OKLAHOMA CITY, Aug. 6 /PRNewswire-FirstCall/ -- Avalon Correctional Services, Inc. (Nasdaq: CITY - News) today announced financial results for the three months ended June 30, 2003.

   --  17th Consecutive Quarter of profitability
    --  Pretax income for 2nd Quarter 2003 increases to $402,000 vs. $395,000
        in 2002
    --  Second Quarter EPS of $.06 basic and $.05 diluted
    --  Second Quarter G&A expenses reduced 25% vs. same period 2002
    --  Six month EPS of $.12 basic and $.11 diluted

THREE MONTHS ENDED JUNE 30, 2003

The quarter ended June 30, 2003 was the Company's 17th consecutive profitable quarter. The Company's net income for the quarter was $288,000 or $.06 basic and $.05 diluted earnings per share as compared to net income of $305,000 or $.06 basic and diluted earnings per share for the same period of 2002.

Total revenues were $6.11 million compared to $6.74 million for the second quarter of 2002. The net decrease in revenues was a result of the Union City Juvenile contract expiring in December 2002. The juvenile contract contributed $971,000 of revenues in the second quarter of 2002. The Company's revenues from its adult facilities increased $339,000, partially offsetting the previous juvenile contract revenues.

The Company's income before taxes increased to $402,000 compared to $395,000 for the second quarter 2002.

General and administrative expenses were reduced by approximately 25% to 6.9% of revenues for the second quarter compared to 8.4% for the same period last year. The decrease in expenses was a result of a comprehensive cost reduction program implemented throughout the fourth quarter of 2002 and first quarter of 2003.

SIX MONTHS ENDED JUNE 30, 2003

The Company's revenues were $12.28 million compared to $13.37 million for the same period last year. The net decrease in revenues was a result of the Union City Juvenile contract expiring in December 2002. The juvenile contract contributed $1,942,000 in the first half of 2002. The Company's revenues from its adult facilities increased $855,000, partially offsetting the previous juvenile contract revenues.

The Company's net income was $583,000 or $.12 basic and $.11 diluted earnings per share compared to $666,000 or $.14 basic and $.12 diluted earnings per share for the same period last year. The decrease of $83,000 in net income was the result of an $81,000 increased tax provision for the six months ended June 30, 2003.

General and administrative expenses were reduced to $783,000 compared to $1,077,000 for the same period of 2002. The significant decrease in expenses was a result of a comprehensive cost reduction program implemented throughout the fourth quarter of 2002 and first quarter of 2003.

Donald E. Smith, Chief Executive Officer and Chairman of Avalon stated, "We are pleased with the outcome of our second quarter and six months results. Our management team has focused on organic growth opportunities by increasing our capacity and offender census at existing facilities. We continue to evaluate additional prospects for expansion within our existing operations. Our management team is to be commended for increasing the Company's pre-tax income in the second quarter by $7,000 compared to last year. This is remarkable considering the second quarter 2003 revenues did not include $971,000 of revenues from the previous juvenile operations. Our management team has shown positive growth during a difficult economic period for our contract agencies. The comprehensive cost reduction programs we have implemented throughout our Company have shown positive results in all of our operations. We are confident our continuous implementation and execution of our plan will have a positive outcome in the future. Our focus on internal growth and cost control measures will continue to generate positive results."

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)

                             Three Months Ended        Six Months Ended
                                  June 30,                   June 30,
                              2003         2002         2003         2002

    Revenues               $6,112,000   $6,744,000  $12,282,000  $13,369,000
    Costs and expenses
      Direct operating     $4,321,000   $4,649,000   $8,700,000   $9,117,000
      General and
       administrative         425,000      565,000      783,000    1,077,000
      Depreciation and
       amortization           370,000      494,000      727,000      989,000
      Interest expense        594,000      641,000    1,183,000    1,295,000
    Net income from
     operations before
     income tax expense      $402,000     $395,000     $889,000     $891,000
      Income tax expense      114,000       90,000      306,000      225,000
    Net income               $288,000     $305,000     $583,000     $666,000

    Net income per share,
     basic                      $0.06        $0.06        $0.12        $0.14
    Net income per share,
     diluted                    $0.05        $0.06        $0.11        $0.12