-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VXAGn8jELTY86zPkI4wgvZMnpWjr+324S8a8bClAu57e73c6a6/Ba3Y3cXRx4hcP /2Usc3+DskyUpPfB+07V5g== 0000872202-97-000010.txt : 19970815 0000872202-97-000010.hdr.sgml : 19970815 ACCESSION NUMBER: 0000872202-97-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVALON COMMUNITY SERVICES INC CENTRAL INDEX KEY: 0000872202 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 133592263 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20307 FILM NUMBER: 97663705 BUSINESS ADDRESS: STREET 1: 13401 RAILWAY DR STREET 2: P O BOX 57012 CITY: OKLAHOMA CITY STATE: OK ZIP: 73157 BUSINESS PHONE: 4057528802 MAIL ADDRESS: STREET 1: P O BOX 57012 CITY: OKLAHOMA CITY STATE: OK ZIP: 73157 FORMER COMPANY: FORMER CONFORMED NAME: AVALON ENTERPRISES INC DATE OF NAME CHANGE: 19600201 10QSB 1 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 June 30, 1997 Commission File Number: 0-20307 AVALON COMMUNITY SERVICES, INC. (Exact name of small business issuer as specified in its 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) 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) been subject to such filing requirements for the past 90 days: Yes X No ___ As of August 4, 1997, 2,929,650 shares of the issuer's Class A common stock, par value $.001, and 3,900,000 shares of Class B common stock, no par value, were issued and outstanding. Transitional Small Business Disclosure Format: Yes ___; No X . PART I - FINANCIAL INFORMATION AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, June 30, 1996 1997 -------------- -------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 313,558 $ 212,958 Accounts receivable, net of allowance for doubtful accounts of $0 400,643 562,626 Due from affiliates 119,588 268,194 Prepaid expenses and other 311,351 458,222 - -------------------------------------------- -------------- --------------- Total current assets 1,145,140 1,502,000 - -------------------------------------------- -------------- --------------- Property and equipment, net 8,312,385 8,850,100 Other assets 66,000 66,000 - -------------------------------------------- -------------- --------------- Total assets $ 9,523,525 $ 10,418,100 ============================================ ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, accrued liabilities and other $ 447,668 $ 433,189 Current maturities of long-term debt 518,866 2,140,905 - ------------------------------------------- --------------- -------------- Total current liabilities 966,534 2,574,094 - ------------------------------------------- --------------- -------------- Long-term debt, less current maturities 5,861,514 5,226,946 Deferred income taxes --- --- - ------------------------------------------- --------------- -------------- Total liabilities 6,828,048 7,801,040 - ------------------------------------------- --------------- -------------- Stockholders' equity: Common stock: Class A - par value $.001; 20,000,000 shares authorized; 2,927,135 and 2,929,650 shares issued and outstanding 2,927 2,929 Class B - no par; 4,000,000 shares authorized; 3,900,000 shares issued and outstanding --- --- Preferred stock; par value $.001; 1,000,000 shares authorized; none issued --- --- Paid-In capital 4,066,128 4,071,023 Accumulated deficit (1,373,578) (1,456,892) - ------------------------------------------- --------------- -------------- Total stockholders' equity 2,695,477 2,617,060 - ------------------------------------------- --------------- -------------- Total liabilities and stockholders' equity $ 9,523,525 $ 10,418,100 =========================================== =============== ============== These accompanying notes are an integral part of these consolidated financial statements. Page 1
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1996 1997 1996 1997 - -------------------------------------------- --------------- --------------- --------------- --------------- Revenues $ 662,824 $ 1,329,101 $ 1,322,975 $ 2,520,064 - -------------------------------------------- --------------- --------------- --------------- --------------- Costs and expenses Direct operating 346,460 860,984 715,687 1,655,232 General and administrative 170,012 224,666 328,470 401,533 Depreciation and amortization 74,469 107,063 139,359 205,081 - -------------------------------------------- --------------- --------------- --------------- --------------- 590,911 1,192,713 1,183,516 2,261,846 - -------------------------------------------- --------------- --------------- --------------- --------------- Income from operations 71,913 136,388 139,459 258,218 Less interest expense 73,630 164,046 137,826 317,297 - -------------------------------------------- --------------- --------------- --------------- --------------- Income (loss) from continuing operations before income tax expense (benefit) (1,717) (27,658) 1,633 (59,079) Income tax expense (benefit) (671) --- 621 --- - -------------------------------------------- --------------- --------------- --------------- --------------- Income (loss) from continuing operations (1,046) (27,658) 1,012 (59,079) - -------------------------------------------- --------------- --------------- --------------- --------------- Discontinued operations: (Loss)gain from operations, net of income tax benefit in 1996 of $49,605 and $70,697 (80,935) (21,706) (115,348) (24,235) (Loss)gain on disposal, net of income tax benefit of $0 --- --- --- --- - -------------------------------------------- --------------- --------------- --------------- --------------- Loss from discontinued (80,935) (21,706) (115,348) (24,235) operations - -------------------------------------------- --------------- --------------- --------------- --------------- Net income (loss) $ (81,981) $ (49,364) $ (114,336) $ (83,314) ============================================ =============== =============== =============== =============== Net income (loss) per share: Continuing operations $ (0.00) $ (0.01) $ (0.00) $ (0.02) Discontinued operations (0.03) (0.01) (0.04) (0.01) - -------------------------------------------- --------------- --------------- --------------- --------------- Net income (loss) per share: $ (0.03) $ (0.02) $ (0.04) $ (0.03) ============================================ =============== =============== =============== =============== Weighted average number of common and common equivalent shares outstanding 2,647,894 2,929,650 2,572,400 2,929,132 ============================================ =============== =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. Page 2
AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) For the six months ended June 30, 1996 1997 --------------- -------------- OPERATING ACTIVITIES: .................................... Net loss $ (114,336) $ ( 83,314) Adjustments to reconcile net loss to net cash provided by (used for) operating activities Depreciation and amortization 181,401 205,081 Deferred income taxes (17,476) --- (Gain) loss on sale of property (1,417) 2,210 Changes in operating assets and liabilities: Decrease (increase) in - Accounts receivable (189,834) (161,983) Prepaid expenses and other (120,705) (146,871) Accounts payable, accrued liabilities and other 76,580 (14,479) - ------------------------------------------------------------ -------------- ------------ Net cash used in operating activities (185,787) (199,356) - ------------------------------------------------------------ -------------- ------------ INVESTING ACTIVITIES: Capital expenditures (138,799) (764,113) Proceeds from disposition of property 4,384 19,107 - ------------------------------------------------------------ -------------- ------------- Net cash used in investing activities (134,415) (745,006) - ------------------------------------------------------------ -------------- ------------- FINANCING ACTIVITIES: Net cash advances (to) from affiliates 72,573 (148,606) Repayment of borrowings 1,335,851) (2,662,682) Proceeds from borrowings 1,292,227 3,650,153 Net proceeds from warrant exercise 1,179,435 --- Exercise of stock options --- 4,897 - ------------------------------------------------------------ --------------- -------------- Net cash provided by (used in) financing activities 1,208,384 843,762 - ------------------------------------------------------------ --------------- -------------- NET INCREASE (DECREASE) IN CASH 888,182 (100,600) CASH, BEGINNING OF PERIOD 121,176 313,558 - ------------------------------------------------------------ --------------- -------------- CASH, END OF PERIOD $ 1,009,358 $ 212,958 ============================================================ =============== ==============
The accompanying notes are an integral part of these consolidated financial statements. Page 3 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") is an Oklahoma based corporation owning and operating correctional facilities. The Company specializes in privatized community correctional facilities and intensive correctional programming. The Company currently operates in Oklahoma, Texas, Missouri, and Nebraska with plans to significantly expand into additional states throughout the Southwest. The Company owns and operates three (3) community correctional facilities and provides substance abuse treatment services in nine (9) prisons. 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 require the use of managements'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 amounts could differ from those estimated. Net Income (Loss) Per Common Share - Net income (loss) per common share is calculated based on the weighted average number of common, and when dilutive, common equivalent shares outstanding using the treasury stock method. There were no differences between primary and fully diluted earnings per share for the periods presented. Interim Financial Statements - The consolidated balance sheet as of June 30, 1997, the statements of operations for the three months and six months ended June 30, 1996 and 1997, and the statements of cash flows for the six months ended June 30, 1996 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, 1996 Form 10-KSB filing. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The results of operations for the three and six months ended June 30, 1997, are not necessarily indicative of the results that may be expected for the entire year ended December 31, 1997. Page 4 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited) NOTE 2 - LONG-TERM DEBT Long-term debt and notes payable consist of the following: December 31, June 30, 1996 1997 Notes payable to banks, collateralized by equipment, due in installments through May 1998, with interest from 7.99% to 11%. $ 137,059 $ 654,932 Notespayable to banks, collateralized by transportation equipment, due in installments through November 1997, with interest ranging from 6.25% to 9.99%. 71,483 75,364 Notespayable to banks, collateralized by real estate, due in installments through August 2004, with interest ranging from 8.5% to 12%. 5,584,334 5,614,469 Note payable to corporation, collateralized by buildings with interest at 8.5% with principle due in full January 1, 1998. 550,000 550,000 Notes payable to bank, line of credit with interest of 1% above prime maturing April 1998. 37,504 473,086 ------------- ----------- 6,380,380 7,367,851 Less - current maturities 518,866 2,140,905 ------------- ---------- $ 5,861,514 $ 5,226,946 ============= =========== 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 borrowing of $500,000. The line of credit is collateralized by the Company's state contract receivables. NOTE 3 - STOCKHOLDERS' EQUITY The Company has outstanding 275,100 Class B stock purchasse warrants exercisable at $6.00 per share. The warrants may be exercised at any time. The Class B warrants expire in March, 1999. The warrants may be redeemed by the Company at any time for $.01 per share, with the exception of certain warrants relating to 1,600 shares of common stock. Page 5 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) The Company completed a private placement of 1,000,000 shares of its common stock and 1,000,000 Class C stock purchase warrants in August, 1994. Class C stock purchase warrants representing 377,000 shares were exercised in 1996, leaving 723,000 Class C stock purchase warrants outstanding. The Class C stock purchase warrants provide for the purchase of the Company's stock at a price of $3.50 per share through December, 1998. Also outstanding are 100,000 shares of common stock and 100,000 Class C stock purchase warrants reserved for underwriters. The Company issued Class D Warrants in August, 1996, to purchase 200,000 shares of Common Stock 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 through August 2, 2001. The Warrants may be redeemed by the Company upon certain events for $.01 per share. The Company adopted a stock option plan (the "Plan") in August, 1994 providing for the issuance of 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 purpose of the Plan is to provide continuing incentives to the Company's officers, key employees, members of the Board of Directors and consultants. The options generally vest over a four or five year period with a ten year expiration date. The Company amended its stock option plan in 1996, increasing the number of shares available under the Plan to 600,000. Non-statutory options providing for the issuance of 441,505 shares of common stock were outstanding at June 30, 1997. The exercise prices range from $1.50 to $4.00 per share. Options providing for the issuance of 84,460 shares were exercisable at June 30, 1997. The Company issued 2,200,000 and 490,000 shares of Class B common stock to the Company's CEO during 1996 and 1997, respectively, pursuant to a 1994 debt guarantee agreement for his personal guarantee of debt. Class B shares are voting rights only, are non-transferable and have no liquidation or dividend rights. NOTE 4 - SUBSEQUENT EVENTS The Company has accepted subscriptions of $2,580,000 in a Company sponsored private placement of convertible subordinated debt, as of August 14, 1997. The private placement has a sixty (60) day offering period beginning August 4, 1997, and has a minimum of $2,000,000 subscriptions and a maximum of $8,000,000 subscriptions. The debentures are convertible into common stock of the Company and have an interest rate of 7.5%. Page 6 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis Or Plan of Operations Liquidity and Capital Resources The Company's business strategy is designed to expand the Company's community level correctional services on a regional basis throughout the Southwest. The Company is devoting its resources to expand and develop correctional facilities and to increase the number of correction beds under management, through new state contracts and selective acquisitions. Current liabilities were greater than current assets as of June 30, 1997, by $1,072,000, due to debt maturing in the first quarter 1998. The Company expects to retire or refinance prior to year end, approximately $1,643,000 of debt classified as current liability at June 30, 1997. Repayment of borrowings was approximately $2,663,000 with $3,650,000 additional borrowings incurred in the second quarter 1997. Avalon Correctional Center was refinanced at a lower interest rate in the second quarter, 1997. Approximately $844,000 was provided by financing activities in the second quarter 1997, and approximately $764,000 was utilized for capital expenditures. The Company's capital expenditures and net borrowings in 1997 included the acquisition of transportation and other equipment. Revenues increased significantly in 1997. Total revenues increased by 90% from $1,323,000 in the first six months of 1996 to $2,520,000 in 1997. The average compensated daily inmate census increased 71% from 226 in the second quarter 1996 as compared to 387 in 1997. The Company began the Substance Abuse Treatment Services Program in Ozark Correctional Center in Fordland, Missouri, on May 1, 1997, increasing revenues by $117,000 in 1997. The Company's business plan is to divest its 15% interest in assisted living centers in order to focus all resources on the community corrections industry. The Assisted Living Center in Fort Collins, Colorado, was sold on July 8, 1997. The Assisted Living Center in Oklahoma City, Oklahoma is being marketed for sale. The Company has accepted subscriptions of $2,300,000 in a Company sponsored private placement of convoertible subordinated debt, as of August 14, 1997. The debentures are convertible into common stock of the Company and have an interest rate of 7.5%. The Company believes it has sufficient cash reserves to meet its current cash requirements. The Company expects to generate sufficient income from current contracts to realize the benefits of it's deferred tax assets. Additional sources of funding will be required for future expansion. The Company will explore other sources of funding such as additional bank borrowing or the sale of equity securities. Additional funds may also be available through the exercise of Avalon's outstanding stock purchase warrants. Management is unaware of any other evident trends that are likely to result in material decreases in the liquidity of the Company. Results of Operations Three months ended June 30, 1997 compared to the three months ended June 30, 1996 - Net loss for the three months ended June 30, 1997 was $49,000 or $.02 per share as compared to a loss of $82,000 or $.03 per share in 1996. The loss in 1997 was primarily due to increased overhead and development program costs incurred due to the expansion plans of the Company. These costs are significant due to the size of the Company and will decrease as a percentage of total costs as the Company expands. Page 7 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES Income from continuing operations, before interest and income taxes, increased by $64,000 or 90%, to a gain of $136,000 in 1997 as compared to a gain of $72,000 in 1996. The increase in 1997 was due to the operations of the El Paso Intermediate Sanction Facility and increased census at the Avalon Correctional Center. Net loss from discontinued operations was $22,000 in 1997 compared to $81,000 in 1996. Revenues from continuing operations increased by $666,000 or 100% in the second quarter 1997 compared to 1996 or from $663,000 in 1996 to $1,329,000 in 1997 Operating expenses for continuing operations increased by $515,000 in the second quarter of 1997. Both revenue and operating expense increases were a result of an 82% increase in the average compensated daily census in the second quarter of 1997. The average compensated daily census increased from 213 inmates in 1996 to 387 inmates in 1997. The increase in census was primarily due to the acquisition of the El Paso Intermediate Sanction Facility and increased census at the Avalon Correctional Center. Substance abuse services began in a correctional facility in Missouri during May, 1997 increasing revenues by $117,000 in the quarter ending June 30, 1997. General and administrative expenses increased by $55,000 in 1997 due to increased personnel, advertising and marketing costs associated with the Company's growth plan. Interest expense increased approximately $90,000 primarily due to interest related to the acquisition of the El Paso Intermediate Sanction Facility. Depreciation expense increased by $32,000 in 1997, as a result of the acquisition of the El Paso Intermediate Sanction Facility. The building utilized by the El Paso Intermediate Sanction Facility was acquired by the Company on August 1, 1996. Six months ended June 30, 1997 compared to the six months ended June 30, 1996 - Net loss for the six months ended June 30, 1997 was $83,000 or $.03 per share as compared to a loss of $114,000 or $.04 per share in 1996. The loss in 1997 was primarily due to overhead and development program costs incurred due to the expansion plans of the Company. These costs are significant due to the size of the Company and will decrease as a percentage of total costs as the Company expands. Income from continuing operations, before interest and income taxes, was $258,000 in 1997 as compared to $139,000 in 1996. The increase in 1997 is attributable to the acquisition of the El Paso Intermediate Sanction Facility and increased census at the Avalon Correctional Center. Revenues from continuing operations increased by 90% in 1997 or by $1,197,000. Revenue was $2,520,000 in 1997 compared to $1,323,000 in 1996. Operating expenses from continuing operations increased by $939,000. Both revenue and operating expense increases were a result of a 75% increase in the average compensated daily census in the six month period ending June 30, 1997. The average compensated daily census increased from 221 inmates in 1996 to 385 inmates in 1997. The increase was attributable to the acquisition of the El Paso Intermediate Sanction Facility and increased census at the Avalon Correctional Center. Substance abuse services began in correctional facilities in Missouri during May, 1997, increasing revenues by $117,000 in the six months ending June 30, 1997. s Page 8 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES General and administrative expenses increased by $74,000 or 22% in 1997 primarily due to increased personnel, advertising, and marketing costs associated with the Company's growth plan. Interest expense increased approximately $179,000 due to interest related to the acquisition of the El Paso Intermediate Sanction Facility. Depreciation expense increased by $66,000 in 1997, as a result of the acquisition of the El Paso Intermediate Sanction Facility. The building utilized by the El Paso Intermediate Sanction Facility was acquired by the Company on August 1, 1996. PART II - OTHER INFORMATION Item 1. Legal Proceedings - None. Item 2. Changes in Securities - None. Item 3. Defaults Upon Senior Securities - Not Applicable. 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 - None filed in the second quarter 1997. Page 9 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES SIGNATURES In accordance with the requirement of the Exchange Act, the registrant has caused this report, Form 10- QSB for June 30, 1997, to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 1997 AVALON COMMUNITY SERVICES, INC. By: \Jerry Sunderland Jerry Sunderland, President By: \Kathryn Avery Kathryn Avery, Chief Financial Officer Page 10 EX-27 2
5 6-MOS DEC-31-1997 JUN-30-1997 212958 0 562626 0 0 1502000 9803729 953629 10418100 2574094 0 0 0 2929 2614131 10418100 0 2520064 0 2056765 205081 0 317297 (59079) 0 (59079) (24235) 0 0 (83314) (.03) (.03)
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