SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number: 0-20307
AVALON COMMUNITY SERVICES, INC.
(Exact name of small business issuer as
specified in its corporate charter)
Nevada 13-3592263
(State of Incorporation) (I.R.S. Employer I.D. Number)
13401 Railway Drive, Oklahoma City, Oklahoma 73114
(Address of Principal executive offices)
(405) 752-8802
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or such
shorter period as the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
Yes X No ___
As of April 24, 1998, 3,021,380 shares of the issuer's Class A common stock, par
value $.001 were issued and outstanding.
Transitional Small Business Disclosure Format: Yes ___; No X .
<PAGE>
PART I - FINANCIAL INFORMATION
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
---------------------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,288,000 $ 1,458,000
Short term certificate of deposit 500,000 500,000
Accounts receivable, net of allowance for
doubtful accounts of $8,000 785,000 673,000
Current maturities of notes receivable 16,000 16,000
Prepaid expenses and other 93,000 107,000
- ------------------------------------------------------------------------------
Total current assets 2,682,000 2,754,000
- ------------------------------------------------------------------------------
Property and equipment, net 9,237,000 9,212,000
Notes receivable, net of current maturities 315,000 318,000
Other assets 1,093,000 1,111,000
- ------------------------------------------------------------------------------
Total assets $ 13,327,000 $ 13,395,000
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued liabilities
and other $ 789,000 $ 1,030,000
Current maturities of long-term debt 698,000 849,000
- ------------------------------------------------------------------------------
Total current liabilities 1,487,000 1,879,000
- ------------------------------------------------------------------------------
Long-term debt, less current maturities 5,362,000 5,129,000
Convertible debentures 4,150,000 4,150,000
Commitments and contingencies --- ---
Stockholders' equity:
Common stock:
Class A - par value $.001; 20,000,000
shares authorized; 3,004,380 and
2,982,170 shares issued and outstanding 3,000 3,000
Class B - no par; 4,000,000 shares
authorized; none issued and outstanding --- ---
Preferred stock; par value $.001;
1,000,000 shares authorized; none
issued and outstanding --- ---
Paid-In capital 6,251,000 6,189,000
Accumulated deficit (3,926,000) (3,955,000)
- ------------------------------------------------------------------------------
Total stockholders' equity 2,328,000 2,237,000
- ------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 13,327,000 $ 13,395,000
==============================================================================
These accompanying notes are an integral part of these consolidated
financial statements.
Page 1
<PAGE>
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31,
1998 1997
------------------------------------
Revenues $ 1,807,000 $ 1,191,000
- --------------------------------------------------------------------------------
Costs and expenses
Direct operating 1,135,000 773,000
General and administrative 268,000 198,000
Depreciation and amortization expense 152,000 98,000
Interest Expense 223,000 153,000
- --------------------------------------------------------------------------------
Income (loss) from continuing operations
before income tax expense (benefit) 29,000 (31,000)
Income tax expense (benefit) --- ---
- --------------------------------------------------------------------------------
Income (loss) from continuing operations 29,000 (31,000)
- --------------------------------------------------------------------------------
Discontinued operations:
Loss of operations, net of income tax --- (3,000)
Loss on disposal, net of income tax --- ---
- --------------------------------------------------------------------------------
Loss from discontinued operations --- (3,000)
- --------------------------------------------------------------------------------
Net income (loss) $ 29,000 $ (34,000)
================================================================================
Basic and diluted income (loss) per share:
Continuing operations $ 0.01 $ (0.01)
Discontinued operations 0.00 0.00
- --------------------------------------------------------------------------------
Net income (loss) per share: $ 0.01 $ (0.01)
================================================================================
Weighted average number of common
shares outstanding, basic 2,987,678 2,928,580
================================================================================
Weighted average number of common
shares outstanding, diluted 3,820,395 2,928,580
================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
Page 2
<PAGE>
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the three months ended
March 31,
1998 1997
----------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 29,000 $ (34,000)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 152,000 98,000
Writeoff of development and acquisition costs 11,000 ---
Loss (gain) on sale of property 2,000 (2,000)
Changes in operating assets and liabilities:
Decrease (increase) in -
Accounts receivable (112,000) (78,000)
Prepaid expenses and other 14,000 (44,000)
Decrease in accounts payable,
accrued liabilities and other (241,000) (63,000)
- -------------------------------------------------------------------------------
Net cash used in operating activities (145,000) (123,000)
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (142,000) (637,000)
Proceeds from payments on notes receivable 3,000 ---
Proceeds from disposition of property --- 12,000
- -------------------------------------------------------------------------------
Net cash used in investing activities (139,000) (625,000)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Advances to affiliates --- (46,000)
Proceeds from borrowings 1,530,000 1,269,000
Repayment of borrowings (1,478,000) (740,000)
Proceeds from warrant and option exercise 62,000 5,000
- -------------------------------------------------------------------------------
Net cash provided by financing activities 114,000 488,000
- -------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (170,000) (260,000)
Cash and Cash Equivalents, Beginning of Period 1,458,000 313,000
- -------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 1,288,000 $ 53,000
===============================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3
<PAGE>
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of Business -
Avalon Community Services, Inc. ("the Company" or "Avalon") is an Oklahoma
based corporation specializing in operating private correctional facilities and
providing intensive correctional programming. The Company currently operates in
Oklahoma, Texas, Missouri, and Nebraska with plans to significantly expand into
additional states. The Company owns and operates four community correctional
facilities and provides substance abuse services in seven additional
correctional facilities.
Principles of Consolidation -
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries after elimination of all material intercompany
balances and transactions.
Use of Estimates -
The preparation of the consolidated financial statements requires the use of
management's estimates and assumptions in determining the carrying values of
certain assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts for certain revenues and expenses during the reporting period.
Actual results could differ from those estimated.
Cash and Cash Equivalents -
The Company considers all highly liquid investments with original maturities
of three months or less when purchased and money market funds to be cash
equivalents.
Concentrations of Credit Risk -
Financial instruments potentially subjecting the Company to concentrations of
credit risk consist principally of temporary cash investments, accounts
receivable and notes receivable. The Company places its temporary cash
investments with high credit quality financial institutions and money market
funds and limits the amount of credit exposure to any one institution or fund.
However, the Company had a significant portion of its cash equivalents in one
money market fund and the short term certificate of deposit at one financial
institution at December 31, 1997. Concentrations of credit risk with respect to
accounts receivable are limited due to the fact that a significant portion of
the Company's receivables are from state governments. The Company maintains an
allowance for doubtful accounts for potential credit losses. Actual bad debt
expenses have not been material. Credit risk on a note receivable is partially
mitigated by the collateralization of the note by second lien on real estate.
Property and Equipment -
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, while minor replacements, maintenance and
repairs are charged to expense as incurred. When property and equipment is
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in
current operations. Depreciation is provided using the straight-line method over
the following estimated useful lives:
Buildings and Improvements 40 Years
Furniture and Equipment 5 to 7 Years
Transportation Equipment 3 to 15 Years
Page 4
<PAGE>
Impairment losses are recorded on long-lived assets when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. When required,
impairment losses are recognized based upon the estimated fair value of the
asset.
Income Taxes -
Deferred income taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the period in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Revenue Recognition -
The Company recognizes revenues as services are provided. Revenues are earned
based upon the number of inmates on a per diem basis at the Company's
correctional facilities. Revenues are earned on a monthly contract basis for
substance abuse treatment services. All correctional and substance abuse
revenues are received monthly from various governmental agencies.
Deferred Development Costs -
Deferred development costs consist of costs that can be directly associated
with an anticipated contract and, if the recoverability from that contract is
probable, they are deferred until the anticipated contract has been awarded. The
development costs are deferred until the commencement of operations of the
facility or contract period and amortized over the anticipated life of the
contract (including option and renewal periods). Costs of unsuccessful or
abandoned contracts are charged to expense when their recovery is not considered
probable. Facility costs are incurred (after a contract is awarded) in
connection with the opening of new facilities under the contract. These costs,
which are required under the contract, to the extent recoverable, are
capitalized from the date of award until commencement of operations, at which
time they are amortized on a straight-line basis over the term (including option
periods) ranging from one to five year periods of the government contracts.
Net Income (Loss) Per Common Share -
Basic income (loss) per share has been computed on the basis of weighted
average shares outstanding during each period. Diluted income (loss) per share
has been computed on the basis of weighted average common shares outstanding
plus any potentially dilutive convertible debentures, warrants and options
outstanding during the period. Weighted average shares outstanding for the three
months ended March 31, 1998 included certain dilutive warrants and options in
the calculation of diluted income per share. Convertible debentures were not
included in the calculation because the after tax effect of debenture interest
added to net income would create an anti-dilutive effect on income per share.
Diluted loss per share for the three months ended March 31, 1997 is the same as
basic loss per share because assumed exercise of options and warrants would be
anti-dilutive.
Interim Financial Statements -
The consolidated balance sheet as of March 31, 1998 and the statements of
operations for the three months ended March 31, 1998 and 1997 are unaudited and,
in the opinion of management, reflect all adjustments that are necessary for a
fair presentation of the financial position as of such date and the results of
operations and cash flows for the periods then ended. All such adjustments are
of a normal and recurring nature.
The financial statements included herein have been prepared in conformity with
generally accepted accounting principles and should be read in conjunction with
the December 31, 1997 Form 10-KSB filing. Footnote disclosures which would
substantially duplicate the disclosure contained in the most recent annual
report on Form 10-KSB have been condensed or omitted. The results of operations
for the three months ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the entire year ended December 31, 1998.
Page 5
<PAGE>
NOTE 2. LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
March 31, December 31,
1998 1997
-----------------------------
Revolving bank line of credit $ 252,000 $ 167,000
Notes payable to banks, collateralized by
equipment due in installments through
July 1999 with interest from 7.99% to 8.5% 88,000 89,000
Notes payable to banks, collateralized
by transportation equipment, due in
installments through March 2012
with interest ranging from 4.90% to 9.49%. 699,000 621,000
Notes payable to banks, collateralized
by land, buildings and improvements
due in installments through June 2012
with interest ranging from 8.5% to 11% 4,861,000 4,941,000
Note payable to an individual, uncollateralized,
with interest at 8.5%, due in full April 1999 160,000 160,000
------------- ------------
6,060,000 5,978,000
Less - current maturities 698,000 849,000
------------- ------------
$ 5,362,000 $ 5,129,000
============= ============
Substantially all notes payable and long-term debt has been personally
guaranteed by the Company's CEO. The revolving bank line of credit provides for
aggregate maximum borrowings of $500,000 and bears interest at 1% over national
prime, (effective rate of 9.5% at March 31, 1998 and December 31, 1997). The
line of credit is collateralized by the Company's Federal and state contract
revenues. Payment of dividends is restricted by terms of the Company's revolving
credit facility. The revolving bank line of credit matures July 5, 1998.
The Company refinanced a correctional facility in Oklahoma City, OK, at March
31, 1998 for $1,730,000. The note bears interest at 1.25% over national prime
(effective rate of 9.75% at March 31, 1998). The note is collateralized by the
Carver Center in Oklahoma City, OK. Interest is due monthly on the note with all
principal advances and accrued interest due at April 15, 1999. The Company used
approximately $500,000 of the proceeds to repay existing debt on the Carver
Center. The remaining unfunded loan proceeds of $1,225,000 may be drawn by the
Company at any time prior to maturity.
NOTE 3. CONVERTIBLE DEBENTURES
- -------------------------------
The Company completed a private placement of $4,150,000 of convertible
debentures on September 12, 1997. The debentures bear interest at 7.5% and
mature on September 12, 2007. The debentures may be redeemed by the Company at
any time after May, 2001 at 106.5% of principal, declining to 100% at maturity.
The debentures are convertible into common stock at any time until their
maturity at $3.00 per share.
Page 6
<PAGE>
NOTE 4. STOCKHOLDERS' EQUITY
- -----------------------------
The Company has outstanding 275,100 Class B stock purchase warrants providing
for the purchase of the Company's Class A common stock at a price of $6.00 per
share. The warrants may be exercised at any time until their expiration at March
26, 1999. The warrants may be redeemed by the Company at any time for $.01 per
share, with the exception of certain warrants relating to 1,600 shares of common
stock.
The Company issued 1,000,000 Class C stock purchase warrants in August 1994,
in connection with a private placement. The placement provided for 100,000 Class
C stock purchase warrants reserved for underwriters. The Company issued an
additional 165,000 Class C stock purchase warrants in 1996 and 25,000 Class C
stock purchase warrants in 1997. The Company has issued 425,000 shares of common
stock upon the exercise of the Class C stock purchase warrants through March 31,
1998. The Company currently has 865,000 Class C stock purchase warrants
outstanding, including the 100,000 warrants reserved for underwriters.
The Class C stock purchase warrants provide for the purchase of the Company's
Class A common stock at any time until their expiration at December 30, 1999.
Anti-dilution provisions of the warrant agreement have reduced the exercise
price from $3.50 to $3.33 per share as of March 31,1998. The warrants may be
redeemed by the Company upon certain events, for $.01 per share.
The Company issued 200,000 Class D stock purchase warrants in August 1996, in
connection with the acquisition of the El Paso Intermediate Sanction Facility.
The Class D stock purchase warrants provide for the purchase of the Company's
Class A common stock at a price of $5.125 per share at any time until their
expiration at August 2, 2001. The warrants may be redeemed by the Company upon
certain events for $.01 per share.
The Company issued 79,000 Class E stock purchase in September 1997, in
connection with the private placement of Convertible Debentures. The Class E
stock purchase warrants provide for the purchase of the Company's Class A common
stock at a price of $3.00 per share at any time until their expiration at
September 12, 2002. The warrants may be redeemed by the Company upon certain
events for $.01 per share.
A 1994 agreement provided for the issuance of 750,000 common stock purchase
warrants to purchase Class A common stock at $1.50 per share for each dollar of
Company debt guaranteed by the Company's CEO. The warrants will have a five year
term from the date of issuance. Management believes that the warrants had no
economic value when granted, and accordingly, no amount has been assigned to
such warrants in the financial statements.
NOTE 5. STOCK OPTION PLAN
- --------------------------
The Company adopted a stock option plan (the "Plan") providing for the
issuance of 250,000 shares of Class A common stock pursuant to both incentive
stock options, intended to qualify under Section 422 of the Internal Revenue
Code, and options that do not qualify as incentive stock options
("non-statutory"). The Option Plan was registered with the Securities and
Exchange Commission in November 1995. The purpose of the Plan is to provide
continuing incentives to the Company's officers, key employees, and members of
the Board of Directors. The options generally vest over a four or five-year
period with a ten year expiration period. On December 1, 1996, the Company
amended its stock option plan, increasing the number of shares available under
the Plan to 600,000. There are currently outstanding non-statutory options
providing for the issuance of 506,900 shares of Class A common stock at exercise
prices ranging from $1.50 to $4.00 per share. Options providing for the issuance
of 153,385 shares were exercisable at March 31, 1998.
NOTE 6. LITIGATION
- -------------------
The Company is a party to litigation arising in the normal course of business.
Management believes that the ultimate outcome of these matters will not have a
material effect on the Company's financial condition or results of operations.
Page 7
<PAGE>
NOTE 7. SIGNIFICANT CONTRACT
- -----------------------------
The Company was awarded a five year contract in March 1998 with the Oklahoma
Office of Juvenile Affairs. The contract is to provide services for 80 youthful
delinquent male offenders ages 13 to 19. The Company will design, build and
operate a new medium security facility to provide for housing, education,
program and recreation areas for these offenders. The contract is expected to
generate annual revenues of approximately $3,600,000 beginning in the fourth
quarter of 1998. The contract is expected to generate revenues of $18,800,000
over a five year period. The Company will complete the construction of the
facility and commence operations under this contract in December 1998.
NOTE 8. EARNINGS PER SHARE
- ---------------------------
The Company has computed basic and diluted earnings per share (EPS) in
accordance with Statement of Financial Standards No. 128. The Company recorded a
net loss for the three months ended March 31, 1997; therefore, the numerators
and denominators were identical for both basic and diluted EPS. The following is
a reconciliation of the numerator and denominator of the basic and diluted EPS
for the three months ended March 31, 1998.
For the three months ended March 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
- ---------
Income available to common
stockholders $29,000 2,987,678 $0.01
=====
Effect of Dilutive Securities
- -----------------------------
Stock purchase warrants 698,590
Stock options 134,127
------- ---------
Diluted EPS
- -----------
Income available to common
stockholders and assumed
conversions $29,000 3,820,395 $0.01
======== ========== =====
Warrants to purchase 275,100 shares at $6.00 per share and 200,000 shares at
$5.125 per share were outstanding during the three months ended March 31, 1998,
but were not included in the computation of diluted EPS because the warrants'
exercise price was greater than the average market price of the common shares.
The warrants were still outstanding at March 31, 1998, and expire on March 26,
1999 and August 2, 2001, respectively.
The Company has 7.5% debentures with principal and accrued interest convertible
at $3.00 per common share. At January 1, 1998, these debentures were convertible
into 1,417,980 shares. These shares were not included in the computation of
diluted EPS because the interest expense avoided upon the assumed conversion of
the debt would have been $79,000, or $0.06 per converted share. Since this
interest per common share obtainable on conversion exceeds basic EPS, the
convertible debentures are anti-dilutive for the three months ended March 31,
1998. Convertible debentures plus accrued interest were convertible into
1,400,625 shares at March 31, 1998. These convertible debentures mature
September 12, 2007.
Page 8
<PAGE>
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
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. Since the fourth quarter of 1996, all non
correctional operations have been discontinued and all related assets have been
sold or are under contracts to sell. Losses associated with discontinued
operations and estimated losses from disposal of the related assets were
recorded in 1997. The Company's 1998 earnings include only correctional facility
operations.
Working capital at March 31, 1998 was $1,195,000 representing a current ratio
of 1.80. This compares to working capital of $875,000 and a current ratio of
1.47 at December 31, 1997. The increase in working capital from December 31,
1997 is primarily due to refinancing a portion of the Company's current debt
maturities and warrant and option exercise proceeds of $62,000 in the first
quarter of 1998. Payment of convertible debenture interest and payment of
discontinued operations liabilities resulted in a $241,000 decrease in accounts
payable and accrued liabilities.
The Company has approximately $1.8 million of cash and short term certificates
of deposit available for new projects. The Company also has a $1.2 million line
of credit available.
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.
Results of Operations -
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997-
Total revenues increased by 52% to $1.81 million for the three months ended
March 31, 1998 from $1.19 million for the three months ended March 31, 1997. The
increase was a result of the acquisition of the Turley Correctional Facility in
Tulsa, Oklahoma in October 1997, a 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 first quarter of 1998 were
enhanced by the Turley Correctional Facility providing $327,000 of revenues, the
Fordland, Missouri substance abuse counseling contract providing $195,000 of
revenues, and the Company's El Paso operations providing increased revenues of
approximately $100,000 over the first quarter of 1997.
The Company had net income for the three months ended March 31, 1998 of
$29,000 or $.01 basic and diluted earnings per share, as compared to a net loss
for the three months ended March 31, 1997 of $34,000 or $.01 basic and diluted
loss per share. The Company's net income was a result of expansion through new
contracts and acquisitions.
Operating income, before interest, depreciation, and income taxes, increased
approximately 61% for the three months ended March 31, 1998 to $672,000 compared
to $418,000 for the three months ended March 31, 1997. The substantial increase
in operating income was a result of the Company's focus on private corrections,
resulting in being awarded new contracts and acquiring additional facilities.
The average daily inmate census increased 39% for the three months ended March
31, 1998 compared to the three months ended March 31, 1997. The census increase
was due to the acquisition of the Turley Correctional Facility in Tulsa,
Oklahoma in October 1997 and increased census at the Company's El Paso facility.
Page 9
<PAGE>
Direct operating expenses increased by 47% for the three months ended March
31, 1998 over the three months ended March 31, 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 37% for the three months ended
March 31, 1998 from 35% for the three months ended March 31, 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 have been recorded in 1996 and 1997. The Company currently has two non
correctional facilities under contract to sell and anticipate that these
facilities will be sold in the second quarter of 1998.
Corporate. General and administrative expenses increased by 35% to $268,000
for the three months ended March 31, 1998 from $198,000 for the three months
ended March 31, 1997. The majority of this increase was a result of increased
legal and professional expenses, and an increase in promotional and development
costs. 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 $70,000 for the three months ended March
31, 1998 over the first quarter 1997 resulted from interest on the convertible
debentures. Depreciation and amortization expense have increased commensurate
with the growth of the correctional operations.
Page 10
<PAGE>
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. a) Exhibits
Exhibit 27. Financial Data Schedule.
b) Reports on Form 8-K -
Filed a Form 8-K on March 19, 1998,
re: Award from the Oklahoma Office of Juvenile Affairs
Page 11
<PAGE>
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirement of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: April 24, 1998 AVALON COMMUNITY SERVICES, INC.
By: /s/ Jerry M. Sunderland
------------------------------------
Jerry M. Sunderland, President
By: /s/ Paul Voss
------------------------------------
Paul Voss, Vice President of Finance
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,288,000
<SECURITIES> 500,000
<RECEIVABLES> 1,124,000
<ALLOWANCES> 8,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,682,000
<PP&E> 10,449,000
<DEPRECIATION> 1,212,000
<TOTAL-ASSETS> 13,327,000
<CURRENT-LIABILITIES> 1,487,000
<BONDS> 9,512,000
0
0
<COMMON> 3,000
<OTHER-SE> 2,325,000
<TOTAL-LIABILITY-AND-EQUITY> 13,327,000
<SALES> 0
<TOTAL-REVENUES> 1,807,000
<CGS> 0
<TOTAL-COSTS> 1,403,000
<OTHER-EXPENSES> 152,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223,000
<INCOME-PRETAX> 29,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,000
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
