##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to sections 13 or 15(d) of the Securities Exchange Act of 1934
 For
the quarterly period ended June 30, 2005
  o
    
    Transition report pursuant to sections 13 or 15 (d) of the Securities Exchange Act of 1934
 For
the transition period from _____ to _____
 Commission
file number 333-124962
 SECURUS TECHNOLOGIES, INC.
  Delaware
    
    20-0673095(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
  o þ
 o þ
   -1-




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SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3.
    
    Defaults Upon Senior Securities
    
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28Item 5.
    
    Other Information
    
    
    28Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    29Lease AgreementAmendment to LeaseSection 302 CEO CertificationSection 302 CFO CertificationSection 906 CEO CertificationSection 906 CFO Certification
  -2-




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 SECURUS TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share and per share amounts)
 December 31,
    
    June 30,2004
    
    2005(Unaudited)ASSETSCash and cash equivalents
    
    $
    1,879
    
    
    $
    2,789Restricted cash
    
    
    1,347
    
    
    
    1,347Accounts receivable, net (note 2)
    
    
    67,498
    
    
    
    62,937Prepaid expenses and other current assets
    
    
    3,932
    
    
    
    2,518Refundable income taxes
    
    
    634
    
    
    
    634Current deferred income taxes
    
    
    2,806
    
    
    
    3,324Total current assets
    
    
    78,096
    
    
    
    73,549Property and equipment, net (note 2)
    
    
    36,170
    
    
    
    39,632Intangibles and other assets, net (note 2)
    
    
    107,657
    
    
    
    106,702Goodwill
    
    
    50,213
    
    
    
    50,304Total assets
    
    $
    272,136
    
    
    $
    270,187LIABILITIES AND STOCKHOLDERS DEFICITAccounts payable
    
    $
    40,532
    
    
    $
    36,532Accrued liabilities (note 2)
    
    
    41,891
    
    
    
    43,603Deferred revenue and customer advances
    
    
    4,317
    
    
    
    4,391Current portion of long-term debt (note 3)
    
    
    117
    
    
    
    168Total current liabilities
    
    
    86,857
    
    
    
    84,694Deferred income taxes
    
    
    18,300
    
    
    
    18,334Long-term debt, net of current portion (note 3)
    
    
    189,820
    
    
    
    193,620Other long-term liabilities
    
    
    
    
    
    
    1,788Total liabilities
    
    
    294,977
    
    
    
    298,436Commitments and contingenciesStockholders deficit:Common stock, $0.01 stated value, 1,000,000
shares authorized; 560,717 shares issued and
outstanding at December 31, 2004 and June 30,
2005
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    33,902
    
    
    
    33,902Accumulated deficit
    
    
    (56,748
    )
    
    
    (62,156
    )Total stockholders deficit
    
    
    (22,841
    )
    
    
    (28,249
    )Total liabilities and stockholders deficit
    
    $
    272,136
    
    
    $
    270,187
  -3-




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##### Table of Contents



SECURUS TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended June 30, 2004 (Successor) and 2005 (Successor) and
for the 62 Day Period from January 1, 2004 to March 2, 2004 (Predecessor) and
for the 170 Day Period from January 12, 2004 (Inception) to June 30, 2004 (Successor) and
for the Six Months Ended June 30, 2005 (Successor)
(Amounts in thousands)
 For the62 Day
    
    For the
    
    For theFor the Three
    
    For the Three
    
    Period from
    
    170 Day Period from
    
    Six MonthsMonths Ended
    
    Months Ended
    
    January 1, 2004 to
    
    January 12, 2004 to
    
    EndedJune 30,
    
    June 30,
    
    March 2,
    
    June 30,
    
    June 30,2004
    
    2005
    
    2004
    
    2004
    
    2005(Unaudited)
    
    (Unaudited)
    
    
    
    
    
    (Unaudited)
    
    (Unaudited)Revenue:Telecommunication services
    
    $
    10,284
    
    
    $
    6,731
    
    
    $
    7,552
    
    
    $
    14,199
    
    
    $
    14,476Direct call provisioning
    
    
    16,404
    
    
    
    76,195
    
    
    
    9,651
    
    
    
    22,155
    
    
    
    148,228Solution services
    
    
    683
    
    
    
    11,847
    
    
    
    
    
    
    
    683
    
    
    
    23,110Equipment sales and other
    
    
    689
    
    
    
    284
    
    
    
    232
    
    
    
    759
    
    
    
    669Total revenue
    
    
    28,060
    
    
    
    95,057
    
    
    
    17,435
    
    
    
    37,796
    
    
    
    186,483Cost of service (exclusive of depreciation and
amortization shown separately below):Telecommunication services
    
    
    4,215
    
    
    
    2,783
    
    
    
    3,126
    
    
    
    5,783
    
    
    
    6,159Direct call provisioning, exclusive of bad debt expense
    
    
    11,573
    
    
    
    49,541
    
    
    
    6,536
    
    
    
    15,276
    
    
    
    97,242Direct call provisioning bad debt expense
    
    
    1,648
    
    
    
    10,862
    
    
    
    1,594
    
    
    
    2,313
    
    
    
    20,067Solution services
    
    
    489
    
    
    
    8,679
    
    
    
    
    
    
    
    489
    
    
    
    19,072Cost of equipment sold and other
    
    
    265
    
    
    
    111
    
    
    
    131
    
    
    
    290
    
    
    
    120Total cost of service
    
    
    18,190
    
    
    
    71,976
    
    
    
    11,387
    
    
    
    24,151
    
    
    
    142,660Selling, general and administrative
    
    
    4,781
    
    
    
    12,133
    
    
    
    3,032
    
    
    
    6,313
    
    
    
    23,438Compensation expense on employee stock options
    
    
    
    
    
    
    
    
    
    
    4,069
    
    
    
    
    
    
    
    Research and development
    
    
    672
    
    
    
    2
    
    
    
    607
    
    
    
    998
    
    
    
    171Impairment of telecommunication assets
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )Employee severance
    
    
    
    
    
    
    615
    
    
    
    
    
    
    
    1,381
    
    
    
    615Loss on debt extinguishment
    
    
    1,239
    
    
    
    
    
    
    
    1,239
    
    
    
    1,239
    
    
    
    Depreciation and amortization
    
    
    2,455
    
    
    
    5,831
    
    
    
    1,649
    
    
    
    3,480
    
    
    
    11,250Total operating costs and expenses
    
    
    27,337
    
    
    
    90,553
    
    
    
    22,268
    
    
    
    37,562
    
    
    
    178,130Operating income (loss)
    
    
    723
    
    
    
    4,504
    
    
    
    (4,833
    )
    
    
    234
    
    
    
    8,353Transaction fees and expenses
    
    
    61
    
    
    
    
    
    
    
    5,365
    
    
    
    61
    
    
    
    Interest and other expenses, net
    
    
    1,073
    
    
    
    6,690
    
    
    
    2,191
    
    
    
    1,696
    
    
    
    13,388Loss before income taxes
    
    
    (411
    )
    
    
    (2,186
    )
    
    
    (12,389
    )
    
    
    (1,523
    )
    
    
    (5,035
    )Income taxes (benefit) expense
    
    
    (75
    )
    
    
    (214
    )
    
    
    (2,575
    )
    
    
    (278
    )
    
    
    373Net loss applicable to common stockholders
    
    $
    (336
    )
    
    $
    (1,972
    )
    
    $
    (9,814
    )
    
    $
    (1,245
    )
    
    $
    (5,408
    )
  -4-




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##### Table of Contents



SECURUS TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the 62 Day Period from January 1, 2004 to March 2, 2004 (Predecessor) and
for the 170 Day Period from January 12, 2004 (Inception) to June 30, 2004 (Successor) and
for the Six Months Ended June 30, 2005 (Successor)
(Amounts in thousands)
 For the62 Day
    
    For the
    
    For thePeriod from
    
    170 Day Period from
    
    Six MonthsJanuary 1, 2004 to
    
    January 12, 2004 to
    
    EndedMarch 2,
    
    June 30,
    
    June 30,2004
    
    2004
    
    2005(Unaudited)
    
    (Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:Net loss from continuing operations
    
    $
    (9,814
    )
    
    $
    (1,245
    )
    
    $
    (5,408
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities from continuing operations:Depreciation and amortization
    
    
    1,649
    
    
    
    3,480
    
    
    
    11,250Impairment of telecommunication assets
    
    
    285
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    (2,575
    )
    
    
    (279
    )
    
    
    (484
    )Conversion of interest paid in kind to secured subordinated notes
    
    
    
    
    
    
    573
    
    
    
    3,655Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    (4
    )Equity income (loss) from unconsolidated affiliates
    
    
    27
    
    
    
    (144
    )
    
    
    Transaction costs
    
    
    5,365
    
    
    
    (5,195
    )
    
    
    Accretion of discount on subordinated note payable
    
    
    384
    
    
    
    
    
    
    
    253Loss on debt extinguishment
    
    
    1,239
    
    
    
    
    
    
    
    Amortization of deferred financing costs and debt discounts
    
    
    
    
    
    
    297
    
    
    
    410Changes in operating assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    (3,298
    )
    
    
    (2,299
    )
    
    
    4,561Prepaid expenses and other current assets
    
    
    (3,650
    )
    
    
    1,268
    
    
    
    1,414Inventories
    
    
    
    
    
    
    (91
    )
    
    
    Other assets
    
    
    (3,302
    )
    
    
    2,804
    
    
    
    (250
    )Accounts payable
    
    
    915
    
    
    
    (425
    )
    
    
    (4,122
    )Accrued liabilities and other liabilities
    
    
    8,970
    
    
    
    (8,534
    )
    
    
    1,774Net cash provided by (used in) operating activities from continuing
operations
    
    $
    (3,805
    )
    
    $
    (9,790
    )
    
    $
    13,049CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment including contract acquisition costs
    
    $
    (562
    )
    
    $
    (1,996
    )
    
    $
    (11,554
    )Purchase of T-Netix stock and repayment of T-Netix debt in connection with
merger, net of cash acquired
    
    
    
    
    
    
    (70,238
    )
    
    
    Net cash used in investing activities
    
    $
    (562
    )
    
    $
    (72,234
    )
    
    $
    (11,554
    )CASH FLOWS FROM FINANCING ACTIVITIES:Advances on revolving credit facility
    
    $
    
    
    
    $
    6,478
    
    
    $
    Payments on T-Netix senior secured term note (old)
    
    
    (875
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    (3,322
    )
    
    
    (528
    )Redemption of warrants in connection with merger
    
    
    
    
    
    
    (941
    )
    
    
    Payments on other debt
    
    
    (5
    )
    
    
    (12
    )
    
    
    (57
    )Proceeds from issuance of T-Netix senior secured notes, net of payments
    
    
    
    
    
    
    35,353
    
    
    
    Proceeds from issuance of T-Netix secured subordinated notes
    
    
    
    
    
    
    26,000
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    20,000
    
    
    
    Net cash (used in) provided by financing activities
    
    $
    (880
    )
    
    $
    83,556
    
    
    $
    (585
    )(Decrease) increase in cash and cash equivalents
    
    $
    (5,247
    )
    
    $
    1,532
    
    
    $
    910Cash and cash equivalents at beginning of period
    
    
    22,875
    
    
    
    
    
    
    
    1,879Cash and cash equivalents at end of period
    
    $
    17,628
    
    
    $
    1,532
    
    
    $
    2,789SUPPLEMENTAL DISCLOSURES:Cash paid during the period for:Interest
    
    $
    643
    
    
    $
    3,946
    
    
    $
    8,365Income taxes
    
    $
    43
    
    
    $
    164
    
    
    $
    NONCASH FINANCING AND INVESTING ACTIVITIES:Leasehold improvements
    
    $
    
    
    
    $
    
    
    
    $
    1,800
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##### Table of Contents



1. UNAUDITED QUARTERLY FINANCIAL STATEMENTS
  2. BALANCE SHEET COMPONENTS
  December 31,
    
    June 30,2004
    
    2005(Unaudited)Accounts receivable, net:Trade accounts receivable
    
    $
    75,284
    
    
    $
    72,064Advance commissions receivable
    
    
    1,641
    
    
    
    3,521Other receivables
    
    
    3,805
    
    
    
    2,74580,730
    
    
    
    78,330Less: Allowance for doubtful accounts
    
    
    (13,232
    )
    
    
    (15,393
    )$
    67,498
    
    
    $
    62,937
   -6-




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##### Table of Contents



December 31,
    
    June 30,2004
    
    2005(Unaudited)Property and equipment, net:Telecommunications equipment
    
    $
    27,372
    
    
    $
    28,367Leasehold improvements
    
    
    1,973
    
    
    
    4,081Construction in progress
    
    
    6,738
    
    
    
    6,644Vehicles
    
    
    65
    
    
    
    65Office equipment
    
    
    7,489
    
    
    
    8,65043,637
    
    
    
    47,807Less: Accumulated depreciation and amortization
    
    
    (7,467
    )
    
    
    (8,175
    )$
    36,170
    
    
    $
    39,632
  December 31, 2004Gross
    
    
    
    
    
    
    
    
    
    WeightedCarrying
    
    Accumulated
    
    
    
    
    
    AverageValue
    
    Amortization
    
    Net
    
    LifePatents and trademarks
    
    $
    18,163
    
    
    $
    (457
    )
    
    $
    17,706
    
    
    
    11.6Deferred financing costs
    
    
    7,983
    
    
    
    (229
    )
    
    
    7,754
    
    
    
    7.4Purchased technology assets
    
    
    2,102
    
    
    
    (133
    )
    
    
    1,969
    
    
    
    4.3Capitalized software development costs
    
    
    6,310
    
    
    
    (714
    )
    
    
    5,596
    
    
    
    3.1Acquired contract rights
    
    
    74,983
    
    
    
    (2,425
    )
    
    
    72,558
    
    
    
    11.8Non-current portion of commission advances to facilities
    
    
    111
    
    
    
    
    
    
    
    111Deposits and long-term prepayments
    
    
    1,367
    
    
    
    
    
    
    
    1,367Other
    
    
    600
    
    
    
    (4
    )
    
    
    596$
    111,619
    
    
    $
    (3,962
    )
    
    $
    107,657
 June 30, 2005Gross
    
    
    
    
    
    
    
    
    
    WeightedCarrying
    
    Accumulated
    
    
    
    
    
    AverageValue
    
    Amortization
    
    Net
    
    Life(Unaudited)Patents and trademarks
    
    $
    18,333
    
    
    $
    (1,334
    )
    
    $
    16,999
    
    
    
    11.6Deferred financing costs
    
    
    8,511
    
    
    
    (607
    )
    
    
    7,904
    
    
    
    7.4Purchased technology assets
    
    
    4,522
    
    
    
    (472
    )
    
    
    4,050
    
    
    
    4.7Capitalized software development costs
    
    
    6,311
    
    
    
    (1,741
    )
    
    
    4,570
    
    
    
    4.8Acquired contract rights
    
    
    76,974
    
    
    
    (6,125
    )
    
    
    70,849
    
    
    
    11.7Non-current portion of commission advances to facilities
    
    
    111
    
    
    
    
    
    
    
    111Deposits and long-term prepayments
    
    
    1,668
    
    
    
    
    
    
    
    1,668Other
    
    
    551
    
    
    
    
    
    
    
    551$
    116,981
    
    
    $
    (10,279
    )
    
    $
    106,702
  -7-




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Period ending June 30:2006
    
    $
    12,5202007
    
    
    12,5202008
    
    
    11,0142009
    
    
    9,9152010
    
    
    9,308Thereafter
    
    
    49,095$
    104,372
  December 31,
    
    June 30,2004
    
    2005(Unaudited)Accrued expenses
    
    $
    27,876
    
    
    $
    29,651Accrued compensation
    
    
    3,571
    
    
    
    2,833Accrued severance and exit costs
    
    
    1,953
    
    
    
    1,287Accrued taxes
    
    
    3,255
    
    
    
    3,994Accrued interest and other
    
    
    5,236
    
    
    
    5,838$
    41,891
    
    
    $
    43,603
  Balance
    
    
    
    
    
    
    
    
    
    
    BalanceSeptember 92004
    
    
    Additions
    
    
    Payments
    
    

December 31,2004Severance and related costs
    
    $
    
    
    
    $
    2,301
    
    
    $
    (547
    )
    
    $
    1,754Leased facility and other costs
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    199$
    
    
    
    $
    2,500
    
    
    $
    (547
    )
    
    $
    1,953
 Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits,
 Balance
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 1,2005
    
    
    Additions
    
    
    Payments
    
    

June 30,2005Severance and related costs
    
    $
    1,754
    
    
    $
    638
    
    
    $
    (1,216
    )
    
    $
    1,176Leased facility and other costs
    
    
    199
    
    
    
    
    
    
    
    (88
    )
    
    
    111$
    1,953
    
    
    $
    638
    
    
    $
    (1,304
    )
    
    $
    1,287
 -8-




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##### Table of Contents



3. DEBT
  December 31,
    
    June 30,2004
    
    2005(Unaudited)Revolving credit facility
    
    $
    
    
    
    $
    Second-priority senior secured notes
    
    
    154,000
    
    
    
    154,000Senior subordinated notes
    
    
    42,116
    
    
    
    45,771Other
    
    
    225
    
    
    
    168196,341
    
    
    
    199,939Less unamortized discount on senior
secured notes and senior subordinated
notes
    
    
    (6,404
    )
    
    
    (6,151
    )189,937
    
    
    
    193,788Less current portion of long-term debt
    
    
    (117
    )
    
    
    (168
    )$
    189,820
    
    
    $
    193,620
 Revolving Credit Facility.
  Second-priority Senior Secured Notes
  Senior Subordinated Notes.
 -9-




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##### Table of Contents



4. SEGMENT INFORMATION
 Disclosures About Segments of an
Enterprise and Related Information
 -10-




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##### Table of Contents



Telecommunication
    
    Direct Call
    
    Solutions
    
    Equipment
    
    CorporateServices
    
    Provisioning
    
    Services
    
    Sales & Other
    
    and Other
    
    TotalRevenue from external customers
    
    $
    10,284
    
    
    $
    16,404
    
    
    $
    683
    
    
    $
    689
    
    
    $
    
    
    
    $
    28,060Gross margin
    
    $
    6,069
    
    
    $
    3,183
    
    
    $
    194
    
    
    $
    424
    
    
    $
    
    
    
    $
    9,870Depreciation and amortization
    
    
    589
    
    
    
    385
    
    
    
    43
    
    
    
    16
    
    
    
    1,422
    
    
    
    2,455Other operating costs and
expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    6,583
    
    
    
    6,692Operating income (loss)
    
    $
    5,480
    
    
    $
    2,798
    
    
    $
    151
    
    
    $
    299
    
    
    $
    (8,005
    )
    
    
    723Transaction fees and expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Interest and other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,073Segment loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (411
    )Capital Expenditures
    
    $
    563
    
    
    $
    630
    
    
    $
    
    
    
    $
    
    
    
    $
    253
    
    
    $
    1,446
 -11-




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##### Table of Contents



Telecommunication
    
    Direct Call
    
    
    
    
    
    Equipment Sales &Services
    
    Provisioning
    
    Solutions Services
    
    Other
    
    Corporate and Other
    
    TotalRevenue from external customers
    
    $
    6,731
    
    
    $
    76,195
    
    
    $
    11,847
    
    
    $
    284
    
    
    $
    
    
    
    $
    95,057Gross margin
    
    $
    3,948
    
    
    $
    15,792
    
    
    $
    3,168
    
    
    $
    173
    
    
    $
    
    
    
    $
    23,081Depreciation and amortization
    
    
    881
    
    
    
    4,903
    
    
    
    
    
    
    
    14
    
    
    
    33
    
    
    
    5,831Other operating costs and
expenses
    
    
    
    
    
    
    1,906
    
    
    
    270
    
    
    
    
    
    
    
    10,570
    
    
    
    12,746Operating income (loss)
    
    $
    3,067
    
    
    $
    8,983
    
    
    $
    2,898
    
    
    $
    159
    
    
    $
    (10,603
    )
    
    
    4,504Interest and other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,690Segment loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,186
    )Capital Expenditures
    
    $
    
    
    
    $
    3,998
    
    
    $
    
    
    
    $
    
    
    
    $
    2,236
    
    
    $
    6,234
  Telecommunication
    
    Direct Call
    
    Equipment Sales &Services
    
    Provisioning
    
    Other
    
    Corporate and Other
    
    TotalRevenue from external customers
    
    $
    7,552
    
    
    $
    9,651
    
    
    $
    232
    
    
    $
    
    
    
    $
    17,435Gross margin
    
    $
    4,426
    
    
    $
    1,521
    
    
    $
    101
    
    
    $
    
    
    
    $
    6,048Depreciation and amortization
    
    
    542
    
    
    
    268
    
    
    
    33
    
    
    
    806
    
    
    
    1,649Other operating costs and expenses
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    9,129
    
    
    
    9,232Operating income (loss)
    
    $
    3,884
    
    
    $
    1,253
    
    
    $
    (35
    )
    
    $
    (9,935
    )
    
    
    (4,833
    )Transaction fees and expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,365Interest and other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,191Segment loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (12,389
    )Capital Expenditures
    
    $
    211
    
    
    $
    351
    
    
    $
    
    
    
    $
    
    
    
    $
    562
 -12-




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##### Table of Contents



Telecommunication
    
    Direct Call
    
    
    
    
    
    Equipment Sales &Services
    
    Provisioning
    
    Solutions Services
    
    Other
    
    Corporate and Other
    
    TotalRevenue from external customers.
    
    $
    14,199
    
    
    $
    22,155
    
    
    $
    683
    
    
    $
    759
    
    
    $
    
    
    
    $
    37,796Gross margin
    
    $
    8,416
    
    
    $
    4,566
    
    
    $
    194
    
    
    $
    469
    
    
    $
    
    
    
    $
    13,645Depreciation and amortization
    
    
    797
    
    
    
    585
    
    
    
    43
    
    
    
    21
    
    
    
    2,034
    
    
    
    3,480Other operating costs and
expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174
    
    
    
    9,757
    
    
    
    9,931Operating income (loss)
    
    $
    7,619
    
    
    $
    3,981
    
    
    $
    151
    
    
    $
    274
    
    
    $
    (11,791
    )
    
    
    234Transaction expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Interest and other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,696Segment loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,523
    )Capital Expenditures
    
    $
    563
    
    
    $
    949
    
    
    $
    
    
    
    $
    
    
    
    $
    484
    
    
    $
    1,996
  Telecommunication
    
    Direct Call
    
    
    
    
    
    Equipment Sales &Services
    
    Provisioning
    
    Solutions Services
    
    Other
    
    Corporate and Other
    
    TotalRevenue from external customers
    
    $
    14,476
    
    
    $
    148,228
    
    
    $
    23,110
    
    
    $
    669
    
    
    $
    
    
    
    $
    186,483Gross margin
    
    $
    8,317
    
    
    $
    30,919
    
    
    $
    4,038
    
    
    $
    549
    
    
    $
    
    
    
    $
    43,823Depreciation and amortization
    
    
    1,473
    
    
    
    9,683
    
    
    
    
    
    
    
    28
    
    
    
    66
    
    
    
    11,250Other operating costs and
expenses
    
    
    
    
    
    
    3,988
    
    
    
    574
    
    
    
    34
    
    
    
    19,624
    
    
    
    24,220Operating income (loss)
    
    $
    6,844
    
    
    $
    17,248
    
    
    $
    3,464
    
    
    $
    487
    
    
    $
    (19,690
    )
    
    
    8,353Interest and other expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,388Segment loss from continuing
operations before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,035
    )Total assets
    
    $
    14,206
    
    
    $
    219,331
    
    
    $
    17,385
    
    
    $
    1,165
    
    
    $
    18,100
    
    
    $
    270,187Goodwill
    
    $
    
    
    
    $
    50,304
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,304Capital Expenditures
    
    $
    
    
    
    $
    7,203
    
    
    $
    
    
    
    $
    
    
    
    $
    4,351
    
    
    $
    11,554
  -13-




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Special Note Regarding Forward-Looking Statements
  Overview
   -14-




---



##### Table of Contents



Revenues
      -15-




---



##### Table of Contents



Cost of Service
    Facility Commissions
 Bad Debt
 -16-




---



##### Table of Contents



Field Operations and Maintenance Costs
 SG&A
 Purchase Accounting
 Integration Costs
 Industry Trends
   -17-




---



##### Table of Contents



Results of Operations
  For the
    
    
    
    
    
    For theFor the Three
    
    
    
    
    
    For the Three
    
    
    
    
    
    170 Day Period from
    
    
    
    
    
    Six MonthsMonths Ended
    
    
    
    
    
    Months Ended
    
    
    
    
    
    January 12, 2004 to
    
    
    
    
    
    EndedJune 30,
    
    
    
    
    
    June 30,
    
    
    
    
    
    June 30,
    
    
    
    
    
    June 30,2004
    
    % of Rev.
    
    2005
    
    % of Rev.
    
    2004 (1)
    
    % of Rev.
    
    2005
    
    % of Rev.(Unaudited)
    
    
    
    
    
    (Unaudited)
    
    
    
    
    
    (Unaudited)
    
    
    
    
    
    (Unaudited)Revenue:Telecommunication services
    
    $
    10,284
    
    
    
    37
    %
    
    $
    6,731
    
    
    
    7
    %
    
    $
    14,199
    
    
    
    38
    %
    
    $
    14,476
    
    
    
    8
    %Direct call provisioning
    
    
    16,404
    
    
    
    58
    
    
    
    76,195
    
    
    
    80
    
    
    
    22,155
    
    
    
    58
    
    
    
    148,228
    
    
    
    80Solution services
    
    
    683
    
    
    
    2
    
    
    
    11,847
    
    
    
    13
    
    
    
    683
    
    
    
    2
    
    
    
    23,110
    
    
    
    12Equipment sales and other
    
    
    689
    
    
    
    3
    
    
    
    284
    
    
    
    0
    
    
    
    759
    
    
    
    2
    
    
    
    669
    
    
    
    0Total revenue
    
    
    28,060
    
    
    
    100
    
    
    
    95,057
    
    
    
    100
    
    
    
    37,796
    
    
    
    100
    
    
    
    186,483
    
    
    
    100Expenses:Cost of service
    
    
    18,190
    
    
    
    65
    
    
    
    71,976
    
    
    
    75
    
    
    
    24,151
    
    
    
    63
    
    
    
    142,660
    
    
    
    77Selling, general and administrative
    
    
    4,781
    
    
    
    17
    
    
    
    12,133
    
    
    
    13
    
    
    
    6,313
    
    
    
    17
    
    
    
    23,438
    
    
    
    13Research and development
    
    
    672
    
    
    
    2
    
    
    
    2
    
    
    
    0
    
    
    
    998
    
    
    
    3
    
    
    
    171
    
    
    
    0Gain on sale of assets
    
    
    
    
    
    
    0
    
    
    
    (4
    )
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    (4
    )
    
    
    0Employee severance
    
    
    
    
    
    
    0
    
    
    
    615
    
    
    
    1
    
    
    
    1,381
    
    
    
    4
    
    
    
    615
    
    
    
    0Loss on debt extinguishment
    
    
    1,239
    
    
    
    4
    
    
    
    
    
    
    
    0
    
    
    
    1,239
    
    
    
    3
    
    
    
    
    
    
    
    0Depreciation and amortization
    
    
    2,455
    
    
    
    9
    
    
    
    5,831
    
    
    
    6
    
    
    
    3,480
    
    
    
    9
    
    
    
    11,250
    
    
    
    6Total operating costs and expenses
    
    
    27,337
    
    
    
    97
    
    
    
    90,553
    
    
    
    95
    
    
    
    37,562
    
    
    
    99
    
    
    
    178,130
    
    
    
    96Operating income
    
    
    723
    
    
    
    3
    
    
    
    4,504
    
    
    
    5
    
    
    
    234
    
    
    
    1
    
    
    
    8,353
    
    
    
    4Transaction fees and expenses
    
    
    61
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    61
    
    
    
    0
    
    
    
    
    
    
    
    0Interest and other expenses, net
    
    
    1,073
    
    
    
    4
    
    
    
    6,690
    
    
    
    7
    
    
    
    1,696
    
    
    
    5
    
    
    
    13,388
    
    
    
    7Loss before income taxes
    
    
    (411
    )
    
    
    (1
    )
    
    
    (2,186
    )
    
    
    (2
    )
    
    
    (1,523
    )
    
    
    (4
    )
    
    
    (5,035
    )
    
    
    (3
    )Income taxes (benefit) expense
    
    
    (75
    )
    
    
    0
    
    
    
    (214
    )
    
    
    0
    
    
    
    (278
    )
    
    
    (1
    )
    
    
    373
    
    
    
    0Net loss applicable to common
stockholders
    
    $
    (336
    )
    
    
    (1
    )
    
    $
    (1,972
    )
    
    
    (2
    )
    
    $
    (1,245
    )
    
    
    (3
    )
    
    $
    (5,408
    )
    
    
    (3
    )
 
 (1)
    
    This column presents the data for Securus for the period from January 12, 2004 (inception)
to June 30, 2004 and does not include information from T-Netix (Predecessor) for the period
January 1, 2004 to March 2, 2004, prior to our acquisition of T-Netix on March 3, 2004. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 2004
 Total Revenues
  -18-




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##### Table of Contents



Cost of Service.
 SG&A
 Research and Development Expenses
 Employee Severance
 Depreciation and Amortization Expenses.
 -19-




---



##### Table of Contents



Interest and Other Expenses, Net.
 Income Tax Benefit.
 RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THE PERIOD FROM JANUARY
12, 2004 TO JUNE 30, 2004
 Total Revenues
     -20-




---



##### Table of Contents



Cost of Service.
 SG&A
 Research and Development Expenses
 Employee Severance
 Depreciation and Amortization Expenses.
 Interest and Other Expenses, Net.
 Income Tax Expense (Benefit).
 -21-




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##### Table of Contents



Liquidity and Capital Resources
  Cash Flows
  Period from
    
    
    For theJanuary 12,
    
    
    Six MonthsThree Months Ended
    
    
    2004 to
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    June 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(unaudited)Net cash provided by (used in ) operating activities
    
    $
    2,041
    
    
    $
    14,312
    
    
    $
    (9,790
    )
    
    $
    13,049Net cash used in investing activities
    
    $
    (1,446
    )
    
    $
    (6,261
    )
    
    $
    (72,234
    )
    
    $
    (11,554
    )Net cash (used in) provided by financing activities
    
    $
    (2,026
    )
    
    $
    (5,558
    )
    
    $
    83,556
    
    
    $
    (585
    )
 Cash Flows for the Three Months Ended June 30, 2005 Compared to the Three Months Ended
June 30, 2004
    -22-




---



##### Table of Contents



Cash Flows for the Six Months Ended June 30, 2005 Compared to the Period from January 12, 2004
to June 30, 2004
     Debt and other Obligations
 Working Capital Facility.
   Second-priority
Senior Secured Notes.
 -23-




---



##### Table of Contents



Senior Subordinated Notes.
  Other Long-Term Liabilities. Accounting for Leases Issues Relating to Accounting for Leases
 Capital Requirements
  2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong-term debt (1)
    
    $
    
    *
    
    $
    
    *
    
    $
    
    *
    
    $
    
    *
    
    $
    
    *
    
    $
    194,000
    *Operating leases
    
    
    1,907
    
    
    
    1,555
    
    
    
    1,236
    
    
    
    881
    
    
    
    911
    
    
    
    4,728Capital leases
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual
cash obligations
and commitments
    
    $
    2,075
    
    
    $
    1,555
    
    
    $
    1,236
    
    
    $
    881
    
    
    $
    911
    
    
    $
    198,728
 
 *
    
    Assumes no repurchases of second-priority senior secured notes or senior subordinated
notes during such periods. Also does not give effect to mandatory purchases of
second-priority senior secured notes, if any, with excess cash flow.(1)
    
    Does not include any amounts that may be drawn under our working capital facility, which
expires on September 9, 2009, or accrued interest under our long-term debt. Surety Bonds
  -24-




---



##### Table of Contents



Changes in Accounting Standards
 Consolidation of Variable Interest Entities (VIE)
 Share-Based Payment Accounting for Stock Issued to
Employees
 Inventory Costs
 Exchanges of Nonmonetary Assets Accounting for Nonmonetary Transactions
 Accounting for Conditional Asset Retirement Obligations Accounting for Asset Retirement Obligations
 -25-




---



##### Table of Contents



RISK FACTORS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
    -26-




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Elena
Condes, et al. Evercom Systems, Inc., SBC Communications, Inc., Pacific Bell Telephone Company,
et al. Condes Condes Condes Condes Condes Condes
 Sandy Judd, et al. v. American Telephone and Telegraph Company,
et al.
  -27-




---



##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  -28-




---



##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
  ExhibitNo.
    
    Description of Exhibit2.1*
    
    
    Agreement and Plan of Merger by and among TZ Holdings, Inc., New Mustang Acquisition,
Inc., Evercom Holdings, Inc. and such individual designated by Evercom Holdings, Inc.
who joins the Agreement and Plan of Merger (as Indemnification Representative, solely
with respect to Sections 1.10, 6.4, 7.11, 9.2, 11.5, 11.6 and 12.14), dated as of
July 10, 2004.3.1*
    
    
    Amended and Restated Certificate of Incorporation of Securus Technologies, Inc.,
filed on August 6, 2004.3.2*
    
    
    Amended and Restated Bylaws of Securus Technologies, Inc.3.3*
    
    
    Certificate of Incorporation of T-Netix, Inc., filed on September 7, 2001, as amended.3.4*
    
    
    Bylaws of T-Netix, Inc.3.5*
    
    
    Articles of Incorporation of Telequip Labs, Inc., filed on November 9, 1987, as
amended.3.6*
    
    
    Amended and Restated Bylaws of Telequip Labs, Inc.3.7*
    
    
    Articles of Incorporation of T-NETIX Telecommunications, Inc., filed on February 11,
1988, as amended3.8*
    
    
    Bylaws of T-NETIX Telecommunications, Inc.3.9*
    
    
    Articles of Incorporation of SpeakEZ, Inc., Inc., filed on February 6, 1987, as
amended.3.10*
    
    
    Bylaws of SpeakEZ, Inc.3.11*
    
    
    Articles of Incorporation of T-Netix Monitoring Corporation, filed on July 10, 1990,
as amended.3.12*
    
    
    Bylaws of T-Netix Monitoring Corporation.3.13*
    
    
    Certificate of Incorporation of Evercom Holdings, Inc., filed on November 25, 2002,
as amended.3.14*
    
    
    Bylaws of Evercom Holdings, Inc.3.15*
    
    
    Amended and Restated Certificate of Incorporation of Evercom, Inc., filed on February
19, 2003.3.16*
    
    
    Bylaws of Evercom, Inc.3.17*
    
    
    Certificate of Incorporation of Evercom Systems, Inc., filed on August 22, 1997, as
amended.3.18*
    
    
    Bylaws of Evercom Systems, Inc.3.19*
    
    
    Certificate of Incorporation of Everconnect, Inc., filed on September 8, 1997, as
amended.3.20*
    
    
    Bylaws of Everconnect, Inc.4.1*
    
    
    Form of 11% Second-priority Senior Secured Note due 2011.
 -29-




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##### Table of Contents



ExhibitNo.
    
    Description of Exhibit4.2*
    
    
    Indenture, dated as of September 9, 2004, by and among Securus, T-Netix, Inc., a
Delaware corporation, T-NETIX Telecommunications Services, Inc., a Texas corporation,
T-Netix Monitoring Corporation, a Colorado corporation, SpeakEZ, Inc., a Colorado
corporation, Telequip Labs, Inc., a Nevada corporation, Evercom Holdings, Inc.,
Evercom, Inc., EverConnect, Inc., a Delaware corporation, Evercom Systems, Inc., a
Delaware corporation, and The Bank of New York Trust Company, N.A.4.3*
    
    
    Registration Rights Agreement, dated August 18, 2004, by and among Securus
Technologies, Inc., Credit Suisse First Boston LLC and Morgan Stanley & Co.
Incorporated.4.4*
    
    
    Security Agreement, dated September 9, 2004, by and among Securus Technologies, Inc.,
T-Netix, Inc., a Delaware corporation, T-NETIX Telecommunications Services, Inc., a
Texas corporation, T-Netix Monitoring Corporation, a Colorado corporation, SpeakEZ,
Inc., a Colorado corporation, Telequip Labs, Inc., a Nevada corporation, Evercom
Holdings, Inc., a Delaware corporation, Evercom, Inc., a Delaware corporation,
EverConnect, Inc., a Delaware corporation, Evercom Systems, Inc., a Delaware
corporation, and The Bank of New York Trust Company, N.A.4.5*
    
    
    Patent Security Agreement, dated September 9, 2004, by and among Securus
Technologies, Inc., T-Netix, Inc., a Delaware corporation, T-NETIX Telecommunications
Services, Inc., a Texas corporation, T-Netix Monitoring Corporation, a Colorado
corporation, SpeakEZ, Inc., a Colorado corporation, Telequip Labs, Inc., a Nevada
corporation, Evercom Holdings, Inc., Evercom, Inc., EverConnect, Inc., a Delaware
corporation, Evercom Systems, Inc., a Delaware corporation and The Bank of New York
Trust Company, N.A.4.6*
    
    
    Copyright Security Agreement, dated September 9, 2004, by and among Securus
Technologies, Inc., T-Netix, Inc., a Delaware corporation, T-NETIX Telecommunications
Services, Inc., a Texas corporation, T-Netix Monitoring Corporation, a Colorado
corporation, SpeakEZ, Inc., a Colorado corporation, Telequip Labs, Inc., a Nevada
corporation, Evercom Holdings, Inc., Evercom, Inc., EverConnect, Inc., a Delaware
corporation, Evercom Systems, Inc., a Delaware corporation and The Bank of New York
Trust Company, N.A.4.7*
    
    
    Trademark Security Agreement, dated September 9, 2004, by and among Securus
Technologies, Inc., T-Netix, Inc., a Delaware corporation, T-NETIX Telecommunications
Services, Inc., a Texas corporation, T-Netix Monitoring Corporation, a Colorado
corporation, SpeakEZ, Inc., a Colorado corporation, Telequip Labs, Inc., a Nevada
corporation, Evercom Holdings, Inc., Evercom, Inc., EverConnect, Inc., a Delaware
corporation, Evercom Systems, Inc., a Delaware corporation and The Bank of New York
Trust Company, N.A.4.8*
    
    
    Pledge Agreement, dated September 9, 2004, by and among Securus Technologies, Inc.,
T-Netix, Inc., Evercom Holdings, Inc., Evercom, Inc., and The Bank of New York Trust
Company, N.A.4.9*
    
    
    Credit Agreement, dated September 9, 2004, by and among Securus Technologies, Inc.,
as the Borrower, the Subsidiaries of the Borrower, as Guarantors, the Financial
Institutions party thereto as the Lenders, and ING Capital LLC as the Issuing Lender
and Administrative Agent.
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##### Table of Contents



ExhibitNo.
    
    Description of Exhibit4.10*
    
    
    Intercreditor Agreement, dated as of September 9, 2004, by and among Laminar Direct
Capital, L.P., a Delaware limited partnership, Securus, T-Netix, Inc., a Delaware
corporation, T-NETIX Telecommunications Services, Inc., a Texas corporation, T-Netix
Monitoring Corporation, SpeakEZ, Inc., a Colorado corporation, Telequip Labs, Inc., a
Nevada corporation, Evercom Holdings, Inc., a Delaware corporation, Evercom, Inc., a
Delaware corporation, EverConnect, Inc., a Delaware corporation, Evercom Systems,
Inc., a Delaware corporation, and The Bank of New York Trust Company, N.A.4.11*
    
    
    Intercreditor Agreement, dated as of September 9, 2004, by and among ING Capital,
LLC, as Intercreditor Agent, The Bank of New York Trust Company, N.A., as Trustee,
Securus Technologies, Inc., and each subsidiary of Securus Technologies, Inc.10.1*
    
    
    Stockholders Agreement, dated September 9, 2004, by and among Securus Technologies,
Inc., H.I.G.,T-Netix, Inc., a company organized under the laws of the Cayman Islands,
American Capital Strategies, Ltd., a Delaware corporation, Laminar Direct Capital,
L.P., a Delaware limited partnership, and each of the other investors then or
thereafter set forth on the signature pages thereto.10.2*
    
    
    Amended and Restated Consulting Services Agreement, dated as of September 9, 2004, by
and between T-Netix, Inc., Evercom Systems, Inc. and H.I.G. Capital, LLC.10.3*
    
    
    Amended and Restated Professional Services Agreement, dated as of September 9, 2004,
by and between T-Netix, Inc., Evercom Systems, Inc., and H.I.G. Capital, LLC.10.4
    
    
    Office Lease Agreement, dated as of November 8, 2004, by and between T-Netix, Inc.
and the Prudential Insurance Company of America.10.5
    
    
    First Amendment to the Office Lease
Agreement, dated as of November 29, 2004, by and
between T-Netix, Inc. and the Prudential Insurance Company of America.31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley of 200232.1
    
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley of 200232.2
    
    
    Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley of 2002
 
 *
    
    Filed as an Exhibit to Securus Form S-4 filed May 16, 2005 and incorporated herein by
reference.   -31-




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##### Table of Contents



SECURUS TECHNOLOGIES, INC.
 
 Signatures
  SECURUS TECHNOLOGIES, INC.(Registrant)DATE:
August 15, 2005
    
    /s/ RICHARD FALCONERichard Falcone,President, Chief Executive Officer and DirectorDATE:
August 15, 2005
    
    /s/ KEITH S. KELSONKeith S. Kelson,Chief Financial Officer
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