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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
   SECURUS TECHNOLOGIES, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    20-0673095
(I.R.S. Employer
Identification Number)
 
 None   11% Second-priority Senior Secured Notes due 2011
 
 o x
 o x
 x o
 x
  o o x
 o x
   Class
    
    Outstanding at March 1, 2006Common stock
Class B Common stock
    
    543,859.65 shares
53,496.76 shares
 Documents Incorporated By Reference




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Table of Contents
 PART I
    
    
    3ITEM 1. BUSINESS
    
    
    3ITEM 1A. RISK FACTORS
    
    
    15ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    25ITEM 2. PROPERTIES
    
    
    25ITEM 3. LEGAL PROCEEDINGS
    
    
    26ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    26PART II
    
    
    27ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    27ITEM 6. SELECTED FINANCIAL INFORMATION AND OTHER DATA
    
    
    28ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    30ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    43ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
    
    
    44ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    74ITEM 9A. CONTROLS AND PROCEDURES
    
    
    74ITEM 9B. OTHER INFORMATION
    
    
    74PART III
    
    
    75ITEM 10. MANAGEMENT
    
    
    75ITEM 11. EXECUTIVE COMPENSATION
    
    
    78ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    80ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
    
    
    82ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    85PART IV
    
    
    86ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    86Code of EthicsSubsidiariesSection 302 CEO CertificationSection 302 CFO CertificationSection 906 CEO CertificationSection 906 CFO Certification




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PART I
 
 ITEM 1. BUSINESS
 Overview
  
    
    derived direct and indirect revenues from approximately 3,100
correctional facilities in the United States and Canada; and
    
    processed over 15 million calls per month; and
       Industry Overview
  3




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Competition
   4




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Primary Sources of Revenues
  % of TotalRevenue Source
    
    Revenues
    
    DescriptionDirect Call Provisioning
    
    
    80
    %
    
    Direct call
provisioning
services through
multi-year
contracts directly
to local
correctional
facilities as well
as large county
jails and state
departments of
corrections
facilities.Solutions and Billing
Services
    
    
    13
    %
    
    Solutions and
billing services (validation, fraud
management and
billing and
collection
services) to third
parties including
some of the worlds
largest
communication
service providers.Telecommunications Services
    
    
    7
    %
    
    Telecommunications
services
(equipment,
security enhanced
call processing,
validation and
customer service
and support) to
corrections
facilities through
contracts with some
of the worlds
leading
communication
service providers,
including AT&T/SBC
and Sprint.
 Direct Call Provisioning
  Solutions
  5




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Telecommunications Services
  Equipment Sales
  Customers
   6




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Direct Customers
  Telecommunications and Solutions Service Provider Customers
  Approximate % of
    
    Approximate % of Total
    
    ContractTotal Solutions
    
    Telecommunications
    
    ExpirationCustomer
    
    Services Revenue
    
    Services Revenue
    
    Date**AT&T/Global
    
    74%
    
    16%
    
    March 1, 2008Tel*Link*Sprint
    
    20%
    
    2%
    
    Month-to-MonthSBC / AT&T***
    
    
    
    25%
    
    September 1, 2006FSH Communications
    
    
    
    17%
    
    Month-to-MonthVerizon/Public
    
    
    
    22%
    
    December 19, 2006CommunicationsServices, Inc.*
 
 *
    
    AT&T sold its inmate telecommunications business to Global Tel*Link in
2005. Verizon sold its inmate telecommunications business to Public
Communications Services, Inc. in 2005.**
    
    Represents expiration dates for master customer contracts. Below the
master customer contracts, subcontracts govern site-specific contract
durations, which are typically consistent with the terms of our
partners prime contracts with the underlying correctional facilities.
In some cases, our subcontracts with such customers for certain
correctional facilities may extend beyond the term of the related
master contract, in which case our agreements with these customers
generally extend through the term of the subcontract.***
    
    SBC recently changed its name to AT&T.  Marketing
  7




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Principal Products and Services
  Call Manager
  SECUREvoice tm
  Prepaid Calling Programs
   Correctional Billing Services (CBS)
  Intelligent Call and Billing Management Solution (ICBS)
  8




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Facility Manager
  Intelligent Technologies Architecture
  Systems and Equipment
   Maintenance, Service and Support Infrastructure
  Billing and Collection
   9




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Research and Product Development
   Patents and Other Proprietary Rights
    Regulation
  10




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Federal Regulation
      11




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12




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State Regulation
   13




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Employees
    
    
    projected future sales growth;
    
    expected future revenues, operations, expeditures and cash needs;
    
    estimates of the potential for our products and services, including
the anticipated drivers for future growth;
    
    sales and marketing plans;
    
    assessment of competitors and potential competitors; and
    
    potential mergers or acquisitions;
  14




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ITEM 1A. RISK FACTORS
 You should carefully consider the risks described below, together with all of the other
information contained in this Form 10-K , before making an investment decision. The risks described
below are not the only ones facing our company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial may also materially and adversely affect our
financial condition, results of operations or cash flow. Any of the following risks could
materially and adversely affect our financial condition or results of operations. In such case, you
may lose all or part of your original investment.
 Risks Related to our Senior Notes
 We have a substantial amount of debt outstanding and have significant interest payments
   
    
    require us to dedicate a substantial portion of our cash flow from operations to make payments
on our debt, thereby reducing funds available for operations, future business opportunities and
other purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the industry
in which we operate;
    
    make it more difficult for us to satisfy our obligations with respect to the notes and our
other debt obligations;
    
    limit our ability to borrow additional funds, or to sell assets to raise funds, if needed, for
working capital, capital expenditures, acquisitions or other purposes;
    
    increase our vulnerability to general adverse economic and industry conditions, including
changes in interest rates;
    
    place us at a competitive disadvantage compared to our competitors which may have less debt; and
    
    prevent us from raising the funds necessary to repurchase notes tendered to us if there is a
change of control, which would constitute a default under the indenture governing the notes and
our working capital facility.
  15




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We may be able to incur more debt, including secured debt, and some or all of this debt may
effectively rank senior to the notes and the guarantees
  There may not be sufficient collateral to pay all or any of the notes
      16




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The indenture and our working capital facility contain covenants that limit the discretion of
our management in operating our business and could prevent us from capitalizing on business
opportunities and taking other corporate actions.
  
    
    incur additional debt and issue preferred stock;
    
    make restricted payments, including paying dividends on, redeeming,
repurchasing or retiring our capital stock;
    
    make investments and prepay or redeem debt;
    
    enter into agreements restricting our subsidiaries ability to pay
dividends, make loans or transfer assets to us;
    
    create liens;
    
    sell or otherwise dispose of assets, including capital stock of subsidiaries;
    
    engage in transactions with affiliates;
    
    engage in sale and leaseback transactions;
    
    make capital expenditures;
    
    engage in business other than telecommunications businesses; and
    
    consolidate or merge.
  
    
    limit our ability to plan for or react to market conditions, meet
capital needs or otherwise restrict our activities or business plans;
and
    
    adversely affect our ability to finance our operations, enter into
acquisitions or engage in other business activities that would be in
our interest.
  We are a holding company and we may not have access to sufficient cash to make payments on the
notes. In addition, the notes are effectively subordinated to the liabilities of our
subsidiaries.
  17




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U.S. bankruptcy or fraudulent conveyance law may interfere with the payment of the notes and
the guarantees and the enforcement of the security interests.
  
    
    we incurred such debt with the intent of hindering, delaying or defrauding current or future
creditors; or
    
    we received less than reasonably equivalent value or fair consideration for incurring such
debt and we:
 
    
    were insolvent or were rendered insolvent by reason of any of the transactions;
    
    were engaged, or about to engage, in a business or transaction for which our
remaining assets constituted unreasonably small capital to carry on our
business;
    
    intended to incur, or believed that we would incur, debts beyond our ability
to pay as these debts matured (as all of the foregoing terms are defined in or
interpreted under the relevant fraudulent transfer or conveyance statutes); or
    
    were defendants in an action for money damages or had a judgment for money
damages entered against us (if, in either case, after final judgment such
judgment is unsatisfied);
   
    
    the sum of its debts (including contingent liabilities) was greater than its assets, at fair valuation;
    
    the present fair saleable value of its assets was less than the amount required to pay the probable
liability on its total existing debts and liabilities (including contingent liabilities) as they
became absolute and mature; or
    
    it could not pay its debts as they became due.
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We may be unable to repurchase the notes upon a change of control as required by the indenture.
   Rights of holders of notes in the collateral may be adversely affected by bankruptcy
proceedings.
  Rights of holders of notes in the collateral may be adversely affected by the failure to
perfect security interests in certain collateral acquired in the future.
  19




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The notes may be deemed to be contingent payment debt instruments.
  Risk Relating to Our Business
 Our financial results are dependent on the success of our billing and bad debt management
systems.
    20




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We are dependent on third party vendors for our information and billing systems.
  A number of our customers individually account for a large percentage of our revenues, and
therefore the loss of one or more of these customers could harm our business.
   Our success depends on our ability to protect our proprietary technology and ensure that our
systems are not infringing on the proprietary technology of other companies.
   21




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We may not be able to adapt successfully to new technologies, to respond effectively to
customer requirements or to provide new products and services.
   Our business could be adversely affected if our products and services fail to perform or be
performed properly.
  System failures could cause delays or interruptions of service and security breaches, which
could cause us to lose customers.
  
    
    physical damage to our network operations centers;
    
    disruptions beyond our control;
    
    breaches of our security systems;
    
    power surges or outages; and
    
    software defects.
 22




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We are dependent on the telecommunications industry, which subjects our business to risks
affecting the telecommunications industry generally.
  
    
    substantial regulatory change due to the passage and implementation of the
Telecommunications Act, which included changes designed to stimulate competition for both
local and long distance telecommunications services;
    
    rapid development and introduction of new technologies and services;
    
    increased competition within established markets from current and new market entrants that
may provide competing or alternative services;
    
    the increase in mergers and strategic alliances that allow one telecommunications provider
to offer increased services or access to wider geographic markets; and
    
    continued changes in the laws and regulations affecting rates for collect and prepaid calls.
  
    
    how well we market our existing services and develop new technologies;
    
    the quality and reliability of our network and service;
    
    our ability to anticipate and respond to various competitive factors
affecting the telecommunications industry, including a changing
regulatory environment that may affect us differently from our
competitors, pricing strategies and the introduction of new
competitive services by our competitors, changes in consumer
preferences, demographic trends and economic conditions; and
    
    our ability to successfully defend any claims against us.
   Some of our customers are governmental entities that require us to adhere to certain policies
that may limit our ability to attract and retain customers.
  23




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Our equity investors interests may differ from our noteholders interests.
   Our success depends on our ability to attract and retain qualified management and other
personnel.
  Our management information, internal controls and financial reporting systems may need further
enhancements and development to comply with the requirements of the Securities Exchange Act of
1934 and the Sarbanes-Oxley Act of 2002 and the costs of compliance may strain our resources.
  Regulatory Risks
 The FCC is currently reviewing challenges and alternatives to the exclusive-provider system
that, if implemented, could have an adverse effect on our business.
  24




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We operate in a highly regulated industry, and are subject to restrictions in the manner in
which we conduct our business and a variety of claims relating to such regulation.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  25




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ITEM 3. LEGAL PROCEEDINGS
  Condes Condes v. Evercom Systems, Inc Sandra
Judd, et al. v. AT&T, et al. Condes Condes Condes Judd
 Kirsten Salb v. Evercom Systems, Inc., et al
 . TIP Systems, LLC and TIP Systems Holding Co., Inc. v.
Phillips & Brooks/Gladwin, Inc., et al. TIP Systems TIP Systems, LLC and TIP Systems Holding Co., Inc. v. SBC
Operations, Inc., et. al.
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  26




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 (a)
    
    Market Information.Our common stock is not registered and there
is currently no established public trading market for our issued
and outstanding equity securities.(b)
    
    Holders of Record.As of March 1, 2006, the Company had 10
holders of its Common stock and 10 holders of its Class B Common
stock.(c)
    
    Dividends.We have never declared or paid any cash dividends on
our common stock. We currently intend to retain earnings, if
any, to support our business strategy and do not anticipate
paying cash dividends in the foreseeable future. Payment of
future dividends, if any, will be at the sole discretion of our
board of directors after taking into account various factors,
including restrictions on our ability to pay dividends (see
Managements Discussion and Analysis of Financial Conditions and
Results of OperationsDebt and Other Obligations), our
financial condition, operating results, capital requirements and
any plans for expansion. The credit agreement governing our
second-priority senior secured notes and the note purchase
agreement governing our senior subordinated notes contain certain
negative covenants that restrict our ability to declare
dividends.(d)
    
    Securities Authorized for Issuance Under Equity Compensation
Plans. The following table provides information about the
securities authorized for issuance under our equity compensation
plans as of December 31, 2005:
 Equity Compensation Plan Information(a)
    
    
    (b)
    
    
    (c)Number of SecuritiesNumber of
    
    
    
    
    
    
    remaining availablesecurities
    
    
    
    
    
    
    for future issuanceto be issued
    
    
    Weighted-average
    
    
    under equityupon exercise
    
    
    exercise price
    
    
    compensation plansof outstanding
    
    
    of outstanding
    
    
    (excluding securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected inPlan category
    
    and rights (1)(2)
    
    
    and rights
    
    
    column (a))(3)Equity
compensation plans
approved by
security holders.
    
    
    53,497
    
    
    $
    0.01
    
    
    
    11,338Equity compensation
plans not approved
by security holders
(1)
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    53,497
    
    
    $
    0.01
    
    
    
    11,338
 
 (1)
    
    Our only equity compensation plan is our 2004 restricted stock plan which has been
approved by shareholders. There are 64,835 shares authorized under
the plan.(2)
    
    Includes 53,497 shares of restricted stock issued under the 2004 restricted stock plan.(3)
    
    Includes 11,338 shares of stock issuable under the 2004 restricted stock plan. 27




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(e)
    
    Unregistered Sales of Equity Securities.During the year ended
December 31, 2005, the Company sold 36,640 restricted shares of Class
B Common stock (restricted stock) at a purchase price of $0.01 per
share pursuant to the 2004 Restricted Stock Plan to certain members of
management. The shares are subject to certain contractual
limitations, including provisions regarding forfeiture and
disposition, as provided in managements respective Restricted Stock
Purchase Agreements and the 2004 Restricted Stock Plan. The restricted
period ends upon the occurrence of certain events or the lapse of
time. The sale of the restricted stock was made pursuant to the
exemption set forth in Section 4(2) of the Securities Act of 1933 for
transactions not involving a public offering, and regulations
promulgated thereunder.
 
 ITEM 6. SELECTED FINANCIAL INFORMATION AND OTHER DATA
  28




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Predecessor
    
    
    
    SuccessorPeriod fromPeriod from
    
    
    
    January 12,For the Year Ended December 31,
    
    
    January 1,
    
    
    
    (Inception)
    
    
    For the2004 to
    
    
    
    2004 to
    
    
    Year EndedMarch 2,
    
    
    
    December 31,
    
    
    December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004(1)
    
    
    
    2004(2)
    
    
    2005(in millions)Consolidated Statements of Operations Data:Operating revenues
    
    $
    117.8
    
    
    $
    119.8
    
    
    $
    117.2
    
    
    $
    17.4
    
    
    
    $
    173.4
    
    
    $
    377.2Cost of
services
    
    
    66.9
    
    
    
    72.7
    
    
    
    75.7
    
    
    
    11.4
    
    
    
    
    130.9
    
    
    
    289.0Selling, general and administrative
    
    
    28.8
    
    
    
    26.4
    
    
    
    26.3
    
    
    
    3.6
    
    
    
    
    27.5
    
    
    
    48.3Depreciation and amortization
    
    
    13.0
    
    
    
    12.1
    
    
    
    11.9
    
    
    
    1.6
    
    
    
    
    13.2
    
    
    
    23.9Non-cash impairment of assets
    
    
    2.7
    
    
    
    1.1
    
    
    
    0.7
    
    
    
    0.3
    
    
    
    
    50.6
    
    
    
    Other operating expenses(3)
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    5.3
    
    
    
    
    5.6
    
    
    
    0.7Income (loss) from operations
    
    
    6.4
    
    
    
    7.5
    
    
    
    3.0
    
    
    
    (4.8
    )
    
    
    
    (54.4
    )
    
    
    15.3Other Income (Expense):Patent litigation settlement, net
of expenses(4)
    
    
    (0.5
    )
    
    
    (2.1
    )
    
    
    9.9
    
    
    
    
    
    
    
    
    
    
    
    
    Transaction expenses and other
charges(5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.4
    )
    
    
    
    (1.0
    )
    
    
    Interest and other expenses, net
    
    
    (2.7
    )
    
    
    (2.8
    )
    
    
    (3.7
    )
    
    
    (2.2
    )
    
    
    
    (14.0
    )
    
    
    (26.6
    )Income (loss) from continuing
operations before income taxes
    
    
    3.2
    
    
    
    2.6
    
    
    
    9.2
    
    
    
    (12.4
    )
    
    
    
    (69.4
    )
    
    
    (11.3
    )Income tax expense (benefit)
    
    
    0.7
    
    
    
    0.2
    
    
    
    2.7
    
    
    
    (2.6
    )
    
    
    
    (12.7
    )
    
    
    (2.2
    )Net income (loss) from continuing
operations
    
    $
    2.5
    
    
    $
    2.4
    
    
    $
    6.5
    
    
    $
    (9.8
    )
    
    
    $
    (56.7
    )
    
    $
    (9.1
    )Loss from discontinued operations
    
    
    (2.3
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Impairment)/gain on sale of assets
of discontinued operations
    
    
    (1.1
    )
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion of discount on redeemable
convertible preferred stock
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) applicable to
common stockholders
    
    $
    (2.0
    )
    
    $
    2.1
    
    
    $
    6.5
    
    
    $
    (9.8
    )
    
    
    $
    (56.7
    )
    
    $
    (9.1
    )Other Financial Data:Total direct
call provisioning revenues
    
    $
    26.9
    
    
    $
    48.8
    
    
    $
    56.7
    
    
    $
    9.6
    
    
    
    $
    120.9
    
    
    $
    303.2Total telecommunications services
revenues
    
    
    62.4
    
    
    
    57.5
    
    
    
    50.6
    
    
    
    7.6
    
    
    
    
    30.3
    
    
    
    25.3Total solutions services revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.5
    
    
    
    47.4Total equipment sales and other
revenues
    
    
    28.5
    
    
    
    13.5
    
    
    
    9.9
    
    
    
    0.2
    
    
    
    
    3.7
    
    
    
    1.3Other Data:Ratio of earnings to fixed charges
    
    $
    1.7
    
    
    $
    1.6
    
    
    $
    2.9
    
    
    $
    
    
    
    
    $
    
    
    
    $
    Deficiency of earnings to fixed
charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.8
    
    
    
    
    56.7
    
    
    
    9.1Consolidated Cash Flow Data:Cash flows from operating activities
    
    $
    19.4
    
    
    $
    13.5
    
    
    $
    26.8
    
    
    $
    (3.8
    )
    
    
    $
    (1.8
    )
    
    $
    29.8Cash flows from investing activities
    
    
    (7.4
    )
    
    
    (6.4
    )
    
    
    (6.8
    )
    
    
    (0.6
    )
    
    
    
    (213.1
    )
    
    
    (26.3
    )Cash flows from financing activities
    
    
    (9.3
    )
    
    
    (1.6
    )
    
    
    (3.7
    )
    
    
    (0.9
    )
    
    
    
    216.7
    
    
    
    (2.8
    )Capital expenditures
    
    
    5.2
    
    
    
    5.9
    
    
    
    6.5
    
    
    
    0.6
    
    
    
    
    12.4
    
    
    
    26.3Balance Sheet Data (end of period):Cash and cash equivalents and
restricted cash
    
    $
    1.0
    
    
    $
    6.6
    
    
    $
    22.9
    
    
    $
    17.6
    
    
    
    $
    3.2
    
    
    $
    4.0Total current assets
    
    
    21.0
    
    
    
    31.3
    
    
    
    40.0
    
    
    
    45.7
    
    
    
    
    78.1
    
    
    
    80.7Net property and equipment
    
    
    30.2
    
    
    
    25.3
    
    
    
    21.5
    
    
    
    20.0
    
    
    
    
    36.2
    
    
    
    43.9Total assets
    
    
    63.2
    
    
    
    66.7
    
    
    
    68.9
    
    
    
    74.7
    
    
    
    
    272.1
    
    
    
    266.9Total long-term debt (including
current portion)
    
    
    22.4
    
    
    
    22.8
    
    
    
    19.2
    
    
    
    18.3
    
    
    
    
    189.9
    
    
    
    198.0Stockholders equity (deficit)
    
    
    24.5
    
    
    
    27.1
    
    
    
    35.2
    
    
    
    25.4
    
    
    
    
    (22.8
    )
    
    
    (31.9
    )
 
 (1)
    
    This column presents the data for T-Netix (Predecessor) for the 62-day
period from January 1, 2004 to March 2, 2004, prior to our acquisition of
T-Netix on March 3, 2004.(2)
    
    Does not include information for T-Netix (Predecessor) for the period from
January 1, 2004 to March 2, 2004, prior to our acquisition of T-Netix on
March 3, 2004, or information for Evercom for the period from January 1,
2004 to September 8, 2004, prior to our acquisition of Evercom on September
9, 2004.(3)
    
    Gain on sale of assets, compensation expense on employee options, severance
payments and loss on debt extinguishment.(4)
    
    Reflects income from a one-time litigation settlement, net of legal expenses.(5)
    
    Represents one-time transaction expenses related to Securus purchase of
T-Netix on March 3, 2004, and Securus purchase of Evercom on September
9, 2004. 29




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
    Revenues
  30




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##### Table of Contents



Cost
of Services
  31




---



##### Table of Contents



Facility Commissions.
 Bad Debt.
 Field Operations and Maintenance Costs.
 SG&A.
 Purchase Accounting.
 Integration Costs.
 Industry Trends
  32




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##### Table of Contents



Predecessor
    
    
    
    Successor2002
    
    
    2003
    
    
    
    2004 (1)
    
    
    2005RevenuesDirect call provisioning
    
    $
    48,798
    
    
    
    41
    %
    
    $
    56,735
    
    
    
    48
    %
    
    
    $
    120,868
    
    
    
    70
    %
    
    $
    303,174
    
    
    
    80
    %Telecommunications services
    
    
    57,514
    
    
    
    48
    
    
    
    50,645
    
    
    
    43
    
    
    
    
    30,341
    
    
    
    17
    
    
    
    25,313
    
    
    
    7Solutions services
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    18,466
    
    
    
    11
    
    
    
    47,398
    
    
    
    13Equipment sales and other
    
    
    13,498
    
    
    
    11
    
    
    
    9,864
    
    
    
    9
    
    
    
    
    3,701
    
    
    
    2
    
    
    
    1,321
    
    
    
    0Total revenues
    
    
    119,810
    
    
    
    100
    
    
    
    117,244
    
    
    
    100
    
    
    
    
    173,376
    
    
    
    100
    
    
    
    377,206
    
    
    
    100ExpensesCost of
services
    
    
    72,721
    
    
    
    61
    
    
    
    75,722
    
    
    
    65
    
    
    
    
    130,883
    
    
    
    75
    
    
    
    288,985
    
    
    
    77Selling, general and administrative
    
    
    26,412
    
    
    
    22
    
    
    
    26,269
    
    
    
    22
    
    
    
    
    27,515
    
    
    
    15
    
    
    
    48,329
    
    
    
    13Compensation expense on employee
options and restricted stock
    
    
    30
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    
    0
    
    
    
    125
    
    
    
    0Non-cash impairment of
telecommunication assets
    
    
    1,119
    
    
    
    1
    
    
    
    653
    
    
    
    1
    
    
    
    
    50,585
    
    
    
    29
    
    
    
    
    
    
    
    0Gain on sale of assets
    
    
    (36
    )
    
    
    0
    
    
    
    (290
    )
    
    
    0
    
    
    
    
    (274
    )
    
    
    0
    
    
    
    (4
    )
    
    
    0Employee severance
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    3,127
    
    
    
    2
    
    
    
    633
    
    
    
    0Loss on debt extinguishment
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    2,802
    
    
    
    2
    
    
    
    
    
    
    
    0Depreciation and amortization
    
    
    12,101
    
    
    
    10
    
    
    
    11,892
    
    
    
    10
    
    
    
    
    13,157
    
    
    
    8
    
    
    
    23,856
    
    
    
    6Operating income (loss)
    
    
    7,463
    
    
    
    6
    
    
    
    2,998
    
    
    
    3
    
    
    
    
    (54,419
    )
    
    
    (31
    )
    
    
    15,282
    
    
    
    4Patent litigation settlement, net
of expenses
    
    
    2,085
    
    
    
    2
    
    
    
    (9,935
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0Interest and other expense, net
    
    
    2,825
    
    
    
    2
    
    
    
    3,761
    
    
    
    3
    
    
    
    
    14,001
    
    
    
    8
    
    
    
    26,608
    
    
    
    7Transaction fees and expenses
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    987
    
    
    
    1
    
    
    
    
    
    
    
    0Income (loss) from continuing
operations before income taxes
    
    
    2,553
    
    
    
    2
    
    
    
    9,172
    
    
    
    8
    
    
    
    
    (69,407
    )
    
    
    (40
    )
    
    
    (11,326
    )
    
    
    (3
    )Income tax expense (benefit)
    
    
    180
    
    
    
    0
    
    
    
    2,676
    
    
    
    2
    
    
    
    
    (12,659
    )
    
    
    (7
    )
    
    
    (2,174
    )
    
    
    1Net income (loss) from
continuing operations
    
    
    2,373
    
    
    
    2
    
    
    
    6,496
    
    
    
    6
    
    
    
    
    (56,748
    )
    
    
    (33
    )
    
    
    (9,152
    )
    
    
    (2
    )Net loss from discontinued
operations
    
    
    (616
    )
    
    
    (1
    )
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0Gain on sale of discontinued
operations
    
    
    308
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0Net income (loss) applicable to
common stockholders
    
    $
    2,065
    
    
    
    2
    %
    
    $
    6,496
    
    
    
    6
    %
    
    
    $
    (56,748
    )
    
    
    (33
    )%
    
    $
    (9,152
    )
    
    
    (2
    )%
 (1)
    
    This column presents the data for Securus for the 355-day period
from January 12, 2004 (inception) to December 31, 2004. Does not
include information for T-Netix (Predecessor) for the period
January 1, 2004 to March 2, 2004, prior to our acquisition of
T-Netix on March 3, 2004 or information for Evercom for the period
January 1, 2004 to September 8, 2004, prior to our acquisition of
Evercom on September 9, 2004.
 33




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##### Table of Contents



Results of Operations for the Year Ended December 31, 2005 Compared to December 31, 2004
 Total Revenues.
     Cost
of Services.
 34




---



##### Table of Contents



SG&A.
 Impairment.
 Employee Severance.
 Loss on Debt Extinguishment.
 Depreciation and Amortization Expenses.
 Transaction
Fees and Expenses.
 Interest and Other Expenses, Net.
 Income Tax Expense (Benefit).
 Results of Operations for the Year Ended December 31, 2004 (Securus) Compared to December 31,
2003 (Predecessor)
 Total Revenues.
 35




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##### Table of Contents



Cost
of Services.
 SG&A.
 36




---



##### Table of Contents



Impairment.
 Employee Severance.
 Loss on Debt Extinguishment.
 Depreciation and Amortization Expenses.
 Transaction Expenses.
 Interest and Other Expenses, Net.
 Income Tax Expense (Benefit).
 Liquidity and Capital Resources
 General
  37




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##### Table of Contents



Cash Flows
  Predecessor
    
    
    
    SecurusPeriod fromJanuary 12,Year Ended
    
    
    
    2004 (inception)
    
    
    Year EndedDecember 31,
    
    
    
    to December 31,
    
    
    December 31,2003
    
    
    
    2004
    
    
    2005Net cash
provided by (used in) operating activities from continuing operations
    
    $
    26,809
    
    
    
    $
    (1,758
    )
    
    $
    29,832Net cash used in investing activities
    
    $
    (6,792
    )
    
    
    $
    (213,066
    )
    
    $
    (26,327
    )Net cash provided by (used in) financing
activities
    
    $
    (3,696
    )
    
    
    $
    216,703
    
    
    $
    (2,754
    )
     38




---



##### Table of Contents



Debt and other Obligations
 Second-priority Senior Secured Notes.
 Working Capital Facility.
   Senior Subordinated Notes.
 pari passu
 39




---



##### Table of Contents



Capital Requirements
  Payments Due by Period2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter(in thousands)Long-term debt (1)
    
    $
    
    *
    
    $
    
    *
    
    $
    
    *
    
    $
    
    *
    
    $
    
    *
    
    $
    203,745
    *Operating leases
    
    
    2,063
    
    
    
    1,517
    
    
    
    1,103
    
    
    
    926
    
    
    
    949
    
    
    
    4,262Capital leases
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual
obligations and
commitments
    
    $
    2,171
    
    
    $
    1,517
    
    
    $
    1,103
    
    
    $
    926
    
    
    $
    949
    
    
    $
    208,007
 
 *
    
    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
  Critical Accounting Policies
  
    
    revenue recognition and bad debt reserve estimates;
    
    goodwill and other intangible assets;
    
    accounting for income taxes; and
    
    acquisition-related assets and liabilities.
  Revenue Recognition
   Reporting Revenue
Gross as a Principal versus net as an Agent.
  40




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##### Table of Contents



Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets Accounting for Impairment or Disposal of
Long-Lived Assets
 Accounting for Income Taxes
  Acquisition Related Assets and Liabilities
  41




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##### Table of Contents



Recent Accounting Pronouncements
 Share-Based Payment Accounting for Stock Issued to Employees
 Exchange of Nonmonetary Assets
 Accounting for Conditional
Asset Retirement Obligations  an interpretation of SFAS No. 143, Accounting for Asset Retirement
Obligations,
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 Application
of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
 42




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   43




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##### Table of Contents



Report of the Independent Registered Public Accounting Firm
 
    
 
 44




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##### Table of Contents



Report of the Independent Registered Public Accounting Firm
 
    
 
 45




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##### Table of Contents



ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
 SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
 Year Ended December 31,2004
    
    
    2005ASSETSCash and cash equivalents
    
    $
    1,879
    
    
    $
    2,630Restricted cash
    
    
    1,347
    
    
    
    1,396Accounts receivable, net
    
    
    67,498
    
    
    
    63,180Prepaid expenses
    
    
    3,932
    
    
    
    5,659Refundable income taxes
    
    
    634
    
    
    
    Current deferred income tax
    
    
    2,806
    
    
    
    7,785Total current assets
    
    
    78,096
    
    
    
    80,650Property and equipment, net
    
    
    36,170
    
    
    
    43,862Intangibles and other assets, net
    
    
    107,657
    
    
    
    104,482Goodwill
    
    
    50,213
    
    
    
    37,936Total assets
    
    $
    272,136
    
    
    $
    266,930LIABILITIES AND STOCKHOLDERS DEFICITAccounts payable
    
    $
    49,157
    
    
    $
    46,502Accrued liabilities
    
    
    32,792
    
    
    
    37,756Deferred revenue and customer advances
    
    
    4,791
    
    
    
    5,051Current portion of long-term debt
    
    
    117
    
    
    
    108Total current liabilities
    
    
    86,857
    
    
    
    89,417Deferred income taxes
    
    
    18,300
    
    
    
    9,769Long-term debt, net of current portion
    
    
    189,820
    
    
    
    197,847Other long-term liabilities
    
    
    
    
    
    
    1,765Total liabilities
    
    
    294,977
    
    
    
    298,798Commitments and contingenciesStockholders deficitCommon stock, $0.01 stated value;
1,000,000 shares authorized; 560,717
shares issued and outstanding at
December 31, 2004; 597,356 shares
issued and outstanding at December 31,
2005
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    33,902
    
    
    
    34,027Accumulated deficit
    
    
    (56,748
    )
    
    
    (65,900
    )Total stockholders deficit
    
    
    (22,841
    )
    
    
    (31,868
    )Total liabilities and stockholders deficit
    
    $
    272,136
    
    
    $
    266,930
  46




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##### Table of Contents



SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2003, for the 62 Day Period from
January 1, 2004 to March 2, 2004 (Predecessor) and for the 355 Day Period
from January 12, 2004 (Inception) to December 31, 2004 (Successor)
and the Year Ended December 31, 2005 (Successor)
(Amounts in thousands)
 Predecessor
    
    
    
    SuccessorFor the 62 Day
    
    
    
    For the 355 DayPeriod From
    
    
    
    Period FromFor the
    
    
    January 1,
    
    
    
    January 12,
    
    
    For theYear Ended
    
    
    2004 to
    
    
    
    2004 (inception)
    
    
    Year EndedDecember 31,
    
    
    March 2,
    
    
    
    to December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    
    2004
    
    
    2005Revenue:Telecommunication services
    
    $
    50,645
    
    
    $
    7,552
    
    
    
    $
    30,341
    
    
    $
    25,313Direct call provisioning
    
    
    56,735
    
    
    
    9,651
    
    
    
    
    120,868
    
    
    
    303,174Solutions services
    
    
    
    
    
    
    
    
    
    
    
    18,466
    
    
    
    47,398Equipment sales and other
    
    
    9,864
    
    
    
    232
    
    
    
    
    3,701
    
    
    
    1,321Total revenue
    
    
    117,244
    
    
    
    17,435
    
    
    
    
    173,376
    
    
    
    377,206Cost of service (exclusive of depreciation and
amortization shown separately below):Telecommunication services
    
    
    20,093
    
    
    
    3,126
    
    
    
    
    13,215
    
    
    
    11,489Direct call provisioning, exclusive of bad debt expense
    
    
    39,439
    
    
    
    6,536
    
    
    
    
    82,823
    
    
    
    200,483Direct call provisioning bad debt expense
    
    
    11,993
    
    
    
    1,594
    
    
    
    
    16,819
    
    
    
    38,878Solutions expense
    
    
    
    
    
    
    
    
    
    
    
    16,000
    
    
    
    37,816Cost of equipment sold and other
    
    
    4,197
    
    
    
    131
    
    
    
    
    2,026
    
    
    
    319Total cost of service
    
    
    75,722
    
    
    
    11,387
    
    
    
    
    130,883
    
    
    
    288,985Selling, general and administrative
    
    
    26,269
    
    
    
    3,639
    
    
    
    
    27,515
    
    
    
    48,329Compensation expense on employee stock options and
restricted stock
    
    
    
    
    
    
    4,069
    
    
    
    
    
    
    
    
    125Impairment of telecommunication assets
    
    
    653
    
    
    
    285
    
    
    
    
    50,585
    
    
    
    Gain on sales of assets
    
    
    (290
    )
    
    
    
    
    
    
    
    (274
    )
    
    
    (4
    )Employee severance
    
    
    
    
    
    
    
    
    
    
    
    3,127
    
    
    
    633Loss on debt extinguishment
    
    
    
    
    
    
    1,239
    
    
    
    
    2,802
    
    
    
    Depreciation and amortization
    
    
    11,892
    
    
    
    1,649
    
    
    
    
    13,157
    
    
    
    23,856Total operating costs and expenses
    
    
    114,246
    
    
    
    22,268
    
    
    
    
    227,795
    
    
    
    361,924Operating income (loss)
    
    
    2,998
    
    
    
    (4,833
    )
    
    
    
    (54,419
    )
    
    
    15,282Patent litigation settlement, net of expenses
    
    
    (9,935
    )
    
    
    
    
    
    
    
    
    
    
    
    Transaction fees and expenses
    
    
    
    
    
    
    5,365
    
    
    
    
    987
    
    
    
    Interest and other expenses, net
    
    
    3,761
    
    
    
    2,191
    
    
    
    
    14,001
    
    
    
    26,608Income (loss) before income taxes
    
    
    9,172
    
    
    
    (12,389
    )
    
    
    
    (69,407
    )
    
    
    (11,326
    )Income tax expense (benefit)
    
    
    2,676
    
    
    
    (2,575
    )
    
    
    
    (12,659
    )
    
    
    (2,174
    )Net income (loss)
    
    $
    6,496
    
    
    $
    (9,814
    )
    
    
    $
    (56,748
    )
    
    $
    (9,152
    )
  47




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##### Table of Contents



SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
Year Ended December 31, 2003, for the 62 Day Period from
January 1, 2004 to March 2, 2004 (Predecessor) and for the 355 Day Period
from January 12, 2004 (Inception) to December 31, 2004 (Successor)
and the Year Ended December 31, 2005 (Successor)
(Amounts in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    
    
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity (Deficit)Predecessor Balances at
January 1, 2003:
    
    
    15,052
    
    
    $
    150
    
    
    $
    42,334
    
    
    $
    (15,424
    )
    
    $
    
    
    
    $
    27,060Taxes related to stock options
    
    
    
    
    
    
    
    
    
    
    1,653
    
    
    
    
    
    
    
    
    
    
    
    1,653Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,496
    
    
    
    
    
    
    
    6,496Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,440Predecessor Balances at December
31, 2003
    
    
    15,052
    
    
    
    150
    
    
    
    43,987
    
    
    
    (8,928
    )
    
    
    (56
    )
    
    
    35,153Recognition of hedge liability
on termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    56Net loss (January 1 to March 2,
2004)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,814
    )
    
    
    
    
    
    
    (9,814
    )Predecessor Balance March 2, 2004
    
    
    15,052
    
    
    $
    150
    
    
    $
    43,987
    
    
    $
    (18,742
    )
    
    $
    
    
    
    $
    25,395Capital contributed by TZ
Holdings, Inc.
    
    
    1
    
    
    $
    
    
    
    $
    20,000
    
    
    $
    
    
    
    $
    
    
    
    $
    20,000Issuance of common stock
    
    
    560
    
    
    
    5
    
    
    
    10,995
    
    
    
    
    
    
    
    
    
    
    
    11,000Warrants issued in conjunction
with subordinated debt
    
    
    
    
    
    
    
    
    
    
    2,907
    
    
    
    
    
    
    
    
    
    
    
    2,907Net loss (January 12 to December
31, 2004)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,748
    )
    
    
    
    
    
    
    (56,748
    )Successor Balance at December
31, 2004
    
    
    561
    
    
    
    5
    
    
    
    33,902
    
    
    
    (56,748
    )
    
    
    
    
    
    
    (22,841
    )Issuance of common stock
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    125Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,152
    )
    
    
    
    
    
    
    (9,152
    )Balance at December 31, 2005
    
    
    597
    
    
    $
    5
    
    
    $
    34,027
    
    
    $
    (65,900
    )
    
    $
    
    
    
    $
    (31,868
    )
  48




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##### Table of Contents



SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2003, for the 62 Day Period from
January 1, 2004 to March 2, 2004 (Predecessor) and for the 355 Day Period
from January 12, 2004 (Inception) to December 31, 2004 (Successor)
and the Year Ended December 31, 2005
(Amounts in thousands)
 Predecessor
    
    
    
    SuccessorFor the 62 Day
    
    
    
    For the 355 DayPeriod From
    
    
    
    Period FromFor the
    
    
    January 1,
    
    
    
    January 12,
    
    
    For theYear Ended
    
    
    2004 to
    
    
    
    2004 (inception)
    
    
    Year EndedDecember 31,
    
    
    March 2,
    
    
    
    to December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    
    2004
    
    
    2005(Revised-Note
1)CASH FLOWS FROM OPERATING ACTIVITIES
FROM CONTINUING OPERATIONSNet income (loss) from continuing operations
    
    $
    6,496
    
    
    $
    (9,814
    )
    
    
    $
    (56,748
    )
    
    $
    (9,152
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities from continuing operations:Depreciation and amortization
    
    
    11,892
    
    
    
    1,649
    
    
    
    
    13,157
    
    
    
    23,856Impairment of telecommunication assets
    
    
    653
    
    
    
    285
    
    
    
    
    50,585
    
    
    
    Deferred income taxes
    
    
    2,526
    
    
    
    (2,575
    )
    
    
    
    (12,659
    )
    
    
    (2,368
    )Conversion of interest paid in kind to
secured subordinated notes
    
    
    
    
    
    
    
    
    
    
    
    3,035
    
    
    
    7,629Gain on sale of fixed assets
    
    
    (290
    )
    
    
    
    
    
    
    
    (274
    )
    
    
    (4
    )Equity (income) loss from unconsolidated
affiliates
    
    
    297
    
    
    
    27
    
    
    
    
    (83
    )
    
    
    (231
    )Transaction costs
    
    
    
    
    
    
    5,365
    
    
    
    
    (5,525
    )
    
    
    Accretion of discount on subordinated
notes payable
    
    
    83
    
    
    
    384
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Loss on debt extinguishment
    
    
    
    
    
    
    1,239
    
    
    
    
    2,802
    
    
    
    Amortization of deferred financing costs
and debt discounts
    
    
    665
    
    
    
    
    
    
    
    
    848
    
    
    
    1,340Changes in operating assets and
liabilities, net of effects of
acquisitions:Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    (1,347
    )
    
    
    (49
    )Accounts receivable
    
    
    5,549
    
    
    
    (3,298
    )
    
    
    
    (9,754
    )
    
    
    4,318Prepaid expenses and other current assets
    
    
    400
    
    
    
    (3,650
    )
    
    
    
    2,954
    
    
    
    (1,093
    )Inventories
    
    
    840
    
    
    
    
    
    
    
    
    
    
    
    
    Other assets
    
    
    22
    
    
    
    (3,302
    )
    
    
    
    1,466
    
    
    
    62Accounts payable
    
    
    (756
    )
    
    
    915
    
    
    
    
    10,945
    
    
    
    (865
    )Accrued liabilities
    
    
    (1,568
    )
    
    
    8,970
    
    
    
    
    (1,160
    )
    
    
    6,264Net cash provided by (used in)
operating activities from continuing
operations
    
    $
    26,809
    
    
    $
    (3,805
    )
    
    
    $
    (1,758
    )
    
    $
    29,832CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment including cost of intangibles
    
    $
    (6,512
    )
    
    $
    (562
    )
    
    
    $
    (12,356
    )
    
    $
    (26,327
    )Proceeds from sale of assets
    
    
    532
    
    
    
    
    
    
    
    
    274
    
    
    
    Investment in unconsolidated affiliate
    
    
    (812
    )
    
    
    
    
    
    
    
    
    
    
    
    Purchase of T-Netix stock and repayment
of T-Netix debt in connection with
merger, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    (70,238
    )
    
    
    Purchase of Evercom stock and repayment
of Evercom debt in connection with
merger, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    (130,746
    )
    
    
    Net cash used in investing activities
    
    $
    (6,792
    )
    
    $
    (562
    )
    
    
    $
    (213,066
    )
    
    $
    (26,327
    )
  49




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##### Table of Contents



SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)
Year Ended December 31, 2003, for the 62 Day Period from
January 1, 2004 to March 2, 2004 (Predecessor) and for the 355 Day Period
from January 12, 2004 (Inception) to December 31, 2004 (Successor),
and the Year Ended December 31, 2005
(Amounts in thousands)
 Predecessor
    
    
    
    SuccessorFor the 62 Day
    
    
    
    For the 355 DayPeriod From
    
    
    
    Period FromFor the
    
    
    January 1,
    
    
    
    January 12,
    
    
    For theYear Ended
    
    
    2004 to
    
    
    
    2004 (inception)
    
    
    Year EndedDecember 31,
    
    
    March 2,
    
    
    
    to December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    
    2004
    
    
    2005(Revised-Note
1)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from second-priority senior secured
notes
    
    $
    
    
    
    $
    
    
    
    
    $
    150,383
    
    
    $
    Proceeds from senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    
    40,000
    
    
    
    Cash overdraft
    
    
    
    
    
    
    
    
    
    
    
    8,326
    
    
    
    (1,598
    )Advances on revolving credit facility
    
    
    
    
    
    
    
    
    
    
    
    5,126
    
    
    
    Payments on T-Netix senior
secured term note (old)
    
    
    (3,500
    )
    
    
    (875
    )
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    
    (11,080
    )
    
    
    (1,039
    )Redemption warrants in connection with merger
    
    
    
    
    
    
    
    
    
    
    
    (941
    )
    
    
    Payments on other debt
    
    
    (196
    )
    
    
    (5
    )
    
    
    
    (68
    )
    
    
    (117
    )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
    
    
    
    
    
    
    
    
    
    
    
    31,000
    
    
    
    Payment of long-term debt in connection with
merger
    
    
    
    
    
    
    
    
    
    
    
    (67,396
    )
    
    
    Net cash provided by (used in) financing
activities
    
    $
    (3,696
    )
    
    $
    (880
    )
    
    
    $
    216,703
    
    
    $
    (2,754
    )Increase (decrease) in cash and equivalents
    
    $
    16,321
    
    
    $
    (5,247
    )
    
    
    $
    1,879
    
    
    $
    751Cash and cash equivalents at beginning of period
    
    
    6,554
    
    
    
    22,875
    
    
    
    
    
    
    
    
    1,879Cash and cash equivalents at end of period
    
    $
    22,875
    
    
    $
    17,628
    
    
    
    $
    1,879
    
    
    $
    2,630SUPPLEMENTAL DISCLOSURES:Cash paid during the period for:Interest
    
    $
    2,337
    
    
    $
    643
    
    
    
    $
    9,008
    
    
    $
    17,240Income taxes
    
    $
    433
    
    
    $
    43
    
    
    
    $
    213
    
    
    $
    NONCASH FINANCING AND INVESTING ACTIVITIES:Detachable stock purchase warrants issued
    
    $
    
    
    
    $
    
    
    
    
    $
    2,907
    
    
    $
    Accrued acquisition costs
    
    $
    
    
    
    $
    
    
    
    
    $
    2,500
    
    
    $
    Leasehold improvements
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    1,800
  50




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##### Table of Contents



SECURUS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (a) Basis of Presentation
      (b) Principles of Consolidation
  51




---



##### Table of Contents



(c) Liquidity
  (d) Accounting Estimates
  (e) Risks and Uncertainties
  (f) Revisions to Cash Flow Statement
  For the 355 Day Period from January 12, 2004 to December 31, 2004Net Cash Provided (Used In)Operating
    
    
    Investing
    
    
    FinancingActivities
    
    
    Activities
    
    
    ActivitiesPreviously reported
    
    $
    6,568
    
    
    $
    (213,066
    )
    
    $
    208,377Net change in cash overdrafts
    
    
    (8,326
    )
    
    
    
    
    
    
    8,326As revised
    
    $
    (1,758
    )
    
    $
    (213,066
    )
    
    $
    216,703
 (g) Cash and Cash Equivalents and Restricted Cash
  (h) Trade Accounts Receivable
  52




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##### Table of Contents



Predecessor
    
    
    
    SuccessorFor the 355period fromFor the
    
    
    
    January 12,
    
    
    For theYear Ended
    
    
    
    (inception) to
    
    
    Year EndedDecember 31,
    
    
    
    December 31,
    
    
    December 31,2003
    
    
    
    2004
    
    
    2005Balance at Beginning of Period
    
    $
    4,483
    
    
    
    $
    
    
    
    $
    13,232Opening Balance of Acquired Business
    
    
    
    
    
    
    
    12,107
    
    
    
    Additions Charged to Expense
    
    
    12,020
    
    
    
    
    25,859
    
    
    
    56,657Accounts Written-off
    
    
    (13,004
    )
    
    
    
    (24,734
    )
    
    
    (50,656
    )Balance at End of Period
    
    $
    3,499
    
    
    
    $
    13,232
    
    
    $
    19,233
 (i) Fair Value of Financial Instruments
 Disclosure about Fair Value of Financial Instruments
 (j) Concentrations of Credit Risk
  (k) Property and Equipment
   (l) Goodwill and Intangible and Other Assets
  Goodwill and Other Intangible Assets.
 53




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##### Table of Contents



Accounting for Impairment or Disposal of Long-Lived Assets
   Accounting for Business Combinations.
 (m) Impairment of Long-Lived Assets
  (n) Investments in Affiliated Companies
  54




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##### Table of Contents



(o) 4 01(k) Plan
  (p) Income Taxes
 Accounting for
Income Taxes
 (q) Stock-Based Compensation
 Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure.
 Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation-Transition and Disclosure.
  Predecessor
    
    
    
    SuccessorFor the 62 Day
    
    
    
    For the 355 DayFor the
    
    
    Period from
    
    
    
    Period fromYear Ended
    
    
    January 1, 2004
    
    
    
    January 12, 2004December 31,
    
    
    to March 2,
    
    
    
    to December 31,2003
    
    
    2004
    
    
    
    2004Net income (loss)
applicable to common
stockholders, as reported:
    
    $
    6,496
    
    
    $
    (9,814
    )
    
    
    $
    (56,748
    )Less: Stock-based
compensation excluded
from reported net
earnings, net of tax
    
    
    1,213
    
    
    
    98
    
    
    
    
    6Pro forma net income (loss)
    
    $
    5,283
    
    
    $
    (9,912
    )
    
    
    $
    (56,754
    )
 55




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##### Table of Contents



Predecessor
    
    
    SuccessorFor the 62 Day
    
    
    For the 355 DayFor the
    
    Period from
    
    
    Period fromYear Ended
    
    January 1, 2004
    
    
    January 12, 2004December 31,
    
    to March 2,
    
    
    to December 31,2003
    
    2004
    
    
    2004Dividend yield
    
    
    
    
    
    
    
    Expected volatility
    
    101.4%
    
    37.8%
    
    
    
    20
    %Average expected
option life
    
    4.8 years
    
    5.4 years
    
    
    1 yearRisk free interest rate
    
    3.02%
    
    2.8%
    
    
    
    2.09
    %
    (r) Revenue Recognition
   Reporting Revenue
Gross as a Principal versus net as an Agent.
 (s) Comprehensive Income
 Reporting Comprehensive Income,
  56




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##### Table of Contents



(t) Commitments and Contingencies
 Accounting for Asset
Retirement Obligations, Offsetting of Amounts Related to Certain Contracts.
  (u) Recently Issued Accounting Pronouncements
 Share-Based Payment, Accounting for Stock Issued to Employees,
 Exchanges of Nonmonetary Assets,
 Accounting for Conditional
Asset Retirement Obligations  an interpretation of SFAS No. 143,
 57




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##### Table of Contents



Accounting for Asset Retirement Obligations
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 Application
of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
 (v) Reclassification
  (w) Derivative Financial Instruments
 Accounting for Derivative
Instruments and Hedging Activities
 (2) MERGERS AND ACQUISITIONS
  58




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##### Table of Contents



Purchase price calculations:Payment for tendered shares
    
    $
    69,241Payment of former credit facility
    
    
    18,625Total acquisition costs
    
    $
    87,866Allocation of purchase price:Current assets
    
    $
    40,814Accounts payable and accrued liabilities
    
    
    (29,340
    )Deferred income tax
    
    
    (14,878
    )Property and equipment, net
    
    
    16,636Goodwill
    
    
    30,233Patents and license rights
    
    
    21,000Operating contracts and customer agreements
    
    
    14,800Other assets
    
    
    8,601Total allocation
    
    $
    87,866
  Purchase price calculations:Payment for tendered shares
    
    $
    87,045Payment of former credit facility
    
    
    38,061Transaction costs paid or accrued
    
    
    4,650Accrued severance and integration costs
    
    
    2,692Total acquisition costs
    
    $
    132,448Allocation of purchase price:Current assets
    
    $
    46,497Accounts payable and accrued liabilities
    
    
    (47,649
    )Deferred income tax
    
    
    (13,275
    )Property and equipment, net
    
    
    25,581Goodwill
    
    
    40,398Patents and license rights
    
    
    15,200Operating contracts and customer agreements
    
    
    64,956Other assets
    
    
    740Total allocation
    
    $
    132,448
  59




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##### Table of Contents



Goodwill and Other Intangible Assets,
  For the
    
    
    For theYear Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2003
    
    
    2004Total revenue
    
    $
    350,340
    
    
    $
    364,103Net loss
    
    $
    (2,995
    )
    
    $
    (53,386
    )
  Accudata Technologies, Inc.
  (3) IMPAIRMENT
  60




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##### Table of Contents



Telecom
    
    
    SolutionsServices
    
    
    Services
    
    
    TotalTelecommunications equipment
    
    $
    3,928
    
    
    $
    
    
    
    $
    3,928Patents and trademarks
    
    
    11,835
    
    
    
    4,367
    
    
    
    16,202Acquired contract rights
    
    
    5,707
    
    
    
    1,413
    
    
    
    7,120Intangibles and other assets
    
    
    2,917
    
    
    
    
    
    
    
    2,917Goodwill
    
    
    20,418
    
    
    
    
    
    
    
    20,418Total non-cash impairment charge
    
    $
    44,805
    
    
    $
    5,780
    
    
    $
    50,585
  (4) BALANCE SHEET COMPONENTS
  2004
    
    
    2005Accounts receivable, net:Trade accounts receivable
    
    $
    75,284
    
    
    $
    78,445Advanced commissions receivable
    
    
    1,641
    
    
    
    3,815Other receivables
    
    
    3,805
    
    
    
    15380,730
    
    
    
    82,413Less: Allowance for doubtful accounts
    
    
    (13,232
    )
    
    
    (19,233
    )$
    67,498
    
    
    $
    63,180
   61




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##### Table of Contents



2004
    
    
    2005Property and equipment, net:Telecommunications equipment
    
    $
    24,032
    
    
    $
    35,600Leasehold improvements
    
    
    1,973
    
    
    
    4,382Construction in progress
    
    
    5,870
    
    
    
    6,624Vehicles
    
    
    65
    
    
    
    64Office equipment
    
    
    7,343
    
    
    
    10,48239,283
    
    
    
    57,152Less: Accumulated depreciation and
amortization
    
    
    (3,113
    )
    
    
    (13,290
    )$
    36,170
    
    
    $
    43,862
   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
    
    
    
    10.8Non-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
 2005Gross
    
    
    
    
    
    
    
    
    
    
    WeightedCarrying
    
    
    Accumulated
    
    
    
    
    
    
    AverageValue
    
    
    Amortization
    
    
    Net
    
    
    LifePatents and trademarks
    
    $
    18,324
    
    
    $
    (2,439
    )
    
    $
    15,885
    
    
    
    10.6Deferred financing costs
    
    
    9,022
    
    
    
    (1,063
    )
    
    
    7,959
    
    
    
    7.3Purchased technology assets
    
    
    7,105
    
    
    
    (749
    )
    
    
    6,356
    
    
    
    4.8Capitalized software development costs
    
    
    6,311
    
    
    
    (2,761
    )
    
    
    3,550
    
    
    
    3.1Acquired contract rights
    
    
    79,407
    
    
    
    (10,871
    )
    
    
    68,536
    
    
    
    10.8Deposits and long-term prepayments
    
    
    1,413
    
    
    
    
    
    
    
    1,413Other
    
    
    783
    
    
    
    
    
    
    
    783$
    122,365
    
    
    $
    (17,883
    )
    
    $
    104,482
  62




---



##### Table of Contents



Year Ended December 31:2006
    
    $
    13,5822007
    
    
    12,7332008
    
    
    10,0552009
    
    
    8,5292010
    
    
    7,572Thereafter
    
    
    38,856$
    91,327
  2004
    
    
    2005Accrued liabilities:Accrued expenses
    
    $
    18,777
    
    
    $
    23,201Accrued compensation
    
    
    3,571
    
    
    
    5,258Accrued severance and exit costs
    
    
    1,953
    
    
    
    668Accrued taxes
    
    
    3,255
    
    
    
    2,932Accrued interest and other
    
    
    5,236
    
    
    
    5,697$
    32,792
    
    
    $
    37,756
  Balance
    
    
    
    
    
    
    
    
    
    
    Balance9/9/2004
    
    
    Additions
    
    
    Payments
    
    
    12/31/04Severance 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
    
    
    
    
    
    
    
    
    
    
    Balance1/1/2005
    
    
    Additions
    
    
    Payments
    
    
    12/31/05Severance and related costs
    
    $
    1,754
    
    
    $
    643
    
    
    $
    (1,840
    )
    
    $
    557Leased facility and other costs
    
    
    199
    
    
    
    
    
    
    
    (88
    )
    
    
    111$
    1,953
    
    
    $
    643
    
    
    $
    (1,928
    )
    
    $
    668
 (5) GOODWILL
  63




---



##### Table of Contents



DirectTelecom
    
    
    CallServices
    
    
    Provisioning
    
    
    TotalBalance at January 12, 2004 (Successor)
    
    $
    
    
    
    $
    
    
    
    $
    Goodwill acquired in connection with T-Netix and
Evercom acquistions
    
    
    20,418
    
    
    
    50,213
    
    
    
    70,631Impairment loss
    
    
    (20,418
    )
    
    
    
    
    
    
    (20,418
    )Balance at December 31, 2004
    
    
    
    
    
    
    50,213
    
    
    
    50,213Impairment loss
    
    
    
    
    
    
    
    
    
    
    Purchase price adjustments for prior year acquisitions
    
    
    
    
    
    
    (12,277
    )
    
    
    (12,277
    )Balance at December 31, 2005
    
    $
    
    
    
    $
    37,936
    
    
    $
    37,936
 (6) DEBT
  2004
    
    
    2005Revolving credit facility
    
    $
    
    
    
    $
    Senior subordinated notes
    
    
    42,116
    
    
    
    49,745Second-priority senior secured notes
    
    
    154,000
    
    
    
    154,000Other
    
    
    225
    
    
    
    108196,341
    
    
    
    203,853Less unamortized discount on senior
secured notes and senior subordinated
notes
    
    
    (6,404
    )
    
    
    (5,898
    )189,937
    
    
    
    197,955Less current portion of long-term debt
    
    
    (117
    )
    
    
    (108
    )$
    189,820
    
    
    $
    197,847
 Revolving Credit Facility
 64




---



##### Table of Contents



Senior Subordinated Notes
 Second-priority Senior Secured Notes
   65




---



##### Table of Contents



Year Ended December 31:2006
    
    $
    1082007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    203,745$
    203,853
   Revolving Credit Facility
    
    $
    Senior Subordinated Notes
    
    
    132,440Second-priority Senior Secured Notes
    
    
    49,745$
    182,185
  (7) SEGMENT INFORMATION  CONTINUING OPERATIONS
 Disclosures About Segments of an Enterprise and Related Information,
  66




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##### Table of Contents



Telecommunication
    
    
    Direct Call
    
    
    Equipment
    
    
    CorporateServices
    
    
    Provisioning
    
    
    Sales & Other
    
    
    & Other
    
    
    TotalRevenue from
external customers
    
    $
    50,645
    
    
    $
    56,735
    
    
    $
    9,864
    
    
    $
    
    
    
    $
    117,244Segment gross margin
    
    $
    30,552
    
    
    $
    5,303
    
    
    $
    5,667
    
    
    $
    
    
    
    $
    41,522Depreciation and
amortization
    
    
    3,177
    
    
    
    2,148
    
    
    
    127
    
    
    
    6,440
    
    
    
    11,892Other operating costs
and expenses
    
    
    
    
    
    
    
    
    
    
    1,765
    
    
    
    24,867
    
    
    
    26,632Operating income (loss)
    
    $
    27,375
    
    
    $
    3,155
    
    
    $
    3,775
    
    
    $
    (31,307
    )
    
    $
    2,998Patent litigation, net
of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,935
    )Interest and other
expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761Segment income before
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,172Total assets
    
    $
    11,158
    
    
    $
    14,855
    
    
    $
    2,219
    
    
    $
    40,637
    
    
    $
    68,869
  Telecommunication
    
    
    Direct Call
    
    
    Equipment
    
    
    CorporateServices
    
    
    Provisioning
    
    
    Sales & Other
    
    
    & Other
    
    
    TotalRevenue from
external customers
    
    $
    7,552
    
    
    $
    9,651
    
    
    $
    232
    
    
    $
    
    
    
    $
    17,435Segment gross 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 expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,365Interest and other
expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,191Segment loss before
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (12,389
    )Capital Expenditures
    
    $
    211
    
    
    $
    351
    
    
    $
    
    
    
    $
    
    
    
    $
    562
 67




---



##### Table of Contents



Telecommunications
    
    
    Direct Call
    
    
    Solutions
    
    
    Equipment
    
    
    CorporateServices
    
    
    Provisioning
    
    
    Services
    
    
    Sales & Other
    
    
    & Other
    
    
    TotalRevenue from
external customers
    
    $
    30,341
    
    
    $
    120,868
    
    
    $
    18,466
    
    
    $
    3,701
    
    
    $
    
    
    
    $
    173,376Segment gross margin
    
    $
    17,126
    
    
    $
    21,226
    
    
    $
    2,466
    
    
    $
    1,675
    
    
    $
    
    
    
    $
    42,493Depreciation and
amortization
    
    
    2,155
    
    
    
    6,126
    
    
    
    
    
    
    
    50
    
    
    
    4,826
    
    
    
    13,157Non-cash impairment
    
    
    44,805
    
    
    
    
    
    
    
    5,780
    
    
    
    
    
    
    
    
    
    
    
    50,585Other operating
costs and expenses
    
    
    
    
    
    
    1,753
    
    
    
    196
    
    
    
    360
    
    
    
    30,861
    
    
    
    33,170Operating income
(loss)
    
    $
    (29,834
    )
    
    $
    13,347
    
    
    $
    (3,510
    )
    
    $
    1,265
    
    
    $
    (35,687
    )
    
    $
    (54,419
    )Transaction expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    987Interest and other
expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,001Segment loss before
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,407
    )Total assets
    
    $
    12,001
    
    
    $
    220,028
    
    
    $
    17,807
    
    
    $
    1,538
    
    
    $
    20,762
    
    
    $
    272,136Goodwill
    
    $
    
    
    
    $
    50,213
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,213Capital Expenditures
    
    $
    
    
    
    $
    11,808
    
    
    $
    
    
    
    $
    
    
    
    $
    548
    
    
    $
    12,356
  Telecommunications
    
    
    Direct Call
    
    
    Solutions
    
    
    Equipment
    
    
    CorporateServices
    
    
    Provisioning
    
    
    Services
    
    
    Sales & Other
    
    
    & Other
    
    
    TotalRevenue from
external customers
    
    $
    25,313
    
    
    $
    303,174
    
    
    $
    47,398
    
    
    $
    1,321
    
    
    $
    
    
    
    $
    377,206Segment gross margin
    
    $
    13,824
    
    
    $
    63,813
    
    
    $
    9,582
    
    
    $
    1,002
    
    
    $
    
    
    
    $
    88,221Depreciation and
amortization
    
    
    571
    
    
    
    21,645
    
    
    
    1,468
    
    
    
    37
    
    
    
    135
    
    
    
    23,856Other operating
costs and expenses
    
    
    
    
    
    
    7,778
    
    
    
    1,261
    
    
    
    31
    
    
    
    40,013
    
    
    
    49,083Operating income
(loss)
    
    $
    13,253
    
    
    $
    34,390
    
    
    $
    6,853
    
    
    $
    934
    
    
    $
    (40,148
    )
    
    $
    15,282Interest and other
expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,608Segment loss before
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (11,326
    )Total assets
    
    $
    4,778
    
    
    $
    209,545
    
    
    $
    26,660
    
    
    $
    40
    
    
    $
    25,907
    
    
    $
    266,930Goodwill
    
    $
    
    
    
    $
    37,936
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    37,936Capital Expenditures
    
    $
    
    
    
    $
    25,718
    
    
    $
    
    
    
    $
    
    
    
    $
    609
    
    
    $
    26,327
 68




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##### Table of Contents



(8) INCOME TAXES
  Predecessor
    
    
    
    SuccessorFor the 62 Day
    
    
    
    For the 355 DayFor the
    
    
    Period from
    
    
    
    Period from
    
    
    For theYear Ended
    
    
    January 1, 2004
    
    
    
    January 12, 2004
    
    
    Year EndedDecember 31,
    
    
    to March 2,
    
    
    
    to December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    
    2004
    
    
    2005Current:Federal
    
    $
    150
    
    
    $
    
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194Total
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    194Deferred:Federal
    
    
    2,339
    
    
    
    (2,048
    )
    
    
    
    (10,225
    )
    
    
    (1,802
    )State
    
    
    187
    
    
    
    (527
    )
    
    
    
    (2,434
    )
    
    
    (566
    )Total
    
    
    2,526
    
    
    
    (2,575
    )
    
    
    
    (12,659
    )
    
    
    (2,368
    )Total income taxes
    
    $
    2,676
    
    
    $
    (2,575
    )
    
    
    $
    (12,659
    )
    
    $
    (2,174
    )
  Predecessor
    
    
    
    SuccessorFor the 62 Day
    
    
    
    For the 355 DayFor the
    
    
    Period from
    
    
    
    Period from
    
    
    For theYear Ended
    
    
    January 1, 2004
    
    
    
    January 12, 2004
    
    
    Year EndedDecember 31,
    
    
    to March 2,
    
    
    
    to December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    
    2004
    
    
    2005Expected
statutory income
tax (benefit)
expense
    
    $
    3,119
    
    
    $
    (4,336
    )
    
    
    $
    (24,293
    )
    
    $
    (3,965
    )Amounts not
deductible for
income tax
    
    
    209
    
    
    
    1,580
    
    
    
    
    7,160
    
    
    
    1,330State taxes, net of
federal benefit
    
    
    350
    
    
    
    (343
    )
    
    
    
    (2,447
    )
    
    
    (391
    )Change in valuation
allowance
    
    
    (648
    )
    
    
    
    
    
    
    
    6,921
    
    
    
    853Other
    
    
    (354
    )
    
    
    524
    
    
    
    
    
    
    
    
    (1
    )Total income tax
expense
    
    $
    2,676
    
    
    $
    (2,575
    )
    
    
    $
    (12,659
    )
    
    $
    (2,174
    )
 69




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##### Table of Contents



2004
    
    
    2005Net current deferred income tax assets:Deferred
income tax assets:Allowance for doubtful accounts
    
    $
    5,207
    
    
    
    7,697Accrued expenses
    
    
    2,534
    
    
    
    2,743Other
    
    
    173
    
    
    
    1,370Current deferred income tax assets
    
    
    7,914
    
    
    
    11,810Deferred
income tax liabilities:Other
    
    
    (520
    )
    
    
    (361
    )Current deferred income tax liabilities
    
    
    (520
    )
    
    
    (361
    )Less: Valuation allowance
    
    
    (4,588
    )
    
    
    (3,664
    )Net current deferred income tax asset
    
    $
    2,806
    
    
    $
    7,785Net non-current deferred income tax assets (liabilities):Deferred income tax assets:Net operating loss and tax credit carryforwards
    
    $
    11,616
    
    
    
    12,819Depreciation
    
    
    
    
    
    
    Accrued interest
    
    
    
    
    
    
    2,309Other
    
    
    506
    
    
    
    (62
    )Non-current deferred income tax assets
    
    
    12,122
    
    
    
    15,066Deferred income tax liabilitiesProperty and equipment principally due to
differences in depreciation
    
    
    (2,014
    )
    
    
    (955
    )Intangible assets due to difference in book/tax basis
    
    
    (21,379
    )
    
    
    (19,150
    )Non-current deferred income tax liabilities
    
    
    (23,393
    )
    
    
    (20,105
    )Less: Valuation allowance
    
    
    (7,029
    )
    
    
    (4,730
    )Net non-current deferred income tax asset (liability)
    
    
    (18,300
    )
    
    
    (9,769
    )Total deferred income tax asset (liability)
    
    $
    (15,494
    )
    
    $
    (1,984
    )
    70




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##### Table of Contents



(9) STOCKHOLDERS EQUITY
 Common stock
  Warrants
  Restricted Stock Purchase Plans
   71




---



##### Table of Contents



Options
   WeightedAverageExerciseNumber of
    
    
    PriceShares
    
    
    Per Share2004
    
    
    2004Options outstanding  beginning
    
    
    
    
    
    $
    of year (January 12, 2004)Granted
    
    
    5,263
    
    
    
    57Expired and forfeited
    
    
    
    
    
    
    (57
    )Options outstanding  end of year
    
    
    5,263
    
    
    
    Options exercisable  end of year
    
    
    5,263
    
    
    $
    
  Weighted AverageExercise
    
    Options
    
    RemainingPrice
    
    Outstanding
    
    Contractual Life$57
    
    
    5,263
    
    
    
    1
   Options OutstandingWeightedShares
    
    
    
    
    
    
    AverageAvailable
    
    
    Number
    
    
    ExerciseFor Grant
    
    
    Of Shares
    
    
    PriceBalance at December 31, 2002
    
    
    953,388
    
    
    
    3,247,629
    
    
    $
    3.93Granted
    
    
    (80,500
    )
    
    
    80,500
    
    
    $
    1.30Canceled
    
    
    261,090
    
    
    
    (261,090
    )
    
    $
    3.19Balance at December 31, 2003
    
    
    1,133,978
    
    
    
    3,067,039
    
    
    $
    3.93Exercised
    
    
    (1,133,978
    )
    
    
    (3,067,039
    )
    
    $
    2.61Canceled
    
    
    
    
    
    
    
    
    
    $
    Balance at March 2, 2004
    
    
    
    
    
    
    
    
    
    $
    
  72




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##### Table of Contents



Redeemable Convertible Preferred Stock
  (10) INTEREST RATE SWAP
  Accounting for Derivatives and Hedging Activities,
  (11) RELATED-PARTY TRANSACTIONS
   Year Ended December 31:2006
    
    $
    7502007
    
    
    7502008
    
    
    7502009
    
    
    7502010
    
    
    
  73




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##### Table of Contents



(12) COMMITMENTS AND CONTINGENCIES
 (a) Operating Leases
  Year Ended December 31:2006
    
    $
    2,0632007
    
    
    1,5172008
    
    
    1,1032009
    
    
    9262010
    
    
    949Thereafter
    
    
    4,262Total minimum lease payments
    
    $
    10,820
 (b) Minimum payments to customers
  Year Ended December 31:2006
    
    $
    4,9762007
    
    
    2,0972008
    
    
    6692009
    
    
    2982010
    
    
    40Thereafter
    
    
    Total minimum commission payments
    
    $
    8,080
  (c) Employment Agreements
  74




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##### Table of Contents



(d) Customer Disputes
  (e) Litigation
  Condes
 Condes v. Evercom Systems,
Inc Sandra Judd, et al. v. AT&T, et al. Condes Condes Condes Condes Judd
 . TIP Systems, LLC and TIP Systems Holding Co., Inc. v.
Phillips & Brooks/Gladwin, Inc., et al. TIP Systems TIP Systems, LLC and TIP Systems Holding Co., Inc. v. SBC
Operations, Inc., et. al.
 75




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##### Table of Contents



Kirsten Salb v. Evercom Systems, Inc., et al
 (13) SUBSEQUENT EVENTS
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 1. Disclosure Controls and Procedures
  2. Internal Control Over Financial Reporting
  3. Changes In Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  76




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##### Table of Contents



PART III
 
 ITEM 10. MANAGEMENT
   Name
    
    Age
    
    PositionRichard Falcone
    
    61
    
    Chairman, President and Chief Executive OfficerKeith Kelson
    
    39
    
    Chief Financial Officer, Treasurer and Assistant SecretaryDennis Reinhold
    
    45
    
    Vice President, General Counsel and SecretaryJohn Viola
    
    55
    
    Vice President and General Manager, Correctional SystemsRandy Hoffman
    
    56
    
    Vice President and General Manager, Partner Solutions and
Enterprise ManagementRobert Rae
    
    38
    
    Vice President, Enterprise Services and OperationsSami Mnaymneh
    
    46
    
    DirectorTony Tamer
    
    45
    
    DirectorBrian Schwartz
    
    37
    
    DirectorDouglas Berman
    
    39
    
    DirectorLewis Schoenwetter
    
    35
    
    DirectorRichard Cree
    
    56
    
    DirectorJack McCarthy(1)
    
    62
    
    DirectorJames Neal Thomas(1)
    
    59
    
    Director
 (1)
    
    Member of the Audit Committee
  Richard Falcone
 Keith Kelson
 Dennis Reinhold
 77




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##### Table of Contents



John Viola
 Randy Hoffman
 Robert Rae
 Sami Mnaymneh
 Tony Tamer
 78




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##### Table of Contents



Brian Schwartz
 Douglas Berman
 Lewis Schoenwetter
 Richard E. Cree
 Jack McCarthy
 James Neal Thomas
 79




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##### Table of Contents



Board Committees
   Code of Ethics
  
 ITEM 11. EXECUTIVE COMPENSATION
  Summary Compensation Table
 Annual Compensation
    
    Long-Term CompensationName and Principal Position
    
    Year
    
    Salary
    
    Bonus
    
    Stock Awards
    
    CompensationRichard Falcone  Chairman,
    
    
    2005
    
    
    
    349,900
    
    
    
    148,153
    
    
    
    
    
    
    
    President, and
    
    
    2004
    
    
    
    107,658
    (1)
    
    
    217,440
    (1)
    
    
    
    (2)
    
    
    Chief Executive OfficerKeith Kelson  Chief
    
    
    2005
    
    
    
    182,829
    
    
    
    40,830
    
    
    
    
    
    
    
    Financial Officer and
    
    
    2004
    
    
    
    42,959
    (3)
    
    
    64,583
    (3)
    
    
    
    (4)
    
    
    Assistant SecretaryJohn Viola  Vice President,
    
    
    2005
    
    
    
    172,526
    
    
    
    33,426
    
    
    
    
    
    
    
    General Manager, Correctional
    
    
    2004
    
    
    
    47,832
    (3)
    
    
    47,086
    (3)
    
    
    
    (4)
    
    
    SystemsRandy Hoffman  Vice
    
    
    2005
    
    
    
    171,883
    
    
    
    33,881
    
    
    
    
    
    
    
    President, General
    
    
    2004
    
    
    
    46,671
    (3)
    
    
    43,667
    (3)
    
    
    
    (4)
    
    
    Manager, Partner SolutionsRobert Rae  Vice
    
    
    2005
    
    
    
    153,076
    
    
    
    29,775
    
    
    
    
    
    
    
    President, Enterprise
    
    
    2004
    
    
    
    37,869
    (3)
    
    
    44,125
    (3)
    
    
    
    (4)
    
    
    Services and Operations
 (1)
    
    Mr. Falcones employment agreement provides for an annual salary of at
least $349,000. The above compensation does not include salary of
$242,231 and bonus payments of $458,000 earned from January 1, 2004
through September 9, 2004 during Mr. Falcones employment with Evercom
as Chief Executive Officer.(2)
    
    Contemporaneously with the consummation of the acquisition of Evercom
and pursuant to the Companys 2004 Restricted Stock Purchase Plan, Mr.
Falcone purchased 16,856.96 shares of restricted stock of the Company
for $0.01 per share or $168.57.(3)
    
    The above compensation does not include salary and bonus payments
earned by the respective officers from January 1, 2004 to September 9,
2004 during their employment with Evercom. Mr. Kelson, Mr. Viola, Mr.
Hoffman and Mr. Rae earned salaries of $91,153, $99,936, $97,347 and
$81,245, respectively during this period. Mr. Kelson, Mr. Viola, Mr.
Hoffman and Mr. Rae earned bonuses of $83,200, $91,538, $107,101 and
$67,850, respectively during this period.(4)
    
    In 2005, Mr. Kelson, Mr. Viola, Mr. Hoffman and Mr. Rae were awarded
6,583 shares, 6,384 shares, 6,384 shares and 6,384 shares,
respectively, of restricted stock of the Company pursuant to the 2004
Restricted Stock Purchase Plan. These shares were purchased for $0.01
per share or $257.
 80




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##### Table of Contents



Employment Agreements
     Separation Agreements
  81




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##### Table of Contents



2004 Restricted Stock Purchase Plan
  Compensation Committee Interlocks and Insider Participation
  Indemnification Agreements
  Director Compensation
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
    
    each person who is known to us to beneficially own more than 5% of the
outstanding shares of common stock;
    
    each of our directors;
    
    each of the chief executive officer and the four other most highly
compensated executive officers who were serving as executive officers
on December 31, 2005; and
    
    all current directors and executive officers as a group.
  82




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##### Table of Contents



Number of SharesBeneficially OwnedPercentageClass B
    
    
    of CommonName and Address of Beneficial Owner (1)
    
    Common stock
    
    
    Common stock
    
    
    stock (2)5% StockholdersH.I.G.-TNetix, Inc.(3)
    
    
    480,789.95
    
    
    
    
    
    
    
    74.15
    %1001 Brickell Bay Drive, 27th FloorMiami, Florida 33131AIF Investment Company(4)
    
    
    147,456.62
    
    
    
    
    
    
    
    22.74
    %1001 Brickell Bay Drive,
27th
FloorMiami, Florida 33131Alpine Associates, L.P.(5)
    
    
    37,637.72
    
    
    
    
    
    
    
    6.10
    %100 Union
Avenue, Suite 7Cresskill, NJ 07626Laminar Direct Capital, L.P.(6)
    
    
    48,461.00
    
    
    
    
    
    
    
    7.47
    %10000
Memorial Drive, Suite 500Houston, TX 77024DirectorsRichard E. Cree(7)
    
    
    7,894.74
    
    
    
    
    
    
    
    1.22
    %Richard Falcone(8)
    
    
    2,491.23
    
    
    
    16,856.96
    
    
    
    2.98
    %Sami Mnaymneh(10)
    
    
    480,789.95
    
    
    
    
    
    
    
    74.15
    %Tony Tamer(10)
    
    
    480,789.95
    
    
    
    
    
    
    
    74.15
    %Brian Schwartz(10)
    
    
    480,789.95
    
    
    
    
    
    
    
    74.15
    %Douglas Berman(10)
    
    
    480,789.95
    
    
    
    
    
    
    
    74.15
    %Lewis Schoenwetter(10)
    
    
    480,789.95
    
    
    
    
    
    
    
    74.15
    %Jack McCarthy(9)
    
    
    
    
    
    
    665.00
    
    
    
    *James Neal Thomas(9)
    
    
    
    
    
    
    665.00
    
    
    
    *Other Named Executive OfficersKeith Kelson(9)
    
    
    
    
    
    
    6,583.19
    
    
    
    1.02
    %Robert Rae(9)
    
    
    
    
    
    
    6,383.69
    
    
    
    *John Viola(9)
    
    
    
    
    
    
    6,383.69
    
    
    
    *Randy Hoffman(9)
    
    
    
    
    
    
    6,383.69
    
    
    
    *Directors and executive officers as a group (16
persons) (11)
    
    
    491,175.92
    
    
    
    53,496.76
    
    
    
    84.01
    %
 (1)
    
    Unless otherwise indicated, the address of each beneficial owner
listed above is c/o Securus Technologies, Inc., 14651 Dallas Parkway,
Suite 600, Dallas, Texas 75254-8815.(2)
    
    Represents the aggregate ownership of our Common stock and Class B
common stock. Calculated based on 648,367.41 shares of Common stock
and Class B common stock outstanding, giving effect to immediately
exercisable options and warrants to purchase an aggregate of 51,011
shares of common stock. See notes (5), (6) and (7) below.(3)
    
    Includes an aggregate of 147,456.62 shares of Common stock
beneficially owned by AIF Investment Company. AIF Investment Company
is wholly-owned by H.I.G.-TNetix. Each of Messrs. Mnaymneh and
Tamer currently serve as a director and officer of H.I.G.-TNetix,
Inc. Messrs. Mnaymneh and Tamer constitute all of the officers and
directors of H.I.G.-TNetix, Inc.(4)
    
    H.I.G.-TNetix is the majority stockholder of AIF Investment Company.
Each of Messrs. Mnaymneh and Tamer currently serve as a director and
officer of AIF Investment Company. Messrs. Mnaymneh and Tamer
constitute all of the officers and directors of AIF Investment
Company.(5)
    
    Includes 4,064 shares held by Alpine Partners, L.P., an affiliate of
Alpine Associates, L.P. Also represents exercisable warrants to
purchase an aggregate of 2,550 shares of our common stock granted in
connection with the senior subordinated debt financing. These
warrants are exercisable at the option of the holder at any time
through September 9, 2014.(6)
    
    Represents warrants to purchase an aggregate of 48,461 shares of
Common stock granted in connection with the senior subordinated debt
financing. These warrants are exercisable at the option of the
holder any time through September 9, 2014.
 83




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##### Table of Contents



(7)
    
    Includes 7,894.74 shares of Common stock acquired by Mr. Cree
concurrently with the closing of the Transactions.(8)
    
    Represents 2,491.23 shares of Common stock acquired by Mr. Falcone
concurrently with the closing of the Transactions. Also represents
16,856.96 shares of Class B common stock purchased by Mr. Falcone
pursuant to our 2004 Restricted Stock Purchase Plan.(9)
    
    Represents shares of Class B common stock purchased in connection
with our 2004 Restricted Stock Purchase Plan.(10)
    
    Represents shares beneficially owned by H.I.G.-TNetix, Inc. and AIF
Investment Company. H.I.G. Capital Partners III, L.P. is the
controlling stockholder of H.I.G.-TNetix, Inc. and H.I.G.  TNetix
is the controlling stockholder of AIF Investment Company. Each of
Messrs. Mnaymneh and Tamer is a member of H.I.G. Advisors III,
L.L.C., the general partner of H.I.G. Capital Partners III, L.P.,
the ultimate parent entity of H.I.G.-TNetix, Inc. and AIF Investment
Company. Messrs. Mnaymneh, Tamer, Schwartz, Berman and Schoenwetter
may, by virtue of their respective relationships with either H.I.G.-
TNetix, Inc., AIF Investment Company or H.I.G. Capital, L.L.C., be
deemed to beneficially own the securities held by H.I.G.-TNetix, Inc.
and AIF Investment Company, and to share voting and investment power
with respect to such securities. Each of Messrs. Mnaymneh, Tamer,
Schwartz, Berman and Schoenwetter disclaim beneficial ownership of
the securities beneficially owned by H.I.G.-TNetix and AIF Investment
Co. The address of each of Messrs. Mnaymneh, Tamer, Schwartz,
Berman and Schoenwetter is c/o H.I.G. Capital, LLC, 1001 Brickell
Bay Drive, 27th Floor, Miami, Florida 33131.(11)
    
    Represents (a) 63,882.72 shares beneficially owned by Richard E.
Cree, Richard Falcone, Keith Kelson, Julie Hoagland, Robert Rae, John
Viola, Greg Haertling, Randy Hoffman, Dennis Reinhold, Jack McCarthy
and Neil Thomas, and (b) 480,789.95 shares beneficially owned by
H.I.G.-TNetix, Inc. and AIF Investment Company and attributable to
each of the Messrs. Mnaymneh, Tamer, Schwartz, Berman and
Schoenwetter.
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 Restricted Stock Purchase Agreements
  Equity Investment by Richard Falcone
  84




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Equity Investment by Richard E. Cree
  Stockholders Agreement
  Transfer Restrictions and Rights of First Refusal
   Drag-Along Rights
  Tag-Along Rights
  Preemptive Rights
  85




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##### Table of Contents



Corporate Governance
  Registration Rights
  Annual Payment to Evercom Investors
  Lock-Up Agreements
  Indemnification of Stockholders
  H.I.G. Capital, LLC Consulting Agreements
 Consulting Services Agreement
  Professional Services Agreement
  86




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##### Table of Contents



Management
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2004
    
    
    2005Audit fees
    
    $
    739
    
    
    $
    645Audit-related fees
    
    
    371
    
    
    
    35Tax fees
    
    
    169
    
    
    
    Total fees
    
    $
    1,279
    
    
    $
    680
 Audit Fees
  Audit-Related Fees
  Tax Fees
  Audit Committees Pre-approval Policy and Procedures
      87




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##### Table of Contents



PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Index to Consolidated Financial Statements1.
    
    Financial Statements:The following financial statements and schedules of Securus Technologies,
Inc. are included in this report:
 
    
    Consolidated Balance Sheets  December 31, 2005 and December 31, 2004
    
    Consolidated Statements of Operations  December 31, 2003, for the
62 Day Period from January 1, 2004 to March 2, 2004
(Predessecor, and
for the 355 Day Period from January 12, 2004 (Inception) to December
31, 2004 (Successor) and for the Year Ended December 31, 2005
    
    Consolidated Statements of Stockholders Equity (Deficit)  December 31, 2003,
for the 62 Day Period from January 1, 2004 to March 2, 2004
(Predessecor, and for the 355 Day Period from January 12, 2004
(Inception) to December 31, 2004 (Successor) and for the Year Ended
December 31, 2005
    
    Consolidated Statements of Cash Flows  December 31, 2003, for the 62
Day Period from January 1, 2004 to March 2, 2004
(Predessecor, and
for the 355 Day Period from January 12, 2004 (Inception) to December
31, 2004 (Successor) and for the Year Ended December 31, 2005
    
    Notes to Consolidated Financial Statements
 2.
    
    Financial Statement Schedules:None.3.
    
    Exhibits:The exhibits which are filed with this report or which are incorporated herein by
reference are set forth in the Exhibit Index on page 88, which is incorporated herein by
reference.
 88




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##### Table of Contents



Signatures
  SECURUS TECHNOLOGIES, INC.By:
    /s/ RICHARD FALCONERichard Falcone,Chairman of the Board,
President, Chief Executive Officer
(Principal Executive Officer)  Signature
    
    Capacity
    
    Date/s/ RICHARD FALCONE

Richard Falcone
    
    Chairman, President, Chief Executive
Officer and
Director  (Principal Executive Officer)
    
    March 31, 2006/s/ RICHARD CREE

Richard Cree
    
    Director
    
    March 31, 2006/s/ SAMI MNAYMNEH

Sami Mnaymneh
    
    Director
    
    March 31, 2006/s/ TONY TAMER

Tony Tamer
    
    Director
    
    March 31, 2006/s/ BRIAN SCHWARTZ

Brian Schwartz
    
    Director
    
    March 31, 2006/s/ DOUGLAS BERMAN

Douglas Berman
    
    Director
    
    March 31, 2006/s/ LEWIS SCHOENWETTER

Lewis Schoenwetter
    
    Director
    
    March 31, 2006/s/ JAMES NEAL THOMAS

James Neal Thomas
    
    Director
    
    March 31, 2006/s/ JACK MCCARTHY

Jack McCarthy
    
    Director
    
    March 31, 2006/s/ KEITH KELSON

Keith Kelson
    
    Chief Financial Officer
(Principal Financial Officer)
    
    March 31, 2006
 89




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##### Table of Contents



Exhibit Index
 2.1
    
    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, incorporated
by reference from the Companys Form S-4 filed with the SEC on May 16, 2005 (the S-4).3.1
    
    Amended and Restated Certificate of Incorporation of Securus Technologies, Inc., filed on
August 6, 2004, incorporated by reference from the S-4.3.2
    
    Amended and Restated Bylaws of Securus Technologies, Inc., incorporated by reference from the
S-4.3.3
    
    Certificate of Incorporation of T-Netix, Inc., filed on September 7, 2001, as amended,
incorporated by reference from the S-4.3.4
    
    Bylaws of T-Netix, Inc, incorporated by reference from the S-4.3.5
    
    Articles of Incorporation of Telequip Labs, Inc., filed on November 9, 1987, as amended,
incorporated by reference from the S-4.3.6
    
    Amended and Restated Bylaws of Telequip Labs, Inc., incorporated by reference from the S-4.3.7
    
    Articles of Incorporation of T-NETIX Telecommunications Services, Inc., filed on February 11,
1988, as amended, incorporated by reference from the S-4.3.8
    
    Bylaws of T-NETIX Telecommunications Services, Inc., incorporated by reference from the S-4.3.9
    
    Certificate of Incorporation of Evercom Holdings, Inc., filed on November 25, 2002, as
amended, incorporated by reference from theS-4.3.10
    
    Bylaws of Evercom Holdings, Inc., incorporated by reference from the S-4.3.11
    
    Amended and Restated Certificate of Incorporation of Evercom, Inc., filed on February 19,
2003, incorporated by reference from the S-4.3.12
    
    Bylaws of Evercom, Inc., incorporated by reference from the S-4.3.13
    
    Certificate of Incorporation of Evercom Systems, Inc., filed on August 22, 1997, as amended,
incorporated by reference from the S-4.3.14
    
    Bylaws of Evercom Systems, Inc., incorporated by reference from the S-4.4.1
    
    Form of 11% Second-priority Senior Secured Notes due 2011, incorporated by reference from the
S-4.4.2
    
    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., incorporated by reference from the S-4.4.3
    
    Registration Rights Agreement, dated August 18, 2004, by and among Securus Technologies, Inc.,
Credit Suisse First Boston LLC and Morgan Stanley & Co. Incorporated, incorporated by
reference from the S-4.
 90




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##### Table of Contents



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.,
incorporated by reference from the S-4.4.5
    
    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., 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.,
incorporated by reference from the S-4.4.6
    
    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., 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., incorporated by reference from the S-4.4.7
    
    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., 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., incorporated by reference from the S-4.4.8
    
    Pledge Agreement, dated September 9, 2004, by and among Securus Technologies, Inc., T-Netix,
Inc., a Delaware corporation, Evercom Holdings, Inc., a Delaware corporation, Evercom, Inc., a
Delaware corporation, and The Bank of New York Trust Company, N.A., incorporated by reference
from the S-4.4.9
    
    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,
incorporated by reference from the S-4.4.10
    
    Intercreditor Agreement, dated as of September 9, 2004, by and among Laminar Direct Capital,
L.P., a Delaware limited partnership, 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.,
incorporated by reference from the S-4.4.11
    
    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., incorporated by
reference from the S-4.4.12
    
    First Amendment to Credit Agreement, dated October 12, 2005 among Securus Technologies, Inc.,
the subsidiary guarantors, ING Capital LLC, as syndicated issuing lender, alternative issuing
lender and administrative agent, and lenders from time to time parties thereto, incorporated
by reference from the Companys current report on Form 8-K filed as Exhibit 10.1 with the SEC
on October 13, 2005.
 91




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##### Table of Contents



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, incorporated by reference from the S-4.10.2
    
    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, incorporated by
reference from the S-4.10.3
    
    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, incorporated by
reference from the S-4.10.4
    
    Office Lease Agreement, dated as of November 8, 2004, by and between T-Netix, Inc. and the
Prudential Insurance Company of America, incorporated by reference from the Companys Form
10-Q as filed with the SEC on August 15, 2005.10.5
    
    First Amendment to the Office Lease Agreement, dated as of November 19, 2004, by and between
T-Netix, Inc. and the Prudential Insurance Company of America, incorporated by reference from
the Companys Form 10-Q as filed with the SEC on August 15, 2005.10.6
    
    Class Action Settlement Agreement, dated December 20, 2005, by and between plantiffs, Elena
Condes, Brian H. Getz, Bicka Barlow and Christopher Fank, individually and in their capacity
as class representatives, and defendants, Evercom Systems, Inc. and T-Netix Telecommunications
Services, Inc., incorporated by reference from the Companys Form 8-K as filed with the SEC on
January 31, 2006.14.1*
    
    Code of Ethics.21.1*
    
    Subsidiaries of the Company.31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley of 2002.32.1*
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley of 2002.32.2*
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley of 2002.
 
 *
    
    Filed herewith 90