-----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, HBQ1svRni8nUba5pHPJ9WBR/XfMT7n7/hNVucN6o2+ZOhatFyKzIACee0tj/30ub k/hh6Z0vsznWduXbh6boDg== 0000872202-99-000026.txt : 19990625 0000872202-99-000026.hdr.sgml : 19990625 ACCESSION NUMBER: 0000872202-99-000026 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990624 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990624 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: 8-K SEC ACT: SEC FILE NUMBER: 000-20307 FILM NUMBER: 99651521 BUSINESS ADDRESS: STREET 1: 13401 RAILWAY DR STREET 2: P O BOX 57012 CITY: OKLAHOMA CITY STATE: OK ZIP: 73114 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 8-K 1 8-K VILLA AT GREELEY ACQUISITION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 CURRENT REPORT ON FORM 8-K Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report, June 24, 1999 Commission File Number: 0-20307 AVALON CORRECTIONAL SERVICES, INC. (Exact name of Registrant 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) ITEM 2. Acquisition of Assets On June 9, 1999, Avalon Correctional Services, Inc. acquired The Villa at Greeley, LLC. The Villa at Greeley is a private provider of residential services and programs for community corrections offenders. Avalon Correctional Services, Inc. assumed management and began operating the facility effective June 1, 1999. The Villa at Greeley, LLC provides services to over 300 individuals for residential services and also provides day reporting and non-residential services to over 560 offenders. Avalon Correctional Services, Inc. also purchased the buildings and land in Greeley, Colorado where The Villa at Greeley, LLC, operates. Under the terms of the agreement, all assets and liabilities existing at June 1, 1999 were excluded from the transaction with the exception of the property, plant, equipment and contracts with various state and local government agencies and legal rights. Avalon Correctional Services, Inc. acquired the Villa at Greeley, LLC including all real estate and contract rights for approximately $8,600,000. The real estate was acquired from University Holdings, LLC, a related party company having common ownership as the Villa at Greeley, LLC. The Villa at Greeley, LLC was acquired from the three principal member owners of the LLC. Each of the three principal member owners of the Villa at Greeley, LLC also own the same proportional interest in University Holdings LLC. Avalon financed $8,461,000 of the purchase price through Avalon's senior line of credit. Audited financial statements of the business acquired, The Villa at Greeley, LLC, are presented in Item 7 below. Additionally, unaudited proforma combined financial statements are also provided in Item 7 below. ITEM 7. Financial Statements and Exhibits a. The audited financial statements of The Villa at Greeley, LLC for the years ended December 31, 1996, 1997 and 1998. b. Pro forma combined financial statements of Avalon Correctional Services, Inc. after the purchase of The Villa at Greeley, LLC, as of March 31, 1999, and for the year ended December 31, 1998 and for the three months ending March 31, 1999. Page 1 AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: June 24, 1999 AVALON CORRECTIONAL SERVICES, INC. By: \s\Jerry Sunderland --------------------------- Jerry Sunderland, President Page 2 EX-99 2 VILLA AT GREELEY 1997 AND 1996 FINANCIALS THE VILLA AT GREELEY, LLC FINANCIAL STATEMENTS Years Ended December 31, 1997 and 1996 TABLE OF CONTENTS - ------------------------------------------------------------------------------- Independent Auditors' Report..................................................2 BALANCE SHEETS................................................................3 STATEMENTS OF EARNINGS........................................................4 STATEMENTS OF CASH FLOWS......................................................5 STATEMENTS OF EQUITY..........................................................7 NOTES TO FINANCIAL STATEMENTS.................................................8 - ------------------------------------------------------------------------------- -1- ANDERSON & WHITNEY, P.C. Certified Public Accountants and Business advisors - -------------------------------------------------- 1001 Ninth Avenue Greeley, Colorado 80631-4046 (970) 352-7990 FAX (970) 352-1855 E-mail Address: CPA@awhiteny.com Independent Auditors' Report ---------------------------- Members and Board of Mangers The Villa at Greeley, LLC Greeley, Colorado We have audited the accompanying balance sheets of The Villa at Greeley, LLC (a Colorado limited liability corporation) as of December 31, 1997 and 1996, and the related statements of equity, earnings, and cash flows for the years then ended. These financial state ments are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts of disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Villa at Greeley, LLC as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with the generally accepted accounting principles Anderson & Whitney, P.C. March 17, 1998 MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS SEC AND PRIVATE COMPANIES PRACTICE SECTIONS - AICPA DIVISION FOR CPA FIRMS ACCOUNTING FIRMS ASSOCIATED, INC. THE VILLA AT GREELEY, LLC BALANCE SHEETS
- --------------------------------------------------------------------------------------------- December 31 1997 1996 - --------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $ 30,102 $ 3,837 Assets limited as to use 56,651 46,313 Accounts receivable, net of allowance for doubtful accounts of $-0- 326,659 284,488 Due from Weld County -- 331,595 Prepaid expenses and other 4,639 2,085 - --------------------------------------------------------------------------------------------- Total Current Assets 418,051 668,318 - --------------------------------------------------------------------------------------------- Property and Equipment: Land 347,811 425,318 Furniture and equipment 184,303 192,493 Automobiles 261,332 221,512 Leasehold improvements 413,002 419,975 -------------------------- 1,206,448 1,259,298 Less: Accumulated depreciation and amortization 555,232 564,843 - --------------------------------------------------------------------------------------------- 651,216 694,455 Construction in progress 100,541 -- - --------------------------------------------------------------------------------------------- Total Property and Equipment 751,757 694,455 - --------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,169,808 $ 1,362,773 ============================================================================================= LIABILITIES Current Liabilities: Bank overdraft $ -- $ 3,440 Notes payable 62,000 369,000 Accounts payable 133,246 93,396 Accrued expenses and other 309,262 285,656 Resident and client trust funds 56,651 46,313 Payable to related party 10,824 -- Current portion of long-term debt 75,278 54,628 - --------------------------------------------------------------------------------------------- Total Current Liabilities 647,261 852,433 Long-Term Debt 458,307 398,201 - --------------------------------------------------------------------------------------------- Total Liabilities 1,105,568 1,250,634 - --------------------------------------------------------------------------------------------- EQUITY 64,240 112,139 - --------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 1,169,808 $ 1,362,773 =============================================================================================
See Accompanying Notes to Financial Statements. -3- THE VILLA AT GREELEY, LLC STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------------------- Years Ended December 31 1997 1996 - --------------------------------------------------------------------------------------------- Revenue: Restitution Center $ 1,731,254 $ 1,551,660 Residential Treatment Center 1,464,223 1,388,641 Villa Living Center 826,468 940,392 Outpatient 93,676 76,820 Other revenue 97,783 46,808 - --------------------------------------------------------------------------------------------- Total Operating Revenue 4,213,404 4,004,321 - --------------------------------------------------------------------------------------------- Operating Expenses: Restitution Center 1,002,599 912,474 Residential Treatment Center 963,470 1,003,527 Villa Living Center 473,171 348,793 Outpatient 22,712 12,410 General and Administrative 1,669,952 1,635,609 - --------------------------------------------------------------------------------------------- Total Operating Expenses 4,131,904 3,912,813 - --------------------------------------------------------------------------------------------- Earnings from Operations 81,500 91,508 - --------------------------------------------------------------------------------------------- Other Income (Expense): Gain (loss) on sale of property and equipment (2,342) 3,350 Gain on sale of Del Camino property 205,398 -- Interest income 53,933 -- Miscellaneous income 1,966 5,248 Abandonment loss (30,526) -- Interest expense (61,563) (59,266) - ---------------------------------------------------------------------------------------------- Total Other Income (Expense) - net 166,866 (50,668) - ---------------------------------------------------------------------------------------------- NET EARNINGS $ 248,366 $ 40,840 ==============================================================================================
See Accompanying Notes to Financial Statements. -4- THE VILLA AT GREELEY, LLC STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------- Years Ended December 31 1997 1996 - ---------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Cash received from residents, clients, and third party payors $ 4,173,199 $ 3,980,829 Cash paid to suppliers and employees (4,023,697) (3,762,860) Interest received 53,933 -- Interest paid (58,856) (58,929) - ---------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 144,579 159,040 - ---------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Purchase of property and equipment (86,873) (63,370) Proceeds from sale of property and equipment 283,156 3,537 Construction in progress (100,541) -- Site development costs (10,755) (43,356) Reimbursement of site development costs 311,824 -- - --------------------------------------------------------------------------------------------- Net Cash Provided (Used) by Investing Activities 396,811 (103,189) - ---------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Proceeds from: Notes payable 965,000 1,103,300 Long-term debt 166,298 34,282 Principal payments on: Notes payable (1,272,000) (1,023,370) Long-term debt (85,542) (46,478) Decrease in bank overdraft (3,440) (53,813) Advances from related party 10,824 -- Contributions from members 1,000 -- Distributions paid (297,265) (68,601) - ---------------------------------------------------------------------------------------------- Net Cash Used by Financing Activities (515,125) (54,680) - ---------------------------------------------------------------------------------------------- Net Increase in Cash 26,265 1,171 Cash, Beginning of Year 3,837 2,666 - ---------------------------------------------------------------------------------------------- Cash, End of Year $ 30,102 $ 3,837 ==============================================================================================
Continued on next page. -5-
- --------------------------------------------------------------------------------------------- Years Ended December 31 1997 1996 - --------------------------------------------------------------------------------------------- Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: Net earnings $ 248,366 $ 40,840 Adjustments: Depreciation and amortization 50,012 82,031 Gain on sale of property and equipment (203,056) (3,350) Abandonment loss 30,526 -- (Increase) decrease in: Accounts receivable (42,171) (28,740) Prepaid expenses and other (2,554) 457 Increase (decrease) in: Accounts payable 39,850 60,445 Accrued expenses and other 23,606 7,357 - --------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities $ 144,579 $ 159,040 =============================================================================================
See Accompanying Notes to Financial Statements. -6- THE VILLA AT GREELEY, LLC STATEMENTS OF EQUITY
Stockholders' Equity Members' Equity ---------------------------------- --------------------------- Additional Undistributed Common Paid-In Retained Contributed Earnings Years Ended December 31, 1996 and 1997 Stock Capital Earnings Capital (Loss) Total - -------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1996 $ 4,000 $ 1,235,572 $ (1,099,672) $ -- $ -- $ 139,900 Distributions paid -- -- (68,601) -- -- (68,601) Net earnings for the year ended December 31, 1996 -- -- 40,840 -- -- 40,840 - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 4,000 1,235,572 (1,127,433) -- -- 112,139 Distributions paid -- -- (295,000) -- (2,265) (297,265) Members' cash contribution -- -- -- 1,000 -- 1,000 Conversion from S corporation to limited liability company effective August 1, 1997 (4,000) (1,235,572) 1,171,855 67,717 -- -- Net earnings (loss) for the year ended December 31, 1997 -- -- 250,578 -- (2,212) 248,366 - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $ -- $ -- $ -- $ 68,717 $ (4,477) $ 64,240 ================================================================================================================================
See Accompanying Notes to Financial Statements. -7- THE VILLA AT GREELEY, LLC NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies: The accounting and reporting policies of The Villa at Greeley, LLC (the Company) conform to generally accepted accounting principles. The following summary of significant accounting policies is presented to assist the reader in evaluating these financial statements. Description of Business: The Company, organized in Colorado in 1984, provides the following services: The Villa Living Center is a 93-bed health care facility serving persons of all ages who cannot live safely alone, but who do not need nursing home care. The Restitution Center is a community-based correctional facility for minimum risk offenders. The Residential Treatment Center is a drug and alcohol treatment program for offenders. Property and Equipment: Property and equipment are recorded at acquisition cost. Depreciation is computed using accelerated methods over the estimated useful lives of the assets. Operating Revenue: Operating revenue is reported at the estimated net realizable amounts from residents, third-party payors, and others for service rendered. Revenue under third-party payor agreements may be subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided in the period the related services are rendered. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of settlement. Income Taxes: Effective August 1, 1997, the Company converted from an S corporation to a Colorado limited liability company (LLC). Limited liability companies are treated like partnerships for federal income tax purposes. S corporations and limited liability companies do not pay income taxes on their taxable income. Instead, the stockholders and/or members each include their respective share of the taxable income in their individual income tax returns. -8- THE VILLA AT GREELEY, LLC NOTES TO FINANCIAL STATEMENTS -- Continued Note 1 - Summary of Significant Accounting Policies - Continued: Resident and Client Trust Funds: The Company receives and holds personal funds of residents and clients residing in its facilities. Personal funds of $56,651 and $46,313 are reported as assets limited as to use at December 31, 1997 and 1996, respectively. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 2 - Notes Payable:
December 31 1997 1996 - --------------------------------------------------------------------------------------------- Revolving $150,000 line of credit with a bank maturing in January 1998 (subsequently renewed to January 1999), interest $ 62,000 $ 119,000 payable quarterly at 1.75% over the prime rate quoted by the Wall Street Journal (actual rate of 10.25% at December 31, 1997 and 10.5% at December 31, 1996), collateralized by accounts receivable and general intangibles, personally guaranteed by two members Revolving $250,000 line of credit with a bank which matured July 1997, interest payable quarterly at 1.75% over the prime -- 250,000 rate as quoted by the Wall Street Journal (actual rate of 10.5% at December 31, 1996), without collateral, personally guaranteed by two members - --------------------------------------------------------------------------------------------- $ 62,000 $ 369,000 =============================================================================================
-9- Note 3 - Long-Term Debt:
December 31 1997 1996 - --------------------------------------------------------------------------------------------- Note payable to a bank in monthly installments of $4,527, including interest at 9.5%, final payment due in August 2007 $ 341,370 $ 362,264 collateralized by a deed of trust, personally guaranteed by the members Various notes payable to financial institutions in monthly installments including interest from 7.95% to 9.25%, final payments due from 1998 to 2000, collateralized by vehicles 77,324 90,575 Loan payable to the State of Colorado in monthly installments of $990, noninterest bearing, final payment due in July 2007 collateralized by facility improvements 114,891 -- - ---------------------------------------------------------------------------------------------- 533,585 452,829 Less: Current Portion 75,278 54,628 - ---------------------------------------------------------------------------------------------- $ 458,307 $ 398,201 ==============================================================================================
As of December 31, 1997, annual maturities of long-term debt for each of the next five years are as follows: Year Ending Annual December 31 Maturities ------------------------------------------------------------------------------ 1998 $ 75,278 1999 61,483 2000 51,886 2001 42,567 2002 45,283 Note 4 - Operating Leases: The Company leases its facilities from a related party on a month-to-month basis for $48,337 per month. The Company is responsible for insurance, property taxes, utilities, and maintenance on the property. Total rent expense for each of the years ended December 31, 1997 and 1996 was $580,055. -10- THE VILLA AT GREELEY, LLC NOTES TO FINANCIAL STATEMENTS -- Continued Note 5 - Retirement Plan: The Company has a 401(k) profit sharing plan covering substantially all employees who are at least 21 years old and have completed six months of service. Employee contributions must be at least 2% and no more than 15% of eligible compensation and are matched 75% by the Company up to a maximum of 6% of the employee's compensation per year. Employees are fully vested after five years of service. The Company's contributions to the plan were $50,329 and $74,923 for the years ended December 31, 1997 and 1996, respectively. Note 6 - Concentration of Credit Risk: Through the Restitution Center and the Residential Treatment Center, the Company provides various services for the State of Colorado under annually-renewable contracts. For the year ended December 31, 1997 and 1996, the Company recorded revenue of $2,730,886 and $2,538,285, respectively, under these contracts. Funding for the Villa Living Center and other programs is provided from other sources, including Medicaid and federal programs. At December 31, 1997, the Company had accounts receivable of $233,017 from the State of Colorado. The Company's policy is to not obtain collateral on accounts receivable. Note 7 - Abandoned Project: The Company purchased land in the Del Camino area during 1995 to be the site of a new prison prerelease facility. Costs incurred in preparing for construction, consisting of architectural design, attorney fees, and land excavation, were capitalized as site development costs to be included in the cost of the new facility when completed. Although Weld County commissioners had approved the project, opposition from the citizenry petitioned to require the project to be approved by the voters. The project was defeated in November 1996, at which time the Company abandoned the project and, in accordance with state vested rights statutes, filed a claim with Weld County for reimburse ment of costs incurred. The receivable from Weld County reported at December 31, 1996 was $331,595. In June 1997, Weld County reimbursed the Company $311,824 plus accrued interest of $53,933. Unreimbursed costs of $30,526 are reported as an abandonment loss in 1997. During 1997, the architect for the abandoned prerelease facility filed claim with Weld County and the Company for costs incurred on the project. The claim was settled in February 1998. The Company's share of the settlement, $25,650, is included in accrued expenses at December 31, 1997. -11- EX-99 3 VILLA AT GREELEY 1998 FINANCIALS THE VILLA AT GREELEY, LLC FINANCIAL STATEMENTS Year Ended December 31, 1998 TABLE OF CONTENTS - ------------------------------------------------------------------------------- Independent Auditors' Report..................................................2 BALANCE SHEET.................................................................3 STATEMENT OF OPERATIONS AND MEMBERS' EQUITY...................................4 STATEMENT OF CASH FLOWS.......................................................5 NOTES TO FINANCIAL STATEMENTS.................................................8 - ------------------------------------------------------------------------------- -1- ANDERSON & WHITNEY, P.C. Certified Public Accountants and Business advisors - -------------------------------------------------- 1001 Ninth Avenue Greeley, Colorado 80631-4046 (970) 352-7990 FAX (970) 352-1855 E-mail Address: CPA@awhiteny.com Independent Auditors' Report ---------------------------- Members and Board of Mangers The Villa at Greeley, LLC Greeley, Colorado We have audited the accompanying balance sheet of The Villa at Greeley, LLC (a Colorado limited liability corporation) as of December 31, 1998, and the related statements of operations and members' equity, and cash flows for the year ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts of disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Villa at Greeley, LLC as of December 31, 1998, and the results of its operations and its cash flows for the year then ended, in conformity with the generally accepted accounting principles. Anderson & Whitney, P.C. February 25, 1999 MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS SEC AND PRIVATE COMPANIES PRACTICE SECTIONS - AICPA DIVISION FOR CPA FIRMS ACCOUNTING FIRMS ASSOCIATED, INC. -2- THE VILLA AT GREELEY, LLC BALANCE SHEET
- --------------------------------------------------------------------------------------------- December 31 1998 - --------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $ 33,627 Assets limited as to use 64,367 Accounts receivable, net of allowance for doubtful accounts of $-0- 383,404 Prepaid expenses and other 28,342 - ---------------------------------------------------------------------------------------------- Total Current Assets 509,740 - ---------------------------------------------------------------------------------------------- Property and Equipment: Land 317,811 Furniture and equipment 197,678 Automobiles 262,935 Leasehold improvements 558,600 -------------- 1,337,024 Less: Accumulated depreciation and amortization 587,750 - ---------------------------------------------------------------------------------------------- 749,274 Construction in progress 3,299 - ---------------------------------------------------------------------------------------------- Total Property and Equipment 752,573 - ---------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,262,313 ============================================================================================== LIABILITIES Current Liabilities: Note payable $ 150,000 Accounts payable 56,307 Accrued expenses and other 383,051 Resident and client trust funds 64,367 Current portion of long-term debt 82,639 - ---------------------------------------------------------------------------------------------- Total Current Liabilities 736,364 Long-Term Debt 438,052 - ---------------------------------------------------------------------------------------------- Total Liabilities 1,174,416 - ---------------------------------------------------------------------------------------------- MEMBERS' EQUITY 87,897 - ---------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND MEMBERS' EQUITY $ 1,262,313 ==============================================================================================
See Accompanying Notes to Financial Statements. -3- THE VILLA AT GREELEY, LLC STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
- --------------------------------------------------------------------------------------------- Year Ended December 31 1998 - --------------------------------------------------------------------------------------------- Revenue: Restitution Center $ 2,138,026 Residential Treatment Center 1,467,830 Villa Living Center 823,644 Transitional Center for Women 121,202 Outpatient 80,181 Other revenue 129,588 - --------------------------------------------------------------------------------------------- Total Operating Revenue 4,760,471 - --------------------------------------------------------------------------------------------- Operating Expenses: Restitution Center 1,894,208 Residential Treatment Center 1,477,272 Villa Living Center 1,156,435 Transitional Center for Women 104,440 Outpatient 24,249 - --------------------------------------------------------------------------------------------- Total Operating Expenses 4,656,604 - --------------------------------------------------------------------------------------------- Earnings from Operations 103,867 - --------------------------------------------------------------------------------------------- Other Income (Expense): Gain on sale of property and equipment 52,400 Miscellaneous income 1,702 - --------------------------------------------------------------------------------------------- Total Other Income (Expense) - net 54,102 - --------------------------------------------------------------------------------------------- NET EARNINGS 157,969 Members' Equity, January 1, 1998 64,140 Distributions paid (134,212) - ---------------------------------------------------------------------------------------------- Members' Equity, December 31, 1998 $ 87,897 =============================================================================================
See Accompanying Notes to Financial Statements. -4- THE VILLA AT GREELEY, LLC STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------- Year Ended December 31 1998 - ---------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Cash received from residents, clients, and third party payors $ 4,705,428 Cash paid to suppliers and employees (4,566,575) Interest paid (53,452) - ---------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 85,401 - ---------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Purchase of property and equipment (132,771) Proceeds from sale of property and equipment 90,742 Construction in progress (6,191) - ---------------------------------------------------------------------------------------------- Net Cash Used by Investing Activities (48,220) - ---------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Proceeds from: Note payable 518,000 Long-term debt 77,698 Principal payments on: Note payable (430,000) Long-term debt (90,592) Repayment of advances from related party (10,824) Cash distributions paid (97,938) - ---------------------------------------------------------------------------------------------- Net Cash Used by Financing Activities (33,656) - ---------------------------------------------------------------------------------------------- Net Increase in Cash 3,525 Cash, Beginning of Year 30,102 - ---------------------------------------------------------------------------------------------- Cash, End of Year $ 33,627 =============================================================================================
Continued on next page. -5-
- ---------------------------------------------------------------------------------------------- Year Ended December 31 1998 - ---------------------------------------------------------------------------------------------- Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: Net earnings $ 157,969 Adjustments: Depreciation and amortization 63,430 Gain on sale of property and equipment (52,400) (Increase) decrease in: Accounts receivable (56,745) Prepaid expenses and other (23,703) Increase (decrease) in: Accounts payable (76,939) Accrued expenses and other 73,789 - ---------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities $ 85,401 ============================================================================================== Supplemental Disclosures of Noncash Financing and Investing Activities: Distributions of vehicles to members $ 36,374 ==============================================================================================
See Accompanying Notes to Financial Statements. -6- THE VILLA AT GREELEY, LLC NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies: The accounting and reporting policies of The Villa at Greeley, LLC (the Company) conform to generally accepted accounting principles. The following summary of significant accounting policies is presented to assist the reader in evaluating these financial statements. Description of Business: The Company, organized in Colorado in 1984, provides the following services: The Villa Living Center is a 72-bed health care facility serving persons of all ages who cannot live safely alone, but who do not need nursing home care. The Restitution Center is a community-based correctional facility for minimum risk offenders. The Residential Treatment Center is a drug and alcohol treatment program for offenders. The Transitional Center for Women is a transitional "pre-community corrections" program for high-needs female offenders. Resident and Client Trust Funds: The Company receives and holds personal funds of residents and clients residing in its facilities. Personal funds of $64,367 are reported as assets limited as to use at December 31, 1998 with an offsetting liability entitled resident and client trust funds. Property and Equipment: Property and equipment are recorded at acquisition cost. Depreciation is computed using accelerated methods over the estimated useful lives of the assets. Operating Revenue: Operating revenue is reported at amounts billed to residents, third-party payors, and others for service rendered. Revenue under third-party payor agreements may be subject to audit and retroactive adjustment. Allocation of Expenses: The Company allocates all general and administrative expenses to its programs in order to provide management with the total costs for each program. -7- Note 1 - Summary of Significant Accounting Policies - Continued: Income Taxes: Effective August 1, 1997, the Company converted from an S corporation to a Colorado limited liability company (LLC). Limited liability companies are treated like partnerships for federal income tax purposes and do not incur income taxes. Instead, its earnings and losses are included in the personal tax returns of the members and taxed depending on their personal tax situations. Accordingly, the financial statements do not reflect a provision for income taxes. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 2 - Note Payable:
- ---------------------------------------------------------------------------------------------- December 31 1998 - ---------------------------------------------------------------------------------------------- Revolving $150,000 line of credit with a bank maturing in March 1999 (subsequently renewed to March 2000), interest payable quarterly at 1% over the prime rate quoted by the Wall Street Journal (actual rate of 9.5% at December 31, 1998), collateralized by accounts receivable and general intangibles, personally guaranteed by two members $ 150,000 ==============================================================================================
Note 3 - Long-Term Debt:
- ---------------------------------------------------------------------------------------------- December 31 1998 - ---------------------------------------------------------------------------------------------- Note payable to a bank in monthly installments of $4,527, including interest 9.5%, final payment due in August 2007, collateralized by a deed of trust, personally guaranteed by the members $ 318,000 Various notesto financial institutions in monthly installments interest from 8.5% to 9.5%, final payments due from 1999 to 2001, collateralized by vehicles $ 99,185 Loan payable to the State of Colorado in monthly installments of $990, noninterest bearing, final payment due in July 2007, collateralized by facility improvements $ 103,006 - ---------------------------------------------------------------------------------------------- 520,691 Less: Current Portion 82,639 - ---------------------------------------------------------------------------------------------- $ 438,052 ==============================================================================================
-8- THE VILLA AT GREELEY, LLC NOTES TO FINANCIAL STATEMENTS -- Continued Note 3 - Long-Term Debt - Continued: As of December 31, 1998, annual maturities of long-term debt for each of the next five years are as follows: - ------------------------------------------------------------------------------- Year Ending Annual December 31 Maturities - ------------------------------------------------------------------------------- 1999 $ 82,639 2000 79,084 2001 56,236 2002 45,288 2003 48,603 Thereafter 208,841 Note 4 - Operating Lease: The Company leases its facilities from a related party at $7.04 per square foot on a month-to-month basis for $54,478 per month. The Company is responsible for insurance, property taxes, utilities, and maintenance on the property. Total rent expense for 1998 was $637,843. Note 5 - Retirement Plan: The Company has a 401(k) profit sharing plan covering substantially all employees who are at least 21 years old and have completed six months of service. Employee contributions must be at least 2% and no more than 15% of eligible compensation and are matched 75% by the Company up to a maximum of 6% of the employee's compensation per year. Employees are fully vested after five years of service. The Company's contribution to the plan was $93,636 for 1998. Note 6 - Concentration of Credit Risk: Through the Restitution Center and the Residential Treatment Center, the Company provides various services for the State of Colorado under annually-renewable contracts. For the year ended December 31, 1998, the Company recorded revenue of $3,020,851 under these contracts. Funding for the Villa Living Center and other programs is provided from other sources, including Medicaid and federal programs. At December 31, 1998, the Company had accounts receivable of $299,740 from the State of Colorado. The Company's policy is to not obtain collateral on accounts receivable. Note 7 - Interest Expenses: The amount of interest expense incurred in 1998 was $52,641, all of which was charged to operations. -9- EX-99 4 AVALON PRO FORMA FINANCIAL STATEMENTS Avalon Correctional Services, Inc. and Subsidiaries Pro Forma Combined Financial Statements (Unaudited) The unaudited pro forma combined financial statements give effect to the acquisition of The Villa at Greeley, LLC ("Villa") by Avalon Correctional Services, Inc. and Subsidiaries ("Avalon"), which has been accounted for using the purchase method of accounting. The pro forma combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results that would have occurred if the transactions given pro forma effect herein had been consummated as of the time reflected herein, nor are they necessarily indicative of the future operating results or financial position of Avalon. The pro forma adjustments are based upon available information and certain assumptions that Avalon believes are reasonable. This information should be read in conjunction with the historical financial statements and related notes of Avalon and the financial statements of Villa. AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES PRO FORMA COMBINED BALANCE SHEET (UNAUDITED) March 31, 1999
Historical Pro Forma -------------------- ------------------------------- Avalon Villa Adjustments Combined -------------------------------------------------------------- Cash and cash equivalents $ 1,208,000 $ 54,000 $ (54,000) (1) $ 1,208,000 Other current assets 2,791,000 502,000 (627,000) (1) 2,666,000 Property and equipment, net 17,301,000 776,000 6,697,000 (2) 24,774,000 Other assets 2,715,000 2,000 1,226,000 (1,2) 3,943,000 -------------------------------------------------------------- Total assets $24,015,000 $1,334,000 $7,242,000 $32,591,000 ============================================================== Current liabilities $ 1,310,000 $ 447,000 $ (332,000) (1) $ 1,425,000 Long-term debt 12,809,000 757,000 7,704,000 (1,2) 21,270,000 Convertible debentures 3,850,000 --- --- 3,850,000 Redeemable common stock 4,124,000 --- --- 4,124,000 Stockholders' equity/Capita1 1,922,000 130,000 (130,000) 1,922,000 -------------------------------------------------------------- Total liabilities and equity $24,015,000 $1,334,000 $7,242,000 $32,591,000 ==============================================================
See accompanying notes to pro forma financial statements AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED) For the year ended December 31, 1998
Historical Pro Forma -------------------- ---------------------------- Avalon Villa Adjustments Combined -------------------------------------------------------------- Revenues $ 7,686,000 $4,815,000 $ --- $12,501,000 Costs and expenses Direct operating 4,692,000 4,657,000 (994,000)(3,4,5) 8,355,000 General and administrative 1,091,000 --- --- 1,091,000 Development Costs 336,000 --- --- 336,000 Loss on property held for sale 91,000 --- --- 91,000 Depreciation and amortization 628,000 --- 269,000 (3,6) 897,000 Interest expense 1,224,000 --- 698,000 (3,7) 1,922,000 -------------------------------------------------------------- 8,062,000 4,657,000 (27,000) 12,692,000 -------------------------------------------------------------- Income (loss) before income tax (376,000) 158,000 27,000 (191,000) Income tax expense --- --- --- --- -------------------------------------------------------------- Income (loss) before cumulative effect of change in accounting principle (376,000) 158,000 27,000 (191,000) Cumulative effect of change in accounting principle (74,000) --- --- (74,000) -------------------------------------------------------------- Net Income (loss) (450,000) 158,000 27,000 (265,000) ============================================================== Basic and diluted loss per share Continuing Operations $ (0.11) $ (0.05) Cumulative effect of change in accounting principle (0.02) (0.02) ------------- ------------ Net loss per share: $ (0.13) $ (0.07) ============= ============ Weighted average common shares outstanding, basic and diluted 3,499,403 3,499,403 ============= ============
See accompanying notes to pro forma financial statements AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED) For the three months ended March 31, 1999
Historical Pro Forma ------------------- ------------------------------ Avalon Villa Adjustments Combined -------------------------------------------------------------- Revenues $ 2,427,000 $1,254,000 $ --- $ 3,681,000 Costs and expenses Direct operating 1,505,000 1,178,000 ( 269,000)(3,4,5) 2,414,000 General and administrative 330,000 --- --- 330,000 Development Costs 222,000 --- --- 222,000 Depreciation and amortization 185,000 --- 67,000 (3,6) 252,000 Interest expense 452,000 --- 175,000 (3,7) 627,000 -------------------------------------------------------------- 2,694,000 1,178,000 (27,000) 3,845,000 -------------------------------------------------------------- Income (loss) before income tax (267,000) 76,000 27,000 (164,000) Income tax expense --- --- --- --- -------------------------------------------------------------- Income (loss) before extraordinary items (267,000) 76,000 27,000 (164,000) Extraordinary loss from early retirement of debt (35,000) --- --- (35,000) -------------------------------------------------------------- Net Income (loss) (302,000) 76,000 27,000 (199,000) ============================================================== Basic and diluted loss per share Continuing Operations $ (0.05) $ (0.04) Extraordinary loss from early retirement of debt (0.01) (0.01) ------------- Net loss per share: $ (0.06) $ (0.05) ============= ============= Weighted average common shares outstanding, basic and diluted 4,665,790 4,655,790 ============= =============
See accompanying notes to pro forma financial statements Avalon Correctional Services, Inc. and Subsidiaries NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION On June 9, 1999, Avalon Correctional Services Inc, acquired The Villa at Greeley, LLC including all real estate and contract rights for approximately $8,600,000. The accompanying pro forma combined balance sheet has been presented as if the acquisition occurred on March 31, 1999 and the accompanying pro forma combined statements of operations for the year ended December 31, 1998 and the three months ended March 31, 1999 have been prepared as if the acquisition was consummated on January 1, 1998. NOTE B - PRO FORMA ADJUSTMENTS Pro forma adjustments are necessary to reflect the assumed effect of the combination on the balance sheet as of March 31, 1999 and the statements of operations assuming the acquisition was consummated on January 1, 1998. The accompanying pro forma balance sheet and statements of operations reflect the following adjustments: (1) All assets other than property, plant and equipment and contract rights were retained by the former ownership of The Villa at Greeley, LLC. Some items such as prepaid insurance and accrued absences were transferred to Avalon and the purchase price adjusted properly. (2) Avalon financed $8,461,000 of the purchase price through Avalon's senior line of credit. (3) Depreciation and interest expense of The Villa at Greeley were included in operations expense in the financial statements of The Villa. The amounts are properly reclassified in the pro forma statement of operations. (4) The Villa at Greeley, LLC, leased the real estate in operations from University Holdings, LLC, a related party company. Avalon purchased this real estate from the related party company as part of the $8,600,000 purchase price. Accordingly, rent expense that will be avoided by owning the real estate is excluded from operating expenses. (5) Owners of The Villa at Greeley, LLC, were paid certain compensation and fringe benefits. Operating expenses have been reduced for these amounts paid to the owners. (6) Depreciation of the real estate and amortization of the intangible assets acquired in the transaction are reflected in the pro forma adjustments. The purchase price was allocated based upon the fair values of the assets acquired. The real estate was appraised at $8,390,000. The contracts fair value was estimated at $1,379,000 based upon the future expected net revenues of those contracts discounted to present value. Therefore, 86% of the purchase price was allocated to real estate and 14% of the purchase price was allocated to intangible contract rights. The amount allocated to the building will be depreciated on a straight-line method over a forty year life. The intangible contract rights will be amortized on a straight-line basis over a fifteen year life. (7) Avalon financed $8,461,000 of the purchase price and therefore, interest expense attributable to the transaction has been reflected in the pro forma adjustments. The line of credit used to finance the acquisition has a current interest rate of 8.25%. This rate was used to compute interest expense in the pro forma adjustments. -----END PRIVACY-ENHANCED MESSAGE-----