-----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, USPzU9ryCGj/A4hrAqZtkZrrXyiCiKMTAuyab7bTA/lbv3PrR58on3t6Yq5ME6yZ /6+tP2JdEPdsKyyna+MuZQ== 0000950134-96-002229.txt : 19960517 0000950134-96-002229.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950134-96-002229 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE 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: 96567731 BUSINESS ADDRESS: STREET 1: 13401 RAILWAY DR STREET 2: P O BOX 57012 CITY: OKLAHOMA CITY STATE: OK ZIP: 73157 BUSINESS PHONE: 4057528802 FORMER COMPANY: FORMER CONFORMED NAME: AVALON ENTERPRISES INC DATE OF NAME CHANGE: 19600201 10QSB 1 FORM 10-QSB FOR QUARTER ENDED MARCH 31, 1996 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 MARCH 31, 1996 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 28, 1996, 2,496,905 shares of the issuer's Class A common stock, par value $.001, and 1,210,000 shares of Class B common stock, no par value, were issued and outstanding. Transitional Small Business Disclosure Format: Yes ; No X. ---- ---- 2 PART I - FINANCIAL INFORMATION AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ITEM 1.
December 31, March 31, 1995 1996 - -------------------------------------------------------------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $121,176 $61,231 Accounts receivable, net of allowance for doubtful accounts of $0 283,116 384,654 Due from affiliates 52,966 132,146 Prepaids and other 236,382 170,873 - -------------------------------------------------------------------------------------------------------------------------- Total current assets 693,640 748,904 - -------------------------------------------------------------------------------------------------------------------------- Property and equipment, net 5,525,311 5,455,520 Due from affiliates 231,248 175,000 - -------------------------------------------------------------------------------------------------------------------------- Total assets $6,450,199 $6,379,424 ========================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $183,233 $161,515 Due to affiliates 175,028 172,900 Current maturities of long-term debt 278,837 601,738 - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 637,098 936,153 - -------------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities 3,449,275 3,116,700 Deferred income taxes 23,000 18,100 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 4,109,373 4,070,953 - -------------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Common stock: Class A - par value $.001; 20,000,000 shares authorized; 2,496,905 shares issued and outstanding 2,497 2,497 Class B - no par 4,000,000 shares authorized; 1,210,000 shares issued and outstanding --- --- Preferred stock; par value $.001; 1,000,000 shares authorized; none issued --- --- Paid-In capital 2,678,214 2,678,214 Accumulated deficit (339,885) (372,240) - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 2,340,826 2,308,471 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $6,450,199 $6,379,424 ==========================================================================================================================
These accompanying notes are an integral part of these consolidated financial statements. Page 1 3 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended ------------------------------------ March 31, --------- 1995 1996 - -------------------------------------------------------------------------------------------------------- Revenues $687,146 $817,374 - -------------------------------------------------------------------------------------------------------- Costs and expenses Direct operating 399,707 542,970 General and administrative 153,514 158,458 Depreciation and amortization 54,479 85,911 - -------------------------------------------------------------------------------------------------------- 607,700 787,339 - -------------------------------------------------------------------------------------------------------- Income from operations 79,446 30,035 Interest Expense 29,462 82,190 - -------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income tax expense (benefit) 49,984 (52,155) Income tax expense (benefit) 19,000 (19,800) - -------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 30,984 (32,355) - -------------------------------------------------------------------------------------------------------- Discontinued operations: Loss of operations, net of income tax (16,574) --- Loss on disposal, net of income tax (42,812) --- - -------------------------------------------------------------------------------------------------------- Loss from discontinued operations (59,386) --- - -------------------------------------------------------------------------------------------------------- Net income (loss) $(28,402) $(32,355) ======================================================================================================== Net income (loss) per share: Continuing operations $0.01 $(0.01) Discontinued operations (0.02) 0.00 - -------------------------------------------------------------------------------------------------------- Net income (loss) per share: $(0.01) $(0.01) ======================================================================================================== Weighted average number of common and common equivalent shares outstanding 2,496,905 2,496,905 ========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 2 4 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
For the three months ended March 31, - --------------------------------------------------------------------------------------------------------- 1995 1996 - --------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income (loss) $(28,402) $(32,355) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities Depreciation and amortization 58,296 85,911 Provision for (benefit from) deferred income taxes (4,300) (4,900) Loss on sale of property 3,366 1,014 Changes in operating assets and liabilities: Decrease (increase) in - Accounts receivable 24,072 (101,538) Prepaids and other 110 65,509 Decrease in accounts payable and accrued liabilities (133,238) (21,718) - --------------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities (80,096) (8,077) - --------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Capital expenditures (643,154) (21,134) Proceeds from disposition of property 10,405 4,000 - --------------------------------------------------------------------------------------------------------- Net cash used for investing activities (632,749) (17,134) - --------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net cash advances from (to) affiliates (13,752) (25,060) Proceeds from short-term borrowings --- 768,103 Repayment of short-term borrowings (75,196) (706,731) Proceeds from long-term borrowings 635,834 --- Registration costs (1,110) --- Repayment of long-term borrowings (42,369) (71,046) - --------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities 503,407 (34,734) - --------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH (209,438) (59,945) CASH, BEGINNING OF PERIOD 493,823 121,176 - --------------------------------------------------------------------------------------------------------- CASH, END OF PERIOD $439,321 $ 61,231 =========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 3 5 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 a developer and operator of community based services. The Company provides private correctional services, substance abuse treatment services, assisted living services, residential care services, and outpatient mental health services. The Company has entered into agreements effective in 1996 to provide substance abuse treatment services for inmates, and to develop and manage assisted living centers. 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 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 March 31, 1996 and the statements of operations for the three months ended March 31, 1995 and 1996 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, 1995 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 months ended March 31, 1996, are not necessarily indicative of the results that may be expected for the entire year ended December 31, 1996. Page 4 6 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, March 31, 1995 1996 ---- ---- Notes payable to banks, collateralized by equipment, due in installments through May 1998, with interest from 9.5% to 11%. $173,992 $163,062 Notes payable to banks, collateralized by transportation equipment, due in installments through November 1997, with interest ranging from 6.25% to 9.25%. 141,586 120,415 Notes payable to banks, collateralized by real estate, due in installments through October 2000, with interest ranging from 8.5% to 12%. 3,149,100 3,110,156 Notes payable to bank, line of credit with interest of 1% above prime maturing February 1997 263,434 324,805 --------------- ------------- 3,728,112 3,718,438 Less - current maturities 278,837 601,738 -------------- ------------- $3,449,275 $3,116,700 ============== =============
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 $380,000. The line of credit is collateralized by the Company's state contract revenues and matures in February 1997. NOTE 3 - STOCKHOLDERS' EQUITY The Company has outstanding 275,100 Class B stock purchase 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 7 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. 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. In the private placement there are 100,000 shares of common stock and 100,000 Class C stock purchase warrants reserved for underwriters. The Company adopted a stock option plan (the "Plan") in August 1994, providing for the issuance of 250,000 shares 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 five year period. Non-statutory options providing for the issuance of 229,900 shares of common stock were outstanding at March 31, 1996. The exercise prices range from $1.50 to $2.22 per share. Options providing for the issuance of 14,740 shares were exercisable at March 31, 1996. NOTE 4 - LITIGATION An action filed in August, 1994 with Roy Allenstein, et al., as Plaintiff, was settled with no material adverse effect on the Company's financial position. An action filed in May, 1995 with Stephanie Layson as Administratrix of the Estate of Richard H. Shepherd, Deceased, Plaintiff, was settled within the policy limits of the Company's insurance. The Company is a party to litigations 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. NOTE 5 - SIGNIFICANT CONTRACTS The Company was awarded a contract in February 1996 with the State of Nebraska Department of Correctional Services to provide substance abuse treatment services. The Nebraska contract has a fifteen month term with two (2), two year renewal options. The Contract is to provide substance abuse treatment services in five Nebraska Correctional Centers. The Company began providing the contract services in March 1996. The Company entered into an agreement in 1996 with an affiliate to develop and operate an assisted living center in Fort Collins, Colorado. The construction of the assisted living center is scheduled to begin in the second half of 1996 and be completed in the first quarter of 1997. Page 6 8 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 cash was reduced by $60,000 for the three months ended March 30, 1996. Approximately $35,000 was used for financing activities and approximately $21,000 was used for capital expenditures. The Company's capital expenditures consisted primarily of leasehold improvement costs. Working capital was negative as of March 30, 1996, primarily due to a line of credit maturing in February 1997. Repayment of long term borrowing was approximately $71,000 with no additional long term borrowings incurred. The corrections segment of the Company is continuing to expand. The two correctional facilities in Oklahoma have not yet reached their maximum capacity, and it is normal and anticipated to reach maximum capacity over an extended length of time. Additional cash flows from the correctional centers will continue to be recognized as the facility reaches full capacity. In the first quarter 1996, the Avalon Correctional Center remains at a break-even level before interest and depreciation. Occupancy level is expected to increase later in 1996. New proposals will be submitted with the State of Oklahoma for both correctional facilities in July 1996. In March, 1996, the Company began substance abuse treatment programs in state correctional facilities in Nebraska and in April, 1996, agreed to operate substance abuse programs in correctional facilities in Florida. No capital expenditures are required. Substance abuse programs generate cash flow immediately after operations begin. The Company has plans for the development and management of multiple assisted living centers in Oklahoma and other states in the Midwest. The assisted living center in Oklahoma City, Emerald Square, is under construction and is projected to begin operations in 1996. The Company has entered into an agreement to develop and operate an assisted living center in Ft. Collins, Colorado. The Company believes it has sufficient cash reserves and ample cash flows from operations to meet its current cash requirements. Additional sources of funding may be required for future expansion. The Company will explore other sources of funding such as additional bank borrowing or the sale of equity securities. Additional funds may also be available through the exercise of Avalon's outstanding stock purchase warrants. Management is unaware of any other evident trends that are likely to result in material increases or decreases in the liquidity of the Company. Page 7 9 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 30, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 30, 1995 - Total revenues for the first quarter 1996 as compared to the first quarter 1995, increased from $687,000 to $817,000 or 19%. Net loss for the three months ended March 30, 1996 was $32,000 or $.01 per share as compared to a loss of $28,000 or $.01 per share in 1995. The loss in 1996 was primarily due to an increase in depreciation and interest attributable to the Carver Center addition and Avalon Correctional Center. In 1995, there was a loss from discontinued operation of $59,000. Net gain from operations was approximately $30,000 in 1996 as compared to approximately $79,000 in 1995. The decrease in 1996 was primarily due to a $31,000 increase in depreciation, which is attributable to the Carver Center addition and Avalon Correctional Center. Revenue from correctional operations increased by $219,000 or 19% from 1995 to 1996 and operating expenses increased by 36%, both primarily due to the increase in the average census of inmates. Substance abuse services began in correctional facilities in Nebraska during March 1996, increasing revenue and expenses by approximately 2%. The average number of inmates or census for the first quarter 1996 was 40% higher in 1996 as compared to 1995, due to the opening of Avalon Correctional Center. Carver Center's operating profit margin remained fairly constant at 54%, while Avalon Correctional Center's operating profit margin is at 25%. The operating cost per person decreased as the number of inmates increased, therefore Avalon Correctional Center's operating costs will be higher per person until such time the number of inmates increases at that facility. Operating revenues and operating expenses for contract services, which are mostly residential care, decreased by 37%, primarily due to a 16% decreased in occupancy and a loss of state contract revenues. General and administrative expenses were consistent, increasing by $5,000 in 1996. Interest expense increased approximately $53,000 primarily due to interest related to the construction of the Carver Center addition and the Avalon Correctional Center in 1995. Depreciation expense increased by $31,000 in 1996 as a result of the new correctional facilities. Page 8 10 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - An action filed in August, 1994 with Roy Allenstein, et al, as Plaintiff, was settled with no material adverse effect on the Company's financial position. An action filed May, 1995 with Stephanie Layson as Administratrix of the estate of Richard H. Shepherd, Deceased, Plaintiff, was settled within the policy limits of the Company's insurance. 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. Page 9 11 AVALON COMMUNITY 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: May 15, 1996 AVALON COMMUNITY SERVICES, INC. By: /s/ Jerry Sunderland ------------------------------ Jerry Sunderland President Page 10 12 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES INDEX TO EXHIBITS
Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1996 JAN-01-1996 MAR-31-1996 61,231 0 384,654 0 0 748,904 5,455,520 0 6,379,424 936,153 0 2,497 0 0 2,678,214 6,379,424 817,374 817,374 0 787,339 0 0 82,190 (52,155) (19,800) (32,355) 0 0 0 (32,355) (.01) (.01)
-----END PRIVACY-ENHANCED MESSAGE-----