SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

                                   (Mark One)

     [X]  Quarterly  report  pursuant to sections 13 or 15(d) of the  Securities
Exchange Act of 1934
                For the quarterly period ended September 30, 2000

                                       OR

     [_] Transition  report  pursuant to sections 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from _____ to _____

                        Commission file number 333-33639

                                  EVERCOM, INC.
             (Exact name of Registrant as specified in its charter)


                  Delaware                                  75-2680266
         (State or other jurisdiction of                  (I.R.S. Employer
         incorporation or organization)                  Identification No.)

                               8201 Tristar Drive
                               Irving, Texas 75063
                                 (972) 988-3737

   (Address,  including zip code, and telephone number,  including area code, of
Registrant's principal executive offices)

        Indicate by check mark whether the  Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

        As of September 30, 2000,  16,033  shares of Class A common  stock,  par
value $0.01 per share,  and 400 shares of Class B common stock,  par value $0.01
per share, were issued and outstanding.

        Exhibits  to the  following  documents  filed  with the  Securities  and
Exchange  Commission  have been  incorporated  by  reference  in Part II of this
Quarterly Report on Form 10-Q:

1.       Registration Statement on Form S-4 (File No. 333-33639);
2.       Quarterly Report on Form 10-Q, dated as of August 14, 1998;
3.       Quarterly Report on Form 10-Q, dated as of May 12, 1999; and
4.       Quarterly Report on Form 10-Q, dated as of August 11, 2000.


                                       1
<PAGE>




                                              EVERCOM, INC. AND SUBSIDIARIES

                                                     TABLE OF CONTENTS



                         PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>

<S>  <C>                                                                               <C>
Item 1.           Financial Statements...........................................      3

Item 2.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations............................     11

Item 3.           Quantitative and Qualitative Disclosures about
                  Market Risk....................................................     21


                                                PART II - OTHER INFORMATION

Item 1.           Legal Proceedings..............................................     22

Item 2.           Changes in Securities and Use of Proceeds......................     22

Item 3.           Defaults Upon Senior Securities................................     22

Item 4.           Submission of Matters to a Vote of Stockholders................     22

Item 5.           Other Information..............................................     22

Item 6.           Exhibits and Reports on Form 8-K...............................     23

</TABLE>


                                       2
<PAGE>
>


PART I - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

                         EVERCOM, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

                                                                                       December 31,            September 30,
                                                                                          1999                     2000
                                                                                      -------------            -------------
                                                                                                               (Unaudited)
<S>                                                                                  <C>                       <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents..................................................     $    1,987,732            $     822,314
     Accounts receivable, net...................................................         38,262,832               38,787,830
     Refundable income taxes....................................................            364,204                  199,097
     Inventories................................................................          3,512,073                3,597,643
     Prepaid expenses and other current assets..................................            380,797                  694,317
     Deferred income tax asset..................................................          1,496,528                  664,514
                                                                                     --------------            -------------
          Total current assets..................................................         46,004,166               44,765,715
PROPERTY AND EQUIPMENT, NET.....................................................         28,375,357               27,745,613
INTANGIBLE AND OTHER ASSETS, NET................................................         97,729,033               88,419,030
                                                                                     --------------            -------------
     TOTAL                                                                           $  172,108,556            $ 160,930,358
                                                                                     ==============            =============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
     Accounts payable...........................................................     $   19,492,283            $  20,859,535
     Income taxes payable.......................................................            250,000                  189,132
     Accrued expenses...........................................................         21,201,463               20,117,251
     Current portion of long-term debt..........................................         12,434,468               13,453,566
                                                                                     --------------            -------------
          Total current liabilities.............................................         53,378,214               54,619,484
LONG-TERM DEBT..................................................................        159,526,766              152,187,500
OTHER LONG-TERM LIABILITIES.....................................................            705,000                  162,500
DEFERRED INCOME TAXES...........................................................          1,496,528                  664,514
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
      Preferred stock, Senior and First Preferred Series A, $.01 par value;
        6,000 and 5,000 shares authorized, 5,925 and 5,000 shares issued
        and outstanding, respectively (cumulative liquidation value of
        $5,925,000 and $5,000,000 respectively) as of December 31, 1999
        and September 30, 2000..................................................                109                      109
     Common stock, $.01 par value; 50,000 shares authorized, 16,433 shares
        issued and outstanding as of December 31, 1999 and September 30, 2000...                164                      164
     Additional paid-in capital.................................................         26,080,416               25,424,915
     Accumulated deficit........................................................        (69,078,641)             (72,128,828)
                                                                                      -------------            -------------
          Total stockholders' deficit...........................................        (42,997,952)             (46,703,640)
                                                                                      -------------            -------------
          TOTAL.................................................................     $  172,108,556            $ 160,930,358
                                                                                      =============            =============

</TABLE>


                 See notes to consolidated financial statements


                                       3
<PAGE>



                         EVERCOM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (Unaudited)

<TABLE>
<CAPTION>


                                                             Three Month Period                  Nine Month Period
                                                             Ended September 30,                Ended September 30,
                                                    -----------------------------------------------------------------------
                                                         1999               2000               1999               2000
                                                    --------------     --------------     --------------     --------------
<S>                                                  <C>               <C>                <C>                <C>
OPERATING REVENUE . . . . . . . . . . . . . .       $   59,126,639     $   57,742,914     $  178,461,997     $  175,800,481
OPERATING EXPENSES: . . . . . . . . . . . . .
   Telecommunications costs . . . . . . . . .           24,404,796         23,069,692         77,717,419         71,723,497
   Facility commissions . . . . . . . . . . .           17,786,625         18,598,601         53,899,519         56,326,410
   Field operations and maintenance . . . . .            1,764,280          1,725,027          5,107,713          5,001,794
   Selling, general, and administrative . . .            4,233,144          4,416,322         12,871,682         13,304,697
   Depreciation . . . . . . . . . . . . . . .            1,836,722          2,071,508          5,302,114          6,086,530
   Amortization of intangibles . . . . . . .             5,310,427          3,347,335         16,647,884         11,878,101
                                                    --------------     --------------     --------------     --------------

      Total operating expenses . . . . . . .            55,335,994         53,228,485        171,546,331        164,321,029
                                                    --------------     --------------     --------------     --------------

OPERATING INCOME . . . . . . . . . . . . . .             3,790,645          4,514,429          6,915,666         11,479,452
INTEREST EXPENSE, NET. . . . . . . . . . . .             4,951,302          4,780,033         14,688,069         14,445,986
                                                    --------------     --------------     --------------     --------------

LOSS BEFORE INCOME TAXES . . . . . . . . . .            (1,160,657)          (265,604)        (7,772,403)        (2,966,534)
INCOME TAX EXPENSE . . . . . . . . . . . . .                69,656             30,518            165,898             83,653
                                                    --------------     --------------     --------------     --------------

NET LOSS . . . . . . . . . . . . . . . . . .        $   (1,230,313)    $     (296,122)    $   (7,938,301)    $   (3,050,187)
PREFERRED STOCK DIVIDEND AND ACCRETION
  OF DISCOUNT. . . . . . . . . . . . . . . .               364,885            370,535            867,357          1,107,269
                                                    --------------     --------------     --------------     --------------

NET LOSS APPLICABLE TO COMMON STOCK. . . . .        $   (1,595,198)    $     (666,657)    $   (8,805,658)    $   (4,157,456)
                                                    ==============     ==============     ==============     ==============

</TABLE>


                 See notes to consolidated financial statements


                                       4
<PAGE>



                         EVERCOM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                Nine Month Period
                                                                                               Ended September 30,
                                                                                        -----------------------------------
                                                                                             1999                 2000
                                                                                        --------------       --------------

<S>                                                                                     <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Loss                                                                              $   (7,938,301)      $   (3,050,187)
  Adjustments to reconcile net loss to net cash provided by
    operating activities:
     Depreciation...............................................................             5,302,114            6,086,530
     Amortization of intangible assets, including deferred
      financing costs  .........................................................            17,414,720           12,678,922
     Changes in operating assets and liabilities, net of
      effects of acquisitions:
        Accounts receivable  ....................................................            1,631,061             (524,998)
        Inventories ............................................................              (439,376)             (85,570)
        Prepaid expenses and other assets.......................................               720,751             (212,879)
        Accounts payable........................................................            (3,806,036)           1,367,252
        Accrued expenses........................................................             2,507,941             (990,845)
        Income taxes............................................................                (9,889)             104,239
                                                                                        --------------       --------------

          Net cash provided by operating activities.............................            15,382,985           15,372,464
                                                                                        --------------       --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures..........................................................            (5,784,516)          (8,105,921)
  Cash outflows for acquisitions................................................            (2,434,909)          (1,729,607)
                                                                                           -----------       --------------

     Net cash used in investing activities......................................            (8,219,425)          (9,835,528)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of debt............................................             5,500,000            5,000,000
  Payment of debt issuance costs................................................              (336,992)            (382,186)
  Repayment of debt.............................................................           (15,093,360)         (11,320,168)
  Proceeds from the issuance of preferred stock and warrants,
    net of expenses.............................................................             4,895,337
                                                                                        --------------       --------------

     Net cash used in financing activities......................................            (5,035,015)          (6,702,354)
                                                                                        --------------       --------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..............................               2,128,545           (1,165,418)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................               1,691,762            1,987,732
                                                                                        --------------       --------------

CASH AND CASH EQUIVALENTS, END OF PERIOD.....................................           $    3,820,307       $      822,314
                                                                                        ==============       ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest.......................................................        $   10,718,189       $   10,317,573
                                                                                        ==============       ==============

   Cash paid (refunded) for income taxes........................................        $      175,787       $      (20,586)
                                                                                        ==============       ==============

NONCASH TRANSACTIONS:
   Dividends payable............................................................        $      575,931       $      665,501
                                                                                        ==============       ==============

   Stock issued for acquisition of assets.......................................        $      150,000       $            -
                                                                                        ==============       ==============
</TABLE>

                 See notes to consolidated financial statements





                                       5
<PAGE>

                         EVERCOM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       CONSOLIDATED FINANCIAL STATEMENTS

        The consolidated  financial  statements as of September 30, 2000 and for
the  three-month  and  nine-month  periods ended  September 30, 1999 and 2000 of
Evercom,  Inc. and its  subsidiaries  (the  "Company") have been prepared by the
Company without audit.


        In the opinion of management,  all necessary  adjustments (which include
only normal recurring  adjustments) to present fairly, in all material respects,
the consolidated financial position, results of operations, and cash flows as of
and for the respective periods, have been made. Certain information and footnote
disclosures  normally  included  in  annual  consolidated  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission.  These financial  statements  should be read in conjunction with the
Company's 1999 consolidated  financial  statements contained in its Form 10-K as
filed with the Securities and Exchange Commission on March 30, 2000.


     Revenue Recognition

     In December  1999,  the staff of the  Securities  and  Exchange  Commission
issued Staff  Accounting  Bulletin No. 101 ("SAB 101"),  Revenue  Recognition in
Financial  Statements.  In March  2000,  SAB 101 was  amended  by SAB 101A which
delayed  the  implementation  date of SAB 101 for  calendar  year end  reporting
companies to the quarter ending June 30, 2000. In June 2000, SAB 101 was amended
a second time by SAB 101B further delaying the  implementation  date to no later
than the quarter ending  December 31, 2000. The Company is currently  evaluating
SAB 101 and does not believe SAB 101 will have a material effect on its revenues
and results of operations.


       Comprehensive Income

       Statement of Financial  Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive  Income,"  became  effective as of the first quarter of 1998. This
statement requires companies to report and display  comprehensive income and its
components  (revenues,   expenses,  gains,  and  losses).  Comprehensive  income
includes  all changes in equity  during a period  except  those  resulting  from
investments   by  owners  and   distributions   to  owners.   For  the  Company,
comprehensive  income  is the same as net loss  reported  in the  statements  of
consolidated operations, since there were no other items of comprehensive income
for the periods presented.



      Derivative Instruments and Hedging Activities

      In June 1998,  the Financial  Accounting  Standards  Board issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS


                                       6
<PAGE>


No. 133 requires recognition of all derivative  financial  instruments as either
assets  or  liabilities  in  consolidated  balance  sheets  at  fair  value  and
determines the method(s) of gain/loss recognition. SFAS No. 133 is effective for
fiscal  years  beginning  after June 15,  2000.  The  Company  expects  that the
derivative  identified  to date  will  result in a cash flow  hedge  which  will
require the Company to record the derivative asset or liability at fair value on
its statement of financial position with an offset in Other Comprehensive Income
to the extent the hedge is  effective.  The Company  continues  to evaluate  the
impact of SFAS No. 133 as well as the ongoing  implementation  issues  currently
being addressed by the Derivatives Implementation Group. As a result, the direct
financial  impact of the  application  of hedge  accounting  and the  transition
adjustment on the Company's financial position and results of operations has yet
to be determined.



                                       7
<PAGE>

2. Accounts Receivable


        Accounts receivable consist of the following:

<TABLE>
<CAPTION>

                                                                                         December 31,        September 30,
                                                                                             1999                2000
                                                                                                              (Unaudited)
                                                                                        --------------      --------------

<S>                                                                                     <C>                 <C>
Trade accounts receivable....................................................           $   38,384,376      $   38,705,285
Advance commissions receivable...............................................                1,870,475           1,932,290
Receivables related to acquisitions..........................................                  226,015             226,015
Recoverable Universal Service Fund fees......................................                1,123,165             491,242
Employees and other..........................................................                  251,419              41,081
Less allowance for unbillable and                                                       --------------      --------------
                                                                                        $   41,855,450          41,395,913
Less allowance for unbillable and
uncollectible chargebacks..................................................                 (3,592,618)         (2,608,083)
                                                                                        --------------      --------------
                                                                                        $   38,262,832      $   38,787,830
                                                                                        ==============      ==============

</TABLE>


     At December  31, 1999 and  September  30,  2000,  the Company had  advanced
commissions   to  certain   inmate   facilities  of  $2,100,149  and  $2,070,416
(unaudited), which are recoverable from such facilities as a reduction of earned
commissions  at  specified   monthly  amounts.   Amounts  included  in  accounts
receivable  represent the estimated  recoverable  amounts during the next fiscal
year with the remaining balance recorded in other assets.

3. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

<TABLE>
<CAPTION>


                                                                                         December 31,        September 30,
                                                                                             1999                2000
                                                                                        --------------      --------------
                                                                                                             (Unaudited)

<S>                                                                                     <C>                 <C>
Leasehold improvements.......................................................           $      913,420      $      944,292
Telephone system equipment...................................................               39,666,667          44,907,845
Vehicles.....................................................................                  429,460             430,548
Office equipment.............................................................                2,540,215           2,723,863
                                                                                        --------------      --------------
                                                                                            43,549,762          49,006,548
Less accumulated depreciation................................................              (15,174,405)        (21,260,935)
                                                                                        --------------      --------------
                                                                                        $   28,375,357         $27,745,613
                                                                                        ==============      ==============


</TABLE>


                                       8
<PAGE>

4. INTANGIBLE AND OTHER ASSETS

       Intangible and other assets consist of the following:

<TABLE>
<CAPTION>

                                                                                         December 31,        September 30,
                                                                                             1999                2000
                                                                                        --------------      --------------
                                                                                                             (Unaudited)
<S>                                                                                     <C>                 <C>
Intangible assets:
     Acquired telephone contracts................................................       $   67,761,060      $   70,845,909
     Noncompete agreements.......................................................              568,611             568,611
     Deferred loan costs.........................................................            8,636,059           9,018,245
     Goodwill....................................................................           84,530,834          84,530,834
     Other intangibles...........................................................              766,502             769,027
                                                                                        --------------      --------------
                                                                                           162,263,066         165,732,626
   Less accumulated amortization.................................................          (65,195,703)        (77,874,625)
                                                                                        --------------      --------------
Total intangible assets..........................................................           97,067,363          87,858,001
Deposits.........................................................................              431,996             422,903
Other assets - noncurrent portion of commission advances to facilities...........              229,674             138,126
                                                                                        --------------      --------------
                                                                                        $   97,729,033      $   88,419,030
                                                                                        ==============      ==============

</TABLE>


5.  ACCRUED EXPENSES


     Accrued expenses consist of the following:

<TABLE>
<CAPTION>


                                                                                         December 31,        September 30,
                                                                                             1999                2000
                                                                                        --------------      --------------
                                                                                                             (Unaudited)

<S>                                                                                     <C>                 <C>
          Facility commissions...............................................           $    7,303,783      $    7,826,934
          Billing and collection fees........................................                1,411,127           1,648,473
          Uncollectible call chargebacks.....................................                4,554,260
          Accrued acquisition and financing costs............................                1,493,164             744,296
          Accrued interest...................................................                   64,782           3,392,374
          Accrued excise taxes payable.......................................                1,847,889           1,508,570
          Accrued dividends on preferred stock...............................                1,268,432           1,923,933
          Accrued restructure costs..........................................                   17,796
          Accrued payroll and bonuses........................................                1,689,438           1,521,245
          Other..............................................................                1,550,792           1,551,426
                                                                                        --------------      --------------
                                                                                        $   21,201,463      $   20,117,251
                                                                                        ==============      ==============

</TABLE>

     The accrual for  uncollectible  call chargebacks  represented a reserve for
amounts   collected  from  the  various  local  exchange  carriers  ("LECs")  or
third-party  billing  services  that were  expected  to be  charged  back to the
Company in future periods.  At September 30, 2000, no accrual for  uncollectible
call chargebacks is required  because all LECs and third-party  billing services
have established  reserves to cover future chargebacks by withholding funds from
the Company.




                                       9
<PAGE>

6. LONG-TERM DEBT

     The following is a summary of long-term debt:

<TABLE>
<CAPTION>


                                                                                         December 31,        September 30,
                                                                                             1999                2000
                                                                                        --------------      --------------
                                                                                                             (Unaudited)

<S>                                                                                     <C>                 <C>
          Senior Notes.......................................................           $  115,000,000      $  115,000,000
          Senior Credit Facility:
              Revolving loan facility........................................               11,500,000           9,500,000
              Term loan acquisition facility.................................               39,875,000          30,593,750
              Additional term loan facility..................................                5,500,000           5,500,000
              Second Additional term loan facility...........................                                    5,000,000
          Other   ...........................................................                   86,234              47,316
                                                                                        --------------      --------------
                                                                                           171,961,234         165,641,066
          Less current portion of long-term debt.............................              (12,434,468)        (13,453,566)
                                                                                        --------------      --------------
                                                                                        $  159,526,766      $  152,187,500
                                                                                        ==============      ==============

</TABLE>


     Under the terms of the Senior Credit  Facility,  the term loan  acquisition
facility  is  due  in  quarterly  installments  of  $3,093,750,   increasing  to
$3,437,500 on March 31, 2001, with the remaining  unpaid balance due on December
31, 2002. The additional term loan facility is due on December 31, 2002.

     On August 9, 2000,  the Company's  Senior Credit  Facility group of lenders
approved an  amendment  to provide a second  additional  $7.5  million term loan
facility to the Company under the Senior Credit  Facility.  $5.0 million of this
additional  term  facility  is  immediately  available  to the  Company  and the
remaining  $2.5 million will be made  available in the first  quarter of 2001 if
the Company  achieves $40.0 million of earnings before  interest,  income taxes,
depreciation,  and  amortization  ("EBITDA") for the fiscal year ending December
31, 2000. All borrowings under this second additional term loan facility are due
on  December  31,  2002.  The  amendment  increases  the  interest  rate  on all
previously existing debt balances under the Senior Credit Facility by 0.25%. The
interest  rate on  borrowings  under the  second new term loan  facility  is the
London Interbank Offering Rate ("LIBOR") plus 4.0%. The amendment  increases the
Company's  letter of credit  facility under the revolving  portion of the Senior
Credit  Facility  from $5.0  million to $10.0  million but does not increase the
Company's  total  borrowing  capacity under the revolving  portion of the Senior
Credit  Facility.  The Company  negotiated this amendment to provide  additional
capital for new business opportunities and to increase its working capital.

     On June 30, 1998,  the Company  entered into an interest rate cap agreement
that has been designated as a hedge against the Company's variable interest rate
exposure  under the  Company's  revolving and term loan  agreement  (the "Senior
Credit Facility"). At September 30, 2000, the interest rate cap has an aggregate
notional amount of $30.0 million,  which matures in June 2001, and caps interest
on the LIBOR portion of the term loan, up to the aggregate  notional amount,  at
7.5%, plus the applicable LIBOR margin.


7.       ACQUISITION

       Effective  September 1, 2000, the Company purchased  substantially all of
the  assets  of  Firstel  Communications,  Inc.,  for a cash  purchase  price of
$325,000.  The acquisition  was funded with  borrowings  under the Senior Credit
Facility.




                                       10
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

        The following  discussion and analysis of the Company's  financial
condition  and  results of  operations  should be read in  conjunction  with the
financial  statements and the notes thereto contained  elsewhere in this report.
Certain  information  contained in the  discussion  and analysis set forth below
includes  forward-looking  statements that involve risks and uncertainties.  See
"Special Note Regarding Forward-Looking Information; Risk Factors."

Overview

       The Company is a provider of collect, prepaid, and debit calling services
to local, county, state, federal and private correctional facilities in the U.S.
The Company  derives  substantially  all of its revenues  from its  operation of
inmate  telecommunications  systems  located in  correctional  facilities  in 43
states and the District of Columbia.

       The Company's inmate telecommunications services consist of collect call,
prepaid,  and debit card services.  The Company generally enters into multi-year
agreements  (typically  three to five years) with the  correctional  facilities,
pursuant   to  which  the   Company   serves  as  the   exclusive   provider  of
telecommunications services to inmates within each facility. In exchange for the
exclusive service rights, the Company pays a percentage of its revenue from each
correctional facility as a commission to that facility.  Typically,  the Company
installs  and retains  ownership of the  telephones  and related  equipment  and
provides additional services to correctional facilities that are tailored to the
specialized  needs of the  corrections  industry and to the  requirements of the
individual  correctional  facility,  such as call  activity  reporting  and call
blocking.  The Company also generates  revenues from public pay telephones  that
are ancillary to its inmate telephone business.

       The Company accumulates call activity data from its various installations
and bills its revenues  related to this call  activity  through  local  exchange
carriers  ("LECs") or through  third-party  billing services.  In addition,  the
Company   accrues  the   related   telecommunications   costs  for   validating,
transmitting,  billing and collection, and line and long-distance charges, along
with  commissions  payable to the facilities,  and allowances for  uncollectible
accounts based on historical experience.

       The Company's  traditional inmate business consists of collect,  prepaid,
and debit calling services provided to correctional facilities. The Company also
provides validation,  billing, and collection services for the inmate calls of a
major LEC. Under the terms of the agreement,  the Company acquires at a discount
the  related  accounts  receivable  from the LEC for the calls that the  Company
processes.   When  the   receivables   are   purchased,   the  Company   accepts
responsibility  for all  validation,  uncollectible  accounts,  and  billing and
collection costs, with no recourse to the LEC. The Company's  revenues from this
service equal the difference between the face value of the receivables purchased
and the  amount  it pays the LEC for the  discounted  accounts  receivable.  The
contract  has no  minimum  volume  commitment.  The  Company  pays  no  facility
commissions  under this  agreement.  In August 1999, the Company began providing
validation,    billing,   and   collection   services   to   a   second   inmate
telecommunications  provider.  Under this  agreement  the Company  charges  this
customer a transaction  fee and charges back all  uncollectible  accounts to the
customer.


                                       11
<PAGE>


       The   Company's    principal    operating   expenses   consist   of   (i)
telecommunications  costs;  (ii)  commissions  paid to correctional  facilities,
which are  typically  expressed as a percentage of either gross or net revenues,
(iii) field operations and maintenance  costs,  which consist primarily of field
service on the Company's installed base of inmate telephones;  and (iv) selling,
general and administrative ("SG&A") costs.

       Telecommunications  Costs. The principal  components of telecommunication
costs are long distance  transmission  costs,  local access  costs,  third party
billing costs, and costs of uncollectible accounts.  Historically, long distance
costs have consisted of charges for minutes of use purchased from  interexchange
carriers  ("IXCs").  The Company has also entered into agreements to lease lines
connecting urban areas and correctional facilities. Local access charges consist
of monthly line and usage charges paid to LECs for  interconnection to the local
network for local calls,  which are computed on a flat monthly  charge plus, for
certain  LECs,  and on a per message or per minute  usage rate based on the time
and duration of the call.  Third-party  billing  charges  consist of payments to
LECs and other billing  service  providers for billing and  collecting  revenues
from called  parties.  Expenses  associated  with  uncollectible  accounts are a
significant cost in providing inmate telecommunications services.

       Commissions.  The Company  pays a  percentage  of its  revenue  from each
facility to that facility as a commission. Commissions are generally set for the
duration of the Company's  multi-year  contract  with the facility,  and in some
cases are subject to monthly minimum  amounts.  Commission  rates are one of the
primary  bases  of  competition  for  obtaining  and  retaining  contracts.  The
Company's  ability  to  offer  increasingly   attractive   commission  rates  to
facilities depends on its ability to control its operating expenses.  Generally,
contracts for larger  facilities have higher  commission rates, but these higher
commission  rates  are  typically   offset  by  lower  network  charges,   field
maintenance,  and SG&A expenses as a percentage of revenue. The commission rates
paid by the Company have  increased  in each period,  from 30.1% for the quarter
ended September 30, 1999 to 32.2% for the quarter ended September 30, 2000. This
increase is due  primarily to higher  facility  commissions  on renewals and new
business. Commission rates are expected to gradually increase as a percentage of
revenues in the future.

     Field Operations and Maintenance.  Field operations and maintenance consist
of maintenance costs associated with inmate phones and related equipment.

     Selling,  General and  Administrative.  SG&A expenses  consist of corporate
overhead and selling expenses.



                                       12
<PAGE>

Results of Operations

       The  following  table sets  forth,  for the three  months and nine months
ended  September  30,  1999 and 2000,  respectively,  the  unaudited  results of
operations of the Company.

<TABLE>
<CAPTION>


                                    Three Months Ended September 30,           Nine Months Ended September 30,
                                ---------------------------------------   ----------------------------------------
                                         1999               2000                  1999                 2000
                                ---------------------------------------   ----------------------------------------
<S>                             <C>         <C>        <C>         <C>    <C>          <C>     <C>           <C>

(Dollars in thousands)

Operating Revenue . . . . .     $  59,127   100.0 %   $  57,743   100.0 % $ 178,462    100.0%  $ 175,800     100.0%
Operating Expenses:
   Telecommunications
     costs . . . . . . . . .       24,405    41.3        23,070    40.0      77,717     43.5      71,723      40.8
   Facility commissions . .        17,787    30.1        18,599    32.2      53,899     30.2      56,326      32.0
   Field operations and
     maintenance . . . . . .        1,764     3.0         1,725     3.0       5,108      2.9       5,002       2.8
   Selling, general and
     administrative . . .           4,233     7.1         4,416     7.6      12,872      7.2      13,305       7.6
 .
   Depreciation . . . . .           1,837     3.1         2,072     3.6       5,302      3.0       6,087       3.5
 .
   Amortization of
     intangibles. . . . . .         5,310     9.0         3,347     5.8      16,648      9.3      11,878       6.8
                                ---------   -----     ---------   -----   ---------    -----   ---------     -----

      Total operating
          expenses. . . . .        55,336    93.6        53,229    92.2     171,546     96.1     164,321      93.5
                                ---------   -----     ---------   -----   ---------    -----   ---------     -----

Operating income . . . . .          3,791     6.4         4,514     7.8       6,916      3.9      11,479       6.5
Interest expense, net. . .          4,951     8.4         4,780     8.3      14,688      8.2      14,446       8.2
                                ---------   -----     ---------   -----   ---------    -----   ---------     -----

Loss before income taxes .         (1,160)   (2.0)         (266)   (0.5)     (7,772)    (4.3)     (2,967)     (1.7)
Income tax expense . . . .             70     0.1            30     0.0         166      0.1          83       0.0
                                ---------   -----     ---------   -----   ---------    ------ ----------     -----

Net loss . . . . . . . . .      $  (1,230)   (2.1)%   $    (296)   (0.5)% $  (7,938)    (4.4)% $  (3,050)     (1.7)%
                                =========   =====     =========   =====   =========    =====   =========     =====
EBITDA . . . . . . . . . .      $  10,938    18.5 %   $   9,933    17.2 % $  28,866     16.2 % $  29,444      16.7 %
                                =========   =====     =========   =====   =========    =====   =========     =====

</TABLE>


       Three  Months  Ended  September  30, 2000  Compared to Three Months Ended
September 30, 1999.

       Operating  Revenues.  The Company's  operating revenues decreased by $1.4
million,  or 2.3%,  from $59.1 million for the three months ended  September 30,
1999 to $57.7  million  for the three  months  ended  September  30,  2000.  The
decrease in  operating  revenue was caused by the loss of certain  contracts  to
service inmate  facilities as a result of market  competition.  The decrease was
also due in part to enhanced  validation  procedures,  which are a result of the
Company's  recent  system  integrations.  Validation  is  designed to reduce the
Company's  exposure  to bad debt by denying  access to calls to  customers  with
higher credit risk, thereby reducing revenue along with bad debt expense.

       Operating Expenses. Total operating expenses decreased $2.1 million, from
$55.3 million for the three months ended September 30, 1999 to $53.2 million for
the three months ended September 30, 2000. Operating expenses as a percentage of
operating  revenues  decreased  1.4%  from  93.6%  for the  three  months  ended
September 30, 1999 to 92.2% for the three months ended  September 30, 2000.  The
decrease in operating  expenses as a percentage  of revenues is primarily due to
the factors discussed below.

       Telecommunication costs decreased by $1.3 million, from $24.4 million for
the three months ended  September 30, 1999 to $23.1 million for the three months
ended  September  30,  2000.   Telecommunications  costs  represented  41.3%  of
operating  revenues for the three months ended  September  30, 1999 and 40.0% of
operating  revenues for the three months ended  September 30, 2000. The decrease
in  telecommunications  costs as a percentage of operating


                                       13
<PAGE>


revenues is  primarily  due to (i) a decline in bad debt  expense as a result of
enhanced  validation due to the Company's  recent system  integrations  and (ii)
savings generated from new long distance contracts.

       Facility  commissions  increased by $0.8 million,  from $17.8 million for
the three months ended  September 30, 1999 to $18.6 million for the three months
ended September 30, 2000.  Facility  commissions  represented 30.1% of operating
revenues for the three months  ended  September  30, 1999 and 32.2% of operating
revenues  for the three months ended  September  30, 2000,  an increase of 2.1%.
Commission  expense as a  percentage  of revenue for the  Company's  traditional
inmate  business was 33.7% and 36.1% for the three months  ended  September  30,
1999  and  2000,  respectively.  This  increase  is due to  competition  for new
business  and  increased  commission  rates on  renewals.  Commission  rates are
expected to gradually increase in the future.

       Field  operations and  maintenance  costs were $1.8 million for the three
months  ended  September  30, 1999 and $1.7  million for the three  months ended
September 30, 2000. Field operations and maintenance  costs  represented 3.0% of
operating revenues for the three months ended September 30, 1999, and 2000.

       SG&A costs  increased  by $0.2  million,  from $4.2 million for the three
months  ended  September  30, 1999 to $4.4  million for the three  months  ended
September 30, 2000. SG&A  represented  7.1% of operating  revenues for the three
months ended  September  30, 1999 and 7.6% of  operating  revenues for the three
months ended  September 30, 2000, an increase of 0.5%. The increase is primarily
due to increased staffing to support  enhancements to the Company's  information
systems and to execute new sales initiatives.

       Depreciation and amortization costs decreased by $1.7 million,  from $7.1
million for the three  months ended  September  30, 1999 to $5.4 million for the
three months ended  September  30, 2000.  Depreciation  and  amortization  costs
represented 12.1% of operating revenues for the three months ended September 30,
1999 and 9.4% of operating  revenues for the three  months ended  September  30,
2000, a decrease of 2.7%. The decrease as a percentage of operating  revenues is
primarily due to amortization expense associated with the acquisitions of inmate
facility  contracts  by the  Company.  The  Company  amortizes  acquired  inmate
facility contracts over each contract's  remaining term at the acquisition date.
As the contract terms expire,  the acquired  inmate  facility  contracts  become
fully amortized and amortization expense declines.

       Operating  Income.  The  Company's  operating  income  increased  by $0.7
million, from $3.8 million for the three months ended September 30, 1999 to $4.5
million for the three months ended September 30, 2000,  substantially due to the
factors  described above.  The Company's  operating income margin increased from
6.4% for the three months ended  September 30, 1999 to 7.8% for the three months
ended September 30, 2000, primarily as a result of the factors described above.

       Interest  Expense.  Interest expense  decreased from $4.9 million for the
three months ended September 30, 1999 to $4.8 million for the three months ended
September  30,  2000.  This  decrease is  primarily  due to lower  average  debt
outstanding during the three months ended September 30, 2000.

       Net Loss.  The  Company's net loss  decreased by $0.9 million,  from $1.2
million for the three  months ended  September  30, 1999 to $0.3 million for the
three months  ended  September  30,  2000,  primarily as a result of the factors
described above.


                                       14
<PAGE>

       EBITDA.  Earnings  before  interest,  income  taxes,  depreciation,   and
amortization  ("EBITDA") decreased from $10.9 million for the three months ended
September  30, 1999 to $9.9  million for the three months  ended  September  30,
2000. EBITDA as a percentage of operating  revenues decreased from 18.5% for the
three  months  ended  September  30,  1999 to 17.2% for the three  months  ended
September  30, 2000,  primarily  due to the factors  described  above.  Although
EBITDA is not a measure of performance  calculated in accordance  with generally
accepted accounting principles,  the Company has included information concerning
EBITDA in this Form 10-Q because it is commonly  used by certain  investors  and
analysts as a measure of a company's ability to service its debt obligations and
is a component of the Company's  debt  compliance  ratios.  EBITDA should not be
used as an alternative  to, or be considered  more  meaningful  than,  operating
income,  net income,  or cash flows as an indicator of the  Company's  financial
performance.  Two of the  Company's  subsidiaries  are  subject to state  income
taxes.  Consequently,  the Company  accrues  income tax  expense  even in a loss
period.

Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999.

     Operating  Revenues.  The Company's  operating  revenues  decreased by $2.7
million,  or 1.5%,  from $178.5 million for the nine months ended  September 30,
1999 to $175.8  million  for the nine  months  ended  September  30,  2000.  The
decrease in  operating  revenues was due to (i) the loss of the State of Alabama
contract which  contributed $1.3 million of revenue during the nine months ended
September 30, 1999, (ii) enhanced validation  procedures,  which are a result of
the Company's recent system integrations and (iii) the loss of certain contracts
to service inmate facilities as a result of market competition.  These decreases
were partially offset by the acquisition of Alliance Tel-Com,  Inc., KR&K, Inc.,
U.S. Connect, Inc.,  Telecommunications,  Inc., and Lake-Tel, Inc. (collectively
"Alliance") on June 1, 1999 and Firstel on September 1, 2000.

       Operating Expenses. Total operating expenses decreased $7.2 million, from
$171.5  million for the nine months ended  September 30, 1999 to $164.3  million
for the nine months ended September 30, 2000. Operating expenses as a percentage
of  operating  revenues  decreased  2.6% from  96.1% for the nine  months  ended
September 30, 1999 to 93.5% for the nine months ended  September  30, 2000.  The
decrease in operating  expenses as a percentage  of revenues is primarily due to
the factors discussed below.

       Telecommunications  costs  decreased by $6.0 million,  from $77.7 million
for the nine  months  ended  September  30,  1999 to $71.7  million for the nine
months ended September 30, 2000.  Telecommunications  costs represented 43.5% of
operating  revenues  for the nine months ended  September  30, 1999 and 40.8% of
operating revenues for the nine months ended September 30, 2000. The decrease in
telecommunication  costs as a percentage of operating  revenues is primarily due
to (i) savings generated from new long distance  contracts and (ii) a decline in
bad debt expense as a result of enhanced  validation due to the Company's recent
system integrations.

       Facility  commissions  increased by $2.4 million,  from $53.9 million for
the nine months ended  September  30, 1999 to $56.3  million for the nine months
ended September 30, 2000.  Facility  commissions  represented 30.2% of operating
revenues  for the nine months  ended  September  30, 1999 and 32.0% of operating
revenues for the nine months  ended  September  30,  2000,  an increase of 1.8%.
Commission  expense as a  percentage  of revenue for the  Company's  traditional
inmate business was 33.8% and 35.8% for the nine months ended September 30, 1999
and 2000, respectively. This increase is due to


                                       15
<PAGE>


competition  for new  business  and  increased  commission  rates  on  renewals.
Commission rates are expected to gradually increase in the future.

       Field  operations  and  maintenance  costs were $5.1 million for the nine
months  ended  September  30, 1999 and $5.0  million  for the nine months  ended
September 30, 2000. Field operations and maintenance  costs  represented 2.9% of
operating  revenues  for the nine months  ended  September  30, 1999 and 2.8% of
operating  revenues for the nine months ended  September 30, 2000, a decrease of
0.1%. This decrease was primarily due to office consolidations.

       SG&A costs  increased by $0.4  million,  from $12.9  million for the nine
months  ended  September  30, 1999 to $13.3  million  for the nine months  ended
September 30, 2000.  SG&A  represented  7.2% of operating  revenues for the nine
months  ended  September  30, 1999 and 7.6% of  operating  revenues for the nine
months ended September 30, 2000, an increase of 0.4%. This increase is primarily
due to increased staffing to support  enhancements to the Company's  information
systems and to execute new sales  initiatives.  Additionally,  the Company spent
$0.2  million  during the nine months  ended  September  30, 2000 for  executive
search fees.

       Depreciation and amortization costs decreased by $3.9 million, from $21.9
million for the nine months ended  September  30, 1999 to $18.0  million for the
nine months  ended  September  30, 2000.  Depreciation  and  amortization  costs
represented 12.3% of operating  revenues for the nine months ended September 30,
1999 and 10.3% of operating  revenues for the nine months  ended  September  30,
2000, a decrease of 2.0%. The decrease as a percentage of operating  revenues is
primarily due to amortization expense associated with the acquisitions of inmate
facility  contracts  by the  Company.  The  Company  amortizes  acquired  inmate
facility contracts over each contract's  remaining term at the acquisition date.
As the contract terms expire,  the acquired  inmate  facility  contracts  become
fully amortized and amortization expense declines.

       Operating  Income.  The  Company's  operating  income  increased  by $4.6
million, from $6.9 million for the nine months ended September 30, 1999 to $11.5
million for the nine months ended September 30, 2000,  substantially  due to the
factors  described above.  The Company's  operating income margin increased from
3.9% for the nine months  ended  September  30, 1999 to 6.5% for the nine months
ended September 30, 2000, primarily as a result of the factors described above.

       Interest Expense.  Interest expense was $14.7 million for the nine months
ended  September 30, 1999, and $14.4 million for the nine months ended September
30, 2000.  This  decrease is  primarily  due to lower  average debt  outstanding
during the nine months ended September 30, 2000.

       Net Loss.  The  Company's net loss  decreased by $4.9 million,  from $7.9
million for the nine months  ended  September  30, 1999 to $3.0  million for the
nine months  ended  September  30,  2000,  primarily  as a result of the factors
described above.

       EBITDA.  EBITDA increased by $0.5 million from $28.9 million for the nine
months  ended  September  30, 1999 to $29.4  million  for the nine months  ended
September 30, 2000. EBITDA as a percentage of operating  revenues increased from
16.2% for the nine months ended  September 30, 1999 to 16.7% for the nine months
ended September 30, 2000, primarily due to the factors described above. Although
EBITDA is not a measure of performance  calculated in accordance  with generally
accepted accounting principles,  the Company has included information concerning
EBITDA in this Form 10-Q because it is commonly  used by certain  investors  and
analysts as a measure of a company's


                                       16
<PAGE>


ability to service its debt obligations and is a component of the Company's debt
compliance  ratios.  EBITDA  should  not be used  as an  alternative  to,  or be
considered more meaningful than,  operating income, net income, or cash flows as
an  indicator  of the  Company's  financial  performance.  Two of the  Company's
subsidiaries  are  subject to state  income  taxes.  Consequently,  the  Company
accrues income tax expense even in a loss period.


                                       17
<PAGE>

Liquidity and Capital Resources

     The Company  expects that its principal  sources of liquidity  will be cash
flow from operations and borrowings under the Senior Credit Facility.  On August
9, 2000,  the Company's  Senior  Credit  Facility  group of lenders  executed an
amendment  to provide an  additional  $7.5  million  term loan  facility  to the
Company under the Senior Credit  Facility.  $5.0 million of this additional term
facility is immediately  available to the Company and the remaining $2.5 million
will be available  in the first  quarter of 2001 if the Company  achieves  $40.0
million of EBITDA for the fiscal year ending  December 31, 2000.  All borrowings
under this  additional term facility are due on December 31, 2002. The amendment
increases the interest rate on all  previously  existing debt balances under the
Senior Credit Facility by 0.25%.  The interest rate on borrowings  under the new
term facility is LIBOR plus 4.0%. The amendment  increases the Company's  letter
of credit  facility  under the revolving  portion of the Senior Credit  Facility
from $5.0 million to $10.0  million but does not increase  the  Company's  total
borrowing  capacity under the revolving  portion of the Senior Credit  Facility.
The Company  negotiated  this  amendment to provide  additional  capital for new
business  opportunities  and  to  increase  its  working  capital.  The  Company
anticipates  that its  principal  uses of liquidity  will be to provide  working
capital,   fund  capital  investments,   and  meet  debt  service  requirements.
Management  expects  that cash  flow  from  operations,  along  with  additional
borrowings  under  existing  credit  facilities,  will be sufficient to meet the
Company's  operating  requirements  for the  next  twelve  months.  The  Company
currently  anticipates that interest  payments will be required of approximately
$18.3 million and $17.1 million for each of the fiscal years ending December 31,
2000 and December 31,  2001,  respectively,  under the terms of the Senior Notes
and the Senior  Credit  Facility.  As of  September  30,  2000,  the Company had
approximately $13.7 million of unused borrowing capacity under the Senior Credit
Facility.  The Company anticipates that its primary capital expenditures for the
remainder of 2000 will be approximately  $3.0 million for capital items required
to implement new contracts  and contract  renewals  entered into by the Company,
upgrades  of  internal  systems,  and  capital   expenditures   associated  with
acquisitions  in prior years.  Total  capital  expenditures  for the fiscal year
ending December 31, 2000 are expected to be $12.8 million.

       In March  1999,  the  Company  raised  $5.0  million  of equity  from its
existing  stockholders and warrant holders and/or their  affiliates  through the
issuance of 5,000 investment units at $1,000 per unit. Each unit consists of one
share of newly  authorized  First  Preferred  Series  "A" Stock and a warrant to
acquire one share of the Company's Class "A" common stock for $1,000 per share.

       The First Preferred Series "A" Stock is entitled to receive  dividends at
the applicable First Preferred Series "A" Rate, payable quarterly. Dividends are
payable out of funds legally available therefore, will be payable only when, as,
and if declared by the Company's Board of Directors,  shall be cumulative,  and,
if undeclared or unpaid,  shall bear interest at the applicable  First Preferred
Series "A" Rate until paid. The First Preferred Series "A" Rate is eight percent
per annum  through  March 31, 2001,  will be ten percent per annum from April 1,
2001  through  June 30,  2001,  and  thereafter  will  increase by 0.5% for each
additional  three  month  period,  up to a maximum of 16% per  annum.  The First
Preferred Series "A" Stock ranks senior to all classes of common stock but ranks
junior to the Senior  Preferred Stock with respect to dividend rights and rights
upon liquidation.  The warrants have a strike price of $1,000 per share and will
expire if not exercised before December 31, 2007. As a result of the issuance of
the First Preferred  Series "A" Stock and warrants,  the Company was required to


                                       18
<PAGE>

obtain a waiver from its Senior Credit Facility group of lenders that waived the
lenders' rights to the proceeds raised by the Company from the issuance.

       In  conjunction  with the  March  1999  equity  offering,  the  preferred
dividend  rates on the  Senior  Preferred  Stock  were  modified  to mirror  the
preferred dividend rates on the First Preferred Series "A" Stock.

       Also in  March  1999,  and in  conjunction  with  the  issuance  of First
Preferred  Series "A" Stock and warrants,  the Company amended its Senior Credit
Facility.  The amendment  increased the Company's  borrowing  capacity under the
term loan  facility of the Senior Credit  Facility by $5.5 million,  which bears
interest at similar  rates to the existing  borrowings  under the Senior  Credit
Facility.  The Company  borrowed the  additional  $5.5 million in March 1999 and
concurrently repaid $5.0 million under the revolving loan facility of the Senior
Credit Facility.

       Net cash provided by operating  activities was $15.4 million for both the
nine months ended  September 30, 1999,  and for the nine months ended  September
30, 2000.  Operating income for the nine months ended September 30, 2000, before
consideration of depreciation and amortization, increased by $0.6 million, which
was offset by timing of certain cash receipts and disbursements.

       Cash used in  investing  activities  was $8.2 million for the nine months
ended  September 30, 1999, as compared to $9.8 million for the nine months ended
September   30,  2000,   consisting   primarily   of  both  cash   outflows  for
infrastructure  upgrades,  investments  in new business  and  customer  contract
renewals,  and the payments of $2.4 million and $1.7 million,  respectively,  of
acquisition  costs relating to the  acquisitions  made by the Company in current
and prior years.

       Cash used in  financing  activities  was $5.0 million for the nine months
ended  September 30, 1999, as compared to $6.7 million for the nine months ended
September 30, 2000. Cash used in financing  activities for the nine months ended
September 30, 2000 consisted primarily of principal  repayments under the Senior
Credit  Facility  offset by borrowings  under the additional term loan facility.
Cash used in financing  activities for the nine months ended  September 30, 1999
consisted  primarily of principal  repayments  under the Senior Credit Facility,
offset by proceeds from the issuance of the First Preferred Series "A" stock and
warrants and borrowing under an additional term loan facility.

       The Senior Credit Facility, as amended on August 9, 2000, consists of (a)
a $55.0  million term loan  acquisition  facility all of which has been borrowed
and upon which $24.4 million of scheduled principle payments had been made as of
September  30, 2000,  (b) $13.0 million of  additional  term loan  facilities of
which $10.5 million has been borrowed as of September 30, 2000, and $2.5 million
will become  available by March 31, 2001 subject to the  achievement  of certain
financial  performance  being achieved as described  further  herein,  and (c) a
$25.0 million  revolving loan facility (which includes a $10.0 million letter of
credit  facility)  upon which $9.5 million had been borrowed as of September 30,
2000.  Scheduled  principal  payments under the term loan  facilities may not be
reborrowed.  Amounts borrowed under the Senior Credit Facility bear interest, at
the  option of the  Company,  at either (i) the Base Rate  (i.e.,  the higher of
Canadian  Imperial Bank of Commerce's  ("CIBC")  reference rate or the overnight
federal  funds rate plus 0.5%) plus a margin  that  varies from 100 to 225 basis
points, depending on the Company's Total Debt to EBITDA Ratio (as defined in the
Senior Credit Facility); or (ii) the LIBOR plus a margin that varies from


                                       19
<PAGE>


225 to 400 basis points, depending on the Company's Total Debt to EBITDA Ratio.

       The Senior Credit Facility  requires  quarterly  interest  payments to be
made on base  rate  loans  and  periodic  interest-only  payments  based  on the
applicable  interest  period on LIBOR loans,  at least  quarterly,  in each case
until  maturity.  In addition,  the Senior Credit  Facility  requires  mandatory
prepayments  out of the  proceeds  of certain  equity or debt  offerings,  asset
dispositions,  receipt of  insurance  proceeds  not  applied as  provided in the
Senior  Credit  Facility,  and receipts of funds from certain  escrow  accounts.
Remaining scheduled principal payments of outstanding  balances on the term loan
facilities  as of  September  30, 2000 are  approximately  $3.1  million,  $13.8
million and $24.2 million  during the years ended  December 31, 2000,  2001, and
2002,  respectively.  All  outstanding  principal and interest  under the Senior
Credit  Facility is due December 31, 2002. The Senior Credit Facility is secured
by substantially all of the assets of the Company and its subsidiaries.

       On June 30, 1998, the Company entered into an interest rate cap agreement
that has been designated as a hedge against the Company's variable interest rate
exposure under the Senior Credit  Facility.  At September 30, 2000, the interest
rate cap has an aggregate  notional  amount of $30.0  million,  which matures in
June 2001,  and caps  interest on the LIBOR  portion of the term loan, up to the
aggregate notional amount, at 7.5%, plus the applicable LIBOR margin.

     As of  November  14,  2000,  the  Company  had $14.7  million of  available
borrowing capacity under the Senior Credit Facility.

     As of September 30, 2000, the Company had  approximately  $165.8 million of
indebtedness   outstanding,   including  the  current  portion,   a  deficit  in
stockholders' equity of $46.7 million, and $0.8 million of cash.

     As of September 30, 2000,  the Company's  indebtedness  included (i) $115.0
million of 11.0% Senior Notes due 2007 (the "Senior Notes"),  (ii) $50.6 million
of  indebtedness  under the Senior  Credit  Facility,  and (iii) $0.2 million of
other indebtedness.

     The Company intends to evaluate additional  acquisitions to expand its base
of installed  inmate  telephones  and value added  services and will continue to
evaluate possible acquisition opportunities.  There can be no assurance that the
Company  will  have  sufficient  available  capital  resources  to  realize  its
acquisition strategy. Such future acquisitions,  depending on their size and the
form of consideration, may require the Company to seek additional debt or equity
financing.

Changes in Accounting Standards

     In December  1999,  the staff of the  Securities  and  Exchange  Commission
issued Staff  Accounting  Bulletin No. 101 ("SAB 101"),  Revenue  Recognition in
Financial  Statements.  In March  2000,  SAB 101 was  amended  by SAB 101A which
delayed  the  implementation  date of SAB 101 for  calendar  year end  reporting
companies to the quarter ending June 30, 2000. In June 2000, SAB 101 was amended
a second time by SAB 101B further delaying the  implementation  date to no later
than the quarter ending  December 31, 2000. The Company is currently  evaluating
SAB 101 and does not believe SAB 101 will have a material effect on its revenues
and results of operations.


                                       20
<PAGE>

     SFAS  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities" was issued in June 1998, and requires  recognition of all derivative
financial  instruments as either assets or liabilities in  consolidated  balance
sheets at fair value and determines the method(s) of gain/loss recognition. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. The Company
is currently evaluating SFAS No. 133 and does not believe its adoption will have
a material effect on its consolidated financial statements.

Special Note Regarding Forward-Looking Information

     Certain  statements  in  this  Quarterly  Report  on Form  10-Q  constitute
forward-looking statements.  These forward-looking statements are all statements
that are not statements of historical fact or that might otherwise be considered
opinion, belief, or projection.  These forward-looking  statements involve known
and unknown  risks,  uncertainties,  and other factors that may cause the actual
results,  levels of activity,  performance,  or achievements of the Company,  or
industry results, to be materially different from any future results,  levels of
activity,   performance,   or   achievements   expressed   or  implied  by  such
forward-looking statements. The risks, uncertainties, and other factors to which
forward-looking  statements are subject include,  among others,  those set forth
under the caption  "Risk  Factors" in the  Company's  Form 10-Q filed on May 12,
1999,  which is available  from the Company,  from the  Securities  and Exchange
Commission at prescribed  rates, and at the web-site  www.sec.gov.  Such factors
include without limitation,  the following:  competitors with greater resources;
risks associated with market growth stagnating or declining; lack of patents and
possible  infringement;  technological  change  and  new  services;  control  by
principal shareholders; changes in the telecommunications industry; availability
of key  personnel;  and changes in or the failure to comply  with,  governmental
regulations.   All  subsequent  written  or  oral   forward-looking   statements
attributable  to the  company  or persons  acting on its  behalf  are  expressly
qualified in their entirety by such factors.

     In some cases,  forward-looking statements can be identified by terminology
such as "may," "will," "should," "expects," "plans," "anticipates,"  "believes,"
"estimates,"  "predicts,"  "potential,"  or  "continue"  or the negative of such
terms or other  comparable  terminology.  Although the Company believes that the
assumptions and expectations  reflected in such  forward-looking  statements are
reasonable,  as a result of the foregoing and other factors, no assurance can be
given  as  to  the  future  results,   levels  of  activity,   performance,   or
achievements,   and  neither  the   Company   nor  any  other   person   assumes
responsibility  for  the  accuracy  and  completeness  of  such  forward-looking
statements.  All forward-looking statements included in this Quarterly Report on
Form 10-Q are based on information  available to the Company on the date hereof,
and the Company is under no duty to update any of the forward-looking statements
after the date hereof.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  information  required  hereunder for the Company is not  significantly
different from the information set forth in Item 7A Quantitative and Qualitative
Disclosures  About  Market Risk  included in the 1999 Form 10-K and is therefore
not presented herein.


                                       21
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

     The Company is from time to time a party to legal proceedings that arise in
the ordinary course of business. Management does not believe that the resolution
of any  threatened or pending  legal  proceedings  will have a material  adverse
affect on the Company.

     None of the Company's internally  developed call processing  technology has
been patented.  Accordingly,  such technology and  intellectual  property rights
could  infringe  on other  parties'  intellectual  property  rights and could be
contested or challenged.  The Company has received  notice from two parties that
certain  features of the Company's call processing  technology may infringe upon
such  parties'  patents.  Should the  Company's  call  processor or any material
feature thereof be determined to violate applicable  patents,  the Company would
be required to cease using these features or to obtain appropriate  licenses for
the use of such technology.

         From time to time, inmate  telecommunications  providers are parties to
proceedings  initiated by inmates,  consumer protection  advocates or individual
called parties  alleging that excessive  rates are being charged with respect to
inmate  collect  calls.  The Company is currently  named in such  proceedings in
various  jurisdictions.  The plaintiffs in such proceedings generally seek class
action  certification  against  all  inmate   telecommunications   providers  as
defendants,  with all recipients of calls from inmate  facilities as plaintiffs.
The Company recently  obtained  dismissal of two such proceedings and is seeking
dismissal in the other proceedings in which it is named.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

     None.



ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     None.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

      None.



ITEM 5.   OTHER INFORMATION

     None.





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<PAGE>




ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

       Exhibit
         No.                       Description of Exhibit
3.1  Certificate  of  Incorporation  of the Company (filed as Exhibit 3.1 to the
Company's  Registration  Statement  No.  333-33639  and  incorporated  herein by
reference).
3.2 Bylaws of the Company  (filed as Exhibit 3.2 to the  Company's  Registration
Statement No. 333-33639 and incorporated herein by reference).
3.3  Certificate of Amendment to Restated  Certificate of  Incorporation  of the
Company,  dated as of July 23,  1998  (filed  as  Exhibit  3.3 to the  Company's
Quarterly  Report on Form  10-Q,  dated as of August 14,  1998 and  incorporated
herein by reference).
3.4  Certificate of Amendment to Restated  Certificate of  Incorporation  of the
Company,  dated as February  11,  1999.  (filed as Exhibit 3.4 to the  Company's
Quarterly Report on Form-10-Q dated as of May 12, 1999 and  incorporated  herein
by reference).
4.1  Indenture,  dated as of June 27, 1997,  between the Company and U.S.  Trust
Company of Texas,  N.A.  (filed as  Exhibit  4.1 to the  Company's  Registration
Statement No. 333-33639 and incorporated herein by reference).
4.2 Form of Note  (contained in Indenture  filed as Exhibit 4.2 to the Company's
Registration Statement No. 333-33639 and incorporated herein by reference).
4.3 Form of Subsidiary  Guaranty (contained in Indenture filed as Exhibit 4.3 to
the Company's  Registration  Statement No. 333-33639 and incorporated  herein by
reference).
4.4  Registration  Rights  Agreement,  dated as of June 27,  1997,  between  the
Company  and the  Initial  Purchaser  (filed  as  Exhibit  4.4 to the  Company's
Registration Statement No. 333-33639 and incorporated herein by reference).
4.5 Registration  Rights Agreement,  dated as of December 27, 1996, by and among
the Company  and  certain  Holders  named  therein  (filed as Exhibit 4.5 to the
Company's  Registration  Statement  No.  333-33639  and  incorporated  herein by
reference).
4.6 Shareholders Agreement, dated as December 27, 1996, by among the Company and
certain   Persons  named  therein   (filed  as  Exhibit  4.6  to  the  Company's
Registration Statement No. 333-33639 and incorporated herein by reference).
4.7 Warrant  Agreement,  dated as of December 27, 1996,  between the Company and
CIBC  Wood  Gundy  Ventures,  Inc.  (filed  as  Exhibit  4.7  to  the  Company's
Registration Statement No. 333-33639 and incorporated herein by reference).
4.8 Warrant  Agreement,  dated as of December 27, 1996,  between the Company and
Gregg L. Engles  (filed as Exhibit 4.8 to the Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.9 Warrant  Agreement,  dated as of December 27, 1996,  between the Company and
Gregg L. Engles  (filed as Exhibit 4.9 to the Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.10 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Gregg L. Engles (filed as Exhibit 4.10 to the Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.11 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Onyx Talton Partners,  L.P. (filed as Exhibit 4.11 to the Company's Registration
Statement No. 333-33639 and incorporated herein by reference).
4.12 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Onyx Talton Partners,  L.P. (filed as Exhibit 4.12 to the Company's Registration
Statement No. 333-33639 and incorporated herein by reference).
4.13 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Onyx Talton Partners,  L.P. (filed as Exhibit 4.13 to the Company's Registration
Statement No. 333-33639 and incorporated herein by reference).
4.14 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Joseph P. Urso (filed as Exhibit 4.14 to the  Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.15 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Joseph P. Urso (filed as Exhibit 4.15 to the  Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.16 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Joseph P. Urso (filed as Exhibit 4.16 to the  Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.17 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Todd W. Follmer (filed as Exhibit 4.17 to the Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.18 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Todd W. Follmer (filed as Exhibit 4.18 to the Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.19 Warrant  Agreement,  dated as of December 27, 1996, between the Company and
Todd W. Follmer (filed as Exhibit 4.19 to the Company's  Registration  Statement
No. 333-33639 and incorporated herein by reference).
4.20 Form of Warrant  Agreement,  dated as of March 12,  1999  (filed as Exhibit
4.20 to the Company's  Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 and incorporated herein by reference).
10.1 Amendment No. 4 to Second Amended and Restated Credit  Agreement,  dated as
of August 9, 2000, by and among the Company,  the lenders (as defined  therein),
and Canadian  Imperial Bank of Commerce,  as  Administrative  Agent and Document
Agent. (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000 and incorporated herein by reference).
27.1* Financial Data Schedule


*  Filed herewith.


(b)  Reports on Form 8-K

No  reports  on Form 8-K have been  filed  during  the  period  subject  to this
Quarterly Report on Form 10-Q.


                                       23
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                        EVERCOM, INC.


                                        By:/s/  RICHARD FALCONE

                                        Richard Falcone
                                        Chief Executive Officer



                                        By:/s/  KEITH KELSON

                                        Keith Kelson
                                        Chief Financial Officer



Date:  November 14, 2000


                                       24
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