<PAGE>

                       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 June 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 June 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; and
3.       Quarterly Report on Form 10-Q, dated as of May 12, 1999.


                                       1
<PAGE>

                         EVERCOM, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION                                         PAGE

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............................................23


                           PART II - OTHER INFORMATION

Item 1.           Legal Proceedings......................................24

Item 2.           Changes in Securities and Use of Proceeds..............24

Item 3.           Defaults Upon Senior Securities........................24

Item 4.           Submission of Matters to a Vote of Stockholders........24

Item 5.           Other Information......................................24

Item 6.           Exhibits and Reports on Form 8-K.......................25




                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

                         EVERCOM, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>


                                                                                     December 31,               June 30,
                                                                                         1999                     2000

                                                                                    ---------------           --------------
                                                                                                                (Unaudited)

<S>                                                                                 <C>                       <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents..................................................    $     1,987,732           $      364,197
     Accounts receivable........................................................         38,262,832               40,040,378
     Refundable income taxes....................................................            364,204                  200,930
     Inventories................................................................          3,512,073                3,225,955
     Prepaid expenses and other current assets..................................            380,797                  659,361
     Deferred income tax asset..................................................          1,496,528                  958,065
                                                                                    ---------------           --------------
          Total current assets..................................................         46,004,166               45,448,886
PROPERTY AND EQUIPMENT..........................................................         28,375,357               28,328,916
INTANGIBLE AND OTHER ASSETS.....................................................         97,729,033               90,027,149
                                                                                    ---------------           --------------
     TOTAL                                                                          $   172,108,556           $  163,804,951
                                                                                    ===============           ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
     Accounts payable...........................................................        $19,492,283              $21,522,962
     Income taxes payable.......................................................            250,000                  236,251
     Accrued expenses...........................................................         21,201,463               18,172,694
     Current portion of long-term debt..........................................         12,434,468               13,119,814
                                                                                    ---------------           --------------
          Total current liabilities.............................................         53,378,214               53,051,721
LONG-TERM DEBT..................................................................        159,526,766              155,625,000
OTHER LONG-TERM LIABILITIES.....................................................            705,000                  359,183
DEFERRED INCOME TAXES...........................................................          1,496,528                  958,065
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
         June 30, 2000..........................................................                109                      109
      Common stock, $.01 par value; 50,000 shares authorized, 16,433 shares and
        16,433  shares issued and  outstanding  as of December 31, 1999 and June
        30, 2000................................................................                164                      164
     Additional paid-in capital.................................................         26,080,416               25,643,415
     Accumulated deficit........................................................        (69,078,641)             (71,832,706)
                                                                                    ---------------           --------------
          Total stockholders' deficit...........................................        (42,997,952)             (46,189,018)
                                                                                    ---------------           --------------

          TOTAL.................................................................    $   172,108,556           $  163,804,951
                                                                                    ===============           ==============
</TABLE>
                 See notes to consolidated financial statements



                                       3
<PAGE>

                         EVERCOM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (Unaudited)

<TABLE>
<CAPTION>


                                                              Three Month Period                    Six Month Period
                                                                Ended June 30,                        Ended June 30,
                                                      ----------------------------------------------------------------------
                                                          1999                2000             1999                2000
                                                      ------------        ------------     --------------     --------------

<S>                                                   <C>                 <C>              <C>                <C>
OPERATING REVENUE . . . . . . . . . . . . . .         $ 60,160,064        $ 58,785,721     $  119,335,358     $  118,057,567
OPERATING EXPENSES:
   Telecommunications costs . . . . . . . . .           26,451,252          23,946,722         53,312,623         48,653,805
   Facility commissions . . . . . . . . . . .           18,085,177          18,949,902         36,112,894         37,727,809
   Field operations and maintenance . . . . .            1,705,658           1,545,622          3,343,433          3,276,767
   Selling, general, and administrative . . .            4,316,684           4,504,953          8,638,538          8,888,374
   Depreciation . . . . . . . . . . . . . . .            1,758,398           2,048,628          3,465,392          4,015,022
   Amortization of intangibles . . . . . . .             5,575,332           4,056,808         11,337,457          8,530,767
                                                      ------------        ------------     --------------     --------------
      Total operating expenses . . . . . . .            57,892,501          55,052,635        116,210,337        111,092,544
                                                      ------------        ------------     --------------     --------------
OPERATING INCOME (LOSS). . . . . . . . . . .             2,267,563           3,733,086          3,125,021          6,965,023
INTEREST EXPENSE, NET. . . . . . . . . . . .             4,856,603           4,768,665          9,736,767          9,665,953
                                                      ------------        ------------     --------------     --------------
LOSS BEFORE INCOME TAXES . . . . . . . . . .            (2,589,040)         (1,035,579)        (6,611,746)        (2,700,930)
INCOME TAX EXPENSE . . . . . . . . . . . . .                82,395              31,875             96,242             53,135
                                                      ------------        ------------     --------------     --------------
NET LOSS . . . . . . . . . . . . . . . . . .          $ (2,671,435)       $ (1,067,454)    $   (6,707,988)    $   (2,754,065)
PREFERRED STOCK DIVIDEND AND ACCRETION
  OF DISCOUNT. . . . . . . . . . . . . . . .               363,542             369,080            502,472            736,734
                                                      ------------        ------------     --------------     --------------
 NET LOSS APPLICABLE TO COMMON STOCK. . . . .         $ (3,034,977)       $ (1,436,534)    $   (7,210,460)    $   (3,490,799)
                                                      ============        ============     ==============     ==============
</TABLE>
                 See notes to consolidated financial statements


                                       4
<PAGE>

                         EVERCOM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                              Six Month Period
                                                                                                Ended June 30,
                                                                                    -------------------------------------
                                                                                         1999                   2000
                                                                                    ---------------      ----------------
<S>                                                                                 <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Loss                                                                          $    (6,707,988)     $     (2,754,065)
  Adjustments to reconcile net loss to net cash provided by
    operating activities:
     Depreciation...............................................................          3,465,392             4,015,022
     Amortization of intangible assets, including deferred
      financing costs  .........................................................         11,841,900             9,055,547
     Changes in operating assets and liabilities, net of
      effects of acquisitions:
         Accounts receivable....................................................         (5,878,042)           (1,777,546)
         Inventories............................................................            131,609               286,118
        Prepaid expenses and other assets.......................................            750,861              (234,725)
        Accounts payable........................................................         (3,526,276)            2,030,679
        Accrued expenses........................................................             38,242            (2,986,154)
        Income taxes............................................................            (74,754)              149,522
                                                                                    ---------------      ----------------
           Net cash provided by operating activities.............................            40,944             7,784,398
                                                                                    ----------------     ----------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures..........................................................         (4,007,064)           (5,366,080)
  Cash outflows for acquisitions................................................         (1,766,210)             (825,433)
                                                                                    ----------------      ----------------
     Net cash used in investing activities......................................         (5,773,274)           (6,191,513)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from the issuance of debt............................................          5,500,000
  Payment of debt issuance costs................................................           (336,992)
  Repayment of debt.............................................................         (5,782,743)           (3,216,420)
  Proceeds from the issuance of preferred stock and warrants,
    net of expenses.............................................................          4,895,337
                                                                                    ---------------       ---------------

     Net cash provided by (used in) financing activities........................          4,275,602            (3,216,420)
                                                                                    ---------------       ---------------

  DECREASE IN CASH AND CASH EQUIVALENTS.........................................         (1,456,728)           (1,623,535)
  CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................          1,691,762             1,987,732
                                                                                    ---------------       ---------------

   CASH AND CASH EQUIVALENTS, END OF PERIOD.....................................    $       235,034       $       364,197
                                                                                    ===============       ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest.......................................................    $     9,425,237       $     9,088,421
                                                                                    ===============       ===============

   Cash paid (refunded) for income taxes........................................    $       170,996       $       (96,390)
                                                                                    ===============       ===============
NONCASH TRANSACTIONS:
   Dividends payable............................................................    $       357,431       $       437,000
                                                                                    ===============       ===============

   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 June 30, 2000 for the three
-month and six-month periods  ended June 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 No. 133
requires recognition of all derivative financial instruments as


                                       6
<PAGE>

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
the consolidated financial statements.


                                       7
<PAGE>

Accounts Receivable


        Accounts receivable consist of the following:
<TABLE>
<CAPTION>


                                                                                   December 31,           June 30,
                                                                                      1999                  2000
                                                                                  ---------------      -------------
                                                                                                        (Unaudited)
<S>                                                                               <C>                  <C>
Trade accounts receivable....................................................     $    38,384,376      $    41,421,816
Advance commissions receivable...............................................           1,870,475              925,510
Receivables related to acquisitions..........................................             226,015              226,015
Recoverable Universal Service Fund fees......................................           1,123,165              791,209
Employees and other..........................................................             251,419               86,892
                                                                                    -------------      ---------------
                                                                                       41,855,450           43,451,442

Less allowance for unbillable and
  uncollectible chargebacks..................................................          (3,592,618)          (3,411,064)
                                                                                    -------------      ---------------
                                                                                  $    38,262,832      $    40,040,378
                                                                                  ===============      ===============
</TABLE>



     At  December  31,  1999  and  June  30,  2000,  the  Company  had  advanced
commissions   to  certain   inmate   facilities  of  $2,100,149  and  $1,104,413
(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,           June 30,
                                                                                       1999                 2000
                                                                                  -------------        -------------
                                                                                                        (Unaudited)
<S>                                                                               <C>                  <C>
Leasehold improvements.......................................................     $     913,420        $     940,661
Telephone system equipment...................................................        39,666,667           43,463,693
Vehicles.....................................................................           429,460              430,548
Office equipment.............................................................         2,540,215            2,683,441
                                                                                  -------------        -------------
                                                                                     43,549,762           47,518,343
Less accumulated depreciation................................................       (15,174,405)         (19,189,427)
                                                                                  -------------        -------------
                                                                                  $  28,375,357        $  28,328,916
                                                                                  =============        =============
</TABLE>



                                       8
<PAGE>

4.   INTANGIBLE AND OTHER ASSETS

       Intangible and other assets consist of the following:
<TABLE>
<CAPTION>


                                                                                   December 31,          June 30,
                                                                                       1999                2000
                                                                                  -------------        -------------
                                                                                                        (Unaudited)
<S>                                                                               <C>                  <C>
Intangible assets:
     Acquired telephone contracts............................................     $  67,761,060        $  69,156,034
     Noncompete agreements...................................................           568,611              568,611
     Deferred loan costs.....................................................         8,636,059            8,636,059
     Goodwill................................................................        84,530,834           84,530,834
     Other intangibles.......................................................           766,502              769,027
                                                                                  -------------        -------------
                                                                                  $ 162,263,066        $ 163,660,565
   Less accumulated amortization.............................................       (65,195,703)         (74,251,250)
                                                                                  -------------        -------------
Total intangible assets......................................................        97,067,363           89,409,315
Deposits.....................................................................           431,996              438,931
Other assets - noncurrent portion of commission advances to facilities.......           229,674              178,903
                                                                                  -------------        -------------
                                                                                  $  97,729,033        $  90,027,149
                                                                                  =============        =============
</TABLE>


5.  ACCRUED EXPENSES


     Accrued expenses consist of the following:

<TABLE>
<CAPTION>

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

<S>                                                                               <C>                  <C>
          Facility commissions...............................................     $   7,303,783        $   7,688,743
          Billing and collection fees........................................         1,411,127            1,597,255
          Uncollectible call chargebacks.....................................         4,554,260            1,596,711
          Accrued acquisition and financing costs............................         1,493,164            1,013,548
          Accrued interest...................................................            64,782              117,534
          Accrued excise taxes payable.......................................         1,847,889            1,685,946
          Accrued dividends on preferred stock...............................         1,268,432            1,705,433
          Accrued restructure costs..........................................            17,796
          Accrued payroll and bonuses........................................         1,689,438            1,031,557
          Other..............................................................         1,550,792            1,735,967
                                                                                  -------------        -------------
                                                                                  $  21,201,463        $  18,172,694
                                                                                  =============        =============
</TABLE>


     The accrual for  uncollectible  call  chargebacks  represents a reserve for
amounts   collected  from  the  various  local  exchange  carriers  ("LECs")  or
third-party billing services that are expected to be charged back to the Company
in future periods.


                                       9
<PAGE>

6. LONG-TERM DEBT

     The following is a summary of long-term debt:

<TABLE>
<CAPTION>

                                                                                  December 31,           June 30,
                                                                                      1999                 2000
                                                                                  ------------         -------------
                                                                                                        (Unaudited)
<S>                                                                               <C>                  <C>
          Senior Notes.......................................................     $ 115,000,000        $ 115,000,000
          Senior Credit Facility:
               Revolving loan facility.......................................        11,500,000           14,500,000
               Term loan acquisition facility................................        39,875,000           33,687,500
               Additional term loan facility.................................         5,500,000            5,500,000
          Other   ...........................................................            86,234               57,314
                                                                                  -------------        -------------
                                                                                    171,961,234          168,744,814
          Less current portion of long-term debt.............................       (12,434,468)         (13,119,814)
                                                                                  -------------        -------------
                                                                                  $ 159,526,766        $ 155,625,000
                                                                                  =============        =============
</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 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 June 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 London Interbank  Offering Rate ("LIBOR") portion of the term loan, up to
the aggregate notional amount, at 7.5%, plus the applicable LIBOR margin.


7.       SUBSEQUENT EVENT

     On August 9, 2000,  the Company's  Senior Credit  Facility group of lenders
approved 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  will be  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 will be 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  will be 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.

                                       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
included  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, 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 44 states.


       The Company's inmate telecommunications services consist of collect call,
prepaid, and debit card services.  The Company enters into multi-year agreements
(generally  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 LEC's 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  regional  bell  operating  company  ("RBOC").  Under  the  terms  of  the
agreement,  the Company acquires at a discount the related  accounts  receivable
from the RBOC for the calls that the Company processes. When the receivables are
purchased, the Company accepts responsibility for all validation,  uncollectible
accounts,  and billing and collections  costs, with no recourse to the RBOC. The
Company's revenues from this service equal the difference between the face value
of the receivables  purchased and the amount it pays the RBOC for the discounted
accounts receivable.  The contract term is three years and 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



                                       11
<PAGE>

charges  this  customer a  transaction  fee and charges  back all  uncollectible
accounts to the customer.

     The   Company's    principle    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 principle  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  RBOCs  and  other  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 June 30, 1999 to 32.2% for the quarter ended June 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 six months ended
June 30, 1999 and 2000, respectively, the results of operations of the Company.

<TABLE>
<CAPTION>


                                        Three Months Ended June 30,                Six Months Ended June 30,
                              ------------------------------------------- -------------------------------------------
                                      1999                 2000                   1999                 2000
                              ------------------------------------------- -------------------------------------------

(Dollars in thousands)

<S>                              <C>        <C>       <C>        <C>     <C>          <C>     <C>          <C>
Operating Revenue . . . . .      $60,160    100.0 %   $58,786    100.0 % $ 119,335    100.0%  $ 118,058    100.0 %
Operating Expenses:
   Telecommunications
     costs . . . . . . . . .      26,451     44.0      23,947     40.7      53,313     44.7      48,654     41.2
   Facility commissions . .       18,085     30.1      18,950     32.2      36,113     30.3      37,728     32.0
   Field operations and
     maintenance . . . . . .       1,706      2.8       1,546      2.6       3,343      2.8       3,277      2.8
   Selling, general and
     administrative . . .          4,317      7.2       4,505      7.6       8,639      7.2       8,888      7.5
 .
   Depreciation . . . . .          1,758      2.9       2,048      3.5       3,465      2.9       4,015      3.4
 .
   Amortization of
     intangibles. . . . . .        5,575      9.2       4,057      6.9      11,337      9.5       8,531      7.2
                                 -------    -----     -------    -----   ---------    -----   ---------    -----
      Total operating
          expenses. . . . .       57,892     96.2      55,053     93.6     116,210     97.4     111,093     94.1
                                 -------    -----     -------    -----   ---------    -----   ---------    -----

Operating income . . . . .         2,268      3.8       3,733      6.4       3,125      2.6       6,965      5.9
Interest expense, net. . .         4,857      8.1       4,768      8.1       9,737      8.1       9,666      8.2
                                 -------    -----     -------    -----   ---------    -----   ---------    -----

Loss before income taxes .        (2,589)    (4.3)     (1,035)    (1.7)     (6,612)    (5.5)     (2,701)    (2.3)
Income tax expense . . . .            82      0.1          32      0.1          96      0.1          53      0.0
                                 -------    -----     -------    -----   ---------    -----   ---------    -----

Net loss . . . . . . . . .       $(2,671)    (4.4)%   $(1,067)    (1.8)% $  (6,708)    (5.6)% $  (2,754)    (2.3)%
                                 =======    =====     =======    =====   =========    =====   =========    =====
EBITDA . . . . . . . . . .       $ 9,601     16.0 %   $ 9,838     16.7 %   $17,927     15.0 % $  19,511     16.5 %
                                 =======    =====     =======    =====   =========    =====   =========    =====
</TABLE>


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


     Operating  Revenues.  The Company's  operating  revenues  decreased by $1.4
million, or 2.3%, from $60.2 million for the three months ended June 30, 1999 to
$58.8  million  for the three  months  ended  June 30,  2000.  The  decrease  in
operating revenue was due in part to enhanced validation procedures, which are a
direct  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.  The variance was also caused by the loss of certain  contracts to
service inmate facilities as a result of market competition. These declines were
partially offset by new business won by the Company during the period and by the
acquisition  of  substantially  all of the net  assets  of the  inmate  payphone
divisions  of  Alliance  Tel-Com,   Inc.,  KR&K,  Inc.,  U.S.   Connect,   Inc.,
Telecommunications,  Inc., and Lake-Tel, Inc. (collectively  "Alliance") on June
1, 1999.


       Operating Expenses. Total operating expenses decreased $2.8 million, from
$57.9  million for the three months ended June 30, 1999 to $55.1 million for the
three  months  ended  June 30,  2000.  Operating  expenses  as a  percentage  of
operating revenues decreased 2.6% from 96.2% for the three months ended June 30,
1999 to 93.6%  for the  three  months  ended  June 30,  2000.  The  decrease  in
operating  expenses as a percentage  of revenues is primarily due to the factors
discussed below.

       Telecommunication costs decreased by $2.5 million, from $26.4 million for
the three months ended June 30, 1999 to $23.9 million for the three



                                       13
<PAGE>

months  ended  June 30,  2000.  Telecommunications  costs  represented  44.0% of
operating  revenues  for the  three  months  ended  June 30,  1999 and  40.7% of
operating  revenues for the three  months  ended June 30, 2000.  The decrease in
telecommunications  costs as a percentage of operating 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 $0.9 million,  from $18.1 million for
the three months ended June 30, 1999 to $19.0 million for the three months ended
June 30, 2000. Facility commissions  represented 30.1% of operating revenues for
the three  months  ended June 30, 1999 and 32.2% of  operating  revenues for the
three months ended June 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 June 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 $1.7 million for the three
months  ended June 30, 1999 and $1.5 million for the three months ended June 30,
2000.  Field  operations and  maintenance  costs  represented  2.8% of operating
revenues  for the  three  months  ended  June 30,  1999,  and 2.6% of  operating
revenues  for the three  months  ended June 30,  2000,  a decrease of 0.2%.  The
decrease  as a  percentage  of  operating  revenues is  primarily  due to office
consolidations and system integrations.

       SG&A costs  increased  by $0.2  million,  from $4.3 million for the three
months  ended June 30, 1999 to $4.5  million for the three months ended June 30,
2000.  SG&A  represented  7.2% of operating  revenues for the three months ended
June 30, 1999 and 7.6% of operating revenues for the three months ended June 30,
2000, an increase of 0.4%.  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 $1.2 million,  from $7.3
million for the three  months  ended June 30, 1999 to $6.1 million for the three
months ended June 30, 2000.  Depreciation  and  amortization  costs  represented
12.1% of operating revenues for the three months ended June 30,1999 and 10.4% of
operating  revenues for the three months ended June 30,2000, a decrease of 1.7%.
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 $1.4 million,
from $2.3  million for the three  months  ended June 30,1999 to $3.7 million for
the three months ended June 30, 2000, substantially due to the factors described
above.  The Company's  operating income margin increased from 3.8% for the three
months  ended June  30,1999  to 6.4% for the three  months  ended June  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 June 30,1999 to $4.8 million for the three months ended


                                       14
<PAGE>

June 30,2000.  This decrease is primarily due to lower average debt  outstanding
during the three months ended June 30, 2000.

       Net Loss.  The  Company's net loss  decreased by $1.6 million,  from $2.7
million for the three  months  ended June  30,1999 to $1.1 million for the three
months ended June 30,2000, primarily as a result of the factors described above.

     EBITDA  .  Earnings  before  interest,  income  taxes,  depreciation,   and
amortization  ("EBITDA")  increased from $9.6 million for the three months ended
June 30,1999 to $9.8 million for the three months ended June 30,2000.  EBITDA as
a percentage  of operating  revenues  increased  from 16.0% for the three months
ended June 30,1999 to 16.7% for the three months ended June  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 the
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  operating income. Two of
the Company's subsidiaries are subject to state income taxes. Consequently,  the
Company accrues income tax expense even in a loss period.

Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999

     Operating  Revenues.  The Company's  operating  revenues  decreased by $1.2
million,  or 1.0%,  from $119.3 million for the six months ended June 30,1999 to
$118.1 million for the six months ended June 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 six months ended June 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  new  business  won by  the  Company  during  the  period  and by the
acquisition of Alliance on June 1, 1999.

       Operating Expenses. Total operating expenses decreased $5.1 million, from
$116.2  million for the six months ended June 30, 1999 to $111.1 million for the
six months ended June 30, 2000.  Operating expenses as a percentage of operating
revenues  decreased  3.3% from 97.4% for the six months  ended June 30,  1999 to
94.1% for the six months ended June 30, 2000. The decrease in operating expenses
as a percentage of revenues is primarily due to the factors discussed below.

       Telecommunications  costs  decreased by $4.6 million,  from $53.3 million
for the six months ended June 30, 1999 to $48.7 million for the six months ended
June 30, 2000.  Telecommunications costs represented 44.7% of operating revenues
for the six months ended June 30, 1999 and 41.2% of  operating  revenues for the
six months ended June 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 $1.6 million, from $36.1 million for the
six months  ended June 30, 1999 to $37.7  million for the six months  ended



                                       15
<PAGE>

June 30, 2000. Facility commissions  represented 30.3% of operating revenues for
the six months ended June 30, 1999 and 32.0% of  operating  revenues for the six
months  ended  June 30,  2000,  an  increase  of 1.7%.  Commission  expense as a
percentage of revenue for the Company's  traditional  inmate  business was 33.8%
and 35.6% for the six months  ended June 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 $3.3 million  representing
2.8% of revenue for the six months ended June 30, 1999 and 2000, respectively.

       SG&A costs  increased  by $0.3  million,  from $8.6  million  for the six
months  ended June 30, 1999 to $8.9  million  for the six months  ended June 30,
2000. SG&A represented 7.2% of operating  revenues for the six months ended June
30, 1999 and 7.5% of operating  revenues for the six months ended June 30, 2000,
an increase of 0.3%.  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 six
months ended June 30, 2000 for executive search fees.

       Depreciation and amortization costs decreased by $2.3 million, from $14.8
million  for the six months  ended June 30,  1999 to $12.5  million  for the six
months ended June 30, 2000.  Depreciation  and  amortization  costs  represented
12.4% of operating  revenues for the six months ended June 30, 1999 and 10.6% of
operating  revenues  for the six months ended June 30, 2000, a decrease of 1.8%.
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 $3.9 million,
from $3.1 million for the six months ended June 30, 1999 to $7.0 million for the
six months  ended June 30,  2000,  substantially  due to the  factors  described
above.  The Company's  operating  income margin  increased from 2.6% for the six
months  ended  June 30,  1999 to 5.9% for the six months  ended  June 30,  2000,
primarily as a result of the factors described above.

Interest  Expense.  Interest  expense was $9.7  million for the six months ended
June 30, 1999 and 2000, respectively.

       Net Loss.  The  Company's net loss  decreased by $3.9 million,  from $6.7
million  for the six months  ended  June 30,  1999 to $2.8  million  for the six
months  ended June 30,  2000,  primarily  as a result of the  factors  described
above.

     EBITDA.  EBITDA  increased by $1.6  million from $17.9  million for the six
months  ended June 30, 1999 to $19.5  million for the six months  ended June 30,
2000. EBITDA as a percentage of operating  revenues increased from 15.0% for the
six months  ended June 30, 1999 to 16.5% for the six months ended June 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 the
Form 10-Q  because it is commonly  used by certain  investors  and analysts as a
measure  of a  company's  ability  to



                                       16
<PAGE>

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 operating income. 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  approved 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 will be  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 will be 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  will be 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 $16.5  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 June 30,  2000,  the
Company had  approximately  $8.7 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  $6.9 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 $13.1 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


                                       18
<PAGE>

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 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 $0.1 million for the six
months ended June 30, 1999, as compared to $7.8 million for the six months ended
June 30, 2000.  This  increase  was due to a $1.7 million  increase in operating
income before consideration of depreciation and amortization coupled with a $6.1
million  increase due to the timing of certain cash receipts and  disbursements.
During the six months ended June 30, 2000, the Company's LECs increased reserves
for uncollectible chargebacks, thereby reducing cash payments to the Company for
receivable collections. The Company expects the LECs to continue this trend over
the remaining quarters of 2000.

       Cash used in  investing  activities  was $5.8  million for the six months
ended June 30,  1999,  as compared to $6.2 million for the six months ended June
30, 2000,  consisting  primarily of both cash  outflows for  investments  in new
business  and  customer  contract  renewals and the payments of $1.8 million and
$0.8 million,  respectively,  of acquisition  costs relating to the acquisitions
made by the Company in prior years.

     Cash provided by financing  activities  was $4.3 million for the six months
ended June 30, 1999, as compared to cash used of $3.2 million for the six months
ended June 30,  2000.  Cash used by financing  activities  during the six months
ended June 30, 2000 consisted primarily of principal repayments under the Senior
Credit Facility.  Cash provided by financing activities for the six months ended
June 30,  1999  consisted  of funds  raised  through  the  issuance of the First
Preferred  Series "A" Stock,  proceeds from  borrowings  under the Senior Credit
Facility,  offset by principal  repayments of borrowings under the Senior Credit
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 $21.3  million of  scheduled  principal  payments had been made as of
June 30, 2000,  (b) $13.0  million of additional  term loan  facilities of which
$5.5  million has been  borrowed as of June 30, 2000,  with $5.0  million  being
currently  available,  and $2.5  million  becoming  available  by March 31, 2001
subject to 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 $14.5 million had been borrowed as
of June 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


                                       19
<PAGE>

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 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 June 30, 2000
are approximately $6.2 million, $13.8 million and $19.2 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 June 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 August  10th,  2000,  the  Company  had $13.7  million  of  available
borrowing  capacity under the Senior Credit Facility,  including $5.0 million of
capacity under the new term facility.

     As of June 30,  2000,  the  Company  had  approximately  $169.1  million of
indebtedness   outstanding,   including  the  current  portion,   a  deficit  in
stockholders' equity of $46.2 million, and $0.4 million of cash.

     As of June 30, 2000, the Company's indebtedness included (i) $115.0 million
of 11.0%  Senior  Notes due 2007 (the  "Senior  Notes"),  (ii) $53.7  million of
indebtedness  under the Senior Credit Facility,  and (iii) $0.4 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  ("SAB101"),  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


                                       20
<PAGE>

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.


     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 the effect of SFAS No. 133 and does not believe its
adoption will have a material effect on the consolidated financial statements.

Special Note Regarding Forward-Looking Information

     Certain   statements  in  this  Quarterly   Report  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


                                       21
<PAGE>

under no duty to update  any of the  forward-looking  statements  after the date
hereof.



                                       22
<PAGE>

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.


                                       23
<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 one such proceeding 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.



                                       24
<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, 1996m 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

                                       25
<PAGE>

          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.
     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.



                                       26
<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/  TERRY MATLACK

                                        Terry Matlack
                                        Chief Executive Officer



                                        By:/s/  KEITH KELSON

                                        Keith Kelson
                                        Chief Financial Officer



Date:  August 11, 2000



                                       27