<PAGE>   1

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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                             ---------------------

                                   FORM 10-Q

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

[X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                                       OR

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                             ---------------------

                      FOR THE QUARTER ENDED JUNE 30, 2001

                         COMMISSION FILE NUMBER 0-25016

                                 T-NETIX, INC.
             (Exact name of registrant as Specified in Its Charter)

<Table>
<S>                                            <C>
                   COLORADO                                      84-1037352
         (State of Other Jurisdiction                         (I.R.S. Employer
              of Incorporation)                             Identification No.)

          VALWOOD PARKWAY, SUITE 102                               75006
              CARROLLTON, TEXAS                                  (Zip Code)
   (Address of principal executive offices)
</Table>

      Registrant's telephone number, including area code:  (972) 241-1535

                             ---------------------

     Indicate by check [X] whether the registrant (1) has filed all reports
required to filed by Section 13 or 15(d) of the Securities and 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 [ ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.

<Table>
<Caption>
                    CLASS                              OUTSTANDING AT AUGUST 6, 2001
                    -----                              -----------------------------
<S>                                            <C>
       Common Stock, $.01 stated value                           15,032,368
</Table>

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<PAGE>   2

                        FORM 10-Q CROSS REFERENCE INDEX

<Table>
<Caption>
                                                                       PAGE
                                                                       ----
<S>     <C>                                                            <C>
                       PART I FINANCIAL INFORMATION


Item 1  Condensed Consolidated Financial Statements (Unaudited).....     3
Item 2  Management's Discussion and Analysis of Financial Condition
             and Results of
             Operations.............................................    11
Item 3  Quantitative and Qualitative Disclosure About Market Risk...    18
                         PART II OTHER INFORMATION


Item 1  Legal Proceedings...........................................    19
Item 2  Changes in Securities and Use of Proceeds...................    20
Item 3  Defaults Upon Senior Securities.............................    20
Item 4  Submission of Matters to a Vote of Security Holders.........    20
Item 5  Other Information...........................................    21
Item 6  Exhibits and Reports on Form 8-K............................    21
</Table>

                                        1
<PAGE>   3

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

              INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<S>                                                            <C>
Condensed Consolidated Balance Sheets as of June 30, 2001
  and December 31, 2000 (Unaudited).........................     3
Condensed Consolidated Statements of Operations for the
  Three Months Ended June 30, 2001 and 2000, and the Six
  Months Ended June 30, 2001 and 2000 (Unaudited)...........     4
Condensed Consolidated Statements of Cash Flows for the Six
  Months Ended June 30, 2001 and 2000 (Unaudited)...........     5
Notes to Condensed Consolidated Financial Statements
  (Unaudited)...............................................     6
</Table>

                                        2
<PAGE>   4

                         T-NETIX, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>        <C>
                                       ASSETS


Cash and cash equivalents...................................  $   644      $   102
Accounts receivable, net....................................   18,811       18,268
Prepaid expenses............................................    1,817        1,212
Inventories.................................................      365          764
                                                              -------      -------
          Total current assets..............................   21,637       20,346
Property and equipment, net.................................   33,433       34,821
Goodwill, net...............................................    5,551        5,557
Deferred tax asset..........................................    2,297        2,297
Intangible and other assets, net............................    8,462        8,474
                                                              -------      -------
          Total assets......................................  $71,380      $71,495
                                                              =======      =======

                 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
                              AND STOCKHOLDERS' EQUITY


Liabilities:
  Accounts payable..........................................  $ 8,256      $ 8,654
  Accrued liabilities.......................................    7,130        5,781
  Subordinated note payable.................................    3,750           --
  Current portion of long term debt.........................   25,029        1,848
                                                              -------      -------
          Total current liabilities.........................   44,165       16,283
  Long-term debt............................................       66       26,063
  Subordinated note payable.................................       --        3,750
                                                              -------      -------
          Total liabilities.................................   44,231       46,096
Series A redeemable convertible preferred stock, $1,000 per
  share, stated value, 3,750 shares authorized; 3,250 shares
  issued and outstanding at December 31, 2000...............       --        2,173
Stockholders' equity:
  Common stock, $.01 stated value, 70,000,000 shares
     authorized; 15,032,638 and 13,228,872 shares issued and
     outstanding at June 30, 2001 and December 31, 2000,
     respectively...........................................      150          132
  Additional paid-in capital................................   41,780       38,541
  Accumulated deficit.......................................  (14,781)     (15,447)
                                                              -------      -------
          Total stockholders' equity........................   27,149       23,226
                                                              -------      -------
Commitments and contingencies
          Total liabilities, redeemable convertible
            preferred stock and stockholders' equity........  $71,380      $71,495
                                                              =======      =======
</Table>

     See accompanying notes to condensed consolidated financial statements.

                                        3
<PAGE>   5

                         T-NETIX, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<Table>
<Caption>
                                                        THREE MONTHS ENDED         SIX MONTHS ENDED
                                                             JUNE 30,                  JUNE 30,
                                                      ----------------------    ----------------------
                                                        2001         2000         2001         2000
                                                      ---------    ---------    ---------    ---------
                                                      (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                   <C>          <C>          <C>          <C>
Revenue:
  Telecommunications services.......................   $15,553      $11,953      $31,168      $22,077
  Direct call provisioning..........................     6,601        7,247       13,081       14,492
  Internet services.................................     7,893        5,399       14,744       10,176
  Equipment sales and other.........................     1,779          826        1,866        1,208
                                                       -------      -------      -------      -------
          Total revenue.............................    31,826       25,425       60,859       47,953
                                                       -------      -------      -------      -------
Expenses:
  Operating costs:
     Telecommunications services....................     6,085        5,360       12,159        9,861
     Direct call provisioning.......................     5,812        6,751       11,690       13,268
     Internet services..............................     4,863        4,206        9,779        8,263
     Cost of equipment sold and other...............     1,049          332        1,090          549
                                                       -------      -------      -------      -------
          Total operating costs.....................    17,809       16,649       34,718       31,941
  Selling, general and administrative...............     6,786        4,686       13,202        8,424
  Research and development..........................     1,613        1,569        3,095        2,744
  Depreciation and amortization.....................     3,354        3,117        6,503        6,166
                                                       -------      -------      -------      -------
          Total expenses............................    29,562       26,021       57,518       49,275
                                                       -------      -------      -------      -------
          Operating income (loss)...................     2,264         (596)       3,341       (1,322)
Interest and other expense, net.....................      (666)        (673)      (1,376)      (1,027)
                                                       -------      -------      -------      -------
Income (loss) before income taxes...................     1,598       (1,269)       1,965       (2,349)
Income tax expense..................................       222           --          222           --
                                                       -------      -------      -------      -------
          Net income (loss).........................     1,376       (1,269)       1,743       (2,349)
Accretion of discount on redeemable convertible
  preferred stock...................................        --         (430)          --         (430)
Charge for conversion of redeemable convertible
  preferred stock...................................        --           --       (1,077)          --
                                                       -------      -------      -------      -------
Net income (loss) applicable to common stock........   $ 1,376      $(1,699)     $   666      $(2,779)
                                                       =======      =======      =======      =======
Basic income (loss) per common share................   $  0.09      $ (0.13)     $  0.05      $ (0.22)
                                                       =======      =======      =======      =======
Diluted income (loss) per common share..............   $  0.09      $ (0.13)     $  0.05      $ (0.22)
                                                       =======      =======      =======      =======
Shares used in computing basic net income (loss) per
  common share......................................    15,027       12,732       14,631       12,723
                                                       =======      =======      =======      =======
Shares used in computing diluted net income (loss)
  per common share..................................    15,192       12,732       14,797       12,723
                                                       =======      =======      =======      =======
</Table>

     See accompanying notes to condensed consolidated financial statements.

                                        4
<PAGE>   6

                         T-NETIX, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<Table>
<Caption>
                                                              SIX MONTHS ENDED
                                                                  JUNE 30,
                                                              -----------------
                                                               2001      2000
                                                              -------   -------
                                                                 (AMOUNTS IN
                                                                 THOUSANDS)
<S>                                                           <C>       <C>
Cash flows from operating activities:
  Net income (loss).........................................  $ 1,743   $(2,349)
  Adjustments to reconcile net loss to net cash provided by
     operating activities:
     Depreciation and amortization..........................    6,503     6,166
     Deferred income tax credit.............................       --        54
     Gain on sale of property and equipment.................       --      (265)
     Changes in operating assets and liabilities:
       Change in accounts receivable, net...................       (9)   (1,550)
       Change in prepaid expenses...........................     (590)     (548)
       Change in inventories................................      793       185
       Change in intangibles and other assets...............     (658)      (24)
       Change in accounts payable...........................     (128)    2,623
       Change in accrued liabilities........................      717    (1,209)
                                                              -------   -------
          Cash provided by operating activities.............    8,371     3,083
                                                              -------   -------
Cash used in investing activities:
  Purchase of property and equipment........................   (3,320)   (8,537)
  Purchase of Telequip, Inc. ...............................   (1,654)       --
  Proceeds from disposal of property and equipment..........       --       285
                                                              -------   -------
          Cash used in investing activities.................   (4,974)   (8,252)
                                                              -------   -------
Cash flows from financing activities:
  Net payments on line of credit............................   (2,842)     (807)
  Payments of other debt....................................      (13)   (1,128)
  Proceeds from subordinated debt...........................       --     3,750
  Proceeds from issuance of redeemable convertible preferred
     stock, net.............................................       --     3,459
  Common stock issued for cash under option plans...........       --        75
                                                              -------   -------
          Cash provided by (used in) financing activities...   (2,855)    5,349
                                                              -------   -------
Net increase in cash and cash equivalents...................      542       180
Cash and cash equivalents at beginning of period............      102       118
                                                              -------   -------
Cash and cash equivalents at end of period..................  $   644   $   298
                                                              =======   =======
Cash paid for interest......................................  $   643   $   617
                                                              =======   =======
</Table>

     See accompanying notes to condensed consolidated financial statements.

                                        5
<PAGE>   7

                         T-NETIX, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Unaudited Financial Statements

     The accompanying unaudited consolidated financial statements reflect all
adjustments which, in the opinion of management, are necessary to reflect a fair
presentation of the financial position and results of operations of T-NETIX,
Inc. and subsidiaries (the Company) for the interim periods presented. All
adjustments, in the opinion of management, are of a normal and recurring nature.
Some adjustments involve estimates, which may require revision in subsequent
interim periods or at year-end. The financial statements have been presented in
accordance with generally accepted accounting principles. Refer to notes to
consolidated financial statements, which appear in the 2000 Annual Report on
Form 10-K for the Company's accounting policies, which are pertinent to these
statements.

  Acquisitions

     On January 19, 2001 the Company completed the purchase of all the
outstanding shares of common stock, not already owned, of Telequip Labs, Inc., a
provider of telecommunications calling services. The purchase price was $1.6
million of which $1.5 million was paid upon closing. The remaining $0.1 million
is payable on the first anniversary of the closing date upon determination that
all representations and warranties were materially true and accurate as of the
closing date and all covenants have been substantially fulfilled. The excess of
the purchase price over the fair value of the net identifiable assets acquired
has been recorded as goodwill and is being amortized on a straight line basis
over seven years. The acquisition has been accounted for as a purchase and
accordingly, the results of operations of Telequip Labs, Inc. have been included
in the Company's consolidated financial statements from January 19, 2001.

  Earnings (Loss) Per Common Share

     Earnings (loss) per common share are presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings Per
Share (SFAS 128). Basic earnings per share excludes dilution for common stock
equivalents and is computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. For the three and six months ended June 30, 2001
and 2000, common stock equivalents of 1,072,000, 991,000, 1,072,000 and 385,000,
respectively were not included in the diluted earnings per share calculation, as
their effect would be anti-dilutive.

  Recent Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
which requires the use of the purchase method and eliminates the option of using
pooling-of-interests method of accounting for all business combinations. The
provisions in this statement apply to all business combinations initiated after
June 30, 2001, and all business combinations accounted for using the purchase
method for which the date of acquisition is July 1, 2001, or later. The company
does not believe that the adoption of this statement will have a material impact
on the Company's financial position results of operations or cash flows.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("Statement 142"). In general,
Statement 142 is effective for fiscal years beginning after December 15, 2001.
Statement 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets, and requires that all intangible assets acquired,
other than those acquired in a business combination, be initially recognized and
measured based on fair value. In addition, the intangible

                                        6
<PAGE>   8
                         T-NETIX, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

assets should be amortized based on useful life. If the intangible asset is
determined to have an indefinite useful life, it should not be amortized, but
shall be tested for impairment at least annually. Management has not determined
the potential impact that this statement will have on the Company's financial
position, results of operations or cash flows.

  Reclassification

     Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentation.

(2) BALANCE SHEET COMPONENTS

     Accounts receivable consist of the following:

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>        <C>
Accounts receivable, net:
  Trade accounts receivable.................................  $11,930      $13,216
  Direct call provisioning receivable.......................    8,148        5,934
  Other receivables.........................................      344          209
                                                              -------      -------
                                                               20,422       19,359
          Less: Allowance for doubtful accounts.............   (1,611)      (1,091)
                                                              -------      -------
                                                              $18,811      $18,268
                                                              =======      =======
</Table>

     Bad debt expense was $1.3 million and $1.5 million for the three months
ended June 30, 2001 and 2000, respectively, and $2.4 million and $2.8 million
for the six months ended June 30, 2001 and 2000, respectively.

     Property and equipment consists of the following:

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>        <C>
Property and equipment, net:
  Telecommunications equipment..............................  $ 64,706     $ 62,833
  Construction in progress..................................     7,136        6,495
  Office equipment..........................................    12,979       11,544
                                                              --------     --------
                                                                84,821       80,872
          Less: Accumulated depreciation and amortization...   (51,388)     (46,051)
                                                              --------     --------
                                                              $ 33,433     $ 34,821
                                                              ========     ========
</Table>

                                        7
<PAGE>   9
                         T-NETIX, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) BALANCE SHEET COMPONENTS -- (CONTINUED)

     Intangible and other assets consist of the following:

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>        <C>
Intangible and other assets, net:
  Patent license rights.....................................  $ 3,325      $ 3,325
  Purchased technology assets...............................    2,487        2,487
  Capitalized software development costs....................      645          633
  Acquired software technologies............................    1,827        1,809
  Patent defense and application costs......................    3,324        2,915
  Deposits and long-term prepayments........................    1,941        1,718
  Other.....................................................    1,530        1,500
                                                              -------      -------
                                                               15,079       14,387
          Less: Accumulated amortization....................   (6,617)      (5,913)
                                                              -------      -------
                                                              $ 8,462      $ 8,474
                                                              =======      =======
</Table>

     Accrued liabilities consist of the following:

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>        <C>
Accrued liabilities:
  Deferred revenue and customer advances....................   $1,045       $1,905
  Compensation related......................................    2,110        1,281
  Other.....................................................    3,975        2,595
                                                               ------       ------
                                                               $7,130       $5,781
                                                               ======       ======
</Table>

(3) DEBT

     Debt consists of the following:

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>        <C>
Debt:
  Bank credit facility......................................  $25,006      $27,813
  Subordinated note payable.................................    3,750        3,750
  Other.....................................................       89           98
                                                              -------      -------
                                                               28,845       31,661
  Less current portion......................................   28,779        1,848
                                                              -------      -------
          Non current portion...............................  $    66      $29,813
                                                              =======      =======
</Table>

     In September 1999, the Company entered into a Senior Secured Revolving
Credit Facility (the "Credit Facility") with its commercial bank. In April 2001,
the Company's lenders extended the maturity date on its credit agreement to
March 31, 2002. The maximum available borrowings on the facility was reduced to
$30 million and interest was set at prime rate plus 1.25% effective March 31,
2001 increasing by 0.25% each quarter thereafter on June 30, September 30 and
December 31, 2001 (8.75% at June 30, 2001). The Company also pays a fee of 0.40%
per annum on the unused portion of the line of credit.

                                        8
<PAGE>   10
                         T-NETIX, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) DEBT -- (CONTINUED)

     The Credit Facility is collateralized by substantially all of the assets of
the Company. Under the terms of the Credit Facility, the Company is required to
maintain certain financial ratios and other financial covenants. These ratios
include a debt to four quarter rolling earnings before interest, taxes and
depreciation and amortization (EBITDA) ratio, a ratio of fixed charges (interest
and debt payments) to EBITDA, and minimum quarterly EBITDA. The Agreement also
prohibits the Company from incurring additional indebtedness.

     The Company issued a subordinated note payable of $3.75 million, due April
30, 2001, to a director and significant shareholder of the Company. The note
bears interest at prime rate plus one percent per annum (8.25% at June 30, 2001)
which is payable every six months. The lender received warrants, which are
immediately exercisable, to purchase 25,000 shares of common stock at an
exercise price of $6.05 per share for a period of five years. The estimated fair
value of the stock purchase warrants, calculate using the Black-Scholes model,
has been recorded as deferred financing fees and is being amortized over the
term of the debt. This note was extended in April 2001 to April 30, 2002 at
which time the lender received additional warrants, which are immediately
exercisable, to purchase 25,000 shares of common stock at an exercise price of
$2.75 per share for a period of five years.

(4) SEGMENT INFORMATION

     The Company has three reportable segments, the Corrections Divisions, the
SpeakEZ Division, and the Internet Services Division. The Company evaluates
performance based on earnings (loss) before income taxes. Additional measures
include operating income, depreciation and amortization, and interest expense.
There are no intersegment sales. The Company's reportable segments are specific
business units that offer different products and services. They are managed
separately because each business requires different technology and marketing
strategies. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies. Segment
information for the three and six months ended June 30, 2001 and 2000 is as
follows (amounts in thousands):

<Table>
<Caption>
                                                 THREE MONTHS ENDED    SIX MONTHS ENDED
                                                      JUNE 30,             JUNE 30,
                                                 -------------------   -----------------
                                                   2001       2000      2001      2000
                                                 --------   --------   -------   -------
<S>                                              <C>        <C>        <C>       <C>
REVENUE FROM EXTERNAL CUSTOMERS:
  Corrections Division.........................  $23,933    $20,006    $46,088   $37,677
  SpeakEZ Division.............................       --         20         27       100
  Internet Services Division...................    7,893      5,399     14,744    10,176
                                                 -------    -------    -------   -------
                                                 $31,826    $25,425    $60,859   $47,953
                                                 =======    =======    =======   =======
OPERATING INCOME (LOSS):
  Corrections Division.........................  $   (74)   $(1,252)   $  (254)  $(2,306)
  SpeakEZ Division.............................     (692)      (538)    (1,370)     (928)
  Internet Services Division...................    3,030      1,194      4,965     1,912
                                                 -------    -------    -------   -------
                                                 $ 2,264    $  (596)   $ 3,341   $(1,322)
                                                 =======    =======    =======   =======
RESEARCH AND DEVELOPMENT:
  Corrections Division.........................  $ 1,511    $ 1,398    $ 2,846   $ 2,446
  SpeakEZ Division.............................      102        171        249       298
  Internet Services Division...................       --         --         --        --
                                                 -------    -------    -------   -------
                                                 $ 1,613    $ 1,569    $ 3,095   $ 2,744
                                                 =======    =======    =======   =======
</Table>

                                        9
<PAGE>   11
                         T-NETIX, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) SEGMENT INFORMATION -- (CONTINUED)


<Table>
<Caption>
                                                 THREE MONTHS ENDED    SIX MONTHS ENDED
                                                      JUNE 30,             JUNE 30,
                                                 -------------------   -----------------
                                                   2001       2000      2001      2000
                                                 --------   --------   -------   -------
<S>                                              <C>        <C>        <C>       <C>
DEPRECIATION AND AMORTIZATION:
  Corrections Division.........................  $ 3,155    $ 2,887    $ 6,102   $ 5,669
  SpeakEZ Division.............................      199        230        401       467
  Internet Services Division...................       --         --         --        --
                                                 -------    -------    -------   -------
                                                 $ 3,354    $ 3,117    $ 6,503   $ 6,166
                                                 =======    =======    =======   =======
INTEREST AND OTHER EXPENSE, NET:
  Corrections Division.........................  $  (374)   $  (367)   $  (754)  $  (442)
  SpeakEZ Division.............................     (292)      (306)      (622)     (585)
  Internet Services Division...................       --         --         --        --
                                                 -------    -------    -------   -------
                                                 $  (666)   $  (673)   $(1,376)  $(1,027)
                                                 =======    =======    =======   =======
SEGMENT EARNINGS (LOSS) BEFORE INCOME TAXES:
  Corrections Division.........................  $  (448)   $(1,619)   $(1,008)  $(2,748)
  SpeakEZ Division.............................     (984)      (844)    (1,992)   (1,513)
  Internet Services Division...................    3,030      1,194      4,965     1,912
                                                 -------    -------    -------   -------
                                                 $ 1,598    $(1,269)   $ 1,965   $(2,349)
                                                 =======    =======    =======   =======
</Table>

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
<S>                                                           <C>        <C>
SEGMENT ASSETS:
  Corrections Division......................................  $69,918      $69,676
  SpeakEZ Division..........................................    1,462        1,819
  Internet Services Division................................       --           --
                                                              -------      -------
                                                              $71,380      $71,495
                                                              =======      =======
</Table>

     There was no intersegment revenue for the three months and six months ended
June 30, 2001 and 2000. Consolidated total assets included eliminations of
approximately $14.0 million and $13.2 million as of June 30, 2001 and December
31, 2000, respectively. Eliminations consist of intercompany receivables in the
Corrections Division and intercompany payables in the SpeakEZ Division related
solely to intercompany borrowings of the SpeakEZ Division.

                                        10
<PAGE>   12

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

     For a comprehensive understanding of our financial condition and
performance, this discussion should be considered in the context of the
condensed consolidated financial statements and accompanying notes and other
information contained herein.

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this Form 10-Q includes forward-looking statements.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements include, but are not limited to, those
listed under the caption "Forward Looking Statements and Risk Factors" in the
Company's Form 10-K for the year ended December 31, 2000. Factors that might
cause such a difference include, without limitation, the following: the
potential technological obsolescence of existing systems, the renewal of
existing site specific Corrections and Internet Service Division customer
contracts, the ability to retain the base of current site specific customer
contracts, the ability to perform under contractual performance requirements,
the continued relationship with existing customers, the ability to win new
contracts for our products and services, including Lock & Track(TM) and
Contain(R), the ability of our existing customers, including AT&T, to maintain
their market share of the inmate calling market, the successful integration of
Gateway Technologies, Inc. into our business, our ability to penetrate the
market for jail management systems, the ability to reduce expenditures in the
SpeakEZ Division and to successfully license voice verification and fraud
prevention technology, the effect of economic conditions, the effect of
regulation, including the Telecommunications Act of 1996, that could affect our
sales or pricing, the impact of competitive products and pricing particularly in
the Corrections Division, our continuing ability to develop hardware and
software products, commercialization and technological difficulties,
manufacturing capacity and product supply constraints or difficulties, actual
purchases by current and prospective customers under existing and expected
agreements, and the results of financing efforts, along with the other risks
detailed therein.

     We make forward-looking statements in this report and may make such
statements in future filings with the Securities and Exchange Commission. We
also may make forward-looking statements in press releases or other public
communications. These forward-looking statements are subject to risks and
uncertainties and include information about our expectations and possible or
assumed future results of operations. When we use any of the words "believe,"
"expect," "anticipate," "estimate" or similar expressions, we are making a
forward-looking statement. While we believe that forward looking statements are
reasonable, you should not place undue reliance in such forward-looking
statements, which speak only as of the date made.

     Other factors not currently anticipated by management may also materially
and adversely affect our results of operations. Except as required by applicable
law, we do not undertake any obligation to publicly release any revisions which
may be made to any forward-looking statements to reflect events or circumstances
occurring after the date of this report.

OVERVIEW

  Corrections Division

     In the Corrections Division we derive revenue from three main sources:
telecommunications services, direct call provisioning and equipment sales. Each
form of revenue has specific and varying operating costs associated with such
revenue. Selling, general and administrative expenses, along with research and
development and depreciation and amortization are common expenses regardless of
the revenue generated.

     Telecommunications services revenue is generated under long-term contracts.
Pricing historically provided for transaction fees paid on a per-call basis. We
are paid a prescribed fee for each call completed and additional fees for
validating phone numbers dialed by inmates. The per-call charge is primarily for
the provisioning of specialized call processing services to telecommunications
service providers for their customers, the correctional facilities. However,
during the last year we entered into agreements and contract amendments with
three customers to record revenue as a percentage of gross revenue earned by the
customer, subject to certain adjustments. This new pricing was an effort by us
to have our pricing remain flexible and not

                                        11
<PAGE>   13

be effected by factors that affected call volumes. Pursuant to these amendments,
we also recognized certain telecommunications expenses that were previously
reimbursable charges to these customers. Our telecommunications service provider
customers include AT&T, Verizon (formerly Bell Atlantic and GTE), Qwest
(formerly US WEST), and SBC Communications (including Ameritech).

     As a direct inmate call provider, we buy "wholesale" call services to be
re-sold as collect calls. We use the services of third parties to bill the
collect calls. We then enter into direct contracts with the correctional
facilities and generally pay to the correctional facilities commissions on the
gross billed revenue. The rates charged by us are consistent with the collect
call rates charged by the incumbent local exchange carrier or "ILEC" in the same
service area and the predominant interexchange carrier or "IXC." Since all calls
originating from the inmate phones are collect calls, each phone generates
higher-than-industry-average revenues. The uncertainty of the creditworthiness
of the billed parties results however in a higher-than-industry-average
uncollectible cost.

     Equipment sales and other revenue include the sales of our inmate calling
system and digital recording systems. The sales of the inmate calling system are
generally made to only one customer. We then charge monthly maintenance fees to
keep the system operational. Sales to this customer can vary depending upon the
success of the customer in winning contracts with correctional facilities.

  Internet Services Division

     In December 1999, we entered into a master service agreement with US WEST
!NTERPRISE (now named Qwest) America, Inc. to provide interLATA Internet
services to Qwest customers. The contract, which commenced December 1, 1999,
called for us to buy, resell and process billing of Internet bandwidth to this
customer. The initial term of the master service agreement was for a minimum of
sixteen months until March 2001.

     Factors affecting margin include a negotiated base management fee and
contract incentive payments based on cost savings. The costs associated with
this contract are primarily the costs for Internet bandwidth. There were no
capital outlays required to begin provisioning these services.

     Although the Qwest agreement expired on March 31, 2001 we anticipate
receiving month-to-month revenues through September 2001, at which time we
anticipate operations of this division to cease. The termination of these
services may have an adverse impact on our operating results.

  Speaker Verification Division

     Our voice print revenue has been minimal to date and management is seeking
strategic alternatives including the sale of this division. In the meantime this
division will continue to incur its normal operating expenses. There is no
assurance that the SpeakEZ products will be commercially accepted or profitable
in the future and there is no assurance that we will be able to sell or
otherwise divest this division from the Company.

                                        12
<PAGE>   14

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE
30, 2000

     The following table sets forth certain statement of operations data as a
percentage of total revenue for the three months ended June 30, 2001 and 2000.

<Table>
<Caption>
                                                              2001   2000
                                                              ----   ----
<S>                                                           <C>    <C>
Revenue:
  Telecommunications services...............................   49%    45%
  Direct call provisioning..................................   21     27
  Internet services.........................................   25     25
  Equipment sales and other.................................    5      3
                                                              ---    ---
          Total revenue.....................................  100    100
Expenses:
  Operating costs...........................................   56     68
  Selling, general and administrative.......................   21     17
  Research and development..................................    5      6
  Depreciation and amortization.............................   11     12
                                                              ---    ---
          Operating income (loss)...........................    7     (3)
  Interest and other expense................................   (2)    (2)
                                                              ---    ---
          Income (loss) before income taxes.................    5     (5)
  Income tax expense........................................    1     --
                                                              ---    ---
          Net income (loss).................................    4     (5)
  Accretion of discount on redeemable convertible preferred
     stock..................................................   --     (2)
                                                              ---    ---
          Net income (loss) applicable to common stock......    4%    (7)%
                                                              ===    ===
</Table>

     Total Revenue.  Total revenue for the three months ended June 30, 2001 was
$31.8 million, an increase of 25% over $25.4 million for the corresponding prior
period. This increase was attributable to increases in telecommunications
services revenue, internet services revenue and equipment sales and other
offset, in part, by decreases in direct call provisioning revenue.

     The 30% increase in telecommunications services revenue to $15.6 million in
the three months ended June 30, 2001, from $12.0 million for the corresponding
prior period, was due primarily to an increase in contract prices. We increased
our per call transaction fee with a major customer, and changed our pricing with
three other major customers whereby revenue is now calculated as a percentage if
our customer's gross revenue versus a transaction fee per call.

     Direct call provisioning revenue decreased to $6.6 million for the three
months ended June 30, 2001, from $7.2 million in the corresponding prior period.
This decrease was due to the loss of sites for which we were provisioning the
long distance service.

     The Internet Services revenue increased by $2.5 million to $7.9 million for
the three months ended June 30, 2001. This increase of 46% was the result of an
increase in the base of Internet Services subscribers. Although, the Qwest
agreement expired on March 31, 2001 we anticipate receiving month-to-month
revenues through September 2001, at which time we anticipate operations of this
division to cease. The termination of these services may have an adverse impact
on our operating results.

     Equipment sales and other revenue increased 125% to $1.8 million for the
three months ended June 30, 2001 from $0.8 million in the corresponding prior
period. This increase was primarily due to the one time sale of equipment to a
major customer. Such sales are primarily associated with one telecommunications
service provider customer and are dependent upon the timing of installations for
this customer and the customer's success rate in its territory.

     Operating costs.  Total operating costs were $17.8 million in the three
months ended June 30, 2001, an increase of 7% from $16.6 million in the
corresponding prior period. The increases were primarily due to increases in
telecommunication services of $0.7 million, Internet Services of $0.7 million
and the cost of

                                        13
<PAGE>   15

equipment sold and other expenses of $0.7 million, offset by a reduction in
direct call provisioning expenses of $0.9 million.

     Operating costs of telecommunications services primarily consist of service
administration costs for correctional facilities, including salaries and related
personnel expenses, communication costs and inmate calling systems repair and
maintenance expense. Operating costs of telecommunications services also include
costs associated with call verification procedures, primarily network expenses
and database access charges. Operating costs associated with direct call
provisioning include the costs associated with telephone line access, long
distance charges, commissions paid to correctional facilities, costs associated
with uncollectible accounts, and billing charges. Internet Services expense
consists of Internet bandwidth costs. Cost of equipment sold and other includes
primarily the purchase price of equipment which is resold. Other equipment cost
of components was minimal.

     The following table sets forth the operating costs and expenses for each
type of revenue as a percentage of corresponding revenue for the three months
ended June 30, 2001 and 2000.

<Table>
<Caption>
                                                              2001   2000
                                                              ----   ----
<S>                                                           <C>    <C>
Operating costs:
  Telecommunications services...............................   39%    45%
  Direct call provisioning..................................   88     93
  Internet services.........................................   62     78
  Cost of equipment sold and other..........................   59     40
</Table>

     Operating costs associated with providing telecommunications services as a
percentage of corresponding revenue was 39% for the three months ended June 30,
2001, a decrease from 45% for the corresponding prior period. Although
telecommunications services cost increased by $0.7 million these costs increased
at a lesser rate then the related revenues. Total telecommunications services
operating expenses were $6.1 million for the three months ended June 30, 2001
and $5.4 million for the corresponding prior period. The increase in 2001 is due
primarily to new services being provisioned for a significant customer as part
of a contract amendment and increases in repairs and maintenance costs. To a
lesser extent, increases in travel and contract labor contributed to the overall
cost increase.

     Direct call provisioning costs as a percentage of applicable revenue
decreased to 88% of revenue for the three months ended June 30, 2001 from 93%
for the corresponding prior period. These reduced costs include site
commissions, repairs and maintenance and bad debt expense.

     Although Internet Services expenses increased by $0.7 million to $4.9
million for the three months ended June 30, 2001, as a percentage of sales these
costs decreased to 62% for the period ended June 30, 2001 compared to 78% for
the corresponding prior period. The decrease in the cost of sales percentage is
due our ability to obtain better pricing from our transport providers.

     Cost of equipment sold and other increased in the three months ended June
30, 2001 and also increased as a percentage of corresponding revenue from the
corresponding prior period primarily due to the change in the revenue mix for
equipment sales.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses were $6.8 million for the three months ended June 30,
2001 compared to $4.7 million for the corresponding prior period. The increase
in the three months ended June 30, 2001 was primarily due to increases in
salaries and benefits for additional personnel, professional fees,
communications costs, rent and utilities.

     Research and Development Expenses.  Research and development expenses
remained consistent with the same period last year at $1.6 million for the three
months ended June 30, 2001. Research and development expenses for the
Corrections Division were $1.5 million in the three months ended June 30, 2001
and $1.4 million in the corresponding prior period. The increase was primarily
due to increased labor costs and communications expenses offset somewhat by
decreased contract labor costs and travel related expenses.

                                        14
<PAGE>   16

     Depreciation and Amortization Expenses.  Depreciation and amortization
expense was $3.4 million in the three months ended June 30, 2001, an increase
from $3.1 million for the corresponding prior period. The increase was due
primarily to the depreciation associated with new site installations.

     Interest and Other Expense, Net.  Interest and other expense, net was $0.7
million for both three month periods ended June 30, 2001 and 2000.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE
30, 2000

     The following table presents certain statement of operations data as a
percentage of total revenue for the six months ended June 30, 2001 and 2000.

<Table>
<Caption>
                                                              2001   2000
                                                              ----   ----
<S>                                                           <C>    <C>
Revenue:
  Telecommunications services...............................   51%    46%
  Direct call provisioning..................................   22     30
  Internet services.........................................   24     21
  Equipment sales and other.................................    3      3
                                                              ---    ---
          Total revenue.....................................  100    100
Expenses:
  Operating costs...........................................   57     68
  Selling, general and administrative.......................   22     17
  Research and development..................................    5      5
  Depreciation and amortization.............................   11     12
                                                              ---    ---
          Operating income (loss)...........................    5     (2)
  Interest and other expense................................   (2)    (2)
                                                              ---    ---
          Income (loss) before income taxes.................    3     (4)
  Income tax expense........................................   --     --
                                                              ---    ---
          Net income (loss).................................    3     (4)
  Accretion of discount and charge for conversion of
     redeemable preferred stock.............................   (2)    (1)
                                                              ---    ---
          Net income (loss) applicable to common stock......    1%    (5)%
                                                              ===    ===
</Table>

     Total Revenue.  Total revenue for the six months ended June 30, 2001 was
$60.9 million, an increase of 27% over $48.0 million for the corresponding prior
period. This increase was attributable to increases in telecommunications
services revenue, internet services revenue and equipment sales and other,
offset by a decrease in direct call provisioning revenue.

     The 41% increase in telecommunications services revenue to $31.2 million in
the six months ended June 30, 2001, from $22.1 million for the corresponding
prior period, was due primarily to an increase in contract prices. We increased
our per call transaction fee with a major customer, and we changed our pricing
with three other major customers whereby revenue is calculated as a percentage
of our customer's gross revenue versus a transaction fee per call. In addition
we experienced an increase in revenue due to call volume increases, primarily
due to the addition of new sites.

     Direct call provisioning revenue decreased 10% to $13.1 million for the six
months ended June 30, 2001, from $14.5 million in the corresponding prior
period. This decrease was due to the loss of sites for which we are provisioning
the long distance service. The loss of sites is primarily a result of our being
unsuccessful in competitive bidding arrangements for contracts directly with
correctional institutions.

     The Internet Services revenue increased by $4.6 million to $14.7 million
for the six months ended June 30, 2001. The increase of 45% was the result of an
increase in the base of Internet Services subscribers. Although the Qwest
agreement expired on March 31, 2001, we anticipate incurring month-to-month
revenues through September 2001, at such time we anticipate operations of this
division to cease. The termination of these services may have an adverse impact
on our operating results.

                                        15
<PAGE>   17

     Equipment sales and other revenue increased 58% to $1.9 million for the six
months ended June 30, 2001 from $1.2 million in the corresponding prior period.
Such sales are primarily associated with one telecommunications service provider
customer and are dependent upon the timing of installations for this customer
and the customer's success rate in its territory.

     Operating costs.  Total operating costs were $34.7 million in the six
months ended June 30, 2001, an increase of 9% from $31.9 million in the
corresponding prior period. The increases were primarily due to increased
telecommunication services and Internet Services cost, as well as increases in
the cost of equipment sold and other expenses, offset in part by decreased
direct provisioning costs.

     Operating costs of telecommunications services primarily consist of service
administration costs for correctional facilities, including salaries and related
personnel expenses, communication costs and inmate calling systems repair and
maintenance expense. Operating costs of telecommunications services also include
costs associated with call verification procedures, primarily network expenses
and database access charges. Operating costs associated with direct call
provisioning include the costs associated with telephone line access, long
distance charges, commissions paid to correctional facilities, costs associated
with uncollectible accounts and billing charges. Internet Services expense
consists of Internet bandwidth costs. Cost of equipment sold and other includes
primarily the purchase price of equipment which is resold. Other equipment cost
components was minimal. Voice print operating costs include royalty charges, the
cost of hardware and the cost of services which amounts are reflected as other
operating costs.

     The following table represents the operating costs and expenses for each
type of revenue as a percentage of corresponding revenue for the six months
ended June 30, 2001 and 2000.

<Table>
<Caption>
                                                              2001   2000
                                                              ----   ----
<S>                                                           <C>    <C>
Operating costs:
  Telecommunications services...............................   39%    45%
  Direct call provisioning..................................   89     92
  Internet services.........................................   66     81
  Cost of equipment sold and other..........................   58     45
</Table>

     Operating costs associated with providing telecommunications services as a
percentage of corresponding revenue was 39% for the six months ended June 30,
2001, a decrease from 45% for the corresponding prior period. Total
telecommunications services operating expenses were $12.2 million for the six
months ended June 30, 2001 and $9.9 million for the corresponding prior period.
The increase in 2001 is due to new services being provisioned for customers as
part of contract amendments, increases in personnel costs, contract labor and
travel related costs.

     Direct call provisioning costs as a percentage of applicable revenue
decreased to 89% of revenue for the six months ended June 30, 2001 from 92% in
for the corresponding prior period. This decrease was primarily due to a
reduction in transmission costs and bad debt expense.

     Internet Services cost increased to $9.8 million for the period ended June
30, 2001 compared to $8.3 million for the corresponding period in 2000 although
costs as a percentage of applicable revenue decreased to 66% of revenue for the
six months ended June 30, 2001 from 81% for the corresponding period. The
increase in costs is due to increased line costs as a result of more
subscribers. The percentage decrease was the result of our ability to obtain
lower pricing from our transport providers.

     Cost of equipment sold and other increased in the six months ended June 30,
2001 and also increased as a percentage of corresponding revenue from the
corresponding prior period primarily due to the change in the revenue mix for
equipment sales.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses were $13.2 million for the six months ended June 30,
2001 compared to $8.4 million for the corresponding prior period. The increase
in the six months ended June 30, 2001 was primarily due to salaries and benefits
for additional personnel contract labor, travel, communications and legal fees.

                                        16
<PAGE>   18

     Research and Development Expenses.  Research and development expenses were
$3.1 million in the six months ended June 30, 2001 compared to $2.7 million for
the corresponding prior period. Research and development expenses for the
Corrections Division were $2.8 million in the six months ended June 30, 2001 and
$2.4 million in the corresponding prior period. The increase was primarily due
to higher personnel costs and communications expenses.

     Depreciation and Amortization Expenses.  Depreciation and amortization
expense was $6.5 million in the six months ended June 30, 2001, an increase from
$6.2 million for the corresponding prior period. The increase was due primarily
to the depreciation associated with new site installations.

     Interest and Other Income, Net.  Interest and other expense, net was $1.3
million for the six months ended June 30, 2001, an increase from $1.0 million
for the corresponding prior period. Included in other income in the six months
ended June 30, 2000 is a gain of approximately $0.3 million on the sale of used
telecommunications equipment. Interest expense was $1.4 million for the six
months ended June 30, 2001, and $1.3 million for the corresponding prior period.
The increase in 2001 was attributable to an increase in the average amount of
indebtedness outstanding.

LIQUIDITY AND CAPITAL RESOURCES

  Cash Flows

     We have historically relied upon operating cash flow, debt financing and
the sale of equity securities to fund our operations and capital needs. Our
capital needs consist primarily of additions to property and equipment for site
telecommunication equipment and to fund acquisitions.

     Cash provided by operations increased by 171% to $8.4 million for the six
months ended June 30, 2001 from $3.1 million in the comparable period in 2000.
This increase was primarily the result of an improvement in net income (up $4.1
million) combined with a $1.2 million increase in net working capital.

     Cash used in investing activities was $5.0 million for the six months ended
June 30, 2001, compared to $8.3 million in comparable prior period. The decrease
was primarily the result of lower capital expenditures in 2001 resulting from a
lower number of calling system installations offset, by the purchase of
Telequip, Inc. in January 2001 for $1.7 million.

     We anticipate that our capital expenditures in 2001 will decrease compared
with 2000 based on our decrease in installed systems at correctional facilities.
We believe our cash flows from operations and our availability under our credit
facility will be sufficient in order for us to meet our anticipated cash needs
for new installations of inmate call processing systems and upgrades of existing
systems and to finance our operations for at least the next nine months.

     Cash used in investing activities was $5.0 million for the six months ended
June 30, 2001, compared to $8.3 million in comparable prior period. The decrease
was primarily the result of lower capital expenditures in 2001 resulting from a
lower number of calling system installations offset, by the purchase of
Telequip, Inc. in January 2001 for $1.7 million.

     Cash used in financing consisted primarily of net payments on the Company's
credit facility of $2.8 million for the six months ended June 30, 2001, and of
$.8 million during the comparable period in 2000.

  Capital Resources

     In September 1999, we entered into a Senior Secured Revolving Credit
Facility ("Credit Facility") with a commercial bank. In July 2000 our lenders
amended our credit agreement to revise certain financial covenants. The maximum
available amount of credit under the credit facility available to us is
dependent upon our financial performance. Based on the financial covenants, our
maximum borrowings at December 31, 2000 were $40.0 million. In April 2001 our
lenders extended the Credit Facility maturity date to March 31, 2002. The
maximum available borrowing on the facility was reduced to $30 million
consisting of a $10 million term portion and a $20 million line of credit.
Interest was set at prime rate plus 1.25% effective March 31, 2001

                                        17
<PAGE>   19

increasing by 0.25% each quarter thereafter on June 30, September 30, and
December 31, 2001. In addition, per terms of the extension, monthly payments of
$200,000 on the term loan commenced on April 30, 2001.

     In April 2000, we raised $7.5 million of debt and equity financing. The net
proceeds of approximately $7.2 million were used to reduce the outstanding
balance on the Credit Facility. The Company issued 3,750 shares of series A
non-voting redeemable convertible preferred stock and five-year stock purchase
warrants to acquire 340,909 common shares for net proceeds of $3.5 million. In
November 2000, 500 shares of preferred stock were converted to 251,630 shares of
common stock at a conversion price of $2.09. In February of 200, the remaining
3,250 shares of preferred stock were converted into 1,770,179 shares of common
stock at an average conversion price of $1.95. The unamortized discount on the
preferred stock of $1.1 million was recognized as a charge to income (loss)
applicable to common stockholders. In April 2000, we also issued subordinated
debt in the amount of $3.75 million which is payable to a director and
significant shareholder. The maturity date of this note has been extended to
April 30, 2002.

     Our existing credit facility expires at April 30, 2002, at which time we
will need to either renew the current agreement or find a new financing source.
In the event we are unable to obtain financing, current cash flows may not be
sufficient for continued operations at present levels. There can be no assurance
that such financing will be available or, if available, will be obtainable on
acceptable terms.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     We are exposed to interest rate risk as discussed below.

INTEREST RATE RISK

     We have current debt outstanding under our credit facility of $25.0 million
at June 30, 2001. Under the terms of the debt agreement the maximum credit
available is $30 million. The loan bears interest at prime rate plus 1.5% (8.5%
at June 30, 2001) with scheduled increases of .25% on September 30 and December
31, 2001. Interest is payable monthly. Since the interest rates on the loans
outstanding are variable and are reset periodically, we are exposed to interest
rate risk. An increase in interest rates of 1% would increase estimated annual
interest expense by approximately $250,000 based on the amount of borrowings
outstanding under the line of credit at June 30, 2001.

                                        18
<PAGE>   20

                                    PART II

                               OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     From time to time we have been, and expect to continue to be subject to
various legal and administrative proceedings or various claims in the normal
course of our business. We believe the ultimate disposition of these matters
will not have a material affect on our financial condition, liquidity, or
results of operations.

     During 2000 Gateway won a dismissal of a case brought in the First Judicial
District Court of the State of New Mexico, styled Valdez v. State of New Mexico,
et al. An appeal of the case was recently certified and the case is currently in
the appellate briefing phase. The case named as defendants the State of New
Mexico, several political subdivisions of the State of New Mexico, and several
inmate telecommunications service providers, including Gateway. The complaint
included a request for certification by the court of a plaintiffs' class action
consisting of all persons who had been billed for and paid for telephone calls
initiated by an inmate confined in a jail, prison, detention center or other New
Mexico correctional facility. The complaint alleged violations of New Mexico
Unfair Practices Act, the New Mexico Antitrust Act and the New Mexico
Constitution, and also alleged unjust enrichment, constructive trust, economic
compulsion, constructive fraud and illegality of contracts, all in connection
with the provision of "collect only" inmate telecommunications services. The
case was never certified as a class action.

     T-NETIX is a defendant in another state case brought in the Superior Court
of Washington for King County, styled Sandy Judd, et al. v. American Telephone
and Telegraph Company, et al. In this case, the complaint joined several inmate
telecommunications service providers as defendants, including T-NETIX. The
complaint includes a request for certification by the court of a plaintiffs'
class action consisting of all persons who have been billed for and paid for
telephone calls initiated by an inmate confined in a jail, prison, detention
center or other Washington correctional facility. The complaint alleges
violations of the Washington Consumer Protection Act (WCPA) and requests an
injunction under the Washington Consumer Protection Act and common law to enjoin
further violations. The trial court has dismissed all claims with prejudice
against all defendants except T-NETIX and AT&T. These claims have been referred
to the Washington Utilities and Transportation Commission while the trial court
proceeding is in abeyance.

     Gateway is presently litigating an appeal from a favorable ruling in
Kentucky federal court in the case Gus "Skip" Delaware, Jr., et al vs.
Commonwealth of Kentucky, et al. The complaint in this case joined as defendants
several states, political subdivisions of states, and inmate service
telecommunications providers and was filed contemporaneously with a request for
certification by the court of a nationwide plaintiffs' class action consisting
of all persons who have received and paid for telephone calls initiated by an
inmate at a prison, jail or other correctional institution for the provision of
"collect only" inmate telecommunications services. The complaint sought
declaratory and injunctive relief and money damages in an unstated amount for
alleged violations of the Sherman Antitrust Act, the Robinson-Patman Act and the
U.S. Constitution. The district court held, on motions to dismiss, that Kentucky
did not have personal jurisdiction over defendants not located in or doing
business in the state of Kentucky; that telephone calls are not goods or
commodities and thus are not subject to the antitrust provisions of the
Robinson-Patman Act; that Plaintiffs did not state a claim for relief under the
Equal Protection Clause of the Fourteenth Amendment; and that Plaintiffs had not
shown any harm in support of its antitrust claim under Section 1 of the Sherman
Act. The trial judge did not, however, dismiss the plaintiff's prayer for
injunctive relief, despite these findings. The case is currently subject to
appeal and cross appeal in the Second Circuit Court of Appeals. Although Gateway
believes the District Court holding will not be overturned, it is possible that
it may be, and there can be no assurance that a judgment against a class of the
providers will not ultimately be entered.

     In another case styled Robert E. Lee Jones, Jr. vs. MCI Communications, et
al, plaintiffs, 43
inmates of the Bland Correctional Center in Virginia, filed a pro se action
alleging constitutional violations, RICO Act violations and violations of
Federal wiretapping laws. Plaintiff's motion for certification for a class
action was denied and T-NETIX and MCI have filed Motions to Dismiss. Pleadings
are still being submitted in this case.
                                        19
<PAGE>   21

     In February, 2001 a case styled Mildred Fair, et al vs. Sprint Payphone
Services, et al was filed by four relatives of inmates of an unnamed South
Carolina correctional institution. The case was initially filed in state court
but was removed to Federal court. Defendants, in addition to T-NETIX, include
AT&T, BellSouth, GTE, Sprint United, Rock Hill Telephone Company, the South
Carolina Department of Corrections and the State of South Carolina. Plaintiffs'
claims include violations of the South Carolina Antitrust Act and the South
Carolina Unfair Trade Practices Act, unjust enrichment, constructive fraud and
unlawful taking under the South Carolina constitution. This case is in its very
early stage and answers and responsive pleadings by the various parties are
being prepared and submitted.

     We believe the ultimate disposition of the forgoing matters will not have a
material affect on our financial condition, liquidity, or results of operations.

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 SECURITY HOLDERS

     On June 28, 2001 the Company held its Annual Meeting of Shareholders.
Matters voted on and the results of such voting are as follows:

          1. The election of three directors to hold office until the next
     Annual Meeting of Shareholders or until their respective successors shall
     be elected and qualified. The following persons were elected as directors
     and received the number of votes set forth below:

<Table>
<Caption>
DIRECTOR                                     FOR       AGAINST   ABSTAIN
--------                                  ----------   -------   -------
<S>                                       <C>          <C>       <C>
Daniel J. Taylor........................  13,460,299      0      71,800
Richard E. Cree.........................  13,460,299      0      71,800
Thomas E. Larkin........................  13,460,299      0      71,800
</Table>

          2. To approve the Company's 2001 Stock Option Plan:

<Table>
<S>                                                         <C>
Votes For.................................................  7,833,959
Votes Against.............................................    418,192
Votes Abstained...........................................     11,250
</Table>

          3. To approve the re-incorporation of the Company as a Delaware
     corporation:

<Table>
<S>                                                         <C>
Votes For.................................................  8,025,919
Votes Against.............................................    231,287
Votes Abstained...........................................      6,670
</Table>

          4. To ratify the selection of KPMG, LLP as our independent auditors
     for the year ending December 31, 2001:

<Table>
<S>                                                        <C>
Votes For................................................  13,511,319
Votes Against............................................      16,300
Votes Abstained..........................................       4,480
</Table>

                                        20
<PAGE>   22

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     None

                                        21
<PAGE>   23

                                   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.

                                            T-NETIX, INC.
                                            (Registrant)

                                            By:    /s/ THOMAS E. LARKIN
                                              ----------------------------------
                                                       Thomas E. Larkin
                                                   Chief Executive Officer

Date August 14, 2001

                                            By: /s/ HENRY G. SCHOPFER, III
                                              ----------------------------------
                                                    Henry G. Schopfer, III
                                                   Chief Financial Officer

Date August 14, 2001

                                        22