-----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, UqDcYlmCYmhlSgwxEYgz2spCjwn3WypJIM4ofdzHfIUN1SdY+IYGKm/Kq2XcHdRC DLL+3dmQcJqnnRCG3WM6lQ== 0000950134-96-006253.txt : 19961118 0000950134-96-006253.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950134-96-006253 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20307 FILM NUMBER: 96665893 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 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 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 SEPTEMBER 30, 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 November 1, 1996, 2,927,135 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, September 30, 1995 1996 - --------------------------------------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 121,176 $ 371,051 Accounts receivable, net of allowance for doubtful accounts of $0 283,116 468,005 Due from affiliates 52,966 293,885 Prepaids and other 236,382 451,777 - --------------------------------------------------------------------------------------------------- Total current assets 693,640 1,584,718 - --------------------------------------------------------------------------------------------------- Property and equipment, net 5,525,311 5,914,724 Due from affiliates 231,248 75,000 - --------------------------------------------------------------------------------------------------- Total assets $ 6,450,199 $ 7,574,442 =================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 183,233 $ 582,910 Due to affiliates 175,028 214,893 Current maturities of long-term debt 278,837 773,463 - --------------------------------------------------------------------------------------------------- Total current liabilities 637,098 1,571,266 - --------------------------------------------------------------------------------------------------- Long-term debt, less current maturities 3,449,275 2,686,494 Deferred income taxes 23,000 0 - --------------------------------------------------------------------------------------------------- Total liabilities 4,109,373 4,257,760 - --------------------------------------------------------------------------------------------------- Stockholders' equity: Common stock: Class A - par value $.001; 20,000,000 shares authorized; 2,496,905 and 2,927,135 shares outstanding in 1995 and 1996, respectively 2,497 2,927 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 3,873,261 Accumulated deficit (339,885) (559,506) - --------------------------------------------------------------------------------------------------- Total stockholders' equity 2,340,826 3,316,682 - --------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 6,450,199 $ 7,574,442 ===================================================================================================
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)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1996 1995 1996 - --------------------------------------------------------------------------------------------------------- Revenues $ 787,030 $ 1,035,496 $ 2,197,254 $ 2,664,633 - --------------------------------------------------------------------------------------------------------- Costs and expenses Direct operating 540,204 840,008 1,358,761 1,899,315 General and administrative 156,158 174,198 471,905 502,668 Depreciation and amortization 79,092 93,109 190,435 274,510 - --------------------------------------------------------------------------------------------------------- 775,454 1,107,315 2,021,101 2,676,493 - --------------------------------------------------------------------------------------------------------- Income from operations 11,576 (71,819) 176,153 (11,860) Less Litigation expense reserve --- --- --- 70,000 Less Interest Expense 71,606 97,995 153,085 272,366 - --------------------------------------------------------------------------------------------------------- Income (loss) from continuing before income tax expense (60,030) (169,814) 23,068 (354,226) Income tax expense (benefit) (22,800) (64,532) 8,800 (134,605) - --------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations (37,230) (105,282) 14,268 (219,621) - --------------------------------------------------------------------------------------------------------- Discontinued operations: (Loss) gain on operations, net of income tax benefit of $25,165 --- --- (16,574) --- (Loss) gain on disposal, net of income tax benefit of $26,200 --- --- (41,024) --- - --------------------------------------------------------------------------------------------------------- Loss from discontinued --- --- (57,598) --- - --------------------------------------------------------------------------------------------------------- Net income (loss) $ (37,230) $ (105,282) $ (43,330) $ (219,621) ========================================================================================================= Net income (loss) per share: Continuing operations $ (0.02) $ (0.04) $ 0.00 $ (0.08) Discontinued operations --- --- (0.02) --- - --------------------------------------------------------------------------------------------------------- Net income (loss) per share: $ (0.02) $ (0.04) $ (0.02) $ (0.08) ========================================================================================================= Weighted average number of common and common equivalent shares 2,496,905 2,921,113 2,496,905 2,887,901 =========================================================================================================
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 nine months ended September 30, 1995 1996 - -------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income (loss) $ (43,330) $ 219,621 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities Depreciation and amortization 190,435 274,510 Benefit from deferred income taxes (54,800) (23,000) Loss (gain) on sale of property 60,267 (1,417) Changes in operating assets and liabilities: Decrease (increase) in - Accounts receivable (7,707) (184,889) Prepaids and other (103,123) (290,395) Increase (decrease) in accounts payable and accrued liabilities (15,049) 399,677 - -------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities 26,693 (45,135) - -------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Capital expenditures (2,517,050) (666,888) Proceeds from disposition of property 51,051 4,384 - -------------------------------------------------------------------------------------------------- Net cash used for investing activities (2,465,999) (662,504) - -------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net cash advances from (to) affiliates 61,244 30,194 Proceeds from short-term borrowings 1,498,824 2,193,733 Repayment of short-term borrowings (1,555,753) (2,342,765) Proceeds from long-term borrowings 2,273,302 393,249 Repayment of long-term borrowings (462,764) (512,374) Net proceeds from warrant exercise --- 1,195,047 Other 757 430 - -------------------------------------------------------------------------------------------------- Net cash provided by financing activities 1,815,610 957,514 - -------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (623,696) 249,875 CASH, BEGINNING OF PERIOD 648,759 121,176 - -------------------------------------------------------------------------------------------------- CASH, END OF PERIOD $ 25,063 $ 371,051 ==================================================================================================
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, and contracts to manage assisted living services, residential care services, and outpatient mental health services. The Company has operations in Oklahoma, Colorado, Texas, and Nebraska. 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 management's estimates and assumptions in determining the carrying values of certain assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from those estimated. NET INCOME (LOSS) PER SHARE - Net income (loss) per 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 September 30, 1996 and the statements of operations for the three and nine months ended September 30, 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 and nine months ended September 30, 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, September 30, 1995 1996 ---- ---- Notes payable to banks, collateralized by equipment, due in installments through May 1998, with interest from 9.5% to 11%. $ 173,992 $ 149,948 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 93,751 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 3,101,856 Notes payable to bank, line of credit with interest of 1% above prime. maturing February 1997 263,434 114,402 ----------- ----------- 3,728,112 3,459,957 Less - current maturities 278,837 773,463 ----------- ----------- $ 3,449,275 $ 2,686,494 =========== ===========
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. The private placement also included 100,000 shares of common stock and 100,000 Class C stock purchase warrants reserved for underwriters. During the second quarter 1996, 372,000 Class C stock purchase warrants were exercised. In August, 1996, the Company issued 50,000 shares of common stock and 200,000 Class D stock purchase warrants with the purchase of the operations of the El Paso Intermediate Sanction Facility in El Paso, Texas. The stock purchase warrants provide for the purchase of the Company's stock at a price of $5.12 per share through August, 2001. 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 241,670 shares of common stock were outstanding at September 30, 1996. The exercise prices range from $1.50 to $2.85 per share. Options providing for the issuance of 59,325 shares were exercisable at September 30, 1996. NOTE 4 - ACQUISITION The Company purchased the operations of the El Paso Intermediate Sanction Facility in El Paso, Texas on August 2, 1996. The prison is being managed by Southern Corrections Systems, Inc., a wholly owned subsidiary of the Company. The total purchase price was approximately $500,000 including the assumption of certain liabilities plus the issuance of 50,000 shares of common stock and 200,000 stock purchase warrants. The prison has a capacity of 144 beds. Southern Corrections Systems, Inc. signed a 15 year contract to provide services in the facility for the West Texas Community Supervision and Corrections Department. 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 increased by $250,000 for the nine months ended September 30, 1996. This was primarily due to Class C stock purchase warrants being exercised for a net amount of $1,195,000. Approximately $667,000 was used for capital expenditures including the purchase of the El Paso Intermediate Sanction Facility in El Paso, Texas. The Company used $268,000 for the repayment of debt. Working capital was positive as of September 30, 1996. The corrections segment of the Company is continuing to expand. In August, the Company purchased the operations of a medium security level prison in El Paso, Texas, primarily using the proceeds from the warrant exercise. Revenues from the El Paso prison began immediately and the facility should be profitable in the fourth quarter 1996. In the third quarter 1996, the Avalon Correctional Center in Tulsa, Oklahoma, was at break-even capacity. In the fourth quarter 1996, census was increased. Cash flows from the existing correctional centers will continue to be recognized as the facilities reach full capacity. The Company has plans for the development and management of multiple assisted living centers in Oklahoma and other states in the Midwest. Emerald Square, the assisted living center in Oklahoma City, has completed construction and is projected to begin operations within the next month. The Company opened Diamond Crest, an assisted living center in Ft. Collins, Colorado, in the third quarter 1996. 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 the Company'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. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995 - Total revenues for the third quarter 1996 as compared to the third quarter 1995, increased from $787,000 to $1,035,000 or 31%. Net loss for the three months ended September 30, 1996 was $105,000 or $.04 per share as compared to a net loss of $37,000 or $.02 per share in 1995. The loss in 1996 was primarily due to operating losses associated with Avalon Correctional Center in Tulsa, the new El Paso Intermediate Sanction Facility, and developmental costs to obtain correctional contracts in other states. In 1996, there was an increase in depreciation and interest attributable to the Carver Center expansion and the development of Avalon Correctional Center. Page 7 9 AVALON COMMUNITY SERVICES, INC. AND SUBSIDIARIES Net loss from operations was approximately $72,000 in 1996 as compared to a net gain of $12,000 in 1995. The decrease in 1996 was primarily due to operating losses associated with the new correctional center in El Paso and other developmental costs. There was a $14,000 increase in depreciation, and $18,000 increase in general and administrative, as a result of the Carver Center expansion and the development of Avalon Correctional Center. Revenue from correctional operations increased by approximately $431,000 and operating expenses increased by approximately $380,000. The increase is primarily attributable to the purchase of El Paso Intermediate Sanction Facility. The average census for the third quarter 1996 was 51% higher as compared to 1995, primarily due to the acquisition of the El Paso facility. Operating revenues for contract services, decreased by approximately 38%, primarily due to a 11% decrease in residential care occupancy. Operating expenses decreased by 43%, also primarily due to the decrease in occupancy. General and administrative expenses increased by $18,000 in 1996. Depreciation expense increased by $14,000 in 1996 as a result of the new correctional facilities. Interest expense increased approximately $26,000 primarily due to interest related to the construction of the Carver Center addition and the Avalon Correctional Center in 1995. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Total revenues increased by $468,000 or 21% primarily as a result of an increase in correctional revenues of $748,000 offset by a decrease in residential care revenue of approximately $250,000. Net loss for the nine months ended September 30, 1996 was $220,000 or $.08 per share as compared to a net loss for the nine months ended September 30, 1995 of $43,000 or $.02 per share. Revenue from correctional operations increased by $748,000 or 52% from 1995 to 1996 and operating expenses increased by 105% primarily due to the addition of the El Paso Center. The operating profit margin for correctional centers is 34% compared to 51% in 1995 primarily due to lower profit margins of starting Avalon Correctional Center and El Paso Intermediate Sanction Facility. The average number of inmates or census for the first nine months ended 1996 increased 39% over 1995. Operating revenues for contract services, which, decreased by $250,000 or 36%, primarily due to a 14% decrease in residential care occupancy. There was also a decrease of operating expenses of $215,000 or 33%. Residential Care operations have been reduced and the financial results will reflect in the fourth quarter 1996. General and administrative expenses increased by $31,000 or 6%. Depreciation expense increased by $84,000 in 1996 as a result of the construction of the Carver Center addition and the Avalon Correctional Center in 1995. Interest expense increased approximately $119,000 primarily due to interest related to the construction of the new correctional facilities. Page 8 10 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None ITEM 2. Changes in Securities - During the third quarter 1996, 50,000 shares of common stock were issued with the purchase of a corrections operations, 5,000 common stock warrants were exercised, and 3,230 options were exercised. 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: November 13, 1996 AVALON COMMUNITY SERVICES, INC. By: /s/ Jerry Sunderland ----------------------------- Jerry Sunderland, President Page 10 12 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 - Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER 30, 1996 10-Q. 1 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 371,051 0 468,005 0 0 1,584,718 6,857,137 942,413 7,574,442 1,571,266 0 0 0 2,927 3,313,755 7,574,442 2,664,633 2,664,633 0 1,899,315 847,178 0 272,366 (354,226) (134,605) (219,621) 0 0 0 (219,621) (.08) (.08)
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