AVALON COMMUNITY SERVICES INC, S-2/A, 1997-01-17

AVALON COMMUNITY SERVICES INC
S-2/A, 1997-01-17
FACILITIES SUPPORT MANAGEMENT SERVICES

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<PAGE> 1

As filed with The Securities and Exchange Commission on January 17, 1997
REGISTRATION NO. 333-13103

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

AMENDMENT NO. 1 TO

FORM S-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

(Address, including zip code and telephone number,
including area code, of Registrant's principal executive office)

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)

---------------

================================================================================
<PAGE> 2

AVALON COMMUNITY SERVICES, INC.

CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS,
FILED AS PART OF REGISTRATION STATEMENT, OF
INFORMATION REQU-IRED BY FORM S-2

<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM S-2 ITEM CAPTION IN FORM S-2 LOCATION IN PROSPECTUS
- ----------- ------------------------ ----------------------
<S> <C> <C>
1. Forepart 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, Risk Factors
and Ratio of Earnings to Fixed Charges . . . . . . . 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. Description of the Securities to be Registered . . . . Summary of Prospectus;
Description of Securities

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

11. Information with Respect to the Registrant . . . . . . Incorporation of Certain Documents by
Reference

12. Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . . . . . . . Incorporation of Certain Documents by
Reference

13. Disclosure of Commission Position on Indemni-
fication for Securities Act Liabilities . . . . . . . Part II of Registration Statement

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

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

16. Exhibits . . . . . . . . . . . . . . . . . . . . . . . Exhibits to Registration Statement

17. Undertakings . . . . . . . . . . . . . . . . . . . . . Part II of Registration Statement

18. Financial Statements and Schedules . . . . . . . . . . Incorporation of Certain Documents by
Reference
</TABLE>
<PAGE> 3
PROSPECTUS

AVALON COMMUNITY SERVICES, INC.
515,000 SHARES OF COMMON STOCK
440,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

All of the 440,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") of Avalon Community Services, Inc. (the "Company") offered hereby
and 75,000 shares of Common Stock (the "Common Stock") are being sold by
certain security holders of the Company. 440,000 shares of Common Stock
offered hereby are issuable by the Company upon the exercise of the Warrants.
Unless the context otherwise requires, the holders of the 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 $4.06 per
share on January 10, 1997. 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)
Per Share . . . . . . . . . . . . . See Text See Text See Text See Text
Per Warrant . . . . . . . . . . . . Note (2) Note (2) Note (2) Note (2)
- -------------------------------------------------------------------------------------------------------------
Offering by Company:
Offering Price per Share of
Common Stock Underlying 3.50 3.50
Warrants(3) . . . . . . . . . . . . 5.12 $-0- $-0- 5.12
----------------------------------------------------------------
Total . . . . . . . . . . . . . . $1,985,500 $-0- $-0- $1,985,500
=============================================================================================================
</TABLE>

(1) Assuming exercise of Warrants and before deducting expenses payable by
the Company and Selling Shareholders, which are estimated at $10,000.
(2) The Selling Shareholders have advised the Company that they propose to
offer for sale and to sell the Common Stock and 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 Common Stock or 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 $10,000. See "Plan of Distribution."
(3) C Warrants are exercisable at $3.50 per share and D Warrants at $5.12
per share.

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

The date of this Prospectus is January __, 1997.

<PAGE> 4
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
copies 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 S-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.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:

(A) Annual Report filed on Form 10-KSBA for the fiscal year ended
December 31, 1995 (File No. 0-20307);

(B) Quarterly Reports on Form 10-QSB for the fiscal quarters ended
March 31, 1996, June 30, 1996, and September 30, 1996; and

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Warrants and shares of Common Stock
hereunder shall be deemed incorporated by reference in this Prospectus and
shall be deemed to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed incorporated
herein by reference shall be deemed to be modified or superseded for all
purposes to the extent that a statement contained in this Prospectus or in any
other subsequently filed document which also is, or is deemed to be,
incorporated by reference in this Prospectus modifies or supersedes such
statement.

This Prospectus is accompanied by a copy of the Company's last Form
10-KSB. The Company undertakes to provide without charge to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any and all of the information which have been or may be incorporated
in this Prospectus by reference but not delivered herewith, except for certain
exhibits to such documents. Requests for such information should be directed
to Treasurer, Avalon Community Services, Inc. 13401 Railway Drive, Oklahoma
City, Oklahoma 73114, telephone number (405) 752-8802.

2
<PAGE> 5
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 or incorporated by reference. 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) private correction services, substance abuse
treatment services, residential care services, outpatient mental health
services, and assisted living centers. These services include the following:
(a) private correctional services through the operation of a 250-bed minimum
security facility in Oklahoma City, Oklahoma, a 255-bed minimum security
facility in Tulsa, Oklahoma and a 144-bed medium security facility in El Paso,
Texas; (b) substance abuse treatment services for inmates in Nebraska; (c)
residential care services through facilities in Oklahoma; (d) the management of
outpatient mental health clinics in Oklahoma; and (e) the operations of two
assisted living centers, one in Oklahoma City, Oklahoma and one in Fort
Collins, Colorado. See "THE COMPANY."

THE OFFERING

Securities Offered by
Company . . . . . . . . . . . Up to 440,000 shares of Common Stock upon the
exercise of all the Warrants being registered
hereby.

Securities Offered by Selling
Securities Holders . . . . . 75,000 shares of Common Stock and 165,000
Class C Warrants and 275,000 Class D
Warrants, plus any shares of Common Stock
issued pursuant to the exercise of the
Warrants by any persons who acquired the
Warrants in the original issuance of such
Warrants.

Terms of 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. Each Class D Warrant will
entitle the holder to purchase one share of
Common Stock at a price of $5.12 per share,
subject to certain adjustments. The C
Warrants are exercisable at any time until
their expiration in December, 1999 and the D
Warrants until their expiration in August,
2001. 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."

Common Stock Outstanding
prior to this Offering . . . 2,952,135 Shares

Common Stock Outstanding
after this Offering . . . . . 4,390,235 Shares if all outstanding 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."

3
<PAGE> 6
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.

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Revenues From Continuing
Operations . . . . . . . . . . . $2,254,490 $2,536,136 $3,056,032 $2,021,101 $2,676,493
Income (Loss) From
Continuing Operations . . . . . . 60,905 66,893 (31,942) 14,268 (219,621)
Income (Loss) From Continuing
Operations Per Common Share . . . 0.04 0.03 (0.01) (0.00) (0.08)
Income (Loss) From
Discontinued Operations . . . . . - (59,539) (52,898) (57,598) -
Income (Loss) From Discontinued
Operations Per Common Share . . . - (0.03) (0.02) (0.02) -
</TABLE>

Total Assets . . . . . . . . . . . $3,222,581 $4,725,616 $6,450,199 $6,450,199 $7,574,442
Long-Term Debt,
less Current Maturities . . . . . 1,085,907 1,512,797 3,449,275 3,449,275 2,686,494
Stockholder's Equity . . . . . . . 1,086,604 2,425,666 2,340,826 2,340,826 3,316,682
</TABLE>

4
<PAGE> 7
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 90% percent of the
Company's continuing 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"), and contracts with West Texas Community Supervision and
Corrections Department and Texas Department of Criminal Justice, Parole
Division, relating to the Company's correctional facility in El Paso, Texas
("El Paso Intermediate Sanction Facility"). The Company's state contracts do
not specify a commitment 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, or that the states
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 various states, as to which no guarantees can be given.
The Company's contracts have been from one year renewable contracts to fifteen
year contracts. Further, there is no guarantee that the states 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 were to be decreased or even discontinued by the various
states, which would result in termination of the Company's existing contracts.

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, West Texas Community
Supervision and Corrections Department, Texas Department of Criminal Justice,
Parole Division, 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.

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.

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.

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 accredited since 1990 and the current
three-year accreditation expires in 1999. Avalon Correction Center received
its accreditation 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.

5
<PAGE> 8
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. 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.

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.

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.

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.

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 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 State agencies. 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.

6
<PAGE> 9

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. 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 amount to approximately 3% of the
Company's revenues for 1995. See "SELECTED FINANCIAL DATA," "MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION."

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 3,410,000 shares which increases his current
voting percentage to approximately 70% before any Warrants are exercised, and
approximately 50% of the voting rights after the exercise of all Warrants. An
additional 750,000 warrants may be issued to Mr. Smith upon his guarantee of
Company obligations which would further increase his voting percentage, if
exercised. 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 2,952,135 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."

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."

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 (1,107,830
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

7
<PAGE> 10
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 1994 private
placement through negotiations between the Company and its placement agent,
Westminster Securities Corporation ("Westminster"). 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. 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 WARRANTS. The holders of the Company's outstanding 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."

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.

LOSSES. 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. The Company has also incurred losses
in the first three quarters of 1996. 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. 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.

8
<PAGE> 11
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.

Avalon Community Services, Inc. (the "Company") operates (through its
wholly owned subsidiaries) private correction services, substance abuse
treatment services, residential care services, outpatient mental health
services, and assisted living centers. These services include the following:
(a) private correctional services through the operation of a 250-bed minimum
security facility in Oklahoma City, Oklahoma, a 255-bed minimum security
facility in Tulsa, Oklahoma and a 144-bed medium security facility in El Paso,
Texas; (b) substance abuse treatment services for inmates in Nebraska; (c)
residential care services through facilities in Oklahoma; (d) the management
of outpatient mental health clinics in Oklahoma; and (e) the operations of two
assisted living centers, one in Oklahoma City, Oklahoma and one in Fort
Collins, Colorado.

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

USE OF PROCEEDS

Assuming all Warrants are exercised, the Company would receive net
proceeds of approximately $1,985,500 before paying approximately $10,000 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.

The Company will not receive any of the proceeds from the sale of the
Common Stock or 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, 1995 and 1996. The prices represent inter-dealer
prices, without mark-up, mark-down or commission and may not represent actual
transactions.

9
<PAGE> 12

<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
June 30, 1996 7 5/8 2 1/2
September 30, 1996 5 7/8 2 1/2
December 31, 1996 4 3/4 3 7/8
</TABLE>

The average of the bid and asked prices for the Common Stock, as
reported on the NASDAQ SmallCap Market System was $4.06 per share on January
10, 1997. The Company had approximately 475 holders of its common stock as of
January 1, 1997.

CAPITALIZATION

The following table sets forth the historical capitalization of the
Company as of December 31, 1995 and September 30, 1996, 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.

<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Current Maturities
of Long-Term Debt . . . . . . . . . . . . . . . . . . . $278,837 $773,463
======== ========

Long-Term Debt, less Current Maturities . . . . . . . . . $3,449,275 $2,686,494
========== ==========

Stockholders' Equity
Common Stock, 24,000,000 shares authorized:
Class A, par value $.001, 2,496,905 and 2,927,135
shares issued and outstanding . . . . . . . . . . . 2,497 2,927
Class B, no par, 1,210,000
shares issued and outstanding . . . . . . . . . . . -- --
Paid-In Capital . . . . . . . . . . . . . . . . . . . . 2,678,214 3,873,261
Accumulated Deficit . . . . . . . . . . . . . . . . . . (339,885) (559,506)
---------- ----------
Total Stockholders' Equity . . . . . . . . . . . . . $2,340,826 $3,316,682
========== ==========
</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 and the nine months ended September 30, 1996 and 1995 are
derived from the unaudited 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.

10
<PAGE> 13

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Revenues From Continuing
Operations . . . . . . . . . . . . $2,254,490 $2,536,136 $3,056,032 $2,021,101 $2,676,493
Income (Loss) From
Continuing Operations . . . . . . . 60,905 66,893 (31,942) 14,268 (219,621)
Income (Loss) From Continuing
Operations Per Common Share . . . . 0.04 0.03 (0.01) 0.00 (0.08)
Income (Loss) From
Discontinued Operations . . . . . . - (59,539) (52,898) (57,598) -
Income (Loss) From Discontinued
Operations Per Common Share . . . . - (0.03) (0.02) (0.02) -
</TABLE>

Total Assets . . . . . . . . . . . . $3,222,581 $4,725,616 $6,450,199 $6,450,199 $7,574,442
Long-Term Debt,
less Current Maturities . . . . . . 1,085,907 1,512,797 3,449,275 3,449,275 2,686,494
Stockholder's Equity . . . . . . . . 1,086,604 2,425,666 2,340,826 2,340,826 3,316,682
</TABLE>

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES -

The Company's cash increased by $250,000 for the nine months ended
September 30, 1996. This was primarily due to Class C stock purchase warrants
being exercised for a net amount of $1,195,000. Approximately $667,000 was
used for capital expenditures including the purchase of the El Paso
Intermediate Sanction Facility in El Paso, Texas. The Company used $268,000
for the repayment of debt. Working capital was positive as of September 30,
1996.

The corrections segment of the Company is continuing to expand. In
August, the Company purchased the operations of a medium security level prison
in El Paso, Texas, primarily using the proceeds from the warrant exercise,plus
the issuance of 50,000 shares of common stock and 200,000 purchase warrants.
Revenues from the El Paso Intermediate Sanction Facility began immediately and
was profitable in the fourth quarter 1996. In the third quarter 1996, the
Avalon Correctional Center in Tulsa, Oklahoma, was at a break-even capacity.
Census increased in the fourth quarter. Cash flows from the existing
correctional centers will continue to improve as the facilities reach full
capacity.

The Company has plans for the development and management of assisted
living centers in Oklahoma and other states in the Midwest subject to future
funding. Emerald Square, the assisted living center in Oklahoma City, has
completed construction and began operations in the fourth quarter 1996. The
Company is operating an assisted living center in Fort Collins, Colorado,
Diamond Crest, which opened in the third quarter, 1996.

The Company believes it has sufficient cash reserves and projected
future cash flows from operations to meet its cash requirements. Additional
sources of funding may be required for future expansion. The Company will
explore other sources of funding such as additional bank borrowing or the sale
of equity securities. Additional funds may also be available through the
exercise of the Company's outstanding stock purchase warrants. The Company
retained the services of the investment banking firm of Rodman & Renshaw, Inc.
to help the Company evaluate opportunities for growth and capital markets
transactions. Management is unaware of any other evident trends that are
likely to result in material increases or decreases in the liquidity of the
Company.

11
<PAGE> 14

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. A 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 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.

CONTRACT SERVICES. 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.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 -

Total revenues increased by $468,000 or 21% primarily as a result of an
increase in correctional revenues of $748,000 offset by a decrease in
residential care revenue of approximately $250,000. Net loss for the nine
months ended September 30, 1996 was $220,000 or $.08 per share as compared to a
net loss for the nine months ended September 30, 1995 of $43,000 or $.02 per
share. The loss in 1996 was partly due to a reserve of $70,000 for a
litigation settlment.

CORRECTIONS. Revenue from correctional operations increased by $748,000
or 52% from 1995 to 1996 and operating expenses increased by 105% primarily due
to the addition of the El Paso Intermediate Sanction Facility. The direct
operating profit margin for correctional operations was 34% compared to 51% in
1995 primarily due to one time start up costs reflected in the lower profit
margins of Avalon Correctional Center and El Paso Intermediate Sanction
Facility. The average number of inmates or census for the first nine months
ended 1996 increased 39% over 1995.

CONTRACT SERVICES. Operating revenues for contract services decreased by
$250,000 or 36%, primarily due to a 14% decrease in residential care occupancy.
Operating expenses decreased by $215,000 or 33%. In conjunction with management
decision, the residential care operations have been reduced and the financial
results will reflect this in the fourth quarter 1996.

12
<PAGE> 15

CORPORATE. General and administrative expenses increased by $31,000 or
6%. Depreciation expense increased by $84,000 in 1996 as a result of the
construction of the Carver Center addition and the Avalon Correctional Center
in 1995. Interest expense increased approximately $119,000 primarily due to
interest related to the construction of the new correctional facilities.

SELLING STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock and Warrants as of December
31, 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.

<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>
Commercial Ventures, Inc. . . . . C Warrant 70,000 7.9 70,000 0 -
Heather Sara Allenstein Trust
Joel Marcus, Trustee . . . . . C Warrant 35,000 3.9 35,000 0 -
Rachel Ruth Allenstein Trust
Joel Marcus, Trustee . . . . . C Warrant 35,000 3.9 35,000 0 -
Myrna Trickey. . . . . . . . . . C Warrant 25,000 2.8 25,000 0 -
RECOR, Inc. . . . . . . . . . . . D Warrant 90,000 32.7 90,000 0 -
Edwin Bruce Lowman II. . . . . . D Warrant 123,750 45.0 123,750 0 -
R.P. Pearce, Jr.. . . . . . . . . D Warrant 27,500 10.0 27,500 0 -
Bruce Williams. . . . . . . . . . D Warrant 33,750 12.3 33,750 0 -
RECOR, Inc. . . . . . . . . . . . Common Stock 22,500 * 22,500 0 -
Edwin Bruce Lowman II. . . . . . Common Stock 33,750 * 33,750 0 -
R.P. Pearce, Jr. . . . . . . . . Common Stock 7,500 * 7,500 0 -
Bruce Williams. . . . . . . . . . Common Stock 11,250 * 11,250 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 December 31, 1996 there were 2,952,135 shares of Common Stock and
3,410,000 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
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.

13
<PAGE> 16
CLASS B COMMON STOCK

The Company created a Class B common stock and issued 3,410,000 shares
to Donald E. Smith . The shares were issued to Mr. Smith in exchange for his
personal guarantee of substantially all of the outstanding debt of two acquired
affiliated entities and certain other Company debt. The Company agreed to
issue one share of Class B common stock to Mr. Smith for each dollar of certain
Company debt guaranteed by him. 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.

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 600,000 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
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."

14
<PAGE> 17
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 165,000 shares of Common Stock in settlement of a pending lawsuit and
as a part of an asset purchase agreement. In 1996, 377,000 Class C Warrants
were exercised resulting in gross proceeds to the Company of approximately
$1,319,000. 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.

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."

15
<PAGE> 18
CLASS D WARRANTS

The Company has issued Class D Warrants to purchase 275,000 shares of
Common Stock in a recent asset acquisition. 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.

EXERCISE PRICE AND TERMS. Each Warrant entitles the holder thereof to
purchase one share of Common Stock at a price of $5.12 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 August 2, 2001.
See "RISK FACTORS -- Non-Registration in Certain Jurisdictions of Shares
Underlying the Warrants."

REDEMPTION OF WARRANTS. The Class D 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 $6.00 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 75,000 shares of Common Stock and 440,000 Warrants being offered
hereby for the benefit of the Selling Stockholders were originally issued by
the Company under an asset purchase contract and in settlement of pending
litigation against to Company. The Company 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.

The Selling Stockholders have advised the Company that they propose to
offer for sale and to sell Warrants and the 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, 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.

16
<PAGE> 19
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
$10,000.

The offering by the Company of the 440,000 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, incorporated by reference in this Prospectus and the Registration
Statement, have been included or incorporated by reference 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.

17
<PAGE> 20
===============================================================================

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PRICE RANGE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . 9
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>

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

515,000 SHARES OF COMMON STOCK

440,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS

P R O S P E C T U S

JANUARY __, 1997

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

================================================================================
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)

<TABLE>
<S> <C>
SEC Filing Fees(2) . . . . . . . . . . . . . . . . . $ 818.59
Registrar and Transfer Agent Fee . . . . . . . . . . 800.00
Printing and Engraving . . . . . . . . . . . . . . . 600.00
Legal Fees(2) . . . . . . . . . . . . . . . . . . . 5,500.00
Accounting Fees . . . . . . . . . . . . . . . . . . 1,500.00
Miscellaneous Fees . . . . . . . . . . . . . . . . . 781.41
-----------

Total . . . . . . . . . . . . . . . . . . . . . $ 10,000.00
===========
</TABLE>

- ---------------
(1) All amounts are estimated except SEC filing fee.

(2) The Selling Shareholders will pay the fees associated with their
common stock and expenses of counsel retained by them in connection
with this offering.

15. 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.

16. EXHIBITS.

NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
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,

II-4
<PAGE> 22
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 (6)

(vii) Form of Class "C" Warrant Agreement (6)

(viii) Form of Class "D" 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 (7)

(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 (7)

(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 (7)

(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 (7)

(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. (6)

(viii) Debt Guaranty Agreement dated May 16, 1994, between Registrant
and Donald E. Smith (6)

(ix) Placement Agent Agreement dated May 15, 1994, between Registrant
and Westminster Securities Corporation (6)

(x) Acquisition Agreement dated August 2, 1996 between Registrant,
Kensington Capital, Plc and RECOR, Inc.*

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*

II-5
<PAGE> 23

<TABLE>
<S> <C>
* 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.
(6) Incorporated herein by reference to the Registrant's Registration
Statement on Form SB-2 dated September 13, 1995 and amended.
(7) Incorporated by reference to Registrant's Post-Effective Amendment #2
to Registration Statement on Form SB-2 dated April 16, 1996.
</TABLE>

17. 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-6
<PAGE> 24
SIGNATURES

Pursuant to 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 S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Oklahoma City, State of Oklahoma, on January 13,
1997.

(Registrant) AVALON COMMUNITY SERVICES, INC.

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

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 January 13, 1997
- ----------------------------- and Director
Donald E. Smith

Jerry M. Sunderland President and Director January 13, 1997
- -----------------------------
Jerry M. Sunderland

Kathryn A. Avery Chief Financial Officer January 13, 1997
- ----------------------------- and Vice President
Kathryn A. Avery

Robert O. McDonald Director January 13, 1997
- -----------------------------
Robert O. McDonald
</TABLE>

II-7
<PAGE> 25
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <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 (6)

(vii) Form of Class "C" Warrant Agreement (6)

(viii) Form of Class "D" Warrant Agreement*

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

(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 (7)

(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 (7)

(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. (6)

(viii) Debt Guaranty Agreement dated May 16, 1994, between Registrant
and Donald E. Smith (6)

(ix) Placement Agent Agreement dated May 15, 1994, between Registrant
and Westminster Securities Corporation (6)

(x) Acquisition Agreement dated August 2, 1996 between Registrant,
Kensington Capital, Plc and RECOR, Inc.*

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.
(6) Incorporated herein by reference to the Registrant's Registration
Statement on Form SB-2 dated September 13, 1995 and amended.
(7) Incorporated by reference to Registrant's Post-Effective Amendment #2
to Registration Statement on Form SB-2 dated April 16, 1996.

<PAGE> 1
Exhibit 23. (i)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference into this Registration
Statement on Amendment No. 1 To Form S-2 (File No. 333-73103) 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
January 17, 1997

<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
January 17, 1997