Avalon Community Services, Inc. and Subsidiaries
Pro Forma Combined Financial Statements
(unaudited)
The unaudited pro forma combined financial statements give effect to the
acquisition of the Turley Correctional Facility ("Turley") by Avalon Community
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 statements of net assets acquired
and direct revenues and operating expenses of Turley.
Avalon Community Services, Inc. and Subsidiaries
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
September 30, 1997
Historical Pro forma
------------------------ -------------------------------
ASSETS Avalon Turley Adjustments Combined
----------- --------- ------------ -----------
Cash and cash equivalents $ 2,930,347 $ - $(1,403,050)(1) $ 1,527,297
Current assets 1,478,145 - - 1,478,145
Property and equipment, net 8,809,341 574,497 383,857 (1) 9,767,695
Other assets 370,849 - 444,696 (1) 815,545
----------- -------- ------------ -----------
Total assets $13,588,682 $574,497 $ (574,497) $13,588,682
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 1,609,443 $ - $ - $ 1,609,443
Long-term debt 5,179,681 - - 5,179,681
Convertible debentures 4,150,000 - - 4,150,000
Stockholders' equity/
facility net assets 2,649,558 574,497 (574,497) 2,649,558
----------- -------- ------------ -----------
$13,588,682 $574,497 $ (574,497) $13,588,682
=========== ======== ============ ===========
See notes to pro forma combined financial statements.
Avalon Community Services, Inc. and Subsidiaries
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
For the year ended December 31, 1996
Historical Pro forma
-------------------------- ---------------------------
Avalon Turley Adjustments Combined
----------- ---------- -------------- ----------
Revenues $ 3,312,687 $1,331,208 $ - $4,643,895
Costs and expenses
Direct operating 1,961,567 856,897 - 2,818,464
General and administrative 645,660 285,607 - 931,267
Depreciation and amortization
expense 306,865 34,627 74,844 (2) 416,336
Interest expense 419,012 - - 419,012
---------- ---------- -------- ----------
3,333,104 1,177,131 74,844 4,585,079
---------- ---------- -------- ----------
Income (loss) from continuing
operations before income
tax expense (20,417) 154,077 (74,844) 58,816
Income tax expense 39,370 - 8,822 (3) 48,192
---------- ---------- -------- ----------
Income (loss) from continuing
operations (59,787) 154,077 (83,666) 10,624
Discontinued operations
Loss on operations, net
of income taxes (649,247) - - (649,247)
Loss on disposal, net
of income taxes (324,659) - - (324,659)
---------- ---------- -------- ----------
(973,906) - - (973,906)
---------- ---------- -------- ----------
Net income (loss) $(1,033,693) $ 154,077 $(83,666) $ (963,282)
=========== ========== ======== ==========
Basic and diluted loss per share
Continuing operations $ (.02) $ -
Discontinued operations (.36) (.35)
----------- ----------
Net loss per share $ (.38) $ (.35)
=========== ==========
Weighted average common shares
outstanding 2,745,879 2,745,879
=========== ==========
See notes to pro forma combined financial statements
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
For the nine months ended September 30, 1997
Historical Pro forma
-------------------------- ---------------------------
Avalon Turley Adjustments Combined
----------- ---------- -------------- ----------
Revenues $ 4,025,972 $1,008,280 $ - $ 5,034,252
Costs and expenses
Direct operating 2,580,277 690,119 - 3,270,396
General and administrative 638,941 246,498 - 885,439
Depreciation and
amortization expense 309,139 28,632 53,546 (2) 391,317
---------- ---------- -------- ----------
3,528,357 965,249 53,546 4,547,152
---------- ---------- -------- ----------
Income from operations 497,615 43,031 (53,546) 487,100
Less interest expense 510,167 - - 510,167
Less unusual item -
amortization of discount
on convertible debentures 1,818,750 - - 1,818,750
---------- ---------- -------- ----------
Income (loss) from continuing
operations before income
tax expense (1,831,302) 43,031 (53,546) (1,841,817)
Income tax expense - - - -
---------- ---------- -------- ----------
Income (loss) from continuing
operations (1,831,302) 43,031 (53,546) (1,841,817)
Discontinued operations
Loss on operations, net
of income taxes (57,863) - - (57,863)
---------- ---------- -------- ----------
Net income (loss) $(1,889,165) $ 43,031 $ (53,546) $(1,899,680)
========== ========== ======== ==========
Basic and diluted loss per share
Continuing operations $ (.62) $ (.63)
Discontinued operations (.02) (.02)
----------- -----------
Net loss per share $ (.64) $ (.65)
=========== ===========
Weighted average common
shares outstanding 2,930,982 2,930,982
=========== ===========
See notes to pro forma combined financial statments.
Avalon Community Services, Inc. and Subsidiaries
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
On October 2, 1998, Turley Correctional Facility was acquired by Avalon
Community Services, Inc. for approximately $1,400,000. The accompanying pro
forma combined balance sheet has been presented as if the acquisition occurred
on September 30, 1997 and the accompanying pro forma combined statements of
operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 have been prepared as if the acquisition was consummated on
January 1, 1996.
NOTE B - PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the assumed effect of the
combination on the balance sheet as of September 30, 1997 and statements of
operations assuming the acquisition was consummated on January 1, 1996. The
accompanying pro forma balance sheet and statements of operations reflect the
following adjustments:
(1)To record cash paid for property and equipment, contracts, and other
intangibles acquired
(2)To record depreciation and amortization expense on property and equipment,
contracts, and other intangibles acquired
(3)To record estimated income tax expense at the combined effective rate