Avalon Correctional Services, Inc. Reports Record First-Quarter Net Income and Revenue.

Business Editors

OKLAHOMA CITY, Okla.--(BUSINESS WIRE)--May 11, 2000

Avalon Correctional Services, Inc. (Nasdaq:CITY), a leading owner and operator of community correctional facilities and programs, announced today record Net Income, Revenues and EBITDA for the three months ended March 31, 2000.

Total revenues increased by 116% to $5.25 million for the three months ended March 31, 2000, from $2.43 million for the three months ended March 31, 1999. The increase was a result of the opening of the Union City Juvenile Center in February 1999, the acquisition of the Adams County Operations in April 1999, the acquisition of the Villa at Greeley in June 1999, the opening of the El Paso Multi-Use Facility in June 1999, and increased revenues from Oklahoma operations.

The Company earned net income for the three months ended March 31, 2000, of $215,000, or $.05 basic and diluted earnings per share, as compared to a net loss for the three months ended March 31, 1999, of $302,000, or $.05 basic and $.06 diluted loss per share.

Earnings, before interest, depreciation, and income taxes, increased 262% for the three months ended March 31, 2000, to $1,338,000 compared to $370,000 for the three months ended March 31, 1999. The increase in operating income was a result of the Company's continuing expansion efforts.

Direct operating expenses and development costs increased by 104% for the three months ended March 31, 2000, over the three months ended March 31, 1999, primarily as a result of the Company's significant expansion. The gross profit margin was 33% for the three months ended March 31, 2000, compared to 29% for the three months ended March 31, 1999.

General and administrative expenses increased 19% to $393,000 for the three months ended March 31, 2000, from $330,000 for the three months ended March 31, 1999. General and administrative expenses decreased to 7.5% of revenues in the first quarter of 2000 compared to 13.6% of revenues for the first quarter of 1999. Interest, depreciation and amortization expense increased commensurate with the growth of the correctional operations.

Avalon Correctional Services, Inc. is a leading developer and manager of privatized community correctional facilities and correctional programming in the United States. Avalon currently has a total offender bed capacity of 1,700 in Oklahoma, Colorado and Texas, in addition to specialized programming for 800 offenders. For more information about Avalon, contact our web site at www.avaloncorrections.com, or call 405/752-8802.

Certain statements in this release constitute forward-looking statements or statements which may be deemed or construed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "forecast," "estimate," "project," "intend," "expect," "should," "would," and similar expressions and all statements which are not historical facts are intended to identify forward-looking statements. These forward-looking statements involve and are subject to known and unknown risks, uncertainties and other factors which could cause the Company's actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. The above factors are more fully discussed in the Company's SEC filings.

         Avalon Correctional Services, Inc. and Subsidiaries
                Consolidated Statements of Operations
                             (Unaudited)

                                         For the Three Months
                                            Ended March 31,
                                       2000                1999

Revenues                            $5,248,000          $2,427,000
Costs and expenses
  Direct operating                  $3,517,000          $1,505,000
  General and administrative           393,000             330,000
  Development costs                         --             222,000
  Depreciation and amortization        334,000             185,000
  Interest expense                     789,000             452,000
Income (loss) from continuing
  operations before income tax
  expense (benefit)                 $  215,000          $ (267,000)
  Income tax expense (benefit)              --                  --
Income (loss) before extraordinary
  item                              $  215,000          $ (267,000)
Extraordinary loss from early
  retirement of debt                        --             (35,000)
Net income (loss)                   $  215,000          $ (302,000)
Basic and diluted income (loss)
  per share:
Income (loss) before extraordinary
  loss                              $     0.05          $    (0.05)
Extraordinary loss from early
  retirement of debt                        --          $    (0.01)
Net income (loss) per share, basic
  and diluted                       $     0.05          $    (0.06)
Weighted average number of common
  and common equivalent shares
  outstanding                        4,715,630           4,665,790