Avalon Correctional Services, Inc. Reports Results for the Third Quarter.

OKLAHOMA CITY--(BUSINESS WIRE)--Nov. 16, 1998--Avalon Correctional Services, Inc. (NASDAQ: "CITY"), today reported results for its third quarter of 1998.

Revenues increased by 27 percent to $1.91 million from $1.51 million in the third quarter of last year. Net loss was $101,000 or $.03 per share for the three months ended September 30, 1998, compared to a net loss of $1,806,000 in last year's similar period.

Revenues for the nine months ended September 30, 1998 were up 39 percent to $5,578,000 from the first nine months of 1997. Net loss and diluted loss per share were $166,000 and $0.05 respectively for the nine months ended September 1998 versus $1,889,000 and $0.64 in the previous year period.

"Avalon's strong growth will be most apparent in the first and second quarters of 1999, a result of new contracts awarded this year and two new facilities now under construction" stated Donald E. Smith, CEO. Our management team has been successful in overseeing the construction of Avalon's new 80 bed juvenile facility opening in January of 99', and the El Paso 300 bed facility to be completed in the second quarter of 99'."

Avalon Correctional Services, Inc. is a leading developer and manager of privatized community correctional facilities in the United States. Avalon provides a diverse range of programs and services to local, state, and federal government agencies. Avalon currently has 14 contracts in four states with a total of 1110 corrections beds.

This press release contains forward-looking statements regarding future events and future performance of the company that involve risks and uncertainties that could materially affect actual results. Investors should refer to documents that the company files from time to time with the Securities and Exchange Commission for a description of certain factors that could cause actual results to vary from current expectations and forward-looking statements contained in this press release. -0-

                 Avalon Community Services, Inc.
                Condensed Statement of Operations

                                           Nine Months Ended,
                                              September 30,
                                           1998          1997

Revenues                                 5,578,000    4,026,000
Expenses
       Operating                         3,521,000    2,580,000
       General and Administrative          784,000      579,000
       Other                               253,000       60,000

                                         4,558,000    3,219,000
Operating Income                         1,020,000      807,000
 Depreciation and Amortization             469,000    2,128,000
 Interest Expense                          717,000      510,000

Net Loss                                  (166,000)  (1,831,000)

Net Loss per share (basic and diluted)       (0.05)       (0.64)

Number of shares used to compute EPS:
 (Basic and Diluted)                     3,106,828    2,930,982

Selected Balance Sheet Data
                                             September 30,
                                           1998          1997
Working Capital                         12,162,000    2,799,000
Total Assets                            29,117,000   13,589,000
Total Liabilities                       22,493,000   10,939,000
Shareholders' Equity                     2,500,000    2,650,000