As filed with The Securities and Exchange Commission on September 2, 1998
Registration No. ________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
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) lassification 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)
_______________________
Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to Be Registered be Registered Per Share Offering Price Fee
- ----------------------------------- ------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Common Stock Purchase Warrants 25,000 $ .01 $250.00 $0.07
Common Stock upon Conversion of
Common Stock Purchase Warrants 25,000 $ 3.33 $83,250.00 $24.56
------------
Registration Fee $24.63
=================================== ============= ================ ================ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVALON COMMUNITY SERVICES, INC.
CROSS REFERENCE SHEET
Showing Location in Prospectus,
Filed as Part of Registration Statement, of
Information Required by Form S-2
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
</TABLE>
2
<PAGE>
PROSPECTUS
AVALON COMMUNITY SERVICES, INC.
25,000 Redeemable Common Stock Purchase Warrants
25,000 Shares of Common Stock
Of the 25,000 Class C Warrants of Avalon Community Services, Inc. (the
"Company") offered hereby, all are being sold by certain security holders of the
Company. All 25,000 shares of Common Stock (the "Common Stock") offered hereby
are issuable upon the exercise of the Company's Class C Warrants registered
hereby. The Warrants registered herein, were issued pursuant to a private
placement issuance using a Section 4(2) Exemption on September 2, 1998 under a
settlement agreement in a dispute with a former employee of the Company. 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
Warrants by the Selling Shareholders but will receive proceeds if such Warrants
are exercised and the shares of Common Stock issued. 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 $3.875 per share on
August 26, 1998. 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"on page 5 of this prospectus 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 Security Holders(2)
Per warrant............................... See Text See Text See Text See Text
Note (2) Note (2) Note (2) Note (2)
Offering Price per Share of Common
Stock Underlying Warrants................. $3.33 $-0- $-0- $3.33
-------- ------------- ------------ -----------
Total.................................... $87,500 $-0- $-0- $83,250
============================================ ======== ============= ============ ===========
<FN>
(1) Before deducting expenses payable by the Company and Selling Shareholders,
which are estimated at $6,000.
(2) The Selling Security Holders 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 $6,000. 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 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 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.
</FN>
</TABLE>
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 September 2, 1998.
1
<PAGE>
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.
This Prospectus, filed as a part of the Registration Statement, does not
contain information set forth in or annexed as an exhibit 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. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company, and the address is http://www.sec.gov.
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-KSB for the fiscal year ended December
31, 1997 (File No. 0-20307),
(B) Forms 10-QSB filed on April 24, 1998 and August 17, 1998,
(C) Form 8-K and an amendment thereto filed on March 19, 1998 and May 15,
1998 respectively, and
(D) Proxy Statement for Annual Meeting of Stockholders to be held May 29,
1998.
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>
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. ("Avalon" or the "Company") is an Oklahoma
based corporation owning and operating private correctional services. Avalon
specializes in privatized community correctional facilities and intensive
correctional programming. Avalon is currently operating in Oklahoma, Texas,
Missouri, and Nebraska with plans to significantly expand into additional states
throughout the Southwest. Avalon's business strategy is designed to escalate
Avalon into a dominant role as a provider of community correctional services on
a regional basis, by expanding its operations through new state contracts and
selective acquisitions, in order to capitalize on current rapid growth trends in
the privatized corrections industry. Avalon owns a 250-bed minimum security
facility in Oklahoma, a 255-bed minimum security facility in Tulsa, Oklahoma, a
150-bed adult residential community corrections facility in Tulsa, Oklahoma, and
a 144-bed medium security facility in El Paso, Texas, utilized as a intermediate
sanction facility. Avalon provides substance abuse treatment services for
inmates in Nebraska and Missouri. The Company was awarded a five year contract
in March 1998 with the Oklahoma Office of Juvenile Affairs for 80 male youthful
offenders. The Company is in process of completing construction of a new
facility and will commence operations under the contract in December 1998.
The Offering
Securities Offered by
Company........................ Up to 25,000 shares of Common Stock upon
the exercise of the Class C Warrants
registered hereby.
Securities Offered by Selling
Securities Holders ............ Up to 25,000 Shares of Common Stock issued
upon the exercise of the 25,000 Class C
Warrants registered hereby.
Terms of Warrants................ Each Class C Warrant will entitle the
holder to purchase one share of Common
Stock at a price of $3.33 per share,
subject to certain adjustments. The
Warrants are exercisable at any time until
their expiration on December 30, 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."
Common Stock Outstanding
prior to this Offering......... 3,041,880 Class A shares.
Common Stock Outstanding
after this Offering............ 3,883,380 Class A shares if all outstanding
Class C Warrants are exercised, including
Class C Warrants issued previous to this
registration.
Use of Proceeds ................. The proceeds of this offering may be used
by the Company 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 Small Cap Market
System.
3
<PAGE>
<TABLE>
<CAPTION>
Summary Financial Data
(dollars in thousands except for per share amounts)
Year Ended Six Months
December 31, Ended
------------------------ June 30,
1996 1997 1998
------------- --------- -----------
Statement of Operations Data: (Reclassified) (Unaudited)
<S> <C> <C> <C>
Revenues From Continuing Operations............ $3,313 $5,878 $3,667
Income (Loss) From Continuing Operations....... (60) (1,853) (65)
Income (Loss) From Continuing Operations
Per Common Share............................. (0.02) (0.63) (0.02)
Income (Loss) From Discontinued Operations..... (974) (728) ---
Income (Loss) From Discontinued Operations
Per Common Share............................. (0.36) (0.25) 0.00
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
------------------------ -----------
1996 1997 1998
------------- --------- -----------
Balance Sheet Data:
<S> <C> <C> <C>
Total Assets................................... $9,523 $13,395 $13,657
Long-Term Debt,
less Current Maturities ..................... 5,861 5,129 4,323
Convertible Debentures ....................... - 4,150 4,150
Stockholder's Equity........................... 2,695 2,237 2,322
</TABLE>
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 50% 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") 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 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 in halfway houses or that the various states will not
find an alternate means of alleviating prison overcrowding without the use of
outside contractors such as the Company. 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 various 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 be decreased or even discontinued by the various
states, which would result in termination of the Company's existing contracts.
The current contract with the Oklahoma Department of Corrections formally ended
on June 10, 1998. However, the Oklahoma Department of Corrections is in the
process of implementing a "flat rate" compensation methodology. The
implementation of this flat rate compensation program is still subject to
certain administrative proceedings. Renewal of the Company's contracts under the
new flat rate compensation has been delayed becuase of internal delays at the
Oklahoma Department of Corrections. The Company continues to operate on a month
to month basis and has been assured by the Oklahoma Department of Corrections
that its contracts will be renewed on terms no less favorable than the prior
fiscal year contracts.
4
<PAGE>
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, West Texas Community Supervision and Corrections Department, Texas
Department of Criminal Justice, Parole Department, Nebraska Department of
Correctional Services, Missouri Department of Corrections, 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, such as a reduction in population, resulting in
substantial reduction in revenue. Continued noncompliance can result in contract
cancellation. 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 accreditation expires in
1999. Avalon Correctional Center was accredited in 1996 and is accredited
through 2000. 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 various states, as well as annual inspections by the City and
State Fire Marshal's Office.
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. Under the terms of certain
debt agreement, the Company is limited to a leverage of 75% of total cost of any
acquisition.
Potential Legal Liability. The Company's management of correctional facilities
exposes it to potential third-party claims or litigation by prisoners, 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.
5
<PAGE>
Adverse Publicity. The Company's business is 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. While, the terms of
such transactions may not have been on an arms-length basis, the Company
believes that such terms are at least as favorable as with unrelated third
parties. 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.
Dependence on Key Personnel; 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. The Company currently pays the premiums on two policies of life
insurance pertaining to Mr. Smith, the beneficiary of one policy is a banking
institution which is a lender to the Company, and the second is a $4,000,000 key
man life insurance policy.
Employment Contracts. The Company has entered into a written employment
agreement with two of its executive officers, its Chief Executive Officer,
Donald E. Smith , and its President, Jerry Sunderland. Both contracts are for a
three-year term and commenced in August, 1997, providing for a first-year
salaries of $60,000 and $85,000, respectively, 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 them from engaging in a business deemed similar
to that of the Company for a period of two years from the cessation of their
employment. The Company's other officers and directors are employed by the
Company pursuant to verbal agreements.
Competition. A number of other corporations operate private correctional
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.
Continued Control by Donald Smith. The Company's Chief Executive Officer,
Donald E. Smith, controls the Company through his ownership of 1,054,000 shares
of Common Stock which is approximately 34% of all Common Stock presently
outstanding. An additional 750,000 warrants may be issued to Mr. Smith in
consideration of 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 minority 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
the majority stockholder.
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 and
1,000,000 of preferred stock, of which 3,041,880 shares of common stock were
issued and outstanding on the date of the Prospectus. 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
6
<PAGE>
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 (1,103,190 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 one year,
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.
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 and
Class D 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 for
Class C Warrants and $6.00 per share for Class D Warrants. A Registration
Statement of the Company covering the 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 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.
7
<PAGE>
Losses. The Company incurred a net loss of $2,581,000 for the year ended
December 31, 1997 of which $1,853,000 was from continuing operations and
$728,000 from discontinued operations. There was a loss of $65,000 in the six
months ended June 30, 1998, primarily due to the writeoff of certain costs
related to a terminated acquisition. 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.
THE COMPANY
Avalon Community Services, Inc., is a Nevada Corporation owning and operating
private correctional facilities. Avalon Community Services, Inc. and its wholly
owned subsidiaries ("Avalon" or the "Company") specialize in operating private
community correctional facilities and providing intensive correctional
programming. Avalon currently operates facilities and manages programs in
Oklahoma, Texas, Missouri, and Nebraska with plans to significantly expand into
additional states. Avalon's business strategy is designed to escalate Avalon
into a dominant role as a provider of community correctional services. Avalon's
development plan is to expand operations through new state and Federal contracts
and selective acquisitions to capitalize on the current rapid growth trends in
the private corrections industry.
The private correctional services industry has experienced significant growth
in recent years. During 1995 there were 3.8 million individuals on probation or
parole. This population is expected to increase to over 7 million by the year
2005. Annual correction industry growth rates have been approximately 7 to 8
percent per year. This growth rate exceeds the general population growth because
of increasing crime rates, higher conviction rates and longer prison sentences.
Avalon contracts with various government agencies to provide community
corrections services. Studies have documented a 10 to 30 percent savings to
government agencies as a result of utilizing private corrections providers to
build and operate correctional facilities. Avalon management believes its
background and abilities to build and operate community correctional facilities
and provide correctional programing position the Company for substantial future
growth in the corrections industry.
Avalon currently owns and operates 805 private community corrections beds. The
Company owns and operates three minimum-security correctional facilities (655
beds) in Oklahoma and one medium-security correctional facility (150 beds) in
Texas. Avalon believes it is the largest private provider of community
correctional services in Oklahoma. The Avalon facilities provide numerous
programs for offenders generally serving the last six months of their sentence.
Avalon provides contract agencies the basic services relating to the security,
detention and care of inmates, and a broad range of rehabilitative programs to
reduce recidivism. The provided programming includes substance abuse treatment
and counseling, vocational training, work release programs, basic educational
programs, job and life skill training, and reintegration services.
Avalon also provides intensive substance abuse treatment services to inmates
in six medium security correctional facilities in Nebraska and one medium
security correctional facility in Missouri. Intensive programming is an
essential part of community based corrections. Avalon has provided substance
abuse programs in facilities for over thirteen (13) years. Avalon's management
has been engaged in the business of providing private correctional services
since 1985.
8
<PAGE>
Avalon's management made the decision to divest all non correctional services
at the end of 1996 to allow management to focus exclusively on private
corrections. Avalon is aggressively developing its private correctional
operations through selective acquisitions and responding to requests of
governmental agencies.
The Company's executive office is located at 13401 Railway Drive, Oklahoma
City, Oklahoma 73114. The Company's telephone number is (405) 752-8802 and the
fax number is (405) 752-8852.
USE OF PROCEEDS
Assuming all 25,000 Class C Warrants registered hereby are exercised the
Company would receive proceeds of approximately $83,250 before paying
approximately $6,000 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 would be used by the Company for working capital and general corporate
purposes. The Company will not receive any of the proceeds from the sale of
shares or of 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
periods. The prices represent inter-dealer prices, without mark-up, mark-down or
commission and may not rep resent actual transactions.
Quarterly Period Ended High Low
---------------------- -------- --------
March 31, 1996 2 1/2 2
June 30, 1996 7 5/8 2 1/2
September 30, 1996 5 7/8 4 1/8
December 31, 1996 4 3/4 3 7/8
March 31, 1997 5 1/2 3 15/16
June 30, 1997 4 7/8 3 1/2
September 30, 1997 5 3 7/8
December 31, 1997 5 5/16 3 3/4
March 31, 1998 4 7/8 3 5/8
June 30, 1998 4 3/4 3 7/8
The average of the bid and asked prices for the Common Stock, as reported on
the NASDAQ SmallCap Market System was $3 7/8 per share on August 26, 1998. The
Company had approximately 780 record holders of its common stock as of August
26, 1998.
9
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company as
of December 31, 1997 and June 30, 1998, 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, 1997 June 30,1998
----------------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Maturities
of Long-Term Debt.......................................... $ 849 $1,766
======= ======
Long-Term Debt, less Current Maturities..................... $5,129 $4,323
======= ======
Convertible Debentures ..................................... $4,150 $4,150
======= ======
Stockholders' Equity
Common Stock, 24,000,000 shares authorized:...............
Class A, par value $.001, 2,982,170 and 3,037,880
shares issued and outstanding.......................... 3 3
Paid-In Capital........................................... 6,189 6,338
Accumulated Deficit....................................... (3,955) (4,019)
--------- --------
Total Stockholders' Equity.............................. $ 2,237 $ 2,322
========= ========
</TABLE>
10
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1996
and 1997 and the interim period ended June 30, 1998, 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 Six Months
December 31, Ended
------------------------ June 30,
1996 1997 1998
------------- --------- -----------
Statement of Operations Data: (Reclassified) (Unaudited)
(dollars in thousands except per share amounts)
<S> <C> <C> <C>
Revenues From Continuing Operations............ $3,313 $5,878 $3,667
Income (Loss) From Continuing Operations....... (60) (1,853) (65)
Income (Loss) From Continuing Operations
Per Common Share............................. (0.02) (0.63) (0.02)
Income (Loss) From Discontinued Operations..... (974) (728) ---
Income (Loss) From Discontinued Operations
Per Common Share............................. (0.36) (0.25) 0.00
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
------------------------ -----------
1996 1997 1998
------------- --------- -----------
Balance Sheet Data:
<S> <C> <C> <C>
Total Assets................................... $9,523 $13,395 $13,657
Long-Term Debt,
less Current Maturities ..................... 5,861 5,129 4,323
Convertible Debentures ....................... - 4,150 4,150
Stockholder's Equity........................... 2,695 2,237 2,322
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital Resources -
The Company's business strategy is to focus on the private corrections
industry, expanding its operations into additional states through new Federal
and state contracts and selective acquisitions. This strategy was implemented in
the fourth quarter of 1996. The Company's non-correctional operations have been
discontinued and all related assets have been sold or are held for sale. The
Company's 1998 results of operations include approximately $17,000 of costs
related to non correctional facilities held for sale.
Working capital at June 30, 1998 was $277,000 representing a current ratio of
1.10. This compares to working capital of $875,000 and a current ratio of 1.47
at December 31, 1997. The decrease in working capital from December 31, 1997 is
primarily due to refinancing a portion of the Company's long term debt over a
one year term in the second quarter of 1998.
The Company has approximately $1.7 million of cash available for new projects.
The Company also has $2.9 million available from lines of credit.
11
<PAGE>
The Company believes it has adequate cash reserves and cash flow from
operations to meet its current cash requirements. The Company expects current
contracts to generate sufficient income to increase cash reserves, while
minimizing income taxes through the utilization of tax loss carryforwards.
Additional sources of funding may be required on a project funding basis. The
Company is currently negotiating with financial institutions to obtain financing
to fund future growth. The Company is also evaluating equity sources of
financing. The Company may receive equity from the exercise of stock options,
warrants, or conversion of debentures in 1998.
The Company is aware of the risk of computer error in the year 2000. Such
error could cause computers to recognize the year 2000 as 1900 and cause the
computer to fail in calculation or function. As a result, the Company has
reviewed its computer operations and have identified all computers and systems
that are not year 2000 compliant (y2k). The Company's operations are not reliant
on computers. The Company's primary exposure to y2k problems is in its financial
reporting area. The Company has determined that the cost of computer equipment
and software, including testing and implementation to become y2k compliant is
approximately $35,000. The Company intends to purchase, test and implement the
new equipment and software before January 1, 1999.
The Company's major customers are State and Federal correctional agencies. An
effort is being made to confirm y2k compliance of each agency and how this may
impact the Company. The Company has no reason to believe that its contracts with
State and Federal government agencies will have an adverse effect because of y2k
compliance.
Results of Operations -
Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997-
Total revenues increased by 40% to $1.86 million for the three months ended
June 30, 1998 from $1.33 million for the three months ended June 30, 1997. The
increase was a result of the acquisition of the Turley Correctional Facility in
Tulsa, Oklahoma in October 1997, a new community transition program contract
awarded in June 1998 at the Ozark Correctional Facility in Fordland, Missouri,
increased revenues from the contract award to provide substance abuse counseling
in Fordland, Missouri in May 1997, and increased revenues from the Company's El
Paso operations.
Revenues in the second quarter of 1998 were enhanced by the Turley
Correctional Facility providing $315,000 of revenues, the Fordland, Missouri
substance abuse counseling contract providing increased revenues of $77,000 over
the second quarter of 1997, and the Company's El Paso operations providing
increased revenues of approximately $86,000 over the second quarter of 1997. The
new community transition program contract award accounted for $32,000 of
revenues in the second quarter of 1998.
The Company had a net loss for the three months ended June 30, 1998 of $94,000
or $.03 basic and diluted earnings per share, as compared to a net loss for the
three months ended June 30, 1997 of $49,000 or $.02 basic and diluted loss per
share. The Company's net loss was a result of the terminated acquisition.
Operating income, before interest, depreciation, and income taxes, increased
approximately 14% for the three months ended June 30, 1998 to $276,000 compared
to $243,000 for the three months ended June 30, 1997. The decrease in operating
income was a result of the Company's continuing expansion efforts.
Direct operating expenses increased by 33% for the three months ended June 30,
1998 over the three months ended June 30, 1997, primarily as a result of the
contract award for substance abuse counseling services at Fordland, Missouri,
and the acquisition of the Turley Correctional Center in Tulsa, Oklahoma. The
profit margin increased slightly to 38% for the three months ended June 30, 1998
from 35% for the three months ended June 30, 1997.
Discontinued Operations. The Company made the decision to discontinue all non
correctional operations in the fourth quarter of 1996. The Company's strategy is
to focus on opportunities in the corrections industry. All actual and expected
losses through the first quarter of 1998 have been recorded in 1996 and 1997.
The Company currently has two non-correctional facilities held for sale and
anticipate that these facilities will be sold in 1998. Second quarter 1998 costs
related to facilities held for sale were approximately $17,000 and are included
in continuing operations.
12
<PAGE>
Corporate. General and administrative expenses increased by 95% to $439,000
for the three months ended June 30, 1998 from $225,000 for the three months
ended June 30, 1997. A significant portion of this increase was a result of the
terminated acquisition charges in the amount of $100,000. Excluding the
terminated acquisition charge to operations, general and administrative expenses
increased 51% primarily due to increased staffing to prepare for growth of new
facilities contracts and acquisitions. The additional costs resulted from the
Company's focus on corrections and implementing a strategy for growth through
new contracts and acquisitions.
The increase in interest expense of $48,000 for the three months ended June
30, 1998 over the second quarter of 1997 resulted from interest on the
convertible debentures. Depreciation and amortization expense have increased
commensurate with the growth of the correctional operations.
Six months ended June 30, 1998 compared to the six months ended June 30, 1997 -
Net loss for the six months ended June 30, 1998 was $65,000 or $.02 per share
as compared to a loss of $83,000 or $.03 per share in 1997. The loss in 1998 was
primarily due to the writeoff of certain costs related to the terminated
acquisition.
Income from continuing operations, before interest, depreciation and income
taxes, was $680,000 in 1998 as compared to $463,000 in 1997. The increase in
1998 is attributable to the acquisition of the Turley Correctional Facility,
increased revenues at the El Paso Intermediate Sanction Facility, increased
revenues from the substance abuse counseling contract in Fordland, Missouri and
a new community transition program contract at the Ozark Correctional Facility
in Fordland, Missouri.
Revenues from continuing operations increased by 46% in 1998 or by $1,147,000
compared to 1997. Revenue was $3,667,000 in 1998 compared to $2,520,000 in 1997.
Operating expenses from continuing operations increased by $625,000. Both
revenue and operating expense increases were primarily a result of the
acquisition of the Turley Correctional Facility, increased revenues from the
substance abuse counseling contract in Fordland, Missouri which began in May
1997 and a new community transition program contract at the Ozark Correctional
Facility in Fordland, Missouri.
General and administrative expenses increased by $305,000 or 76% in 1998. This
increase was due to the $100,000 charge relating to the terminated acquisition,
and staffing and development costs associated with the Company's growth plan.
Interest expense increased approximately $118,000 due to the interest related to
the convertible debentures issued in the third quarter of 1997. Depreciation and
amortization expense have increased commensurate with the growth of the
correctional operations.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996-
Total revenues from continuing operations increased by 77% to $5.9 million in
1997 from $3.3 million in 1996. The increase was a result of the acquisition of
the Turley Correctional Facility in Tulsa, Oklahoma, a contract award to provide
substance abuse counseling in Fordland, Missouri, a new contract award to
provide services to the Texas Department of Criminal Justice in El Paso, Texas,
and a full year of operations under a contract with the West Texas Community
Supervision and Corrections Department at the El Paso Intermediate Sanction
Facility acquired by the Company in August 1996.
Revenues in 1997 were enhanced by the following: the Turley Correctional
Facility provided $353,000 of revenues; the Fordland, Missouri substance abuse
counseling contract provided $514,000 of revenues; the Texas Department of
Criminal Justice contract provided $427,000 of revenues; the West Texas
Community Supervision and Corrections Department contract increased revenues by
$733,000 due to a full year of operations in 1997; and the Avalon Correctional
Facility in Tulsa, OK, increased revenues by $556,000 due to increased inmate
census.
13
<PAGE>
The Company's net loss from continuing operations was $1,853,000 in 1997
compared to $60,000 in 1996. The 1997 loss included a non-cash charge of
$1,819,000 resulting from a discount on the convertible debentures issued in
September 1997. Excluding the effect of the $1,819,000 discount on convertible
debentures in 1997, the loss from continuing operations was $34,000.
The Company incurred a net loss in 1997 of $2,581,000 or $.88 per share, as
compared to a net loss in 1996 of $1,034,000 or $.38 per share. The majority
(98.7%) of the loss in 1997 resulted from the accounting treatment of a discount
from issuance of convertible debentures of $1,819,000, a non-cash expense, and a
loss of $728,000 from discontinued operations. The discount on the convertible
debentures was the result of the market value of the Company's common stock
exceeding the conversion price of the debentures at the date the debentures were
issued. The debenture discount was accounted for by a charge to expense and
credit to paid in capital, resulting in no change of liabilities, cash or net
equity.
Corrections. Operating income, before interest, depreciation, and income
taxes, increased approximately 67% in 1997 to $1,175,000 compared to $705,000
for 1996. The substantial increase in operating income was a result of the
Company's focus on private corrections and obtaining new contracts and acquiring
additional facilities. The average daily inmate census increased to 425 in 1997
from 268 in 1996, an increase of 59%. The census increase was a result of the
acquisition of the Turley Correctional Facility in Tulsa, Oklahoma, a new
contract award to provide services to the Texas Department of Criminal Justice
in El Paso, Texas, and a full year of operations under a contract with the West
Texas Community Supervision and Corrections Department at the El Paso
Intermediate Sanction Facility acquired by the Company in August, 1996.
Direct operating expenses increased by 89% in 1997 over 1996, primarily as a
result of the full operations in 1997 of the El Paso Intermediate Sanction
Facility, the contract award for substance abuse counseling services at
Fordland, Missouri, and the acquisition of the Turley Correctional Center in
Tulsa, Oklahoma. The profit margin decreased slightly to 37% in 1997 from 41% in
1996. This was primarily due to lower profit margins generated from substance
abuse counseling services in prisons in Nebraska and Missouri. Substance abuse
programs profit margins are typically lower than margins generated by
residential correctional facilities.
Discontinued Operations. The Company made the decision to discontinue all
non-correctional operations in the fourth quarter of 1996. The Company's
strategy is to focus on opportunities in the corrections industry. The net loss
from discontinued operations was $649,000, net of income tax allocations, for
1996. Revenues from discontinued operations were $50,000 and $493,000, in 1997
and 1996 respectively. The losses on the disposal of assets related to
discontinued operations were $728,000 and $325,000, in 1997 and 1996,
respectively.
Corporate. General and administrative expenses increased in 1997 by 53% to
$990,000 from $646,000. The majority of this increase was a result of the
overhead reimbursement received from discontinued operations in 1996. The gross
overhead reimbursement received by the Company from discontinued operations in
1996 was $398,000. The Company incurred minimal additional costs in 1997
associated with additional staffing, increased legal and professional expenses,
and an increase in promotional costs. These additional costs resulted from the
Company's focus on corrections and implementing a strategy for growth through
new contracts and acquisitions.
The increase in interest expense of $330,700 in 1997 resulted from interest on
the convertible debentures and a full year interest on indebtedness assumed in
1996 with the acquisition of the El Paso Intermediate Sanction Facility.
Depreciation and amortization expense have increased commensurate with the
growth of the correctional operations.
14
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class C Warrants registered hereby as of the date of
this prospectus 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.
<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>
Myrna Trickey C Warrant 25,000 * 25,000 0 0.00
- -----------
<FN>
*Less than 1% of outstanding security
</FN>
</TABLE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue 24,000,000 shares of common stock par value
$0.001 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 August 26,1998 there were 3,041,880 shares of Common Stock
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.
Class B Common Stock
The Company created a Class B common stock in connection with the acquisition
of two affiliated entities, in 1993 and the guaranty of certain Company debt
through 1996. The Class B common stock was entitled to vote in all actions
requiring a vote of the stockholders, but had no liquidation rights, claim on
earnings or the payment of dividends and was non-transferable. The Company
canceled all Class B common share of stock on August 25, 1997, pursuant to a
Change of Control Agreement between the Company and Donald E. Smith.
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 o f the Company in order to enable
Warrant holders to acquire the kind and number of shares of stock or other
securities or
15
<PAGE>
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 Mr.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."
Rights of Warrant Holders. 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. 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.
16
<PAGE>
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 were 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 in 1994, Class C Warrants to
purchase 165,000 shares of Common Stock in settlement of a lawsuit and for
professional services and Class C Warrants to purchase 25,000 shares of Common
Stock in settlement of an employment dispute with a former employee. The
placement agent warrant given to Westminster Securities Corporation in the
private placement also includes the right to receive 100,000 Class C Warrants.
In 1996, 377,000 Class C Warrants were exercised. 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 $3.33 per share, subject to adjustment
in accordance with the anti-dilution and other provisions referred to above
under "Warrants-General." When the Warrants were issued, the exercise price was
$3.50 per share, however, in September of 1997, as a consequence of the
Company's private placement of convertible debentures and the conversion price
thereunder, as described in "Convertible Debentures", the exercise price was
reduced by $0.17 per share pursuant to the antidilution provisions discussed
above. 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."
Class D Warrants
The Company has issued Class D Warrants to purchase 275,000 shares of Common
Stock in a recent asset acquisition, with 75,000 Warrants later canceled. An
additional 79,000 Class D Warrants were issued with the private placement dated
September 12, 1997. 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.
17
<PAGE>
Exercise Price and Terms. Each Warrant entitles the holder thereof to purchase
one share of Common Stock at a price of $5.125 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
Warrant 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 even 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."
Class E Warrants
The Company has issued Class E Warrants to purchase 79,000 shares of Common
Stock in connection with a private placement dated September 12, 1997. The
placement agent warrant given to underwriters also includes the right to receive
79,000 Class E 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.
Exercise Price and Terms. Each Warrant entitles the holder thereof to purchase
one share of Common Stock at a price of $3.00 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 in 2002. See "RISK FACTORS --
Non-Registration in Certain Jurisdictions of Shares Underlying the Warrants."
Convertible Debentures
On September 12, 1997, the Company completed a private placement of
Convertible Debentures. Convertible Debentures in the aggregate principal amount
of $4,150,000 were issued in the private placement. The Convertible Debentures
bear interest at the rate of 7.5% per annum, with interest payments payable
semi-annually, August 1, and February 1, commencing February 1, 1998. The
Convertible Debentures have a maturity date of ten years from the date of
issuance, unless otherwise earlier redeemed or converted. Under the terms of the
Debenture Purchase Agreements existing between the Debenture Holders and the
Company, all or any portion of the principal amount of the Convertible
Debentures, plus all accrued but unpaid interest thereon will be convertible, at
the option of the Debenture Holder, unless previously redeemed, at any time
prior to maturity, into Common Stock of the Company at a conversion price of
$3.00 per share. The conversion price of the Debentures is subject to certain
adjustments to prevent dilution in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transaction.
The Company has reserved 1,383,333 shares of Common stock issuable upon
conversion of the Debentures. The Debentures are not redeemable by the Company
prior to May 1, 2000. Thereafter, the Debentures are redeemable at any time and
from time to time, at the option of the Company, in whole or in part, at
redemption prices declining from 106.5%
18
<PAGE>
down to 100% at maturity, plus accrued interest, except that the Debentures
cannot be redeemed unless the closing price of the Common Stock equals or
exceeds 140% of the effective conversion price per share for at least 20 out of
30 consecutive days ending within 20 calendar days before the notice of
redemption is mailed. In connection with the private placement, 79,000
underwriter warrants have been designated and 79,000 shares of Common Stock have
been so reserved.
The Company filed with the Securities and Exchange Commission a registration
statement which was declared effective on January 13, 1998 with respect to the
resale, from time to time, of the Common Stock issuable upon conversion of the
Debentures. The Company agreed to keep such registration statement effective
until three years from the latest date of original issuance of the Debentures.
The Company has recorded the value of the convertibility feature of the
debentures as interest expense, amortizing the discounted amount from the date
of issuance through the date the security is first convertible as per the
requirements in Staff Position Topic D-60.
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 25,000 Class C Warrants being offered hereby for the benefit of the
Selling Stockholder were originally issued by the Company in a private placement
under a settlement agreement with a former employee of the Company which
involved a dispute over her termination pursuant to Section 4(2) of the
Securities Act of 1933, as amended. The Company agreed to register the
securities for resale by the Selling Stockholder. The Company will not receive
any of the proceeds from the sale of such Warrants by the Selling Stockholder.
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 Stockholder,
see the cover page of this Prospectus and footnotes to the table on the cover
page.
The Selling Stockholder has advised the Company that she proposes 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, sales prices and proceeds to the Selling Stockholder for
any shares of Common Stock or Warrants sold will depend upon market price
fluctuations and the manner of sale.
If the shares or Warrants are sold through brokers, the Selling Stockholder
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 Stockholder will also pay the fees
associated with her Common Stock and Warrants registered hereby and expenses of
any counsel retained by her 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 securities
offered hereby.
19
<PAGE>
The offering by the Company of the 25,000 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, 1996 and December 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flow for
the years then ended, incorporated by reference in this Prospectus, have been
incorporated by reference herein in reliance on the reports of Grant Thornton
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
20
<PAGE>
======================================== =====================================
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.
25,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
25,000 SHARES OF COMMON STOCK
----------------------
TABLE OF CONTENTS
PROSPECTUS
Page
----
PROSPECTUS SUMMARY.................. 3 September __, 1998
RISK FACTORS........................ 5
THE COMPANY......................... 9
USE OF PROCEEDS..................... 9
DIVIDEND POLICY..................... 9
PRICE RANGE OF COMMON STOCK......... 10
CAPITALIZATION...................... 10
SELECTED FINANCIAL DATA............. 11
MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION.... 11 13401 Railway Drive
SELLING STOCKHOLDERS................ 13 Oklahoma City, Oklahoma 73114
DESCRIPTION OF SECURITIES........... 14 (405)752-8802
PLAN OF DISTRIBUTION................ 18
LEGAL MATTERS....................... 19
EXPERTS ........................... 19
======================================= =====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. Other Expenses of Issuance and Distribution.(1)
SEC Filing Fees(2).................... $ 24.63
Registrar and Transfer Agent Fee...... 500.00
Printing and Engraving................ 100.00
Legal Fees(2)......................... 3,000.00
State Registration Fees............... 500.00
Accounting Fees....................... 1,500.00
Miscellaneous Fees and Expenses....... 375.37
-----------
Total.......................... $ 6,000.00
===========
- ------------
(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 Amendment to Registrant's Articles of Incorporation dated
December 31, 1995
v Unanimous Consent of Board of Directors authorizing
extension of expiration dates of Class "B" Redeemable
Warrants (3)
vi Certificate of Corporate Resolutions, dated December 13,
1993, regarding authorization of Class B Common Stock and
Amendment to Articles (5)
II- 1
<PAGE>
4. i Form of Stock Certificate (1)
ii Form of Class "B" Redeemable Warrant (1)
iii Form of Class "B" Warrant Agreement (1)
iv Form of Class "C" Redeemable Warrant (6)
v Form of Class "C" Warrant Agreement (6)
vi Form of Class "D" Redeemable Warrant (7)
vii Form of Class "D" Warrant Agreement (7)
viii Form of Class "E" Warrant Agreement (9)
ix Form of Convertible Debenture Agreement (9)
10. i Contract between Southern Correction Systems, Inc. and the
Oklahoma Department of Corrections for halfway house
services for the year ended June 30, 1998 (6)
ii Contract between Southern Corrections Systems, Inc. and the
Oklahoma Department of Corrections for public works inmates
for the year ended June 30, 1998 (6)
iii Contract between Southern Corrections Systems, Inc. and the
Oklahoma Department of Corrections for halfway house
services for the year ended June 30, 1998. (6)
iv Stock Option Plan adopted by Board of Directors on August
16, 1994 (6)
v Placement Agent Agreement dated May 15, 1994, between
Registrant and Westminster Securities Corporation (6)
vi Change of Control Agreement between Donald E. Smith and
Avalon Community Services, Inc. dated August 25, 1997. (7)
vii Employment Agreement with Donald E. Smith dated August 8,
1997. (7)
viii Employment Agreement with Jerry M. Sunderland dated August
8, 1997 (7)
ix Letter of Acceptance and Notice of Award dated February 24,
1997 to Avalon Community Services, Inc. from the Missouri
Department of Corrections. (7)
x Notice of Award dated March 3, 1998 to Southern Corrections
Systems, Inc. from the Oklahoma Office of Juvenile Affairs.
(10)
xi Agreement dated June 1, 1998 between Southern Corrections
Systems, Inc. and the Texes Department of Criminal Justice.
16. i Letter re: Change in Certified Accountant (8)
21. i Subsidiaries of Registrant (5)
23. i Consent of Grant Thornton LLP - bound in Registration
Statement
ii Consent of Robertson & Williams, Inc. - bound in
Registration Statement
24. Power of Attorney
Footnotes:
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 the Registrant's Form 10-KSB for
the 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.
II- 2
<PAGE>
7) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-2 Amendment No. 1, dated April 16, 1996 and
amended.
8) Incorporated herein by reference to the Registrant's Form 8-K dated
March 4, 1997. 9) Incorporated herein by reference to the
Registrant's Form S-2 dated December 22, 1997.
10) Incorporated herein by reference to the Registrant's Form 8-K dated
March 19, 1998.
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- 3
<PAGE>
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 September 1,
1998.
(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:
Signature Capacity Date
\Donald E. Smith Chief Executive Officer September 2, 1998
- ---------------------- and Director
Donald E. Smith
\Jerry M. Sunderland President and Director September 2, 1998
- ----------------------
Jerry M. Sunderland
\Paul Voss Vice President of Finance September 2, 1998
- ----------------------
Paul Voss
\Robert O. McDonald Director September 2, 1998
- ----------------------
Robert O. McDonald
\Mark S. Cooley Director September 2, 1998
- ----------------------
Mark S. Cooley
II- 4
<PAGE>
Exhibit 23. (i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into this Registration Statement
on Form S-2 of our report dated February 27, 1998 (except for Note 16, as to
which date is March 3, 1998), on our audit of the consolidated balance sheets of
Avalon Community Services, Inc. and subsidiaries as of December 31, 1996 and
December 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flow for the years then ended. We also consent to
the reference to our firm under the caption "Experts."
Grant Thornton LLP
Oklahoma City, Oklahoma
September 2, 1998
II- 5
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
September 2, 1998
II- 6
