

Elk City Properties, Inc., is the named Defendant in that certain
action commenced May 11, 1995, and styled Stephanie Layson, as Administratrix
of the Estate of Richard H. Shepherd, Deceased, Plaintiff, vs. Elk City
Properties, Inc., d/b/a Connections Supportive Living Center, Defendant; Case
No. CJ-95-851-BH; District Court of Cleveland County, State of Oklahoma. In
that action, the Plaintiff has brought a wrongful death action against Elk City
Properties, Inc., arising out of the death of a resident of the Connections
residential care facility. The Plaintiff

18
<PAGE> 22
has prayed for damages in excess of $10,000.00, and for punitive damages in
excess of $10,000.00. Elk City Properties, Inc., has denied these allegations,
and contends that the resident died of natural causes through no fault of any
agents or employees of Connections. This case has settled within the policy
limits of the Company's insurance.

The Company is a party to other litigation arising in the normal
course of business. Management believes that the ultimate outcome of these
matters will not have a material effect on the Company's financial condition or
results of operations.

EMPLOYEES

The Company had 228 full time employees at March 15, 1996, including
its officers and directors. The Company also utilizes the services of several
consultants on an as-needed basis. The Company has not experienced a work
stoppage and Management considers its employee relations to be good.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The names, ages and current positions with the Company of the
directors and executive officers of the Company are set forth below. All
directors hold their positions for one-year terms until the 1996 annual meeting
of stockholders, and will continue in such offices until successors have been
elected and have qualified subsequent to an annual stockholders' meeting.

<TABLE>
<CAPTION>
Name and Age Positions
- ------------------------ ----------------------------------------
<S> <C>
Donald E. Smith, 43 Chief Executive Officer, Director
Jerry M. Sunderland, 59 President, Director
Kathryn A. Avery, 43 Chief Financial Officer, Vice President
Robert O. McDonald, 57 Director
</TABLE>

The following is a brief description of the business experience during
the past five years of each of the above-named persons:

DONALD E. SMITH has served as Chief Executive Officer of the Company
since June, 1992, and has held the same position with the Company's four
subsidiaries since their inception. Mr. Smith has owned, managed and developed
a number of private corporations since 1985 to provide private corrections,
residential care, mental health, and other related services. Mr. Smith
received a Bachelor of Science degree in 1974 from Northwestern State College.

JERRY M. SUNDERLAND has served as President of the Company since June,
1995. Mr. Sunderland served as Correctional Services Administrator for one of
the Company's subsidiaries from 1990 to 1993 and for an affiliate of the
Company since 1988. Mr. Sunderland also serves as a Director of the Company's
subsidiaries and for certain affiliated private corporations. Mr. Sunderland
was employed by the Oklahoma Department of Corrections for sixteen years and
twelve years as an agent for the Oklahoma State Bureau of Investigation.

KATHRYN A. AVERY was appointed Chief Financial Officer and Vice
President in June, 1995. Ms. Avery was employed by Red Eagle Resources
Corporation for five years, serving for three years as acting Controller and
Chief Financial Officer. Ms. Avery received a degree in Business
Administration from the University of Oklahoma in 1982, is a certified public
accountant and a member of the Oklahoma Society of CPAs.

ROBERT O. MCDONALD was appointed a Director of the Company in October,
1994. Mr. McDonald is Chairman of the Board of Directors of Capital West
Securities and President of Capital West Financial. Mr. McDonald started his
investment career in 1961 with Allen and Company and left in 1967 to form
McDonald

19
<PAGE> 23
Bennahum and Co., which later joined with Ladenburg Thalmann and Co. of which
Mr. McDonald was a Senior Partner. Mr. McDonald joined Planet Oil and Mineral
Corporation in 1971 and became president in 1973. From 1975 until 1993, Mr.
McDonald was affiliated with Stifel Nicolaus & Company and headed its municipal
syndicate effort. Mr. McDonald received a Bachelor's Degree in Finance from
the University of Oklahoma in 1960. He also served as an Officer in the United
States Army and Army Reserve.

The officers of the Company hold office until their successors are
appointed by the Board of Directors. There are no family relationships among
the Company's present officers and directors.

OTHER SIGNIFICANT EMPLOYEES AND CONSULTANTS

WALTER L. DEBOE serves as the Regional Administrator for the Company.
Mr. DeBoe served as the Administrator for Carver Center, since January, 1992.
Mr. DeBoe is responsible for the Company's correctional operations, including
recruitment and training of personnel, maintenance of accreditation by the
American Correctional Association and compliance with contractual requirements.
Mr. DeBoe's experience includes over eighteen years experience in the
correctional field.

RANDALL J. WOOD serves as General Counsel for the Company. Mr. Wood
received his law degree from the University of Oklahoma in 1983, and practiced
in the field of real property and commercial litigation. Mr. Wood practiced
with the law firm of Stack & Barnes, P.C. from 1983 to 1993. From 1993 until
assuming the position of General Counsel with the Company, Mr. Wood practiced
with the firm of Hammons, Vaught & Conner. Mr. Wood is responsible for
supervision and management of all litigation matters and review of governmental
regulation compliance for the Company and its subsidiaries and affiliates.

The Company also utilizes several consultants on an as-needed basis.

BOARD AND COMMITTEE MEETINGS

The Board of Directors held three formal meetings both during 1994 and
1995. In addition to these meetings, certain business was conducted by
unanimous written consent of the Board of Directors. At present, the Company
does not utilize audit or compensation committees.

CONFLICTS OF INTEREST

The Company's officers and directors spend a portion of their time
performing services for other corporations; control or own interests in other
corporations; and may become involved in other ventures in the future, and it
is possible that conflicts of interest could arise. A number of private
corporations in which the Company's management is also involved, and which are
controlled by Donald E. Smith, the Company's Chief Executive Officer, could be
considered to be affiliates of the Company (the "Affiliated Companies").
Certain transactions have occurred, and continue to occur, between the Company
and the Affiliated Companies which may be considered as not having occurred at
arm's length. See "RISK FACTORS," "CERTAIN TRANSACTIONS" and "FINANCIAL
STATEMENTS."

The Company has established no provisions for settlement of any
conflicts of interest or potential conflicts of interest, including the
possibility of pecuniary gain to Management. Legal remedies available under
state law in the event of violations of fiduciary duty by Management would in
all likelihood be too time-consuming and prohibitively expensive to be of any
actual protection or value to the stockholders. See "RISK FACTORS."

Conflicts of interest which arise will require resolution on a
case-by-case basis and no assurance can be given that such conflicts will be
resolved satisfactorily in favor of the Company.

20
<PAGE> 24
REMUNERATION

The following table sets forth the compensation paid or accrued during
each of the years in the three years ended December 31, 1995, to the Company's
Chief Executive Officer, Donald E. Smith. No executive officer of the Company
received in excess of $100,000 in total compensation for the same period:

<TABLE>
<CAPTION>
Other
Annual Compensation
----------------------
Year Salary Bonus Automobile Other
---- -------- ----- ---------- -------
<S> <C> <C> <C> <C>

1995 $60,000 $ -- $7,200 $1,800
1994 60,000 8,500 9,200 1,800
1993 60,000 -- 9,300 1,800
</TABLE>

Other annual compensation includes the use of an automobile owned by
the Company and payment of monthly dues.

Mr. Smith serves as the Company's Chief Executive Officer pursuant to
a five-year employment agreement executed with one of its subsidiaries in June,
1992. The agreement provides that Mr. Smith's current annual compensation be
determined by the Board of Directors. Mr. Smith's salary has remained the same
since 1992. The agreement also contains provisions for severance pay and
disability payments, as well as a non-compete agreement preventing him from
engaging in a business deemed similar to that of the Company for a period of
one year from the cessation of his employment.

DIRECTOR COMPENSATION

Members of the Board of Directors do not receive director's fees for
serving in such capacities, nor do they receive attendance fees for attendance
at such meetings.

STOCK OPTION PLAN

The Company's Board of Directors has adopted a combined incentive
stock option and non-statutory stock option plan (the "1994 Plan") that
provides for the grant to employees, officers, directors, and consultants of
the Company of options to purchase up to 250,000 shares of Common Stock.

Options under the 1994 Plan may be either "incentive stock options"
within the meaning of Section 422 of the United States Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified options. Incentive stock
options may be granted only to employees of the Company, while non-qualified
options may be issued to non-employee directors, employees and consultants of
the Company.

The 1994 Plan is administered by the Board of Directors ("Board").
The Board determines those individuals who shall receive options, the time
period during which the options may be partially or fully exercised, the number
of shares of Common Stock that may be purchased under each option and the
option price.

The per share exercise price of the Common Stock subject to incentive
and non-qualified stock options granted pursuant to the 1994 Plan may not be
less than the fair market value of the Common Stock on the date the option is
granted. Under the 1994 Plan, the aggregate fair market value (determined as
of the date the option is granted) of the Common Stock that first became
exercisable by any employee in any one calendar year pursuant to the exercise
of incentive stock options may not exceed $100,000. No person who owns,
directly or indirectly, at the time of the granting of an incentive stock
option to him, 10% or more of the total combined voting power of all classes of
stock of the Company (a "10% Stockholder"), shall be eligible to receive any
incentive stock options under the 1994 Plan unless the option price is at least
110% of the fair market value of the Common Stock subject to the option,
determined on the date of grant. Non-qualified options are not subject to this
limitation.

21
<PAGE> 25
No incentive stock option may be transferred by an optionee other than
by will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. Pursuant to the
terms of the 1994 Plan, in the event of termination of employment, other than
by death or permanent total disability, the options terminate immediately. The
1994 Plan provides that upon termination of employment of an optionee by reason
of death or permanent, total disability, an option remains exercisable for one
year thereafter to the extent it was exercisable on the date of such
termination.

Options under the 1994 Plan must be granted within 10 years from the
effective date thereof. Incentive stock options granted under the 1994 Plan
cannot be exercised more than 10 years from the date of grant, except that
incentive stock options issued to a 10% Stockholder are limited to five year
terms. Any unexercised options under the 1994 Plan that expire or that
terminate upon an employee's ceasing to be employed with the Company become
available once again for issuance.

All options granted under the 1994 Plan provide for the payment of the
exercise price in cash equal to the exercise price of the options being
exercised.

The following table presents information with regard to the options
(all non-statutory) that the Company has granted to executive officers of the
Company and certain other employees and consultants under the 1994 Plan as of
December 31, 1995:

<TABLE>
<CAPTION>
NUMBER
OF OPTIONS
NAME OF OPTIONEE TITLE UNDER PLAN
- ---------------- ----- ----------
<S> <C> <C>
Jerry M. Sunderland . . . . . . . . President, Director 60,000

Kathryn A. Avery . . . . . . . . . Vice-President, Chief Financial Officer 30,000
Robert O. McDonald . . . . . . . . Director 30,000

Other employees and consultants . . 109,900
-------
Total . . . . . . . . . . . . 229,900
=======
</TABLE>

LIMITATION OF OFFICER
AND DIRECTOR LIABILITIES

Increasing concern about director liability and the growing
unavailability of insurance may cause the Company to offer significant
consideration to induce outside individuals to join its Board. The Company has
adopted the provisions of the Nevada Corporation Law permitting the Company to
limit the liability of the Company's directors to the Company and its
stockholders for monetary damages for breach of fiduciary duty as a director.
Such limitation on a director's liability is subject to the following statutory
exceptions: (i) for any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts of omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) in respect
of certain unlawful dividend payments or stock redemptions or repurchases, or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company has also adopted the provisions of the Nevada Corporation
Law permitting indemnification of directors, officers, employees or agents of
the Company against expenses, including attorneys' fees incurred in connection
with the defense of any action, suit or proceeding in which such a person is a
party by reason of his being or having been a director, officer, employee or
agent of the Company, or of any corporation, partnership, joint venture, trust
or other enterprise in which he served as such at the request of the Company,
provided that he acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the Company, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, and provided further (if the threatened, pending or completed
action or suit is by or in the right of the Company) that he shall not have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Company (unless the court determines that indemnity would
nevertheless be proper under the circumstances).

22
<PAGE> 26
Insofar as limitation of, or indemnification for, liabilities arising
under the Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing, the Company has been
informed that, in the opinion of the Commission, such limitation or
indemnification is against public policy as expressed in the Securities Act,
and is therefore, unenforceable.

CERTAIN TRANSACTIONS

The Company manages and performs various administrative and accounting
functions for a residential care facility owned by Community, an affiliated
entity owned by the Company's Chief Executive Officer and members of his
family. The transactions between the Company and Community are summarized
below:

During 1994 and 1995, $14,200 and $9,000, respectively, were charged
by the Company for management, administrative and accounting services.
Such amounts have been reflected as a reduction of general and
administrative expenses in the Consolidated Statements of Operations.

The balance due from affiliate, as reflected in the Consolidated
Balance Sheets, results from charges for administrative and accounting
services as well as net cash advances made to Community. The
outstanding balance is non-interest bearing. Community has agreed to
repay the outstanding balance from its operations. The amounts
reflected as current assets in the accompanying Consolidated Balance
Sheets represent the estimated amounts to be repaid from operations
within a one-year period.

The Company leased a building to Community during 1994 and 1995 for
use in its residential care operations. Community was charged a total
of $87,000 and $40,000, respectively, for lease payments. The current
lease agreement extends through December, 1996, and provides for
monthly lease payments of $5,000. The building referred to above is
pledged as collateral on certain Community indebtedness. The
Company's debt relating to the building is collateralized by state
contract revenues of Community.

The Company leases certain transportation and other equipment from an
affiliated entity owned by the Company's Chief Executive Officer. Annual lease
payments of $22,000 were made for such equipment during 1994 and 1995.

During 1994 and 1995, the Company provided administrative and
accounting services for an affiliated entity owned by the Company's Chief
Executive Officer. The Company was reimbursed a total of $27,000 and $30,000
for these services during 1994 and 1995. This amount has been reflected as a
reduction of general and administrative expenses in the Consolidated Statements
of Operations.

The Company leased a building utilized in its residential care
operations during 1994 and 1995 from an affiliated entity owned by an immediate
family member of the Company's Chief Executive Officer and made lease payments
totalling $62,000 and $60,000, respectively. The current lease agreement
provides for monthly lease payments of $5,000 and expires in December, 1996.

The Company entered into an agreement effective in May, 1994 with the
Company's Chief Executive Officer to issue certain securities in exchange for
his personal guarantee of certain future Company indebtedness. The agreement
provides for the issuance of one warrant, exercisable for one share of common
stock, and one share of Class B common stock (voting only) for each dollar of
Company debt ultimately guaranteed. Under the terms of the agreement the
shares of 2,220,000 Class B Common Stock are issuable and are expected to be
issued in 1996. A maximum of 750,000 warrants can be issued. The warrants,
when issued, will have an exercise price of $1.50 and will be exercisable over
a five year period.

The Company entered into an agreement in 1995 with an entity owned by
the Company's Chief Executive Officer to develop and operate an assisted living
center in Oklahoma City. The construction began in December, 1995, and is
expected to be completed in the second half of 1996. The Company has
guaranteed up to $2,080,000 of the debt for the construction of the assisted
living center under construction. As of December 31, 1995 no funds had been
advanced on the note.

23
<PAGE> 27
Some residents at the Company's residential care facilities received
outpatient mental health services during 1994 and 1995 from an entity owned by
the Company's Chief Executive Officer and members of his family. The Company
received reimbursements totalling $72,000 and $148,000 for the costs incurred
by the Company associated with the specific services provided.

With respect to each transaction with affiliates described herein,
Management believes the terms to be at least as favorable between the Company
and the affiliate as would have been in similar transactions between the
Company and a non-affiliate.

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of May 6, 1996, information
concerning the beneficial ownership of the Company's Common Stock by (i) each
person known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) each of the executive officers of the Company and (iv) all
directors and executive officers as a group. To the best of the Company's
knowledge, each of the persons named in the table has sole voting and
investment power with respect to all the shares of Common Stock beneficially
owned by such person as set forth opposite such person's name.

<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Total
Ownership of Percent Class Percentage Voting
Name and Address Common Stock of Class B Stock of Class Percentage
- ---------------- ------------ -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Donald E. Smith 1,053,500(1) 42.19% 3,430,000(2) 100% 75.65%
13401 Railway Drive
Oklahoma City, OK 73114

Deborah A. Salerno 187,000 7.49% -- -- 3.16%
355 South End Avenue
Suite 22B
New York, NY 10280

Jerry M. Sunderland(3) 16,000 * -- -- *
13401 Railway Drive
Oklahoma City, OK 73114

Kathryn A. Avery 500 * -- -- *
13401 Railway Drive
Oklahoma City, OK 73114

Robert O. McDonald(3) 8,250 * -- -- *
3316 Preston Drive
Oklahoma City, OK 73122

All executive officers and
directors as a group
(4 persons) 1,078,250(1) 43.18% 3,430,000 100% 76.06%
</TABLE>
- ---------------------
* Less than 1%

(1) Includes 77,313 shares owned by Mr. Smith' wife and children.

(2) Includes an additional 2,220,000 shares of Class B Common Stock which
could be issued to Mr. Smith within the next 60 days pursuant to the
May, 1994 debt guaranty agreement discussed above.

24
<PAGE> 28
(3) Includes 16,000 shares to Mr. Sunderland and 8,250 shares to Mr.
McDonald that can be issued within 60 days pursuant to the Company's
Stock Option Plan.

The Company signed a definitive Stock Purchase Agreement in January,
1994, effective December 31, 1993, to acquire certain affiliated entities from
the Company's Chief Executive Officer and members of his family. Pursuant to
the agreement, the Company issued 1,210,000 shares of a Class B Common Stock in
exchange for the Chief Executive Officer's guarantee of outstanding
indebtedness of the acquired entities. Under the terms of the agreement,
2,220,000 additional shares of Class B Common Stock can be issued within 60
days. The Class B Common Stock is entitled to vote in all actions requiring a
vote of the stockholders, but has no liquidation rights, claims on earnings or
the payment of dividends and is non-transferable.

SELLING STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Company's Warrants as of May 6, 1996 by the
stockholders of the Company who are offering securities pursuant to this
Prospectus (the "Selling Stockholders"). "Beneficial Ownership" includes
shares for which an individual, directly or indirectly, has or shares voting or
investment power or both. The listing by each of the Selling Stockholders does
not include shares of Common Stock issuable upon exercise of the Warrants.
None of the Selling Stockholders are officers, directors or had a material
relationship with the Company, except Donald E. Smith, the Chief Executive
Officer of the Company, who is custodian for the Warrants for his children (for
which he disclaims any beneficial interest), and Westminster Securities
Corporation who acted as a placement agent for the Company in a 1994 private
placement.

<TABLE>
<CAPTION>
Before the Offering After the Offering
--------------------- Securities ----------------------
Title Number Percent to Be Number Percent
Name of of Beneficially of Sold In Beneficially Of
Beneficial Owner Class Owned Class Offering Owned Class
- ---------------- ----------- ----------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>

Anword Partners . . . . . . . . . C Warrant 40,000 3.6 40,000 0 -
Layton & Aleta Bennett . . . . . C Warrant 20,000 1.8 20,000 0 -
Mark Berg . . . . . . . . . . . . C Warrant 20,000 1.8 20,000 0 -
John D. Kilmartin, Jr. . . . . . C Warrant 40,000 3.6 40,000 0 -
Yong Jim Kim. . . . . . . . . . . C Warrant 20,000 1.8 20,000 0 -
William N. Levy . . . . . . . . . C Warrant 10,000 * 10,000 0 -
Jeff McLaughlin . . . . . . . . . C Warrant 10,000 * 10,000 0 -
Paul & Felicia A. Pappadio . . . C Warrant 10,000 * 10,000 0 -
Solar Group S.A. . . . . . . . . C Warrant 20,000 1.8 20,000 0 -
Donald E. Smith, Custodian . . . C Warrant 10,000 * 10,000 0 -
Chester Thomas/Aleta Bennett . . C Warrant 10,000 * 10,000 0 -
Westminster Securities Corporation C Warrant 100,000 9.1 100,000 0 -
</TABLE>

- ------------------
*Less than 1% of outstanding shares

DESCRIPTION OF SECURITIES

The Company is authorized to issue 24,000,000 shares of common stock
(both Common Stock, par value $0.001 and Class B Common Stock, no par value)
and 1,000,000 shares of preferred stock, par value $0.001, giving the Board of
Directors the authority to set the rights and preferences of the preferred
stock. On May 6, 1996 there were 2,496,905 shares of Common Stock and
1,210,000 shares of Class B Common Stock issued and outstanding.

COMMON STOCK

The shares of Common Stock are equal in all respects unless otherwise
designated. Each issued and outstanding share of Common Stock entitles to
holder thereof to one vote on all matters submitted to a vote of the

25
<PAGE> 29
stockholders. The Company's Certificate of Incorporation does not permit
cumulative voting of shares in the election of directors or permit preemptive
rights to stockholders to acquire additional shares, obligations, warrants or
other securities of the Company. The Certificate of Incorporation makes no
provision with respect to subscription or conversion rights, redemption
privileges or sinking funds with respect to shares of the Company's Common
Stock. Subject to the rights of holders of preferred stock (if any), dividends
on Common Stock may be paid if, as and when declared by the Board of Directors
out of funds legally available therefor. The Company has never paid cash
dividends on shares of Common Stock and does not expect to pay such dividends
in the foreseeable future. The Company intends to retain all funds available
to it after payment of its commitments and obligations for the operation and
expansion of its business.

CLASS B COMMON STOCK

The Company created a Class B common stock and issued 1,210,000 shares
to Donald E. Smith in connection with the acquisition of two affiliated
entities. The shares were issued to Mr. Smith in exchange for his personal
guarantee of substantially all of the outstanding debt of the acquired
entities. The Company has also agreed to issue one share of Class B common
stock to Mr. Smith for each dollar of certain Company debt guaranteed by him.
Under the terms of the agreement, 2,220,000 additional shares of Class B Common
Stock can be issued within 60 days. The Class B common stock is entitled to
vote in all actions requiring a vote of the stockholders, but has no
liquidation rights, claim on earnings or the payment of dividends and is
non-transferable. See "RISK FACTORS" and "CERTAIN TRANSACTIONS."

WARRANTS - GENERAL

ADJUSTMENTS AND ANTI-DILUTION PROVISIONS. The exercise price and the
number of shares of Common Stock purchasable upon the exercise of the Warrants
are subject to adjustment upon the occurrence of certain events, including
stock dividends, stock splits, combinations or reclassifications of the Common
Stock, or sale by the Company of shares of its capital stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of
Common Stock, consolidation or merger of the Company with or into another
corporation or sale of all or substantially all of the assets of the Company
in order to enable Warrant holders to acquire the kind and number of shares of
stock or other securities or property receivable in such event by a holder of
the number of shares of Common Stock that might otherwise have been purchased
upon the exercise of the Warrant. No adjustment to the exercise price of the
shares subject to the Warrants will be made for dividends (other than dividends
in the form of stock), if any, paid on the Common Stock or for: (i) the
issuance of restricted securities in connection with acquisitions by the
Company; (ii) the grant of stock options to persons covered by incentive stock
option plans provided that no more than 250,000 shares of Common Stock be
issued pursuant to such plans from the date of this Prospectus until the
expiration or redemption of the Warrants; (iii) warrants to accommodate lines
of credit or creditors, provided that no registration or registration rights
shall be afforded such warrants or the underlying Common Stock at any time
within one year after effectiveness of the registration of the securities
issued pursuant to this Offering; and (iv) Class B Common Stock voting shares
and up to 750,000 warrants, exercisable for one share of common stock each, at
an exercise price of $1.50 to be issued to Donald E. Smith or his designee
solely upon Mr. Smith's guarantee of corporate obligations.

The Company may authorize one warrant for each one dollar of corporate
obligations guaranteed by Smith up to the maximum amount. For this exception
to the anti-dilution provisions to apply, the corporate debt must first be
approved by the Board of Directors, be bona fide, and the guarantee must be
reasonably required by the creditor. These anti-dilution provisions shall
remain in full force and effect until redemption of all Warrants then
outstanding or expiration of the Warrants. These anti-dilution provisions may
be terminated by the Company provided: (i) that the bid price of the Company's
common stock shall have been $4.00 or more for sixty (60) consecutive trading
days; (ii) the Company presents to Westminster Securities Corporation
("Westminster") as the placement agent for the Warrants a bona fide offer,
agreement, term sheet, or Underwriting Agreement by a duly licensed
broker-dealer proposing to place, on a firm or best efforts basis, securities
of the Company; and (iii) effecting the agreement would trigger application of
the anti-dilution provisions. If these conditions are met, the Company shall
notify Westminster and afford Westminster ten (10) business days in which to
match the terms offered to the Company. At the expiration of the ten (10) day
period, the Company may terminate the anti-dilution provisions by appropriate

26
<PAGE> 30
corporate action, if Westminster has not matched the offering. The Placement
Agent, on behalf of the purchasers in this Offering, shall be empowered to
release or waive these adjustment and anti-dilution provisions in whole or in
part.

TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form
and may be presented to the Transfer and Warrant Agent for transfer, exchange
or exercise at any time on or prior to their expiration date, at which time the
Warrants become wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There
can be no assurance, however, that a market for the Warrants will develop or
continue. If the Company is unable to qualify the Common Stock underlying the
Warrants for sale in particular states, holders of the Warrants residing in
such states and desiring to exercise the Warrants will have no choice but to
sell such Warrants or allow them to expire. See "DESCRIPTION OF SECURITIES --
Transfer and Warrant Agent." Furthermore, if a Warrant is exercised prior to
the underlying Common Stock being registered, the Common Stock will be a
restricted security and subject to a holding period. See "RISK FACTORS --
Shares Eligible for Future Sale."

RIGHTS OF WARRANTHOLDERS. Holders of the Warrants have no voting
rights and are not entitled to dividends. In the event of liquidation,
dissolution, or winding up of the affairs of the Company, holders of the
Warrants will not be entitled to participate in any liquidation distribution.

CLASS A AND CLASS B WARRANTS

Stock purchase warrants were issued in April, 1991 in connection with
an initial public offering of Avalon Common Stock. The warrants were issued as
part of units of the Company's securities which contained one share of Common
Stock, 16 Class A warrants and 16 Class B warrants per Unit offered. This
initial public offering was underwritten by Westminster Securities Corporation.
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects
by reference to the actual text of the Warrant Agreements between the Company
and American Securities Transfer, Inc. (the "Transfer and Warrant Agent").
Copies of the Warrant Agreements may be obtained from the Company upon the
written request of a Warrant holder.

The Class A Warrants expired on March 26, 1996 without being
exercised. Each Class B warrant may be exercised by its registered holder to
purchase one share of Common Stock at an exercise price of $6.00 until March
26, 1999. The Class B warrants may be redeemed by the Company prior to
exercise upon 30 days written notice to the registered holders for $0.01 per
warrant. The holders of the Class B warrants have no voting rights and are not
entitled to dividends. In the event of liquidation, dissolution or winding up
of the affairs of the Company, holders of these warrants will not be entitled
to participate in any liquidation distribution.

The Company issued 145,595 shares of Common Stock during 1993 in
connection with the exercise of certain underwriter warrants, 99,095 Class A
warrants and 44,900 Class B warrants, resulting in gross proceeds to the
Company of approximately $825,000. As of the date of this Prospectus, there
are 275,100 Class B warrants still outstanding.

CLASS C WARRANTS

The Company has issued Class C Warrants to purchase 1,000,000 shares
of Common Stock in connection with a private placement and Class C Warrants to
purchase 80,000 shares of Common Stock in settlement of a pending lawsuit. The
placement agent warrant given to Westminster Securities Corporation in the
private placement also includes the right to receive 100,000 Class C Warrants.
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects
by reference to the actual text of the Warrant Agreement between the Company
and American Securities Transfer, Inc. (the "Transfer and Warrant Agent"). A
copy of the Warrant Agreement may be obtained from the Company upon the written
request of a Warrant holder.

27
<PAGE> 31
EXERCISE PRICE AND TERMS. Each Warrant entitles the holder thereof to
purchase one share of Common Stock at a price of $3.50 per share, subject to
adjustment in accordance with the anti-dilution and other provisions referred
to above under " Warrants-General." The holder of any Warrant may exercise
such Warrant by surrendering the certificate representing the Warrant to the
Transfer and Warrant Agent, with the election to purchase form on the reverse
side of such certificate properly completed and executed, together with payment
of the exercise price. Subject to compliance with applicable state securities
laws, the Warrants may be exercised at any time in whole or in part at the
applicable exercise price until expiration of the Warrants on December 30,
1999. See "RISK FACTORS -- Non-Registration in Certain Jurisdictions of Shares
Underlying the Warrants."

REDEMPTION OF WARRANTS. The Class C Warrants are subject to
redemption at $.01 per Warrant in the event that (i) the bid price of the
Company's Common Stock shall have been $5.00 or more for 30 consecutive trading
days prior to the date of the notice of redemption; (ii) 30 days advance
written notice of redemption shall be given to all Warrant holders of record;
and (iii) a Registration Statement of the Company covering the Warrants and the
shares of Common Stock issuable upon the exercise of the Warrants must be
current at all times during the 30 day notice period, and must have been
current for 30 days prior to the notice. In the event the Company exercises
the right to redeem the Warrants, such Warrants will be exercisable until the
close of business on the date for redemption fixed in such notice. If any
Warrant called for redemption is not exercised by such time, it will cease to
be exercisable and the holder will be entitled only to the redemption price.
See "RISK FACTORS -- Redemption of Warrants."

PREFERRED STOCK

The Articles of Incorporation were amended by the stockholders at the
annual meeting in June, 1994 to authorize preferred stock. The Board of
Directors is authorized to issue shares of preferred stock in series by
adoption of a resolution or resolutions for the issue of such series of
preferred stock. Each series will have such distinctive designation or title
as may be fixed by the Board of Directors prior to the issuance of any shares
thereof. Upon issuance, each series will have those voting powers, if any, and
those preferences and relative, participating, optional or other special
rights, with such qualifications, limitations or restrictions of those
preferences and/or rights, as stated in such resolution or resolutions
providing for the issue of such series of preferred stock.

TRANSFER AND WARRANT AGENT

The Company has appointed American Securities Transfer, Inc., 1825
Lawrence Street, Suite 444, Denver, Colorado 80202-1817, as its registrar and
transfer agent, and the warrant agent for the warrants issued by the Company.

PLAN OF DISTRIBUTION

The 1,475,100 shares of Common Stock and the 310,000 Warrants being
offered hereby for the benefit of the Selling Stockholders were originally
issued by the Company in (a) the Company's initial public offering wherein the
Class A and Class B Warrants were sold along with Common Stock to the public
and (b) a private placement of 50 units comprised of Common Stock and Class C
Warrants to "accredited investors" pursuant to Regulation D promulgated by the
Securities and Exchange Commission. Each unit in the private placement
consisted of 20,000 shares of Common Stock and 20,000 Class C Warrants, and
were sold on a best-efforts basis by Westminster at a price of $30,000 per
unit. The private placement was completed in August, 1994. The Company has
agreed to register the securities for resale by the Selling Stockholders. See
"DESCRIPTION OF SECURITIES -- Registration Rights." The Company will not
receive any of the proceeds from the sale of such securities by the Selling
Stockholders. If any Warrants are exercised, the Company will receive proceeds
from the exercise of such Warrants. For a description of the classification of
whether securities offered hereby are offered by the Company or by Selling
Stockholders, see the cover page of this Prospectus and footnotes to the table
on the cover page.

The Selling Stockholders have advised the Company that they propose to
offer for sale and to sell Warrants and Common Stock underlying the Warrants
when issued from time to time during the next 12 months through brokers in the
over-the-counter market, in private transactions, negotiated transactions, or
otherwise. Accordingly,

28
<PAGE> 32
sales prices and proceeds to the Selling Stockholders for any shares of Common
Stock or Warrants sold will depend upon market price fluctuations and the
manner of sale. Over the last 12 months the Selling Shareholders have
transferred all of the shares of Common Stock registered in this Offering.

If the shares or Warrants are sold through brokers, the Selling
Stockholders will pay brokerage commissions and other charges, including any
transfer taxes (which compensation as to a particular broker-dealer might be in
excess of customary commissions). The Selling Stockholders will also pay the
fees associated with their Common Stock and Warrants registered hereby and
expenses of any counsel retained by them in connection with this offering.
Except for the payment of such legal fees and expenses, brokerage commissions
and charges, the Company will bear all expenses in connection with registering
the shares offered hereby. Such expenses are estimated to total approximately
$32,000.

The offering by the Company of the 1,375,100 shares of Common Stock
underlying the Warrants is made exclusively to the holders of the Warrants.

LEGAL MATTERS

The legality of the securities offered hereby will be passed upon for
the Company by Robertson & Williams, Inc., a professional corporation.

EXPERTS

The consolidated balance sheets of Avalon Community Services, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended, included in this Prospectus, have been included herein in reliance
on the report of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.

29
<PAGE> 33
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Avalon Community Services, Inc.:

We have audited the accompanying consolidated balance sheets of Avalon
Community Services, Inc. and subsidiaries (the "Company") as of December 31,
1994 and 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1994 and 1995, and the consolidated results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Oklahoma City, Oklahoma
March 21, 1996
<PAGE> 34
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
-------------- -----------------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 648,759 $ 121,176
Accounts receivable, net of allowance
for doubtful accounts of $0
and $5,079, respectively. 337,486 283,116
Due from affiliates 30,000 52,966
Prepaids and other 103,263 236,382
-------------- -----------------
Total current assets 1,119,508 693,640
-------------- -----------------
PROPERTY AND EQUIPMENT, NET 3,343,796 5,525,311
DUE FROM AFFILIATES 262,312 231,248
-------------- -----------------
Total assets $ 4,725,616 $ 6,450,199
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 279,603 $ 183,233
Due to affiliates --- 175,028
Current maturities of long-term debt 452,750 278,837
-------------- -----------------
Total current liabilities 732,353 637,098
-------------- -----------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,512,797 3,449,275

DEFERRED INCOME TAXES 54,800 23,000
-------------- -----------------
Total liabilities 2,299,950 4,109,373

COMMITMENTS AND CONTINGENCIES --- ---
-------------- -----------------

STOCKHOLDERS' EQUITY:
Common stock:
Class A - par value $.001; 20,000,000 shares
authorized; 2,496,905 shares issued and
outstanding 2,497 2,497
Class B - no par; 4,000,000 shares authorized;
1,210,000 shares issued and outstanding --- ---
Preferred stock; par value $.001; 1,000,000
shares authorized; none issued --- ---
Paid-In capital 2,678,214 2,678,214
Accumulated deficit (255,045) (339,885)
-------------- -----------------
Total stockholders' equity 2,425,666 2,340,826
-------------- -----------------
Total liabilities and stockholders' equity $ 4,725,616 $ 6,450,199
============== =================
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.
F-1
<PAGE> 35
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994 1995
------------- --------------
<S> <C> <C>
REVENUES $ 2,536,136 $ 3,056,032
------------- --------------
COSTS AND EXPENSES:
Operating 1,550,510 1,949,145
General and administrative 529,098 603,264
Interest 145,573 256,273
Depreciation and amortization 211,202 303,092
------------- --------------
Total costs and expenses 2,436,383 3,111,774
------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 99,753 (55,742)
------------- --------------
PROVISION FOR (BENEFIT FROM) INCOME TAXES 32,860 (23,800)
------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 66,893 (31,942)
------------- --------------
DISCONTINUED OPERATIONS:
Loss from operations, net of income tax
benefit of $32,060 in 1994
and $12,600 in 1995 (59,539) (18,817)
Loss on disposal, net of income tax
benefit of $27,400 in 1995 --- (34,081)
------------- --------------
Loss from discontinued operations (59,539) (52,898)
------------- --------------
NET INCOME (LOSS) $ 7,354 $ (84,840)
============= ==============

NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.03 $ (0.01)
Discontinued operations (0.03) (0.02)
------------- --------------
$ 0.00 $ (0.03)
============= ==============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 1,986,849 2,496,905
============= ==============
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements
F-2
<PAGE> 36

AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------ Total
Class A Class A Class B Paid-In Accumulated Stockholders'
Shares Amount Shares Capital Deficit Equity
----------- ---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 1,478,995 $ 1,479 --- $ 1,347,524 $ (262,399) $ 1,086,604
Net income --- --- --- --- 7,354 7,354
Stock issued in connection
with private placement, net
of related costs 1,000,000 1,000 --- 1,262,789 --- 1,263,789
Stock issued in connection
with property acquisition 17,000 17 --- 66,537 --- 66,554
Class B issued in connection
with acquisition of affiliated
companies effective
December 31, 1993 --- --- 1,210,000 --- --- ---
Other 910 1 --- 1,364 --- 1,365
----------- ---------- ----------- -------------- ------------ ------------
BALANCE, DECEMBER 31, 1994 2,496,905 2,497 1,210,000 2,678,214 (255,045) 2,425,666
----------- ---------- ----------- -------------- ------------ ------------
Net loss --- --- --- --- (84,840) (84,840)
----------- ---------- ----------- -------------- ------------ ------------
BALANCE, DECEMBER 31, 1995 2,496,905 $ 2,497 1,210,000 $ 2,678,214 $ (339,885) $ 2,340,826
=========== ========== =========== ============== ============ ============
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE> 37
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994 1995
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 7,354 $ (84,840)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 214,802 310,602
Provision for (benefit from) deferred income taxes --- (31,800)
Loss on sale of property --- 36,740
Changes in operating assets and liabilities:
Decrease (increase) in -
Accounts receivable (144,845) 54,370
Prepaids and other (39,578) (133,119)
Decrease in accounts payable
and accrued liabilities (46,745) (96,370)
----------------- ----------------
Net cash provided by (used for) operating activities (9,012) 55,583
----------------- ----------------

INVESTING ACTIVITIES:
Capital expenditures (1,157,044) (2,600,022)
Proceeds from disposition of property 60,213 24,655
Proceeds from disposition of discontinued operations --- 46,509
----------------- ----------------
Net cash used for investing activities (1,096,831) (2,528,858)
----------------- ----------------

FINANCING ACTIVITIES:
Net cash advances from (to) affiliates (102,526) 183,126
Proceeds from short-term borrowings 1,584,778 2,160,311
Repayment of short-term borrowings (1,855,284) (2,126,877)
Proceeds from long-term borrowings 692,970 2,287,133
Repayment of long-term borrowings (235,448) (558,001)
Repayment of balance due to stockholder (87,500) ---
Net proceeds from private stock offering 1,263,789 ---
----------------- ----------------
Net cash provided by financing activities 1,260,779 1,945,692
----------------- ----------------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE> 38

AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW, CONTINUED

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994 1995
----------------- ----------------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 154,936 $ (527,583)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 493,823 648,759
----------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 648,759 $ 121,176
================= ================
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ 147,160 $ 312,179
================= ================
Income Taxes $ 36,486 $ 19,500
================= ================
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

F-5
<PAGE> 39
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS - Avalon Community Services, Inc. ("the Company")
is a developer and operator of community-based services. The Company provides
private correctional services, substance abuse treatment services, residential
care services, and outpatient mental health services. The Company has entered
into agreements effective in 1996 to provide substance abuse treatment services
for inmates in Nebraska and Florida, and to develop and manage two assisted
living centers.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries after
elimination of all material intercompany balances and transactions.

USE OF ESTIMATES - The preparation of the consolidated financial
statements requires the use of management's estimates and assumptions in
determining the carrying values of certain assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts for certain revenues
and expenses during the reporting period. Actual results could differ from
those estimated.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with original maturities of three months or less when purchased to
be cash equivalents for purposes of the Consolidated Statements of Cash Flows.

CONCENTRATIONS OF CREDIT RISK - Financial instruments potentially
subjecting the Company to concentrations of credit risk consist principally of
temporary cash investments and accounts receivable. The Company places its
temporary cash investments with high credit quality financial institutions and
limits the amount of credit exposure to any one institution. Concentrations of
credit risk with respect to accounts receivable are limited due to the fact
that a significant portion of the Company's receivables are from the State of
Oklahoma. The Company maintains an allowance for doubtful accounts for
potential credit losses. Actual bad debt expenses have not been material.

PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When
property and equipment is retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in current operations. Depreciation is
provided using the straight-line method over the following estimated useful
lives:

<TABLE>
<S> <C>
Buildings and Improvements 25 Years
Furniture and Equipment 5 to 7 Years
Transportation Equipment 3 to 6 Years
</TABLE>

The Company's policy is to capitalize interest incurred during the
construction of major projects. During the years ended 1994 and 1995, the
total interest capitalized was $15,000 and $60,200, respectively. Total
interest costs, including interests for discontinued operations and capitalized
interest, was $160,600 and $318,400 for 1994 and 1995, respectively.

INCOME TAXES - Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the period in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

F-6
<PAGE> 40
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

REVENUE RECOGNITION - The Company recognizes revenues as the related
services are provided.

NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common
share is calculated based on the weighted average number of common, and when
dilutive, common equivalent shares outstanding using the treasury stock method.
There were no differences between primary and fully diluted earnings per share
for the periods presented.

RECLASSIFICATIONS - Certain 1994 amounts have been reclassified to
conform to the 1995 presentation.

NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed of ("SFAS No. 121"). SFAS No. 121 sets forth standards
for recognition and measurement of impairment of long-lived assets. SFAS No.
121 is effective for the Company in 1996. The Company does not believe the
adoption of SFAS No. 121 will have a material effect on its consolidated
financial statements in 1996.

In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.123, Accounting for Stock-Based
Compensation ("SFAS No. 123"). SFAS No. 123 prescribes a fair value-based
method of determining compensation expense related to stock-based awards
granted to employees or associates. The recognition provision of SFAS No. 123
are optional; however, entities electing not to adopt SFAS No. 123 are required
to make disclosures of proforma net income and earnings per share as if SFAS
No. 123 had been applied. The Company does not plan to adopt the recognition
provision of SFAS No. 123. Pursuant to the pronouncement, the disclosure
requirements for the Company are effective in 1996.

NOTE 2 - DISCONTINUED OPERATIONS

The Company terminated the contract to manage the recreational
activities at Lake Stanley Draper Park in June 1995. This contract comprised
all of the operations of the Company's park management segment. The Company
ceased operations and vacated the park premises in June 1995. The Company has
been released from all contract provisions.

Net assets of the park management segment totaled approximately
$107,900, consisting primarily of recreational equipment. All assets were
disposed of by June 30, 1995. Revenues for the years ended December 31, 1994
and 1995, were $32,300 and $10,900, respectively. The loss from operations,
net of income tax benefit, was $59,500 and $18,800 for the years ended 1994 and
1995, respectively. The loss on the disposal, net of income tax benefit of
$27,400, was $34,100. Proceeds from the disposal were $46,500.

F-7
<PAGE> 41
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

NOTE 3 - PROPERTY AND EQUIPMENT

The elements of property and equipment and related accumulated
depreciation as of December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>

Accumulated
Cost Depreciation
---- ------------
<S> <C> <C>
December 31, 1994:
Land $ 79,500 $ ---
Buildings and Improvements 2,759,867 189,673
Furniture and Equipment 779,480 219,369
Transportation Equipment 208,059 74,068
-------------- -----------
$ 3,826,906 $ 483,110
============== ===========

</TABLE>

<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---- ------------
<S> <C> <C>
December 31, 1995:
Land $ 545,552 $ ---
Buildings and Improvements 4,590,350 327,208
Furniture and Equipment 875,921 314,345
Transportation Equipment 243,678 88,637
-------------- -----------
$ 6,255,501 $ 730,190
============== ===========

</TABLE>

NOTE 4 - STATE CONTRACTS

The Company contracts with the State of Oklahoma on an annual basis to
provide services. Revenues generated from such contracts during 1994 and 1995
comprised 62% and 71%, respectively, of total Company revenues, of which 68%
are with the Oklahoma Department of Corrections and 3% with the Oklahoma
Department of Mental Health in 1995. The contracts generally provide for
compensation on a per person, per day basis. The Company's current contracts
with the Oklahoma Department of Corrections extend through June 30, 1996 with
an option to renew for two additional one year periods with the same terms and
conditions. The Company's contracts with the Oklahoma Department of Mental
Health expired June 30, 1995 and have not been renewed.

F-8
<PAGE> 42
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash, accounts receivable, accounts payable,
and financial instruments included in other assets approximate their fair
values principally because of the short-term maturities of these instruments.
The fair values of the Company's debt maturing within one year, the revolving
credit facility and other long-term debt approximate the carrying values due to
the nature of the instruments involved.

In the normal course of business, the Company has letters of credit,
performance bonds, and other guarantees that are not reflected in the
accompanying consolidated balance sheets. In the past, no significant claims
have been made against these financial instruments. Management believes that
the likelihood of performance under these financial instruments is minimal and
expects no material losses to occur in connection with these financial
instruments.

NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1995 1995
---- ----
<S> <C> <C>
Revolving bank line of credit maturing
in February 1997 $ 230,000 $ 263,434

Notes payable to banks, collateralized by
equipment due in installments through
May 1998 with interest from 9.5% to 11% 99,876 173,992

Notes payable to banks, collateralized
by transportation equipment, due
in installments through November
1997 with interest ranging from
6.25% to 9.25%. 122,080 141,586

Notes payable to banks, collateralized
by land, buildings and improvements
due in installments through Oct 2000
with interest ranging from 8.5% to 12% 1,469,767 3,149,100

Other notes payable 43,824 ---
1,965,547 3,728,112

Less - current maturities (452,750) (278,837)
--------------- -------------
$ 1,512,797 $ 3,449,275
=============== =============

</TABLE>

F-9
<PAGE> 43
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

The aggregate maturities of long-term debt for each of the next five
years are as follows: 1996: $278,837; 1997: $535,902; 1998: $588,636; 1999:
$236,972; 2000: $1,858,721. Existing debt related to the administrative
building was refinanced on a five-year term note. Substantially all notes
payable and long-term debt has been personally guaranteed by the Company's CEO.

The revolving bank line of credit provides for aggregate maximum
borrowings of $380,000 and bears interest at 1% over national prime. The line
of credit was renewed to February 1997 and is collateralized by the Company's
state contract revenues. The interest rates at December 31, 1994 and 1995,
were 10% and 9.5%, respectively. Payment of dividends is restricted by terms
of the Company's revolving credit facility.

NOTE 7 - STOCKHOLDERS' EQUITY

All warrants were issued at an exercise price which equals or exceeds
the fair market value of the common stock at the date of issuance.

The Company has outstanding 220,905 Class A stock purchase warrants
exercisable at $5.50 per share and 275,100 Class B stock purchase warrants
exercisable at $6.00 per share. The warrants may be exercised at any time.
The Class A warrants expire in March 1996 and the Class B warrants expire in
March 1999. The warrants may be redeemed by the Company at any time for $.01
per share, with the exception of certain warrants relating to 1,600 shares of
common stock.

The Company completed a private placement of 1,000,000 of its common
stock and 1,000,000 stock purchase warrants in August 1994. The Class C stock
purchase warrants provide for the purchase of the Company's Class A common
stock at a price of $3.50 per share through December 1998. In the private
placement there are 100,000 shares of common stock and 100,000 Class C stock
purchase warrants reserved for underwriters.

The Company acquired a building in May 1994, for the construction of a
new correctional facility. The Company paid $325,000 in cash and issued 17,000
shares of its common stock in connection with the acquisition of the property.
The Company has agreed to repurchase 12,000 of the shares at a price of $5.00
per share through June 1997, at the sole option of the seller.

The Company issued 1,210,000 shares of Class B voting common stock
during 1994 in connection with the 1993 acquisition of two affiliated
companies. Management believes that the Class B shares have no economic value
due to their non-transferability and absence of liquidation and dividend rights
and; accordingly, no amount has been assigned to such shares in the
accompanying financial statements.

The Company adopted a stock option plan (the "Plan") in August 1994
providing for the issuance of 250,000 shares of Class A common stock pursuant
to both incentive stock options, intended to qualify under Section 422 of the
Internal Revenue Code, and options that do not qualify as incentive stock
options ("non-statutory"). The options were registered with the Securities and
Exchange Commission in November 1995. The purpose of the Plan is to provide
continuing incentives to the Company's officers, key employees, members of the
Board of Directors and consultants. The options generally vest over a four or
five-year period. Non-statutory options have been granted providing for the
issuance of 229,900 shares of Class A common stock at exercise prices ranging
from $1.50 to $2.22 per share. Options providing for the issuance of 14,740
shares were exercisable at December 31, 1995.

F-10
<PAGE> 44
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

NOTE 8 - INCOME TAX

The components of the provision for (benefit from) income taxes for
the years ended December 31, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1994 -
Current $ 32,060 $ 800 $ 32,860
Deferred --- --- ---
-------------- -------------- -----------------
$ 32,060 $ 800 $ 32,860
1995 -
Current $ (8,600) $ (3,300) $ (11,900)
Deferred (11,500) (400) (11,900)
-------------- -------------- -----------------
$ (20,100) $ (3,700) $ (23,800)
============== ============== =================
</TABLE>

The difference between the tax basis of assets and liabilities and
their financial reporting amounts that give rise to significant portions of
deferred income tax assets and liabilities are: assets - excess tax basis in
certain contributed property; liabilities - accelerated tax depreciation. At
December 31, 1995, the Company had approximately $79,500 of net operating loss
carry forward available to reduce future income tax payments, which expires in
2011.

The following is a reconciliation of the income tax provision from
continuing operations computed by applying the Federal statutory rate of 34%
and the effective income tax rate for the years ended December 31, 1994 and
1995:

<TABLE>
<CAPTION>
December 31,
------------
1994 1995
---- ----
<S> <C> <C>
Provision for (benefit from) income taxes
at statutory rate $ 33,900 $ (19,000)
Graduated Federal rate (1,500) ---
State income taxes 800 (3,700)
Tax-exempt income (2,000) (1,300)
Other, net 1,660 200
------------- -----------------
Total provision for (benefit from) income taxes $ 32,860 $ (23,800)
============= =================

</TABLE>

F-11
<PAGE> 45
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

Deferred tax assets and liabilities for continuing operations are as
follows:

<TABLE>
<CAPTION>
December 31,
------------
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carry forward $ --- $ 31,800
Shareholder contributed property 44,200 46,000
Vacation Accrual --- 8,900
Other --- 2,100
44,200 88,800
Less: Valuation allowance (37,900) (40,800)
Deferred tax assets 6,300 48,000
Deferred tax liabilities:
Property and equipment 61,100 71,000
Deferred tax liabilities 61,100 71,000
------------- ----------------
Net deferred tax liability $ 54,800 $ 23,000
============= ================
</TABLE>

NOTE 9 - SEGMENT INFORMATION

The Company provides various services through three principal
operating segments. Correctional services are provided to the State of Oklahoma
through the operation of the Company's two facilities for minimum security
level inmates. Residential care services are provided to residents requiring
supportive assistance through the operation of two company-owned facilities and
contract management services provided to a third residential care facility
owned by an affiliate. The Company also managed the recreational activities of
a municipal park and lake, which were disposed of in June 1995. There are no
sales between the Company's segments.

F-12
<PAGE> 46
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

The following table sets forth information with respect to the
industry segments of the Company:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995
---- ----
<S> <C> <C>
Revenues:
Correctional Services $ 1,364,294 $ 2,106,039
Residential Care 1,007,581 896,909
Corporate 164,261 53,084
---------------- ---------------
Continuing Operations 2,536,136 3,056,032
================ ===============

Operating Income (Loss):
Correctional Services $ 596,799 $ 865,739
Residential Care 140,594 (52,282)
Corporate (486,883) (612,926)
---------------- ---------------
Continuing Operations 250,510 200,531
Interest Expense (150,757) (256,273)
---------------- ---------------
Income (Loss) Before income Taxes $ 99,753 $ (55,742)
================ ===============

Identifiable Assets:
Correctional Services $ 1,542,452 $ 3,749,005
Residential Care 956,790 821,742
Corporate 2,101,981 1,879,452
---------------- ---------------
Continuing Operations $ 4,601,223 $ 6,450,199
================ ===============

Depreciation and amortization:
Correctional Services $ 71,824 $ 172,570
Residential Care 56,662 65,132
Corporate 82,716 65,390
---------------- ---------------
Continuing Operations $ 211,202 $ 303,092
================ ===============

Capital Expenditures:
Correctional Services $ 665,686 $ 2,473,249
Residential Care 106,795 20,232
Corporate 280,713 102,766
---------------- ---------------
Continuing Operations $ 1,053,194 $ 2,596,247
================ ===============

</TABLE>

F-13
<PAGE> 47
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995
---- ----
<S> <C> <C>
Park Management - Discontinued Operations
Revenues $ 32,269 $ 10,935
=========== ==========
Operating Income
Discontinued operations (91,599) (31,417)
Loss from Disposal -- (61,481)
----------- ----------
Total Loss from Discontinued Operations (91,599) (92,898)
=========== ==========
Identifiable Assets 124,393 --
=========== ==========
Depreciation and Amortization 3,600 7,510
=========== ==========
Capital expenditures 103,850 3,775
=========== ==========
</TABLE>

Operating income represents revenues less operating costs, general and
administrative expenses and depreciation; and excludes interest expense and
income taxes. Corporate revenues include lease rentals and interest income.
General and administrative expenses have been classified as corporate.

Corporate assets consist primarily of cash and cash equivalents,
receivables from affiliates, and buildings and fixtures utilized for
administrative purposes.

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company manages and performs various administrative and accounting
functions for a residential care facility owned by an affiliated entity. The
transactions between the Company and the affiliate are summarized as follows:

a) During 1994 and 1995, $14,200 and $9,000, respectively, were
charged by the Company for management, administrative and
accounting services. Such amounts have been reflected as a
reduction of general and administrative expenses in the
Consolidated Statements of Operations.

b) The balance due from affiliates, as reflected in the
Consolidated Balance Sheets, results from charges for
administrative and accounting services, as well as net cash
advances made to the affiliate. The outstanding balance is
non-interest bearing. The affiliate has agreed to repay
the outstanding balance from its operations. The amounts
reflected as current assets in the accompanying balance sheets
represent the estimated amounts to be repaid from operations
within a one-year period.

c) The Company leased a building to the affiliate during 1994 and
1995 for use in its residential care operations. The
affiliate was charged a total of $87,000 and $40,000
respectively, in lease payments. The current lease agreement
extends through December 1996, and provides for monthly lease
payments of $3,000. The building is pledged as collateral on
certain indebtedness.

F-14
<PAGE> 48
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

The Company leases certain transportation and other equipment from an
affiliated entity owned by the Company's CEO. Annual lease payments of $22,000
were made for such equipment during 1994 and 1995.

During 1994 and 1995, the Company provided administrative and
accounting services for an affiliated entity. The Company was reimbursed a
total of $27,000 and $30,000 for these services during 1994 and 1995. This
amount has been reflected as a reduction of general and administrative expenses
in the Consolidated Statements of Operations.

The Company leased a building utilized in its residential care
operations during 1994 and 1995 from an affiliated entity and made lease
payments totaling $62,000 and $60,000, respectively. The current lease
agreement provides for monthly lease payments of $5,000 and extends through
December 1996.

The Company entered into an agreement effective in May 1994 with the
Company's CEO to issue certain securities in exchange for his personal
guarantee of certain Company indebtedness. The agreement provides for the
issuance of one warrant, exercisable for one share of Class A common stock, and
one share of Class B common stock (voting only) for each dollar of Company debt
ultimately guaranteed. Under the terms of the agreement the shares of 2,220,000
Class B common stocks are issuable and are expected to be issued in 1996. A
maximum of 750,000 warrants can be issued. The warrants, when issued, will
have an exercise price of $1.50 and will be exercisable over a five year
period.

The Company entered into an agreement with an affiliate in 1995 to
develop and operate an assisted living center in Oklahoma City, Oklahoma. The
construction began in December 1995, and is expected to be completed in the
second half of 1996. The Company has also guaranteed obligations of up to
$2,080,000 but there were no amounts outstanding as of December 31, 1995.

Avalon received reimbursement of costs and overhead from an affiliated
Company for the outpatient mental health services operations during 1994 and
1995. The Company received reimbursements totaling $72,000 and $148,000 for
the additional costs associated with the specific services provided.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Total lease expense was $101,000 for 1994 and 1995 under all operating
leases. The future minimum lease payments are as follows: 1996 - $103,000,
1997 - $12,000, 1998, $4,000, 1999 - $0, 2000 - $0.

The Company executed a five-year employment agreement with the
Company's CEO in 1992. The agreement provides for compensation to be
determined on an annual basis by the Board of Directors. The agreement also
contains provisions for severance pay and disability payments, as well as a
non-compete agreement preventing him from engaging in a business deemed similar
to that of the Company.

F-15
<PAGE> 49
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1994 AND 1995

NOTE 12 - LITIGATION

An action was filed in August 1994 in the Superior Court of Los
Angeles County, California styled Roy Allenstein, et al. v. Southern Community
Services, Inc., Company Community Services, Inc., Donald E. Smith, Teresa Smith
and Does 1-50. This action arose out of a dispute involving promissory notes
executed by Southern Community Services, Inc. (A Company owned by Donald Smith,
the Company's CEO, and members of his family) to the plaintiffs in the
aggregate amount of $100,000. Company Community Services, Inc. was not an
obligor in any manner under the notes. Plaintiffs' claim against the Company
asserts that Mr. Smith represented that a right to convert the indebtedness of
Southern Community Services into common stock in the Company existed as an
option to repayment of the indebtedness and seeks the court's order directing
that such conversion be made. No written agreement for such conversion exists
and Mr. Smith denies ever making such an oral representation. Management has
instructed counsel to vigorously defend this matter. In the opinion of
Management, the likelihood of a material adverse effect on the Company is
remote.

Elk City Properties, Inc., is named Defendant in that certain action
commenced May 11, 1995 and styled Stephanie Layson, as Administratrix of the
Estate of Richard H. Shepherd, Deceased, Plaintiff, v. Elk City Properties,
Inc., d/b/a Connections Supportive Living Center, Defendant; Case No.
CJ-95-851-BH; District Court of Cleveland County, State of Oklahoma. In that
action, the Plaintiff has brought a wrongful death action against Elk City
Properties, Inc., arising out of the death of a resident of Connections
residential care facility. The Plaintiff is seeking damages in excess of
$10,000 and punitive damages of $10,000. Elk City Properties, Inc. has denied
these allegations, and contends the resident died of natural causes through no
fault of any of its agents or employees. Counsel has been instructed to
vigorously defend against the claims asserted. Management believes the
ultimate resolution of this suit will not have a material adverse effect on the
Company's financial position or results of operations.

NOTE 13 - SUBSEQUENT EVENTS

Effective January 1, 1996, the operations of the residential care
facilities were contracted to a tax exempt organization.

The Company was awarded a contract in February 1996 with the State of
Nebraska Department of Correctional Services to provide substance abuse
treatment services. The Company entered into an agreement with Kansas City
Community Center. Inc., a Missouri corporation, to bid and co-manage the
services. The Nebraska contract has a fifteen month term with two (2), two
year renewal options. The Contract is to provide substance abuse treatment
services in five Nebraska Correctional Centers. The Company began providing
the contract services in March 1996.

The Company entered into an agreement in 1996 with an affiliate to
develop and operate an assisted living center in Fort Collins, Colorado. The
construction of the assisted living center is scheduled to begin in the second
half of 1996 and be completed in the first quarter of 1997.

F-16
<PAGE> 50
================================================================================

No dealer, salesperson, or other person has been authorized to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information and representation must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that there has been no change in the facts set forth in this
Prospectus or in the affairs of the Company since the date hereof.

______________________

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PRICE RANGE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . 10
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . 11
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION . . . . . . . . . 11
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 25
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

================================================================================

1,475,100 SHARES OF COMMON STOCK

310,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS

P R O S P E C T U S

MAY __, 1996

13401 RAILWAY DRIVE
OKLAHOMA CITY, OKLAHOMA 73114
(405) 752-8802

================================================================================
<PAGE> 51
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Chapter 78 of the Nevada Revised Statutes (Private Companies) provides
that a director, officer, employee or agent of the Corporation may be
indemnified against suit or other proceeding whether it were civil, criminal,
administrative or investigative if he becomes a party to said lawsuit or
proceeding by reason of the fact that he is a director, officer, employee or
agent of the corporation. The compensation for indemnification includes
judgments, fines and amounts paid in settlement actual and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the corporation.

However, no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been judged liable for
negligence or misconduct in the performance of his duty to the corporation,
unless the court in which the action or suit is brought shall determine that
despite his liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to be indemnified for expenses such
court shall deem proper.

The By-Laws of the corporation outline the conditions under which any
director or officer of the registrant may be indemnified. Article V provides
that to the extent and in the manner permitted by the laws of the State of
Nevada, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement.

25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC Filing Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . $ 2,890.00
Registrar and Transfer Agent Fee . . . . . . . . . . . . . . . . . 1,444.00
Printing and Engraving . . . . . . . . . . . . . . . . . . . . . . 1,000.00
Legal Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 17,910.00
Accounting Fees . . . . . . . . . . . . . . . . . . . . . . . . . 7,000.00
Miscellaneous Fees . . . . . . . . . . . . . . . . . . . . . . . . 1,780.00
-----------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,024.00
===========
</TABLE>
____________
(1) The Selling Shareholders will pay the fees associates with their
common stock and expenses of counsel retained by them in connection
with this offering.

II-1
<PAGE> 52
26. RECENT SALES OF UNREGISTERED SECURITIES.

In August, 1994, the Company completed a private placement of
1,000,000 shares of its common stock and 1,000,000 stock purchase warrants.
The Company received gross proceeds of $1,500,000. The stock purchase warrants
provide for the purchase of the Company's common stock at a price of $3.50 per
share, subject to certain adjustments. The warrants are exercisable for a
period of four years from the effective date of registration by the Company of
the warrants and the underlying common stock. The offering was made to
accredited investors only. The sales were made in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933. The
placement agent in the offering was Westminster Securities Corp. which received
commissions of $120,000 (8%) and a non-accountable expense allowance of $30,000
(2%).

In April, 1996 the Company issued 80,000 stock purchase warrants as a
part of a settlement of pending litigation involving a dispute over the
convertibility of certain notes into common stock of the Company.

27. EXHIBITS.

<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C> <C>
3. (i) Articles of Incorporation (1)

(ii) ByLaws (1)

(iii) Articles of Amendment to Registrant's Articles of
Incorporation (2)

(iv) Unanimous Consent of Board of Directors Authorizing Extension
of Expiration Dates of Class "A" and Class "B" Redeemable
Warrants (3)

(v) Certificate of Corporate Resolutions, dated December 15, 1993,
regarding authorization of Class B Common Stock and Amendments
to Articles (5)

4. (i) Form Stock Certificate (1)

(ii) Form of Class "A" Redeemable Warrant (1)

(iii) Form of Class "A" Warrant Agreement (1)

(iv) Form of Class "B" Redeemable Warrant (1)

(v) Form of Class "B" Warrant Agreement (1)

(vi) Form of Class "C" Redeemable Warrant*

(vii) Form of Class "C" Warrant Agreement*

5. Opinion of Robertson & Williams, Inc. Re: Legality*

10. (i) Contract between Southern Corrections Systems, Inc. and the
Department of Corrections of the State of Oklahoma for halfway
house services for the year ended June 30, 1996 for Oklahoma
City facility*

(ii) Contract between Southern Corrections Systems, Inc. and the
Department of Corrections of the State of Oklahoma for public
works inmates for the year ended June 30, 1996*

</TABLE>

II-2
<PAGE> 53

<TABLE>
<S> <C> <C>
(iii) Contract between Southern Corrections Systems, Inc. and the
Department of Corrections of the State of Oklahoma for halfway
house services for the year ended June 30, 1996 for Tulsa
facility*

(iv) Contract between Southern Corrections Systems/Kansas City
Community Center and the Nebraska Department of Correctional
Services for substance abuse treatment services from March 1,
1996 through June 30, 1997*

(v) Employment Agreement with Donald E. Smith (2)

(vi) Agreement and Plan of Reorganization dated June 10, 1992,
between Avalon Enterprises, Inc. and Southern Corrections
Systems, Inc. (2)

(vii) Stock Option Plan adopted by Board of Directors of Registrant
on August 16, 1994.*

(viii) Debt Guaranty Agreement dated May 16, 1994, between Registrant
and Donald E. Smith*

(ix) Placement Agent Agreement dated May 15, 1994, between
Registrant and Westminster Securities Corporation*

21. Subsidiaries of Registrant(5)

23. (i) Consent of Coopers & Lybrand L.L.P. - bound in Registration
Statement

(ii) Consent of Robertson & Williams, Inc. - bound in Registration
Statement

24. Power of Attorney*

</TABLE>

* Previously filed with this Registration

(1) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-18 dated March 26, 1991.

(2) Incorporated herein by reference to the Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form S-18 dated August 3,
1992.

(3) Incorporated herein by reference to the Registrant's Post-Effective
Amendment No. 2 to Registration Statement on Form S-18 dated October
26, 1992.

(4) Incorporated herein by reference to the Registrant's Form 8-K dated
January 13, 1994.

(5) Incorporated herein by reference to Registrant's Form 10-KSB for
fiscal year ended December 31, 1993 and dated March 24, 1994.

II-3
<PAGE> 54
28. UNDERTAKINGS.

1. The undersigned registrant hereby undertakes:

(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:

(1) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

(2) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the registration statement; and

(3) To include any additional or changed material
information on the plan of distribution.

2. For the purpose of determining any liability under the
Securities Act of 1933, to treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.

3. To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.

4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-4
<PAGE> 55
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned in the
City of Oklahoma City, State of Oklahoma on May 7, 1996.

<TABLE>
<S> <C>
(Registrant) AVALON COMMUNITY SERVICES, INC.

By: Donald E. Smith
-------------------------------------------------------
Donald E. Smith
(Signature and Title ) Chief Executive Officer and Director

</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Donald E. Smith, and each of them, his
true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated below:

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>

Donald E. Smith Chief Executive Officer May 7, 1996
- ------------------------------------------------ and Director
Donald E. Smith

Jerry M. Sunderland President and Director May 7, 1996
- ------------------------------------------------
Jerry M. Sunderland

Kathryn A. Avery Chief Financial Officer May 7, 1996
- ------------------------------------------------ and Vice President
Kathryn A. Avery

Robert O. McDonald Director May 7, 1996
- ----------------------------------------------
Robert O. McDonald
</TABLE>

II-5
<PAGE> 56
INDEX TO EHXIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

23. (i) Consent of Coopers & Lybrand L.L.P. - bound in Registration
Statement

(ii) Consent of Robertson & Williams, Inc. - bound in Registration
Statement

<PAGE> 1
Exhibit 23. (i)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Post Effective Amendment No. 2 to
the Registration Statement on Form SB-2 of our report dated March 21, 1996, on
our audit of the consolidated balance sheets of Avalon Community Services, Inc.
and subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. We also consent to the reference to our firm under the caption
"Experts."

COOPERS & LYBRAND L.L.P.

Oklahoma City, Oklahoma
May 7, 1996

<PAGE> 1
Exhibit 23. (ii)

CONSENT OF COUNSEL

Robertson & Williams, Inc., a professional corporation, hereby
consents to the use of its name under the heading "LEGAL MATTERS" in the
Prospectus constituting a part of this Registration Statement.

ROBERTSON & WILLIAMS, INC.

Oklahoma City, Oklahoma
May 7, 1996