UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
Commission File Number: 0-20307
AVALON CORRECTIONAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Nevada 13-3592263
(State of Incorporation) (I.R.S. Employer I.D. Number)
13401 Railway Drive, Oklahoma City, Oklahoma 73114
(Address of principal executive offices)
(405) 752-8802
(Issuer's telephone number)
Indicate by check mark whether the registrant issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that 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 29, 2003, 4,895,002 shares of the issuer's Class A common
stock, par value $.001, were issued and outstanding.
PART I - FINANCIAL INFORMATION
AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Restated)
March 31, December 31,
2003 2002
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 440,000 $ 1,250,000
Certificates of deposit 1,800,000 1,800,000
Accounts receivable, net 3,300,000 2,768,000
Prepaid expenses and other 496,000 287,000
------------ -------------
Total current assets 6,036,000 6,105,000
Property and equipment, net 30,541,000 30,041,000
Intangible assets 3,405,000 3,545,000
------------ -------------
Total assets $ 39,982,000 $ 39,691,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued
liabilities and other $ 902,000 $ 624,000
Accrued payroll 307,000 571,000
Accrued income tax 286,000 265,000
Current maturities of long-term debt 3,074,000 3,515,000
------------ ------------
Total current liabilities 4,569,000 4,975,000
Long-term debt, less current maturities 21,003,000 20,545,000
Convertible debentures 3,850,000 3,850,000
Deferred income taxes 126,000 147,000
Redeemable common stock, $.001 par value
1,622,448 shares issued and outstanding 2,822,000 3,176,000
Stockholders' equity:
Common stock: Par value $.001; 24,000,000
shares authorized; 4,895,002 shares
issued and outstanding, less 1,622,448
shares subject to repurchase 3,000 3,000
Preferred stock; par value $.001; 1,000,000
shares authorized; none issued --- ---
Paid-in capital 8,262,000 7,908,000
Accumulated deficit (653,000) (913,000)
---------- ------------
Total liabilities and stockholders'equity $ 39,982,000 $ 39,691,000
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
Page 1
AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Restated)
Three Months Ended
March 31,
2003 2002
----------- ------------
Revenues $ 6,170,000 $ 6,625,000
----------- ------------
Costs and expenses
Direct operating 4,379,000 4,468,000
General and administrative 358,000 512,000
Depreciation and amortization 413,000 551,000
Interest expense 589,000 654,000
----------- ------------
Net income from operations
before income tax expense 431,000 440,000
Income tax expense 171,000 114,000
----------- ------------
Net income $ 260,000 $ 326,000
=========== ============
Net income per share, basic $ 0.05 $ 0.07
=========== ============
Net income per share, diluted $ 0.05 $ 0.06
=========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
Page 2
AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited, Restated)
For the three months
ended March 31,
2003 2002
---------- --------
OPERATING ACTIVITIES:
Net income $ 260,000 $ 326,000
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 413,000 551,000
Amortization of debt issue costs 74,000 79,000
Gain on sale of property (2,000) ---
Changes in operating assets and liabilities:
Increase in:
Accounts receivable (532,000) (289,000)
Prepaid expenses and other (209,000) (219,000)
Increase (decrease) in accounts payable,
accrued liabilities and other 14,000 (590,000)
---------- ---------
Net cash provided by (used in) operations 18,000 (142,000)
---------- ---------
INVESTING ACTIVITIES:
Capital expenditures (851,000) (137,000)
Proceeds from disposition of property 7,000 ---
---------- ---------
Net cash used in investing activities (844,000) (137,000)
---------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowing 7,712,000 7,092,000
Repayment of borrowing (7,696,000) (7,696,000)
Proceeds from warrant and option exercise --- 31,000
----------- -----------
Net cash provided by (used in) financing
activities 16,000 (573,000)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (810,000) (852,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,250,000 2,389,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 440,000 $ 1,537,000
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3
AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Restated)
NOTE 1. BASIS OF PRESENTATION
Interim Financial Statements -
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain disclosures normally included in financial statements prepared in
conformity with accounting principles generally accepted in the United States of
America have been omitted. The accompanying consolidated financial statements
and notes should be read in conjunction with the December 31, 2002 Form 10-KSB
filing, as amended and restated. The results of operations for the three months
ended March, 31, 2003, are not necessarily indicative of the results that may be
expected for the entire year ended December 31, 2003.
The consolidated balance sheet as of March 31, 2003, the statements of
operations for the three months ended March 31, 2003 and 2002 and the statements
of cash flows for the three months ended March 31, 2003 and 2002 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 period then ended. All such
adjustments are of a normal and recurring nature.
Restatement -
Upon original implementation of Statement of Financial Accounting Standards
("SFAS") No. 142, the Company determined that intangible assets related to the
value of contracts previously acquired in business combinations had an
indefinite life, and therefore were not amortized. After communication with the
SEC staff resulting in a reevaluation of the life of contract intangibles, the
Company decided to restate the consolidated financial statements as of and for
the year ended December 31, 2002, to amortize contract intangibles over a
fifteen-year life (the life assigned prior to the implementation of SFAS No. 142
on January 1, 2002). The effect of the restatement reduced total assets from
$40,262,000, as originally reported at March 31, 2003, to $39,982,000, reduced
total liabilities from $29,654,000 to $29,548,000 (due to income tax effects)
and therefore reduced stockholders' equity from $7,786,000 to $7,612,000. A
summary of the effects of these items on previously reported results of
operations follows:
As
Originally Effect of
First quarter 2003 Reported Restatement Restated
------------------------- ------------- ------------- -----------
Revenues $ 6,170,000 $ - $ 6,170,000
Costs and expenses 5,683,000 56,000 5,739,000
------------- ------------- -----------
Net income before income
tax expense 487,000 (56,000) 431,000
Income tax expense 192,000 (21,000) 171,000
------------- ------------ ----------
Net income $ 295,000 $ (35,000) $ 260,000
============= ============ ==========
Basic income per share $ .06 $ (.01) $ .05
============= ============ ==========
Diluted income per share $ .05 $ - $ .05
============= ============ ==========
Page 4
As
Originally Effect of
First quarter 2002 Reported Restatement Restated
------------------------- -------------- ------------- -----------
Revenues $ 6,625,000 $ - $ 6,625,000
Costs and expenses 6,129,000 56,000 6,185,000
-------------- ------------- -----------
Net income before income
tax expense 496,000 (56,000) 440,000
Income tax expense 135,000 (21,000) 114,000
------------- ------------ ------------
Net income $ 361,000 $ (35,000) $ 326,000
============== ============ ============
Basic income per share $ .07 $ - $ .07
============= ============ ============
Diluted income per share $ .07 $ (.01) $ .06
============= ============ ============
Stock-Based Compensation -
The Company has a stock-based compensation plan. The Company accounts for
this plan under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under this plan had an exercise price equal to the market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three months ended March 31,
----------------------------
2003 2002
--------- ----------
Net income, as reported $ 260,000 $ 326,000
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects 13,000 19,000
----------- ----------
Pro forma net income $ 247,000 $ 307,000
============ ==========
Earnings per share:
Basic - as reported $ 0.05 $ 0.07
============ ==========
Basic - pro forma $ 0.05 $ 0.06
============ ==========
Diluted - as reported $ 0.05 $ 0.06
============ ==========
Diluted - pro forma $ 0.04 $ 0.05
============ = ==========
Page 5
NOTE 2. LONG-TERM DEBT
Long-term debt consists of the following:
March 31, December 31,
2003 2002
------------ -----------
Revolving line of credit with finance company, collateralized
by accounts receivable, with interest at 1.0% over prime
(effective rate of 5.0% at March 31, 2003); due Feb 2005 $ 983,000 $ 1,423,000
Notes payable to banks, collateralized by transportation
equipment, due in installments through March 2012
with interest ranging from 1.9% to 10.9%. 672,000 641,000
Notes payable to banks and finance companies, collateralized by
land, buildings, and improvements due in monthly and quarterly
installments through February 2005 with interest ranging from
3.9% to 11.0% 12,232,000 11,794,000
Note payable to an investment company, uncollateralized
with interest at 12.5%, payable quarterly, due in four quarterly
installments beginning in 2005, including original issue premium 10,190,000 10,202,000
------------- ---------------
24,077,000 24,060,000
Less - current maturities 3,074,000 3,515,000
------------- ---------------
$ 21,003,000 $ 20,545,000
============= ===============
The Company completed a $15,000,000 private placement of debt and equity
with an investment company on September 16, 1998. Pursuant to the terms of the
agreement, the Company tendered an unsecured subordinated note with a face value
of $10,000,000 bearing interest of 12.5% with interest payable in quarterly
installments until December 31, 2005, when the first of four quarterly principal
installments is due. The Company also tendered 1,622,448 shares of redeemable
common stock to the investment company. These shares are subject to repurchase
by the Company under certain circumstances, or beginning September 16, 2003 at
the holders option, at the then current average traded price of the stock. The
Company is accreting the difference between the carrying value and the estimated
redemption price of the stock by periodic charges / credits to additional
paid-in capital.
The Company obtained an independent fair value appraisal of the debt and
equity instruments reflecting a fair value allocation of the debt of $10,365,000
and the fair value allocation of the redeemable common stock of $4,635,000. The
original issue premium of $365,000 is being accreted as a reduction of interest
expense over the term of the debt instrument. Debt issue costs of $1,654,000
(including $266,000 representing the fair value of warrants issued to financial
advisors) have been allocated to the debt and redeemable common stock based upon
their fair values. Costs of $511,000 allocated to the redeemable common stock
reduced its original book value to $4,124,000. Costs of $1,143,000 allocated to
the debt instrument are included in other assets and are being amortized to
interest expense over the life of the debt instrument using the effective
interest method.
Certain notes payable to finance and investment companies contain covenants
that require the Company, among other things, to maintain certain earnings and
debt coverage ratios and receive approval for certain capital expenditures as
defined in the agreements. The Company was in compliance with all debt covenants
at March 31, 2003.
Page 6
NOTE 3. STOCK OPTION PLAN
The Company adopted a stock option plan (the "Plan") providing for the
issuance of 250,000 shares of Class A 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 Option Plan was registered with the Securities and
Exchange Commission in November 1995. The purpose of the Plan is to provide
continuing incentives to the Company's officers, key employees, and members of
the Board of Directors.
The options generally vest within three years and have a ten year
expiration period. The Company amended its Plan on December 1, 1996, increasing
the number of shares available under the Plan to 600,000. Non-statutory options
have been granted providing for the issuance of 520,932 shares of Class A common
stock at exercise prices ranging from $1.32 to $4.25 per share. Options
providing for the issuance of 487,936 shares were exercisable at March 31, 2003.
NOTE 4. LITIGATION AND CONTINGENCIES
The Company is a party to litigation 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.
The Company holds a 15% equity interest in an assisted living center and
has guaranteed debt related to the building of the investee. The Company has
recognized losses of the investee and has reduced its carrying value in the
investment to zero. Debt payments are made by the investee semi-annually and
range in amounts from $45,000 to $90,000 by the time of the final payment on May
1, 2016. The outstanding debt balance was $1,705,000 at March 31, 2003, was
contingent and was not recognized in the Company's consolidated financial
statements. The Company would have the right to sell the living center as a
going concern and use any proceeds, after payment of debts, to recover amounts
owed to it by the living center in the event of default of the debt payments.
The Company expects that the proceeds from the sale of the living center would
exceed the existing debt. The Company believes the consolidation of this entity
may be required under FIN 46, effective in the third quarter of the current year
(see note 6).
The Oklahoma Office of Juvenile Affairs (OJA), in a cost-cutting move, did
not exercise the option for the final year of a five-year contract providing for
the care of 80 juveniles at the Union City Juvenile Center. The contract expired
on December 2, 2002 and as of April 30, 2003, the facility remains vacant while
other sources of offenders are being pursued. This was the first time the
Company had not had a multi-year contract extension renewed. The contract is the
only one the Company had with OJA. The Union City facility is a marketable
facility and the Company is actively seeking a replacement population.
Page 7
NOTE 5. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share
and earnings per share assuming dilution.
Three months ended
March 31,
2003 2002
-------- -------
Numerator:
Net income - basic $ 260,000 $ 326,000
Effect of dilutive securities, net of income tax:
- interest reduction on assumed debenture conversions 43,000 72,000
--------- ---------
Numerator for earnings per share, diluted $ 303,000 $ 398,000
========= =========
Denominator for earnings per share:
Weighted average shares outstanding - basic 4,895,002 4,847,938
Effect of dilutive securities:
- debenture conversions 1,283,333 1,283,333
- stock options --- 104,904
- stock warrants --- 248,924
--------- ---------
Denominator for earnings per share, diluted 6,178,335 6,485,099
========= =========
Income per share, basic $ 0.05 $ 0.07
========== =========
Income per share, diluted $ 0.05 $ 0.06
========== =========
Outstanding options and warrants of 1,330,932 for the three months ended
March 31, 2003, and 268,039 for the three months ended March 31, 2002, have been
excluded from the above calculations as they would be anti- dilutive.
NOTE 6. RECENTLY ADOPTED ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No.46, Consolidation of
Variable Interest Entities (FIN 46). Subject to certain criteria defined in the
Interpretation, FIN 46 will require consolidation by business enterprises of
variable interest entities if the enterprise has a variable interest that will
absorb the majority of the entity's expected losses, receives a majority of its
expected returns, or both. The provisions of FIN 46 are effective immediately
for interests acquired in variable interest entities after January 31, 2003, and
at the beginning of the first interim or annual period beginning after June 15,
2003, for interests acquired in variable interest entities before February 1,
2003, (for the Company in the third quarter of 2003). The Company is in the
process of determining what impact, if any, the adoption of the provisions of
FIN 46 will have upon its financial condition or results of operations. Certain
transitional disclosures required by FIN 46 in all financial statements
initially issued after January 31, 2003, have been included in the accompanying
financial statements.
Page 8
AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This document contains statements that are not historical but are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
include statements regarding the expectations, beliefs, intentions, or
strategies for the future. The Company intends that all forward-looking
statements be subject to the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements reflect the
Company's views as of the date they are made with respect to future events and
financial performance, but are subject to many uncertainties and risks which
could cause the actual results of the Company to differ materially from any
future results expressed or implied by such forward- looking statements.
Examples of such uncertainties and risks include, but are not limited to:
fluctuations in occupancy levels and labor costs; the ability to secure both new
contracts and the renewal of existing contracts; the availability and cost of
financing to redeem common shares and to expand the Company's business; and
public resistance to privatization. Additional risk factors include those
discussed in periodic reports filed by the Company from time to time. The
Company does not undertake any obligation to update any forward-looking
statements.
Restatement -
See Note 1 to the consolidated financial statements.
Liquidity and Capital Resources -
The Company's business strategy is to focus on the private community
corrections industry, expanding its operations in existing and additional states
through new federal and state contracts and selective acquisitions. The
successful implementation of the Company's growth plan will create the need for
additional capital and financing.
Working capital at March 31, 2003 was $1,467,000 representing a current
ratio of 1.32:1.00, compared to working capital of $1,130,00 and a current ratio
of 1.23:1.00 at March 31, 2002. Capital expenditures have been $851,000 in 2003,
compared to $137,000 in 2002. The 2003 capital expenditures include the
expansion of the Phoenix Center to 215 beds, scheduled for completion in the
summer of 2003. The 2002 capital expenditures include normal, operating
purchases of vehicles, equipment, and building improvements.
The Company had approximately $4,100,000 of cash, short-term investments,
and revolving credit available for new projects at March 31, 2003. The Company
believes it has adequate cash reserves and cash flow from operations to meet its
current cash requirements. The Company expects current contracts to generate
sufficient income to increase cash balances.
The Company has a senior credit facility with Fleet Capital Corporation
consisting of a $13,500,000 term loan and a revolving line of credit equal to
the lesser of $3 million or 80% of eligible accounts receivable.
Results of Operations -
Three Months Ended March 31, 2003 Compared to the Three Months Ended March 31,
2002.
The Company's revenues decreased by 7% to $6,170,000 for the three months
ended March 31, 2003 from $6,625,000 for the three months ended March 31, 2002.
The decreased revenues were a result of the expiration loss of the Union City
Juvenile Center contract in December 2002. The revenues from the Union City
contract were , partially offset by increased revenues from new from the
Company's Oklahoma and Texas contracts at the Riverside and Roy K. Robb
facilities. The Union City Juvenile Center operations contributed approximately
$971,000 to revenues in the first quarter of 2002. Earnings before interest,
taxes, depreciation, and amortization for the three months ended March 31, 2003
were $1,433,000 compared to $1,645,000 for the three months ended March 31,
2002. The decrease in earnings before interest, taxes, depreciation, and
amortization was a result of the expiration of the Union City Juvenile Center
contract. Earnings before interest, taxes, depreciation, and amortization can be
reconciled to earnings before taxes by adding interest and depreciation and
amortization expenses to net income before taxes. Income before taxes declined
2% for the three months ended March 31, 2003 to $431,000 compared to $440,000
for the three months ended March 31, 2002. The decrease in income before taxes
was minimized by the implementation of significant cost reductions by the
Company.
Page 9
The Company's net income was $260,000 for the three months ended March 31,
2003 and $326,000 for the three months ended March 31, 2002. The Company
recorded a tax provision of $171,000 for the three months ended March 31, 2003,
compared to versus a provision of $114,000 for the three months ended March 31,
2002. The lower effective rate in 2002 was due to the utilization of tax loss
carry forwards. The earnings per share were $.05 basic and diluted for the three
months ended March 31, 2003 and 2003 and were $.07 basic and $.06 diluted for
the three months ended March 31, 2002. Cash flow from operations increased
$160,000 for the three months ended March 31, 2003 compared to the three months
ended March 31, 2002.
Corporate. General and administrative expenses decreased 30% to $358,000
for the three months ended March 31, 2003, from $512,000 for the three months
ended March 31, 2002. The decrease reduction was a result of significant cost-
containment efforts, particularly in the expense areas of personnel, travel, and
marketing, that were undertaken in light of the expiration of the Union City
Juvenile Center contract. Interest expense decreased $65,000 for the three
months ended March 31, 2003 versus the first quarter of 2002 as a result of
lower interest rates. Depreciation and amortization expenses decreased $138,000
as several assets were fully amortized completely written off during 2002. the
past year.
Critical Accounting Policies -
Intangible assets. Three of Avalon's facilities - the Avalon Correctional
Center, The Villa at Greeley and the Phoenix Center - have intangible assets on
their books representing the value allocated to the operating contracts at the
time of their acquisition. Financial Accounting Standards Board SFAS 142,
Goodwill and Other Intangible Assets, requires that intangible assets whose
useful lives are estimated to be indefinite can no longer be amortized. Avalon
originally determined these intangible assets had indefinite lives inasmuch as
they relate to contracts that are renewable at minimal costs, are routinely
renewed, and are expected to be renewed. If the intangible assets are shown to
be impaired in some future period, they are required to be written down to their
fair value in the period when the impairment is ascertained. Intangible assets
originally determined to have indefinite lives totaled $2,631,000 at March 31,
2003. Any impairments recorded would have an adverse effect on earnings,
possibly materially, in the period the impairment is determined. During 2002,
independent appraisals were obtained on the related properties. The value on
each property was higher than the carrying value of the underlying intangible
and tangible assets, so no impairment has been found to exist. Intangible assets
are tested for impairment annually. The Company's 2002 financial statements and
the interim financial statements included herein, have been restated to amortize
contract intangibles over 15 years. See Note 1 to consolidated financial
statements.
Equity valuation. 1,622,448 shares of the Company's stock (approximately
one-third of the issued and outstanding shares) have a put attached which can be
exercised in 2003. This put is redeemable under certain circumstances at the
holder's option and requires the Company to purchase the stock at the market
value. The stock is recorded on the Company's books at an estimated redemption
value and is updated quarterly. The stock was recorded at its estimated fair
value and is being accreted to the estimated value at the redemption date. This
accretion will become more volatile as the redemption date draws nearer, and
will ultimately track the price of the stock. This change in stock value is
offset by an equal change to Paid-in Capital.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
The Company's chief executive officer and its vice president of finance
have evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a
date within 90 days of the filing date (the "Evaluation Date") of this quarterly
report, and have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate, effective, and ensure that
material information relating to the Company and its consolidated subsidiaries
would be made known to them timely by others within those entities.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's disclosure controls
and procedures subsequent to the Evaluation Date, nor were there any significant
deficiencies or material weaknesses in such disclosure controls and procedures
requiring corrective actions. As a result, no corrective actions were taken.
Page 10
AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and reports on Form 8-K - None.
The following exhibits are filed as a part of this Quarterly Report on Form
10-Q:
31.1 Certification of the Chief Executive Officer of Avalon Correctional
Services, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of the Vice President of Finance of Avalon
Correctional Services, Inc., pursuant to Section 302 of the Sarbanes
-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer of Avalon Correctional
Services, Inc., pursuant to 18 U.S.C. Section 1350, a adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
32.2 Certification of the Vice President of Finance of Avalon
Correctional Services, Inc., pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
Page 11
AVALON CORRECTIONAL SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirement of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: February 27, 2004 AVALON CORRECTIONAL SERVICES, INC.
By: s/ Donald E. Smith
-------------------------------------------
Donald E. Smith, Chief Executive Officer
By: s/ David Grose
-------------------------------------------
David Grose, Vice President of Finance
Page 12
Exhibit 31.1
CERTIFICATION
I, Donald E. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Avalon Correctional
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c. Disclosed in this report any changes in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
February 27, 2004
/s/ Donald E. Smith
Donald E. Smith
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, David Grose, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Avalon Correctional
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c. Disclosed in this report any changes in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
February 27, 2004
/s/ David Grose
David Grose
Vice President of Finance
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avalon Correctional Services,
Inc. (the "Company") on Form 10-Q/A for the period ended March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Donald E. Smith, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13 (a) or 15 (d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Donald E. Smith
Donald E. Smith
Chief Executive Officer
February 27, 2004
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avalon Correctional Services,
Inc. (the "Company") on Form 10-Q/A for the period ended March 31, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David Grose, Vice President of Finance of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13 (a) or 15 (d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ David Grose
David Grose
Vice President of Finance
February 27, 2004