SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 10 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2000

                                       Or

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

For the transition period __________ to __________

                        Commission File Number 333-33639

                                  EVERCOM, INC.
            (Exact Name of Registration as Specified in its Charter)

             Delaware                            75-2680266
(State or Other Jurisdiction of                  (I.R.S. Employer
Incorporated or Organization)                      Identification Number)

        8201 Tristar Drive
        Irving, Texas                                     75063
    (Address of Principal                           (Zip Code)
     Executive Offices)

     Registrant's telephone number, including area code-972.988.3737

Securities registered pursuant to Section 12 (b) of the Act.

                                      None
                             (Title of Each Class)



Securities registered pursuant to Section 12(g) of the Act.


                                      None
                                (Title of Class)



<PAGE>



     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (b) 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 [ ] No [X]

     Indicate by check mark if disclosures of delinquent filers pursuant to item
4055 of Regulation S-K is not contained  herein,  and will not be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.

[_] Not Applicable.



<PAGE>


     As of December 31, 2000,  the voting and  non-voting  common equity held by
non-affiliates of the registrant had a market value of $0.

     As of December 31, 2000, 16,033 shares of Class "A" common stock, par value
$0.01 per share, were issued and outstanding, and 400 shares of Class "B" common
stock, par value $0.01 per share, were issued and outstanding.


                                 DOCUMENTS INCORPORATED BY REFERENCE

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

1.      Registration Statement on Form S-4 (File No. 333-33639);
2.      Quarterly Report on Form 10-Q, as of March 30, 1998;
3.      Quarterly Report on Form 10-Q, as of June 30, 1998;
4.      Quarterly Report on Form 10-Q/A, as of September 30, 1998;
5.      Annual Report on Form 10-K, as of December 31, 1998;
6.      Quarterly Report on Form 10-Q, as of March 31, 1999;
7.      Quarterly Report on Form 10-Q, as of June 30, 1999;
8.      Quarterly Report on Form 10-Q, as of September 30, 1999;
9.      Annual Report on Form 10-K, as of December 31, 1999;
10.     Quarterly Report on Form 10-K/A, as of December 31, 1999; and
11.     Quarterly Report on Form 10-Q, as of June 30, 2000.




<PAGE>


                                            EVERCOM, INC.
                                          Table of Contents
                                          Form 10-K Report
                                          December 31, 2000

PART I:
Item  1.Business.............................................................. 5
Item  2.Properties............................................................15
Item  3.Legal Proceedings.....................................................15
Item  4.Submission of Matters to a Vote of Security Holders...................15

PART II:
Item  5.Market for Registrant's Common Equity and Related
        Stockholders Matters..................................................16
Item  6.Selected Financial Data...............................................17
Item  7.Management's Discussion and Analysis of Financial
        Condition and Results of Operations...................................19
Item  7aQuantitative and Qualitative Disclosures About
        Market Risk...........................................................36
Item  8.Financial Statements and Supplementary Data...........................37
Item  9.Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure...................................63
PART III:
Item 10.Directors and Executive Officers of the Registrant....................64
Item 11.Executive Compensation................................................68
Item 12.Security Ownership of Certain Beneficial Owners
        and Management........................................................74
Item 13.Certain Relationships and Related Transactions........................77

PART IV:
Item 14.Exhibits, Financial Statement Schedules, and
        Reports on Form 8-K...................................................79
Signatures     ...............................................................84


<PAGE>



                                               PART I

ITEM 1.        BUSINESS

General

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

     The  Company's  inmate  telecommunications  business  consists  of  owning,
operating,  servicing,  and maintaining a system of automated  operator switches
and telephones located in correctional facilities.  Generally,  inmates may make
only  collect  or  prepaid  calls  from  correctional  facilities.  The  Company
generally  enters  into  multi-year  agreements  with  correctional   facilities
pursuant to which the Company serves as exclusive provider of telecommunications
services to inmates within the facility.  In exchange for the exclusive  service
rights,  the Company pays a percentage  of its revenues  from each  correctional
facility to that facility as a commission.  Typically,  the Company installs and
retains ownership of the telephones and related equipment.

     Significant  costs typically  associated  with providing  telecommunication
services to correctional facilities include uncollectible accounts, network, and
billing  expenses.  The Company has developed an integrated  call management and
billing  system to help control these  expenses.  This system limits  inmates to
collect or prepaid  calls;  validates  and  evaluates  the  payment  history and
account status of each number dialed;  confirms that the destination  number has
not been blocked;  and processes call records for billing through a third party.
To facilitate billing,  the Company has entered into 29 separate agreements with
regional  bell  operating   companies  ("RBOCs")  and  local  exchange  carriers
("LECs"),  allowing the Company to primarily bill directly through the RBOCs and
LECs although the Company  utilizes  third party  billing  services to a limited
extent.

     The Company  uses its  experience  in billing,  collection,  and control of
uncollectible  accounts to offer specialized  billing and collection services to
other inmate telecommunications  service providers.  These services are referred
to as  the  Company's  "Solutions"  services.  The  Company  provides  Solutions
services  to a  major  RBOC,  under  which  the  Company  performs  all  of  the
validation,  billing,  and collection  services for the RBOC's inmate calls. The
Company  provides  similar  services to several other inmate  telecommunications
providers.

     The Company was formed in December 1996 to consummate the  acquisitions  of
AmeriTel Payphones, Inc. ("AmeriTel") and Talton Telecommunications  Corporation
and its subsidiary ("Talton Telecommunications"). In addition to the acquisition
of its predecessors,  AmeriTel and Talton  Telecommunications,  the Company also
acquired the  operations of Tri-T,  Inc.  ("Tataka") on April 2, 1997,  Security
Telecom  Corporation  ("STC")  on June  27,  1997,  Correctional  Communications
Corporation ("CCC") on July 31, 1997, the inmate telecommunications  division of
Communications  Central,  Inc.  ("InVision")  on  October  6,  1997,  the inmate
telecommunications  division of North American  InTeleCom ("NAI") on December 1,
1997,  the inmate  telecommunications  division  of Peoples  Telephone  Company,
("PTC") on December  18,  1997,  the inmate  telecommunications  division of ILD
Teleservices, Inc. ("ILD") on January 1, 1998, MOG Communications,  Inc. ("MOG")
on February 1, 1998, Saratoga Telephone Co., Inc.  ("Saratoga") on July 1, 1998,
and the inmate  telecommunications  divisions of Alliance  Tel-Com,  Inc.,  KR&K
Communications,  Inc.,  U.S.  Connect,  Inc.,  Tele-Communications,   Inc.,  and
Lake-Tel,  Inc.  (collectively,  "Alliance") on June 1, 1999,  (collectively the
"Acquisitions").

<PAGE>

Special Note Regarding Forward-Looking Information

     Certain   statements  in  this  Annual   Report  on  Form  10K   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". 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 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 Annual Report on Form 10-K are based
on information  available to the Company on the date hereof,  and the Company is
under no duty to update  any of the  forward-looking  statements  after the date
hereof.


Industry Overview

     The U.S. has one of the highest  incarceration  rates of any country in the
world.  According to the United States Bureau of Justice Statistics,  the number
of inmates  incarcerated  in federal  and state  prisons  and in city and county
correctional  facilities  increased  from  1.1  million  at  June  30,  1990  to
approximately 1.9 million at June 30, 2000. Of this total, the Company estimates
approximately  two-thirds  were  housed in state and federal  prisons,  with the
remainder in city and county  facilities.  The United  States  Bureau of Justice
Statistics  also  reports  that the number of inmates  incarcerated  in the U.S.
increased by 3% between 1999 and 2000.

     The  inmate   telecommunications   industry   places   unique   demands  on
telecommunications  systems and service  providers.  Security and public  safety
concerns   associated  with  inmate  telephone  use  require  that  correctional
facilities use call processor technology, which allows the facilities to control
inmate  access to certain  telephone  numbers  and to monitor  inmate  telephone
activity. In addition,  concerns regarding fraud and the called parties' failure
to pay for inmate collect calls require  systems and  procedures  unique to this
industry.

     Inmate  telephones in the U.S. are operated by a large and diverse group of
service providers. Large telecommunications companies such as RBOCs, other LECs,
and interexchange  carriers ("IXCs") such as AT&T Corp. ("AT&T"),  MCI WorldCom,
and Sprint Corporation  provide inmate  telecommunications  in addition to other
services.  In addition,  independent  public pay telephone and inmate  telephone
companies also focus on this market segment.  The Company  estimates that, as of
December 31, 2000, the

<PAGE>


inmate telecommunications market represented approximately $1.7 billion in gross
revenues annually.

     Companies  compete  for the  right to serve as the  exclusive  provider  of
inmate calling services within a particular  correctional facility. Most city or
county correctional  facilities  (typically fewer than 250 beds) award contracts
on a facility-by-facility basis, while most state prison systems award contracts
on  a  system-wide  basis.  Generally,  contracts  are  awarded  pursuant  to  a
competitive  bidding  process and by direct  negotiation  with the  correctional
facilities.

     The  Company  targets  the  corrections   industry  by  tracking  when  the
telecommunications  contracts for significant  inmate facilities in the U.S. are
up for  bid.  The  Company  monitors  which  federal,  state,  county,  and city
contracts  are coming up for  renewal  and how much  revenue is  expected  to be
generated by each of those contracts.


Operations

   Contracts

     The Company has contracts to provide inmate telecommunications  services on
an  exclusive  basis to  correctional  facilities  ranging  in size from  small,
municipal jails to large,  state-operated  facilities, as well as other types of
confinement   facilities,   including  juvenile   detention   centers,   private
correctional  facilities,  and halfway houses. The Company's contracts generally
have multi-year  original terms,  and typically  contain  renewal  options.  The
Company's  contracts  generally  provide for either (i) automatic renewal unless
terminated  by written  notice a  specified  period of time  before the end of a
contract term or (ii) a submission of a competitive bid.


   Marketing and Customer Service

     The Company has  historically  focused its  marketing  efforts on local and
county  correctional  facilities.  Local and county facilities house inmates for
shorter  durations  than  federal and state  prisons and  generally  have higher
inmate call volumes on a per inmate basis. The Company's  competitors in bidding
for  contracts  to serve local and county  correctional  facilities  are usually
small,  regionally-focused  independent  providers.  For larger local and county
correctional  facility  contracts,  the Company may also  compete with the local
RBOC and IXC's.

     The Company seeks new contracts by  participating  in  competitive  bidding
processes  and  by  negotiating  directly  with  correctional  facilities.   The
Company's   marketing  strategy  emphasizes  the  knowledge,   experience,   and
reputation of the Company in the inmate  telecommunications  industry,  its high
level of service,  and the additional  specialized products and services offered
by the Company to its correctional facility customers. In addition to conducting
in-person sales calls with the operators of correctional facilities, the Company
participates in trade shows and is active in local law enforcement associations.

     The Company  provides  and  installs  the inmate  telephone  system in each
correctional  facility at no cost to the operator of the facility and  generally
performs  all  maintenance  activities.  The Company  utilizes a  geographically
dispersed staff of field service technicians and independent  telecommunications
services  contractors,  which  allows the Company to respond  quickly to service
interruptions.  In  addition,  the Company has the ability to make some  repairs
remotely through electronic  communication with the installed  equipment without
the need of an on-site service call.

<PAGE>


   Products and Services

     The Company has  developed  its  products and services to meet the needs of
the inmate telecommunications  market. The Company offers the following products
and services as part of its core inmate telecommunications business:

(a)  Inmate Collect Call Services. The Company provides collect call services on
     an exclusive basis to its inmate facility  customers during the term of the
     facility's   contract.   The   majority  of  calls  made  by  inmates  from
     correctional  facilities are collect  calls,  with the balance of the calls
     being  prepaid  which in  combination  comprise a majority of the Company's
     total revenues.
(b)  Prepaid  Services.  The Company  provides  prepaid  services to inmates and
     called  parties.  Prepaid  services either allow the recipient of an inmate
     call to pay in advance for collect  calls placed to the  recipient or allow
     inmates to pay in advance for  telephone  calls placed by that inmate.  The
     Company sells prepaid accounts directly to the called parties.  The Company
     also sells  prepaid  accounts to  correctional  facilities at a discount to
     their face value, which facilities in turn sell at face value to inmates at
     those facilities.  Prepaid services have minimal  associated  uncollectible
     account  expenses and minimal billing and collection  costs.  The Company's
     prepaid  services  revenues  comprise a small  percentage  of the Company's
     revenues,  but these  revenues  have been  increasing  and are  expected to
     continue  increasing  as a percentage of total revenue due to the Company's
     prepaid sales initiatives and overall increasing popularity.
(c)  Solutions  Services.  The  Company  uses  its  experience  in  billing  and
     collections and management of uncollectible  accounts to offer  specialized
     Solutions services for other inmate  telecommunications  service providers.
     The Company is pursuing  opportunities  to market these  services to RBOCs,
     LECs,  IXCs,  and other inmate  telecommunications  providers.  The Company
     currently  provides  Solutions  services to a major  RBOC,  under which the
     Company performs all of the validation,  billing,  and collection  services
     for the RBOC's inmate calls. 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,  billing  and  collections  costs,  with no recourse to the RBOC.
     However,  under the terms of the agreement,  all purchased receivables must
     be processed  and  validated  through the  Company's  call  management  and
     billing  system.  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  through  January  31,  2003  and has no  minimum  volume
     commitment. In February 2001, the RBOC notified the Company of its plans to
     exit the inmate  market by the end of 2002 and  consequently,  the  Company
     expects its revenues to gradually  decline from this contract over the next
     two years.  The Company may not have the  ability to replace  this  revenue
     although  it is  reasonable  to expect  that some  portion  of this  RBOC's
     customers will be converted to Evercom's  traditional inmate business.  The
     Company  provides  similar  Solutions  services  to  several  other  inmate
     telecommunications providers.
(d)  Call  Processor  Services.  The  Company  has  developed  proprietary  call
     processor  technology to service its correctional  facility  accounts.  The
     Company  also markets this  technology  to other inmate  telecommunications
     providers and derives  revenue from the  technology in the form of hardware
     and software sales.

<PAGE>



Billing Arrangements

     The  Company  uses direct and third party  billing  agreements  to bill and
collect  phone  charges.  Under direct  billing  agreements  with LECs,  the LEC
includes collect call charges for the Company's  services on the local telephone
bill sent to the called party. The Company  generally  receives payment from the
LEC for such  calls 30 to 60 days  after the end of the month in which the calls
are submitted to the LEC for billing. The payment received by the Company is net
of a service fee, write-offs of uncollectible accounts, and an estimated reserve
for future uncollectible accounts.

     Unlike   many   smaller    independent   service   providers   with   lower
telecommunications  traffic,  the  Company  has been able to enter  into  direct
billing  agreements with local exchange carriers ("LECs") in most of its markets
because of the  Company's  high  market  penetration.  The  Company's  increased
telecommunications  traffic  has  enabled  the  Company  to enter into 29 direct
billing  arrangements that allow the Company to direct bill approximately 95% of
its collect call revenues in December 2000.

     In the  absence of a direct  billing  arrangement,  the  Company  bills and
collects its fees through a  third-party  billing and  collection  clearinghouse
that in turn has a  billing  and  collection  agreement  with the LEC.  When the
Company employs a third-party billing and collection clearinghouse,  the account
proceeds  are  forwarded by the various  LECs to the  clearinghouse,  which then
forwards the proceeds to the Company,  less a processing fee that varies from 2%
to 3% of billed revenues.

     The Company's specialized call management and billing system integrates its
direct billing  arrangements with LECs with its call blocking,  validation,  and
customer inquiry procedures.  This system has also provided the Company with the
opportunity to market its billing and collection services to third parties under
its Solutions services.


Systems

     The Company  utilizes a call management and billing system that consists of
purchased  and  internally  developed  software   applications  and  specialized
equipment. This system limits inmates to collect or prepaid calls, validates and
verifies  the  payment  history and  account  status of each  number  dialed for
billing purposes, and confirms that the destination number has not been blocked.
The Company  installs its internally  developed call  management  system ("CAM")
within  facilities that provides  features such as call monitoring and recording
capability.  The Company also  installs  third party call  processor  technology
primarily in smaller facilities.

     The  Company's  database of telephone  numbers and call  activity  provides
valuable  data to assist the  Company in  reducing  uncollectible  accounts  and
allows the Company to provide  extensive call activity  reports to  correctional
facilities and law enforcement authorities.  These include reports of frequently
called numbers, calls of longer than normal duration, and calls by more than one
inmate to the same  number,  which can assist  law  enforcement  authorities  in
connection with ongoing investigations.


Other Operations

     The  Company  owns,   operates,   services,   and  maintains  a  system  of
microprocessor controlled public pay telephones that are ancillary to its inmate
telecommunications  business, and occasionally installs public pay telephones as
an  accommodation  to, or  pursuant  to a contract  requirement  imposed by, its
correctional facility customers.

<PAGE>



Competition

     In the  inmate  telecommunications  business,  the  Company  competes  with
numerous  independent  providers of inmate telephone  systems,  including RBOCs,
LECs,  and  IXCs.  Many of the  Company's  competitors  are  larger  and  better
capitalized with significantly greater financial resources than the Company. The
Company  believes  that  the  principal   competitive   factors  in  the  inmate
telecommunications   industry  are  (i)  rates  of   commissions   paid  to  the
correctional  facilities;  (ii) system features and functionality;  (iii) system
reliability  and service;  (iv) the ability to customize  inmate call processing
systems to the specific needs of the particular  correctional  facility; and (v)
relationships with correctional facilities.

     Inmate  telephones in the U.S. are operated by a large and diverse group of
service providers. Large telecommunications companies such as RBOCs, other LECs,
and IXCs such as AT&T,  MCI  WorldCom,  and Sprint  Corporation  provide  inmate
telecommunications  in  addition to other  services.  In  addition,  independent
public pay telephone and inmate  telephone  companies  also focus on this market
segment.


Regulation

     The inmate  telephone  industry is  regulated  at the federal  level by the
Federal  Communications  Commission  (the  "FCC") and at the state  level by the
public utility  commissions  of the various  states.  In addition,  from time to
time,  legislation may be enacted by Congress or the various state  legislatures
that affects the telecommunications  industry generally and the inmate telephone
industry  specifically.   Court  decisions  interpreting   applicable  laws  and
regulations may also have a significant effect on the inmate telephone industry.
Changes in existing  laws and  regulations,  as well as the adoption of new laws
and   regulations   applicable  to  the  activities  of  the  Company  or  other
telecommunications business could have a material adverse effect on the Company.


Federal Regulation

     Prior to 1996,  the  federal  government's  role in the  regulation  of the
inmate telephone industry was limited.  The enactment of the  Telecommunications
Act of 1996 (the "Telecom  Act"),  however,  marked a significant  change in the
scope of federal  regulation  of inmate  telephone  service.  Section 276 of the
Telecom Act directed the FCC to implement  rules to overhaul the  regulation  of
the provision of pay telephone  service,  which Congress  defined to include the
provision of inmate telephone service.

     Before  adoption  of  the  Telecom  Act,  LECs  generally  included  inmate
telephone operations as part of their regulated local exchange telephone company
operations.  This  allowed  the LECs to pool  revenue  and  expenses  from their
monopoly local exchange  operations  with revenue and expenses from their inmate
telephone   operations.   This  commingling  of  operations  made  possible  the
subsidization of the LECs' inmate operations  through other regulated  revenues.
The LECs were also able to shift certain  costs from their inmate  operations to
their local exchange  monopoly  accounts.  In particular,  the LECs were able to
pool the bad debt  from  their  inmate  operations  with  their  other bad debt.
Because independent inmate telephone service providers act as their own carrier,
they bear the risk of fraudulent  calling and uncollectible  calls and other bad
debt. Bad debt is substantially  higher in the inmate telephone industry than in
other segments of the telecommunications industry. The LECs' practice of pooling
bad debt shifts the high costs of bad debt from inmate  telephone  operations to
the  expense  accounts  of other LEC  operations,  presenting  a vehicle for the
cross-subsidization  of the LECs' inmate operations.  This, in turn, has allowed
the LECs to offer commissions to correctional facilities that are

<PAGE>


often  significantly   higher  than  those  that  independent  inmate  telephone
providers can offer.

     Section  276  directed  the  FCC  to  adopt  regulations  to end  the  LECs
subsidization  of their inmate  telephone  operations  from regulated  revenues.
Congress also directed the FCC to ensure that the LECs could not discriminate in
favor of their own operations to the competitive detriment of independent inmate
telephone  providers.  Finally,  Congress  required  the FCC to ensure  that all
inmate  telephone  providers were fairly  compensated  for "each and every" call
made from their telephone.

     To  carry  out  its  Congressional  mandate,  the FCC  adopted  regulations
requiring  all LECs to transfer  their inmate  telephone  operations  from their
regulated  accounts,  to the LECs' unregulated  accounts no later than April 15,
1997.  The FCC's  rules  implementing  Section  276 are  designed  to  eliminate
cross-subsidization  and cost-shifting.  However, since the bad debt arises from
the charges for collect calls,  which have  traditionally been regulated carrier
activities,  the  rules  did  not  prevent  shifting  of bad  debt  from  inmate
operations to the LEC's regulated accounts.

     The FCC also addressed the one-time  transfer of existing inmate  telephone
operation assets from the LECs' regulated  accounts to the unregulated  accounts
established  for inmate  telephone  operations.  The FCC ordered the transfer of
those assets at their net book value rather than at their fair market value. The
inmate  telecommunications  industry  had  argued  to the FCC that the  transfer
should be accomplished at the assets' fair market value,  including the value of
the contracts between the LECs' inmate  operations and correctional  facilities.
The net book value of those  assets is much lower than their fair market  value.
As a result  of the below  market  valuation  of the  assets,  the LEC's  inmate
telephone  operations  may be able to post  nominally  higher  returns  on their
assets  than  they  would  otherwise  be able  to and  hence  relieve  operating
pressures  for  returns  on  assets.  This also  could  result in a  competitive
advantage for the LECs with respect to access to capital  markets  compared with
the Company and other independent inmate telephone providers.

     To eliminate discrimination, the FCC required, among other things, that the
LECs' inmate telephone  operations take any tariffed services from its regulated
operations  at the tariffed  rate for the  service.  Before the Telecom Act, the
LECs'  inmate  operations  were able to take these  services at some  variant of
their  underlying  costs  without  regard to the tariffed  rate being charged to
independent  providers.  Under the Telecom Act, the LECs' inmate operations must
take  tariffed  services on an arm's length  basis,  at tariffed  rates that are
subject to regulatory  approval.  Further,  the rates for the tariffed  services
offered to both the LECs' inmate  telephone  operations and  independent  inmate
telephone  providers must be developed on a consistent  basis. The test that the
FCC has  mandated  for the  pricing  of  services  to  both  independent  inmate
telephone   providers   and  LECs'  own  inmate   operations   will   require  a
re-examination  of existing  rates and may lead to a rate reduction for services
in some instances,  while it is also possible that the rate  re-examination  may
result in some rate increases. In either event, the requirement for a consistent
methodology for developing rates should  substantially  reduce LEC opportunities
for  unfavorable  rate  discrimination   against  independent  inmate  telephone
providers like the Company.

     To ensure "fair compensation" for inmate telephone providers,  the FCC held
that it was not required to prescribe  compensation  for collect  calls  because
inmate  providers  act as their own  carriers and collect the revenue from those
calls directly from called parties.  The inmate telephone industry had argued to
the FCC,  however,  that  because of  state-mandated  ceilings  on the rates for
intrastate collect calls,  inmate telephone providers could not recover adequate
revenue for those calls, and

<PAGE>


accordingly,  had sought an "inmate system  compensation  charge" in addition to
the charges collected for carrying the call. See "--State Regulation."

     Many aspects of the FCC's rules implementing  Section 276 are currently the
subject of further  proceedings by the FCC. In particular,  two important issues
are back  before  the FCC as the  result of a court  challenge  in which the FCC
voluntarily  sought,  and the court  granted,  a remand  to the FCC for  further
proceedings.  The first of those  issues is the FCC's  decision not to prescribe
compensation  for  inmate  collect  calls.  If the  FCC  ultimately  decides  to
prescribe  compensation,  the Company could potentially benefit from the ability
to collect  additional  revenue.  It is not possible to predict  whether the FCC
will prescribe  compensation  and the degree to which the Company could benefit,
if at all, would depend on the exact compensation  scheme ultimately  prescribed
by the FCC for inmate collect calls.

     The second  important  issue before the FCC on remand is the FCC's decision
to include only inmate  telephone  equipment and not the collect calling service
itself in the  inmate  telephone  services  that the  RBOCs  must  provide  on a
non-regulated  basis. As a result of this ruling,  the RBOCs have to some extent
remained able to subsidize  and  discriminate  in favor of their inmate  calling
operations.  In  particular,  so long as the RBOCs can  continue to define their
inmate collect calling service as part of their regulated  operations,  they may
be  commingling  that bad debt with bad debt from other  services.  It cannot be
predicted how the FCC will rule on this issue on remand.

     Because of the further  proceedings  pending  before the FCC,  the ultimate
effects of the rule  changes  mandated  by the  Telecom  Act are  uncertain.  In
particular,   the  extent  to  which  the  FCC's  rules  designed  to  eliminate
subsidization  and  discrimination  by  the  LECs  prove  to be  effective  will
significantly affect the level of competition faced by the Company in the inmate
telecommunications market.

     Apart from its  proceedings  to  implement  the Telecom  Act,  the FCC also
adopted new regulations for interstate calls requiring inmate telephone  service
providers  to announce to called  parties,  before the called  party  incurs any
charges,  that rate quotes may be obtained by dialing no more than two digits or
remaining  on the line.  The Company was required to comply with these new rules
by October 1, 1999. The Company  believes it is substantially in compliance with
these  new  rules.  Although  management  does  not  believe  it to  be  likely,
regulatory authorities do have authority to impose fines and other sanctions for
any violation of these rules.  These new regulations could result in an increase
in the Company's costs by slightly increasing the non-billable network hold time
for collect  calls.  In addition,  the  announcement  of rate quotes may lead to
called parties refusing to accept calls. The exact effect of the new regulations
is difficult to predict as it will depend in large part on how frequently called
parties opt to receive a rate quote.

     Significantly,  the FCC adopted the rate  disclosure  option in lieu of the
so-called  "Billed Party  Preference"  proposal that had been pending before the
FCC for several years. Under that plan, inmate telephone service providers would
have been required to send their  interstate  inmate collect calls to the called
party's pre-subscribed carrier, thereby bypassing the opportunity for the inmate
telephone  service  provider  to receive  revenue  from the calls.  The  Company
believes  that  the rate  quote  regulations  adopted  by the  Commission  are a
preferable alternative to Billed Party Preference,  which would potentially have
had a much more adverse effect on the Company's business.

<PAGE>


State Regulation

     The  most  significant  state  involvement  in  the  regulation  of  inmate
telephone  service is the limit on the  maximum  rates  that can be charged  for
intrastate  collect  calls set by most states,  referred to as "rate  ceilings."
Since  collect  calls are  generally  the only kind of calls that can be made by
inmates in correctional  facilities,  the  state-imposed  rate ceilings on those
calls can have a significant effect on the Company's business.

     In many  states,  the rate  ceiling  on inmate  collect  calls  within  the
originating  LEC's  service  area are tied to the rates  charged  by the LEC and
subject to state regulatory  approval.  Thus, where the LEC chooses not to raise
its rates,  independent  inmate  telephone  providers are precluded from raising
theirs.  Prior to the passage of the Telecom Act, the LECs had less incentive to
raise their rates than independent  inmate telephone  providers because the LECs
were able to subsidize  their inmate  telephone  operations and  discriminate in
their favor, as described above. See "--Federal Regulation." It is possible that
as a result of the FCC's new rules  designed to eliminate such  subsidies,  some
LECs may choose to file with their  state  commissions  to raise their rates for
inmate collect calls. If this occurs,  the Company and other independent  inmate
telephone providers could also raise their rates. It is difficult to predict the
extent to which the LECs will raise their rates.

     For calls going outside the  originating  LEC's service area,  there may be
state rate ceilings tied to the rates of the largest IXCs. In some cases,  these
rate ceilings can also make sufficient cost recovery difficult.  In general, the
cost  recovery  problems that arise from rate ceilings tied to IXC rates are not
as severe as the difficulties created by rate ceilings tied to LEC rates.

     In its rulemaking implementing the Telecom Act, the FCC declined to address
these state rate ceilings.  The FCC ruled that inmate  telephone  providers must
first seek relief from the state rate  ceilings at the state level.  The outcome
of any such  proceedings  at the  state  level,  if  undertaken,  is  uncertain.
Further,  it is uncertain  whether the FCC would intervene or if so, how, in the
event a state  failed to provide  relief.  This  issue is part of the  currently
pending FCC remand proceeding.

     In addition to imposing rate caps, the states regulate other aspects of the
inmate  calling  industry.  While the  degree  of  regulatory  oversight  varies
significantly from state to state, state regulations generally establish minimum
technical and operating standards to ensure that public interest  considerations
are met. Among other things,  most states have established rules that govern the
service  provider  in  the  form  of  postings  or  verbal  announcements,   and
requirements for rate quotes upon request. In some  jurisdictions,  in order for
the Company to operate its inmate  telephones and public pay  telephones,  it is
necessary to become  certificated and to file tariffs with the appropriate state
regulatory authority.


Tradenames

     The Company has two registered trademarks, Security Telecom Corporation (R)
and STC (R) and has  developed or acquired a number of  additional  unregistered
Tradenames  that it uses in its business.  Although the use of these  trademarks
and  tradenames has created  goodwill in certain  markets,  management  does not
believe that the loss of these  trademarks and tradenames  would have a material
adverse effect on the Company's operations.  The Company also has a registration
application pending for the tradename Evercom and certain derivatives thereof.

<PAGE>


Environmental

     The Company is subject to certain federal,  state, and local  environmental
regulations.  Management  does not  expect  environmental  compliance  to have a
material effect on the Company's capital expenditures,  earnings, or competitive
position in the foreseeable future.


Employees

        As of December 31, 2000, the Company had approximately 289 employees.


<PAGE>



ITEM 2: PROPERTIES

     The Company's  principal executive offices are located in, and a portion of
its  operations  are conducted  from,  leased  premises  located at 8201 Tristar
Drive,  Irving,  Texas  75063.  The Company also has three  additional  regional
facilities  from which it conducts  its  operations  located in Selma,  Alabama;
Louisville, Kentucky; and Raleigh, North Carolina all of which are leased.


ITEM 3: 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
effect 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 three such proceedings and is seeking
dismissal in the other proceedings in which it is named.


ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were presented to the security  holders in the fourth quarter of
2000.



<PAGE>


PART II


ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS

     There  is  currently  no   established   public   trading  market  for  the
Registrant's issued and outstanding capital stock.

     As of December  31, 2000,  there were  fifty-two  holders of the  Company's
Class "A" common  stock (the "Common  Stock") and four holders of the  Company's
Class "B" common stock (the Class "B" Common Stock).

     There have been no cash  dividends  declared  on the Common  Stock from the
period  January  1,  1996,   through  December  31,  2000.  The  Indenture  (the
"Indenture")  governing the Company's Series "A" and Series "B" Senior notes Due
2007 and the  Company's  senior  credit  facility,  as amended and restated (the
"Senior Credit Facility") contain certain restrictive  covenants that are likely
to materially  limit the future  payment of dividends on the Common  Stock.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

     The following table sets forth  information  with respect to all securities
sold by the Company for the Company's  last fiscal year that were not registered
under the  Securities  Act of 1933,  as  amended  (the  "Securities  Act").  All
securities  sold and not registered  were sold in  transactions  not involving a
public offering under Section 4 (2) of the Securities Act.

<TABLE>
<CAPTION>
                                                                                            Terms of
Securities sold                   Person                                     Use of      Conversion of
                    Date        Acquiring       Amount     Consideration      Proceeds      Exercise
                                Securities
----------------- ---------- ----------------- --------- ------------------- ----------- ---------------
-----------------                                        -------------------             ---------------


<S>                                            <C>
                                               -None-

</TABLE>



<PAGE>


ITEM 6: SELECTED FINANCIAL DATA - (in thousands)

     The following selected  consolidated  financial data of the Company and its
combined  predecessors  for each of the five years in the period ended  December
31, 2000, have been derived from the Company's audited financial statements.

     The  selected   financial   data  should  be  read  in   conjunction   with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  and the  consolidated  financial  statements  and the notes thereto
included elsewhere in this Form 10-K.


<PAGE>

<TABLE>
<CAPTION>




                                    Combined
                                  Predecessors                              The Company
                                  ------------    ---------------------------------------------------------
                                     Eleven
                                     Months       One Month
                                     Ended         Ended                YEARS ENDED DECEMBER 31,
                                     Nov 30,       Dec 31,
                                      1996          1996          1997         1998        1999         2000





<S>                                  <C>          <C>          <C>           <C>          <C>          <C>
Operating Data:
Operating Revenues ...............   $  53,663    $   5,506    $  91,773     $225,293     $236,801     $234,510
Operating Expenses:
     Telecommunication costs .....      23,317        2,299       37,871       99,843      104,376       95,622
     Facility commissions ........      13,962        1,455       25,724       71,206       71,359       75,702
     Field operations and
      maintenance ................       1,816          219        4,543        7,817        6,428        6,668
     Selling, general and
      administrative .............       3,921          372        8,540       17,661       17,214       17,748
     Depreciation and impairment .       1,538          111        2,219        6,692        7,200        8,144
     Amortization of intangibles .       1,746          741       14,243       26,339       21,527       14,920
     Restructuring and other
      charges (income) ...........         684                       400        1,743          (69)
                                      ---------   ---------    ---------    ---------    ---------    ---------
          Total operating expenses      46,984        5,197       93,540      231,301      228,035      218,804
                                      ---------   ---------    ---------    ---------    ---------    ---------

Operating Income (loss) ..........       6,679          309       (1,767)      (6,008)       8,766       15,706
Other (income) expenses:
    Interest expense, net ........       1,469          612       11,138       19,638       19,458       19,362
     Other (income) expenses, net           27          (20)         (76)        (236)          (7)         (55)
                                      ---------   ---------    ---------    ---------    ---------    ---------

          Total other (income)
            expense ..............        1,496         592       11,062       19,402       19,451       19,307
                                      ---------   ---------    ---------    ---------    ---------    ---------

Income (loss) before income taxes
  and extraordinary loss .........       5,183         (283)     (12,829)     (25,410)     (10,685)      (3,601)
Extraordinary loss ...............          52                     4,740
Income tax (benefit) expense .....       1,917          (23)        (642)         476          450          553
                                     ---------    ---------    ---------    ---------    ---------    ---------

Net Income (Loss) ................   $   3,214    ($    260)    ($16,927)    ($25,886)    ($11,135)     ($4,154)
                                     =========    =========    =========    =========    =========    =========

OTHER DATA:
EBITDA (1) .......................   $   9,936    $   1,181    $  14,771      $27,259      $37,500      $38,825
Net cash provided by (used in)
  operating activities ...........       7,300       (1,419)       6,048        4,258       15,898       20,209
Net cash used in investing
  activities .....................      (7,515)     (47,252)     (90,757)     (23,384)     (12,138)     (12,161)
Net cash provided by (used in)
  financing activities ...........        (547)      48,966       92,193       13,039      (3,463)       (5,841)
Capital expenditures (2) .........       2,804          269        8,063       13,592        8,397       10,222
Ratio of earnings to fixed
  charges (3) ....................         4.2
Deficiency of earnings to fixed
  charges ........................                     $283      $12,829      $25,410      $10,685       $3,601

BALANCE SHEET DATA:
     (AT END OF YEAR)
Cash and cash equivalents ........   $     531    $     294    $   7,778    $   1,692    $   1,988    $   4,195
Total assets .....................   $  34,708    $  80,134    $ 189,388    $ 191,466    $ 172,109    $ 162,456
Total debt
  (including current maturities) .   $  14,845    $  63,315    $ 166,736    $ 180,483    $ 172,666    $ 166,627

Total stockholders' equity
  (deficit) ......................   $   9,361    $   6,481    ($ 10,020)  ($  36,113)  ($  42,998)  ($  48,026)

</TABLE>

<PAGE>



(1)  For the purpose of this Form 10-K,  EBITDA  means income  before  interest,
     income taxes,  depreciation,  and  amortization.  Although  EBITDA is not a
     measure of performance  calculated in accordance  with  generally  accepted
     accounting  principles,  the Company has  included  information  concerning
     EBITDA in this Form 10-K 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 flow as an indicator
     of the Company's operating performance.
(2)  Capital  expenditures  include  only  amounts  expended  for  purchases  of
     property and equipment  and the  implementation  of facility  contracts and
     excludes cash outflows for acquisitions.
(3)  Earnings are defined as earnings (loss) before income taxes from continuing
     operations and fixed charges. Fixed charges are defined as interest expense
     and a portion of rental expense representing the interest factor, which the
     Company  estimates to be one-third of rental expense,  and  amortization of
     deferred  financing  expense.  This  calculation  is a prescribed  earnings
     coverage  ratio  intended  to  present  the  extent to which  earnings  are
     sufficient to cover fixed charges, as defined.


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS

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


Overview

     The Company is an  independent  provider  of collect  and  prepaid  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 43
states and the District of Columbia. As of December 31, 2000, the Company served
1,936 correctional facilities.

     The Company's  inmate  telecommunications  services consist of collect call
and prepaid 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  correctional  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 LECs or through
third-party  billing  services.  In  addition,  the Company  accrues the related
telecommunications costs for validating,  transmitting,  billing and collection,
and allowances for uncollectible accounts based on historical experience.

<PAGE>


     The Company's  traditional  inmate business consists of collect and prepaid
services  provided to  correctional  facilities.  The Company also  provides its
Solutions  services,  representing  validation,  fraud  management  and  billing
services to third  parties.  The Company  provides  Solutions  services  for the
inmate  calls of a major  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. However,  under the
terms  of the  agreement,  all  purchased  receivables  must  be  processed  and
validated  through  the  Company's  call  management  and  billing  system.  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.  Because  the  Company's  revenues  associated  with  this
contract  represent  only a  percentage  of the face  value  of the  receivables
purchased,   the  associated  uncollectible  account  expense  and  billing  and
collection fees represent a much higher percentage of revenue as compared to the
Company's   traditional   inmate   business.    Consequently,    the   Company's
telecommunications  costs  represent a higher  percentage  of revenue under this
contract. There are minimal selling,  general, and administrative ("SG&A") costs
associated  with this contract.  The contract term is through  January 31, 2003,
and has no minimum volume commitment.  The Company pays no facility  commissions
under this  agreement.  In February  2001,  the RBOC notified the Company of its
plans to exit the inmate market by the end of 2002 and consequently, the Company
expects its revenues to gradually  decline from this  contract over the next two
years.  The Company may not have the ability to replace this revenue although it
is  reasonable  to expect  that some  portion of this RBOC's  customers  will be
converted to Evercom's  traditional  inmate business.  The Company also provides
Solutions services to other inmate telecommunications companies.

     The Company's principal operating expenses consist of (i) telecommunication
costs;  (ii)  commissions paid to correctional  facilities,  which are typically
expressed as a percentage of either gross or net revenues, fixed for the term of
the  agreements  with the  facilities,  and in some cases are subject to monthly
minimum  amounts;  (iii) field operations and maintenance  costs,  which consist
primarily of field service on the Company's installed base of inmate telephones,
and (iv) SG&A costs.

     Telecommunications  Costs.  The principal  components of  telecommunication
costs are long distance  transmission  costs,  local access  costs,  third party
billing costs, and cost of uncollectible accounts.  Historically,  long distance
costs have  consisted  of charges for minutes of use  purchased  from 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  rate based on the time and
duration of the call.  Third party  billing costs consist of costs of 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.  Commission
rates  are  a  principal  basis  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 large  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 in its  traditional  inmate business have increased in
each

 <PAGE>


period,  from 33.7% in 1998 to 35.7% in 2000.  This increase is due primarily to
higher  facility  commissions  on  contracts  obtained  by the  Company  through
acquisitions,  competition for larger facilities, and increased commission rates
on renewals. Commission rates are expected to gradually increase as a percentage
of revenues in the future. The overall  commission  percentage to total revenues
of 32.3% in 2000 includes the effect of the Solutions  services  provided  under
the Company's  agreements with a major RBOC and other inmate  telecommunications
carriers, under which no commissions are paid.

     Field Operations and Maintenance.  Field operations and maintenance consist
of maintenance costs associated with inmate phones and related equipment.  These
costs are relatively small and more constant components of operating expense.

     Selling,  General,  and Administrative.  SG&A expenses consist of corporate
overhead and selling  expense.  These costs are also  relatively  small and more
constant components of operating expenses.

     Restructuring  Costs. The Company  integrated its acquired  operations into
its  existing  operations,  which  resulted  in a  restructuring  charge of $1.2
million in 1998.

     Company History.  The Company became the holding company for the operations
of its predecessors, AmeriTel and Talton Telecommunications,  effective December
1, 1996.  The Company also  acquired the  operations of Tataka on April 2, 1997,
STC on June 27, 1997, CCC on July 31, 1997,  InVision on October 6, 1997, NAI on
December  1, 1997,  PTC on December  18,  1997,  ILD on January 1, 1998,  MOG on
February 1, 1998,  Saratoga on July 1, 1998,  and Alliance on June 1, 1999.  The
Company has completed the Acquisitions,  which have been accounted for using the
purchase method of accounting and the Company's results of operations  therefore
reflect the operations of these companies only subsequent to the effective dates
of their respective acquisitions.


<PAGE>



Results of Operations

     The following  table sets forth,  for the periods  indicated,  the combined
historical results of operations of the Company.

<TABLE>
<CAPTION>

                                                     Years Ended December 31,

                                        1998                 1999                     2000


<S>                           <C>            <C>     <C>            <C>     <C>            <C>
Operating revenues ........   $ 225,293      100.0%  $ 236,801      100.0%  $ 234,510      100.0%
Operating expenses:
  Telecommunication costs .      99,843       44.3     104,376       44.1      95,622       40.8
  Facility commissions ....      71,206       31.6      71,359       30.1      75,702       32.3
  Field operations and
    maintenance ...........       7,817        3.5       6,428        2.7       6,668        2.8
  Selling, general, and
    administrative ........      17,661        7.8      17,214        7.3      17,748        7.6
  Depreciation and
    impairment ............       6,692        3.0       7,200        3.0       8,144        3.5
  Amortization of
    intangibles ...........      26,339       11.7      21,527        9.1      14,920        6.3
  Restructuring and other
    charges(income)  ......       1,743        0.8         (69)       0.0                    0.0
                              ---------      -----     ---------    -----     ---------    -----

Total operating expenses ..     231,301      102.7     228,035       96.3     218,804       93.3

Operating income (loss)  ..      (6,008)      (2.7)      8,766        3.7      15,706        6.7
Other (income) expense ....
  Interest expense, net ...      19,638        8.7      19,458        8.2      19,362        8.2
  Other, net ..............        (236)      (0.1)         (7)      (0.0)        (55)      (0.0)
                              ---------      -----   ---------      -----   ---------      -----

Total other expense .......      19,402        8.6      19,451        8.2      19,307        8.2
                              ---------      -----   ---------      -----   ---------      -----

Loss before income taxes ..     (25,410)     (11.3)    (10,685)      (4.5)     (3,601)      (1.5)
Income tax expense ........         476        0.2         450        0.2         553        0.2
                              ---------      -----   ---------      -----   ---------      -----

Net loss ..................   $ (25,886)     (11.5)% $ (11,135)      (4.7)% $  (4,154)      (1.7)%
                              =========      =====   =========      =====   =========      =====

EBITDA ....................   $  27,259       12.1 % $  37,500       15.8%  $  38,825       16.6%
                              =========      =====   =========      =====   =========      =====
</TABLE>


     Year Ended  December 31, 2000  (Consolidated  Results of  Operations of the
Company)  compared  to year ended  December  31, 1999  (Consolidated  Results of
Operations of the Company).

     Operating  Revenues.  The Company's  operating  revenues  decreased by $2.3
million,  or 1.0%,  from $236.8  million for the year ended December 31, 1999 to
$234.5  million for the year ended  December 31, 2000. The decrease in operating
revenues  was  caused  by the  loss  of  certain  contracts  to  service  inmate
facilities as a result of market competition.  The decrease was also due in part
to enhanced  validation  procedures,  which are a result of the Company's recent
systems integrations. Validation is designed to reduce the Company's exposure to
uncollectible  accounts  by denying  access to calls to  customers  with  higher
credit  risk,  thereby  reducing  revenue  along  with  costs  of  uncollectible
accounts.

     Operating Expenses. Total operating expenses decreased by $9.2 million from
$228.0  million  in 1999 to $218.8  million  in 2000.  Operating  expenses  as a
percentage of operating revenues decreased by 3.0% from 96.3% for the year ended
December 31, 1999 to 93.3% for the year ended December 31, 2000. The decrease in
operating  expenses as a  percentage  of revenues  is  primarily  due to factors
discussed below.

     Telecommunications  costs decreased by $8.8 million, from $104.4 million in
1999 to $95.6  million in 2000.  Telecommunication  costs  represented  44.1% of
operating  revenues in 1999 and 40.8% of operating  revenues in 2000, a decrease
of 3.3%. The percentage decrease in telecommunications  costs as a percentage of
operating revenues is primarily due to a decline in bad debt expense as a result
of enhanced  validation  due to the  Company's  recent system  integrations  and
savings generated from new long distance contracts.


<PAGE>


     The Company's overall  telecommunications costs as a percentage of revenues
of 40.8%  for 2000 and  44.1%  for 1999  include  the  effect  of the  Company's
Solutions services provided to a major RBOC and other inmate  telecommunications
carriers as discussed in "Overview."  These  Solutions  services  exhibit higher
telecommunication   costs  as  a  percentage   of  revenue  than  the  Company's
traditional inmate business.

     Facility commissions  increased by $4.3 million, from $71.4 million in 1999
to $75.7 million in 2000.  Facility  commissions  represented 30.1% of operating
revenues in 1999 and 32.3% in 2000, an increase of 2.2%. The overall  commission
percentage  to total revenue  includes the effect of the billing and  collection
services  provided  to a  major  RBOC as  discussed  in  "Overview."  Commission
expenses as a percentage of revenue for the Company's traditional inmate collect
business  was 33.8% and 35.7% for the years  ended  December  31, 1999 and 2000,
respectively.  Facility  commissions  are  expected to  gradually  increase as a
percentage of revenue in the future.

     Field operations and maintenance costs increased by $0.3 million, from $6.4
million in 1999 to $6.7 million in 2000. Field operations and maintenance  costs
represented 2.7% of operating revenues in 1999 and 2.8% of operating revenues in
2000,  an  increase  of  0.1%.  The  Company  has  substantially  completed  its
consolidation   and  integration  of  its  acquisitions.   Consequently,   field
operations  and  maintenance  costs are  expected  to be a  relatively  constant
component of the Company's cost structure.

     SG&A costs  increased by $0.5 million,  from $17.2 million in 1999 to $17.7
million in 2000. SG&A represented 7.3% of operating revenues in 1999 and 7.6% of
operating  revenues in 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.

     Total depreciation and amortization  costs decreased by $5.6 million,  from
$28.7 million in 1999 to $23.1 million in 2000.  Depreciation  and  amortization
costs  represented  12.1% of  operating  revenues in 1999 and 9.8% of  operating
revenues in 2000, a decrease of 2.3%.  The decrease as a percentage of operating
revenues is primarily due to amortization  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 overall amortization expense declines.  Amortization expense
will continue to be a substantial portion of the Company's operating expenses.

     Other (income) expense,  consisting primarily of interest expense, remained
relatively constant at $19.5 million in 1999 and $19.3 million in 2000.

     Net Loss.  The  Company's net loss  decreased by $7.0  million,  from $11.1
million  in 1999 to $4.2  million in 2000 as a result of the  factors  described
above.

     EBITDA  increased  by $1.3  million  from  $37.5  million  in 1999 to $38.8
million in 2000.  EBITDA as a percentage of operating  revenues  increased  from
15.8% in 1999 to 16.6% in 2000 due to the factors described above.

     Although  EBITDA is not a measure of  performance  calculated in accordance
with  generally  accepted  accounting  principles,   the  Company  has  included
information  concerning  EBITDA in this Form 10-K 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  performance.  Several of the  Company's  subsidiaries  are
subject to

<PAGE>


state income taxes. Consequently, the Company accrues income tax expense even in
a loss period.


Year Ended December 31, 1999 (Consolidated Results of Operations of the Company)
compared to year ended December 31, 1998 (Consolidated  Results of Operations of
the Company)

     Operating  Revenues.  The Company's  operating  revenues increased by $11.5
million,  or 5.1%,  from $225.3  million for the year ended December 31, 1998 to
$236.8  million for the year ended  December 31, 1999. The increase in operating
revenues was primarily due to growth in Solutions  services  provided to an RBOC
and  acquisitions by the Company of Alliance in 1999 and Saratoga in 1998. As of
December  31,  1999,  the Company  served 2,017  correctional  facilities  in 44
states.  The  Company's  contract  with the State of  Alabama  was not  renewed,
resulting  in a  reduction  in revenue  and  EBTIDA in fiscal  year 1999 of $7.1
million and $1.3 million, respectively, when compared to fiscal year 1998.

     Operating Expenses. Total operating expenses decreased by $3.3 million from
$231.3  million  in 1998 to $228.0  million  in 1999.  Operating  expenses  as a
percentage  of  operating  revenues  decreased  by 6.4% from 102.7% for the year
ended  December  31, 1998 to 96.3% for the year ended  December  31,  1999.  The
decrease in operating  expenses as a percentage  of revenues is primarily due to
factors discussed below.

     Telecommunications  costs increased by $4.6 million,  from $99.8 million in
1998 to $104.4 million in 1999.  Telecommunication  costs  represented  44.3% of
operating  revenues in 1998 and 44.1% of operating  revenues in 1999, a decrease
of 0.2%. The percentage  decrease is primarily due to savings generated from new
long  distance  contracts.   These  savings  were  partially  offset  by  higher
uncollectible  expenses  resulting from the Company's  consolidation  efforts in
1999.

     The Company's overall  telecommunications costs as a percentage of revenues
of 44.3%  for 1998 and  44.1%  for 1999  include  the  effect  of the  Company's
Solutions  services  provided to a major RBOC as discussed in "Overview."  These
billing and  collection  services  exhibit higher  telecommunication  costs as a
percentage of revenue than the Company's traditional inmate collect business.

     Facility commissions  increased by $0.2 million, from $71.2 million in 1998
to $71.4 million in 1999.  Facility  commissions  represented 31.6% of operating
revenues in 1998 and 30.1% in 1999, a decrease of 1.5%.  The overall  commission
percentage  to total  revenue  of  30.1%  in 1999  includes  the  effect  of the
Solutions  services  provided  to a  major  RBOC  as  discussed  in  "Overview."
Commission  expenses as a percentage  of revenue for the  Company's  traditional
inmate  business  was 33.7% and 33.8% for the years ended  December 31, 1998 and
1999, respectively. Facility commissions are expected to gradually increase as a
percentage of revenue in the future.

     Field operations and maintenance costs decreased by $1.4 million, from $7.8
million in 1998 to $6.4 million in 1999. Field operations and maintenance  costs
represented 3.5% of operating revenues in 1998 and 2.7% of operating revenues in
1999,  a  decrease  of  0.8%.  This  decrease  is due to the  consolidation  and
integration activities completed by the Company in 1998 and 1999.

     SG&A costs  decreased by $0.5 million,  from $17.7 million in 1998 to $17.2
million in 1999. SG&A represented 7.8% of operating revenues in 1998 and 7.3% of
operating  revenues in 1999, a decrease of 0.5%.  This decrease is mainly due to
the  consolidation and integration  activities  completed by the Company in 1998
and 1999.


<PAGE>

     Total depreciation and amortization  costs decreased by $4.3 million,  from
$33.0 million in 1998 to $28.7 million in 1999.  Depreciation  and  amortization
costs  represented  14.7% of  operating  revenues in 1998 and 12.1% of operating
revenues in 1999, a decrease of 2.6%.  The decrease as a percentage of operating
revenues is primarily due to amortization  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 overall amortization expense declines.  Amortization expense
will continue to be a substantial portion of the Company's operating expenses.

     The  Company   integrated  its  acquired   operations   into  its  existing
operations, which resulted in a restructuring charge of $1.2 million in 1998. In
December 1998, the Company wrote-off  approximately  $0.5 million related to the
postponement of the Company's initial public offering.

     Other (income) expense,  consisting primarily of interest expense, remained
relatively constant at $19.4 million in 1998 and $19.5 million in 1999.

     Net Loss.  The Company's net loss  decreased by $14.8  million,  from $25.9
million in 1998 to $11.1  million in 1999 as a result of the  factors  described
above.

     EBITDA  increased  by $10.2  million  from  $27.3  million in 1998 to $37.5
million in 1999.  EBITDA as a percentage of operating  revenues  increased  from
12.1% in 1998 to 15.8% in 1999 due to the factors described above.

     Although  EBITDA is not a measure of  performance  calculated in accordance
with  generally  accepted  accounting  principles,   the  Company  has  included
information  concerning  EBITDA in this Form 10-K 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  performance.  Several of the  Company's  subsidiaries  are
subject to state income  taxes.  Consequently,  the Company  accrues  income tax
expense even in a loss period.


Liquidity and Capital Resources

     The Company  anticipates that its principal uses of cash will be to provide
working capital,  meet debt service  requirements,  and to repay principal under
the Senior Credit Facility (as defined).  Regarding working capital, the Company
received  notice that one of its billing agents intends to begin remitting funds
to the  Company  in 44 days as  compared  to  their  historical  30 day  payment
schedule.  This change  would  reduce the  Company's  end of month  liquidity by
approximately  $8 million.  The billing  agent has  informally  and  tentatively
agreed not to make this change  until,  at the earliest,  December of 2001.  The
Company  expects  that its  principal  sources  of funds  will be cash flow from
operations,  proceeds  from  new  equity  issued  on May 30,  2001,  as  further
discussed herein,  and borrowings under the Senior Credit Facility.  The Company
anticipates  that its primary  capital  expenditures  will be for capital  items
required to implement  new contracts  entered into by the Company,  although the
Company  does  not have  any  material  commitments  for  capital  expenditures.
Management  believes  that cash flow from  operations,  borrowings on the Senior
Credit Facility and proceeds from the May 30, 2001 new equity will be sufficient
to fund the requirements of the Company for at least the next 12 months.


     In March 1999,  the Company  raised $5 million of equity from its  existing
shareholders and warrant holders and/or their affiliates through the issuance of
5,000  investment units at a price of $1,000 per unit. Each unit consists of one



<PAGE>


share of newly  authorized  First  Preferred  Series  "A" Stock and a warrant to
acquire  one share of 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  commencing on April 1, 1999. Such
dividends are payable out of funds legally available therefore, are payable only
when,  as, and if declared by the Board of Directors,  are  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 will be 8% per
annum through March 31, 2001,  10% 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 the  Company's  common stock but ranks junior to
the Senior  Preferred Stock of the Company (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 sooner  exercised,  on
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  original  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 the  First
Preferred  Series "A" Stock and warrants,  the Company  amended and restated 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 million under the revolving portion of the
Senior Credit Facility.

     As of May 30, 2001,  without  consideration  of the May 30, 2001 new equity
offering discussed herein,  the Company had $6.2 million of available  borrowing
capacity under the Senior Credit Facility.

     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  candidates.  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, or both.

     Net cash  provided by operating  activities  was $20.2 million for the year
ended  December  31,  2000,  as  compared  to net  cash  provided  by  operating
activities  of $15.9  million for the year ended  December  31,  1999.  Net cash
provided by operating  activities in 2000 increased from 1999 primarily due to a
$1.3 million increase in operating income,  before consideration of depreciation
and  amortization.  The remaining  variance is due to the timing of various cash
receipts and disbursements in the normal course of business.

     Cash used in  investing  activities  was $12.2  million  for the year ended
December 31, 2000, as compared to $12.1 million for the year ended  December 31,
1999.  Cash used in investing  activities in 2000  consisted  primarily of $10.2
million for new business,  contract  renewals and  infrastructure  improvements.
Also in 2000,  the Company  paid $1.9  million in deferred  purchase  prices and
costs primarily  relating to acquisitions in prior years. Cash used in investing
activities  of $12.1  million in 1999  consisted  primarily  of $3.7  million in
payments related to acquisitions  made in 1997 and $8.4 million for new business
contract renewals and infrastructure improvements.




<PAGE>



     Cash used in  financing  activities  was $5.8  million  for the year  ended
December 31, 2000,  as compared to $3.5 million in 1999.  Cash used in financing
activities  in 2000  consisted  primarily  of  repayments  of $12.4  million  of
borrowings  under the Senior Credit Facility offset by new borrowings  under the
Senior  Credit  Facility of $7.0 million.  Cash used in financing  activities of
$3.5 million in 1999  consisted  primarily  of  repayments  of $12.6  million of
borrowings  under the Senior  Credit  Facility and  repayment of a $950,000 note
payable  relating to the MOG  acquisition  offset by $5.5 million of  borrowings
under the new term loan facility and $4.9 million of net proceeds  raised by the
issuance of new preferred stock in March of 1999.

     The Senior Credit  Facility,  as amended on May 30, 2001 further  discussed
herein,  consists of (a) $55.0  million  term loan  acquisition  facility all of
which has been  borrowed  and upon which $27.5  million of  scheduled  principal
payments had been made as of December 31, 2000,  (b) $10.5 million of additional
term  loan  facilities   which  has  been  borrowed  as  of  December  31,  2000
(availability of a $2.5 million additional term loan expired because the Company
did not achieve  certain  financial  performance for the year ended December 31,
2000),  and (c) a $25.0 million  revolving loan facility (which includes a $10.0
million letter of credit facility) upon which $13.5 million had been borrowed as
of December 31,  2000.  Scheduled  principal  payments  under the Senior  Credit
Facility  bear  interest,  at the option of the Company,  at either (i) the Base
Rate  (i.e.,  the  higher  of  Canadian  Imperial  Bank of  Commerce's  ("CIBC")
reference rate or the overnight federal funds rate plus 0.5%) plus a margin that
varies from 150 to 350 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 275 to 450 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 LIBO rate  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.  Scheduled
principal payments on the term loan facility are  approximately,  $13.8 million,
and $24.2  million  during the years  ended  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
the assets of the Company and its subsidiaries.

     As of December 31, 2000,  the Company has  approximately  $166.6 million of
long-term indebtedness  outstanding,  including (i) $115.0 million of the Senior
Notes  outstanding  at  an  interest  rate  of  11.0%,  (ii)  $51.5  million  of
indebtedness  under the Senior Credit Facility,  and (iii) $0.1 million of other
indebtedness  consisting  primarily of deferred  acquisitions  costs and capital
leases.  As of December 31, 2000, the Company had available  borrowing  capacity
under  the  revolving   credit   portion  of  its  Senior  Credit   Facility  of
approximately  $9.7 million,  subject to borrowing base  limitations and certain
conditions.

     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 on its loan under the Senior Credit Facility. At December 31, 2000, the
interest  rate cap has an  aggregate  notional  amount of $30.0  million,  which
matures in June 2001,  and caps  interest  on the LIBO rate  portion of the term
loan, up to the aggregate  notional  amount,  at 7.5%,  plus the applicable LIBO
rate margin.

     The Senior  Credit  Facility  and the 11% Series "B" Senior  Notes  contain
numerous  restrictive  covenants  including,  among others,  limitations  on the

<PAGE>



ability of the Company to incur  additional  indebtedness,  to create  liens and
other  encumbrances,  to  make  certain  payments  and  investments,  to sell or
otherwise dispose of assets, or to merge or consolidate with another entity. The
Senior Credit Facility also requires the Company to meet certain financial tests
on a consolidated  basis, some of which may be more restrictive in future years.
Based on the Company's  current  forecast,  certain of these financial tests are
likely to not be met by March 31, 2002. The Company's failure to comply with its
obligations  under the Senior  Credit  Facility,  or in  agreements  relating to
indebtedness  incurred in the future,  could result in an event of default under
such  agreements,  which  could  permit  acceleration  of the  related  debt and
acceleration  of debt  under  other  financing  arrangements  that  may  contain
cross-acceleration or cross-default  provisions.  In addition,  because interest
under the Senior Credit Facility  accrues at floating rates, the Company remains
subject  to  interest  rate risk with  respect to a  significant  portion of its
indebtedness.


     Equity Offering and Senior Credit Facility Amendment

     On April 10, 2001,  the  Company's  Board of  Directors  approved a plan to
offer to sell 12,000 shares of the Company's Class "A" Common stock for $750 per
share to the Company's existing  shareholders.  Irrevocable  commitments to fund
this $9  million  of new  equity  were in place  on May 30,  2001  with  funding
scheduled for June 4, 2001. As part of this offer, each subscribing  shareholder
received their  pro-rata share of warrants equal to 4.5% of the Company's  fully
diluted common stock. The warrants expire on May 30, 2006 and are convertible to
the Company's Class "A" Common Stock at $750 per share.

     On May 30, 2001, and in conjunction  with the commitment  from its existing
shareholders  and other  investors to purchase  12,000  shares of the  Company's
Common  stock for $750 per share,  the  Company and its Senior  Credit  Facility
lenders amended the Company's Senior Credit Facility.  The amendment changed the
requirements and definitions of certain financial covenants through December 31,
2001  and  increased   the  Company's   ability  to  enter  into  capital  lease
arrangements from $2.5 million to $5 million. Additionally, the amendment waived
the Senior Credit Facility Lender's rights to the proceeds from the May 30, 2001
issuance of common stock and waived all  outstanding  defaults  under the Senior
Credit Facility. An amendment fee equal to 0.75% of outstanding commitments,  or
$0.4  million,  was paid to the Senior  Credit  Facility  lenders to effect this
amendment.  Additionally,  the amendment  increased all interest rates under the
Senior Credit Facility by 0.5% (50 basis points) until June 30, 2002.


Acquisition

     On May 30, 2001 with closing  subject to funding of the May 30,  2001,  new
equity  issuance and  approval  from the Senior  Credit  Facility  lenders,  the
Company  acquired all of the capital stock of  FortuneLinx,  Inc., for shares of
the Company's  Class "A" Common stock equal to 6% of the Company's  common stock
on a fully diluted basis as of the closing date. Of the 6%, 3% was issued on May
30,  2001,  and  the  remaining  3% will  be  issued  twelve  months  after  the
acquisition  date if certain  financial  performance  objectives  are  achieved.
Additionally, options were issued to the sellers allowing them to purchase up to
1% of the Company's common stock, on a fully diluted basis, at an exercise price
of $2,000  per share.  In  conjunction  with the  closing,  a note  payable to a
FortuneLinx  shareholder in the principal amount of $780,000 will be repaid plus
accrued interest.

Income Taxes

     Since the Company's  acquisitions of AmeriTel,  Talton  Telecommunications,
MOG and Saratoga  were stock  purchases,  the Company was required to retain the
tax


<PAGE>

bases of  AmeriTel,  Talton  Telecommunications,  MOG and Saratoga in the assets
acquired.  As a result,  the Company will not be entitled to a tax deduction for
the  amortization of goodwill or the  depreciation  and  amortization of certain
other tangible and intangible assets related to these acquisitions.  The Company
has provided  deferred  income tax  liabilities for differences in the financial
accounting  and tax bases of its tangible and  identifiable  intangible  assets.
However,   in  accordance  with  the  requirements  of  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 109,  "Accounting  for Income Taxes," future
amortization  of  non-deductible   goodwill  will  be  treated  as  a  permanent
difference in the Company's financial statements.


Accounting Pronouncements

     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  year  beginning  after  January 1, 2001.  The
Company adopted SFAS No. 133 effective January 1, 2001. The adoption of SFAS 133
did not have a material effect on the Company's financial position or results of
operations.


Risk Factors


    Our Competitors Have Greater Resources Than We Do

     The inmate  telecommunications  industry is highly competitive.  We compete
with numerous  providers of inmate telephone services such as RBOCs, LECs, IXCs,
including  major long  distance  carriers  such as AT&T,  MCI,  and Sprint,  and
independent  public pay telephone and inmate  telephone  companies.  Many of our
competitors  are  larger  and  better  capitalized  and have  greater  financial
resources  available  than we do.  We  believe  that the  principal  competitive
factors in the inmate telecommunications market are

o    rates of commissions paid to the correctional facilities;
o    system features and  functionality;
o    system reliability and service;
o    the  ability  to   customize   inmate  call   processing   systems  to  the
     specifications and needs of the particular correctional facility; and
o    relationships with correctional facilities.

     If we are  required  to pay  higher  commissions  to  retain  our  existing
contracts or obtain new contracts,  there could be a material  adverse effect on
us and on the value of our Common Stock.

     Historically,  federal and state  facilities,  which are generally bid on a
system-wide  basis,  have been  served by RBOCs,  large  LECs,  and IXCs.  These
providers have generally  not,  however,  focused on the smaller city and county
correctional systems,  which are typically negotiated on a  facility-by-facility
basis.  As a result,  a  significant  portion  of city and  county  correctional
facilities, which constitute a substantial majority of our customers, are served
by independent inmate telephone and independent public pay telephone  companies.
A decision by RBOCs,  large LECs, or IXCs to pursue actively contracts with city
and county correctional facilities

<PAGE>


could have a material adverse effect on us and on the value of our Common Stock.

     Our ability to offer  competitive  commission  rates depends on effectively
controlling costs, which in turn necessitates  capital expenditures for software
and systems.  If IXCs, RBOCs, and large LECs, which have  significantly  greater
financial  resources  than we do and are able to  connect  calls on their  owned
networks  for  a  negligible   marginal  cost,  were  to  focus  on  the  inmate
telecommunications  market, we could face substantial competition and subsequent
increases in commission  rates or reduction in market share,  which could have a
material adverse effect on us and on the value of our Common Stock.


Some of What We Bill is Uncollectible, and We May Underestimate This Number

     We are  required  to carry a reserve on our books for  future  charge-backs
from LECs and third party  clearinghouses  for  uncollectible  amounts when such
amounts exceed the reserves initially  withheld by the LECs and  clearinghouses.
We set the reserves on our books using  historical data on charge-backs for each
LEC or other billing service  providers.  The setting of these reserves requires
substantial use of estimation, and actual expenses associated with uncollectible
accounts  could  differ from our  estimates.  Factors  that could  cause  actual
expenses  associated  with  uncollectible  accounts  to vary from our  estimates
include   difficulties  in  estimating   reserves  for  acquired  contracts  and
variations in expenses associated with uncollectible  accounts among LECs. These
variations could potentially lead to an increase in our expenses associated with
uncollectible accounts,  which could have a material adverse effect on us and on
the value of our Common Stock.


Our Acquisition Strategy May Be Unsuccessful, and We Must Successfully Integrate
Companies That We Acquire

     We  constantly  evaluate   acquisition   opportunities  and  are  currently
evaluating possible  acquisition  candidates.  We evaluate specific  acquisition
opportunities  based on market  conditions and economic  factors existing at the
time  and  intend  to  pursue  favorable  opportunities  as they  arise.  We may
encounter  increased  competition for  acquisitions  in the future,  which could
result in higher prices for acquisition candidates. We cannot assure you that we
will find suitable acquisition  candidates at acceptable prices, have sufficient
available capital resources to realize our acquisition  strategy,  be successful
in entering into  definitive  agreements for desired  acquisitions,  or that any
such acquisitions, if consummated, will prove to be advantageous to us.

     The  success of our growth  strategy  is also  dependent  on our ability to
integrate acquired operations into existing operations. In addition, our success
is dependent on our ability to expand internal operations. Our ability to manage
our anticipated future growth will depend on a number of factors,  including our
ability to:

o    evaluate new contract opportunities,
o    monitor operations,
o    control costs,
o    maintain effective quality control,

<PAGE>


o    obtain   satisfactory   and  cost-   effective   lease   rights   from  and
     interconnection agreements with companies that own transmission lines, and
o    expand our internal management, technical, and accounting systems.

     Our rapid growth has placed, and our planned future growth will continue to
place,  a  significant  strain on our  financial,  management,  and  operational
resources. We cannot assure you that the integration of the operations of future
acquisitions and continued expansion of internal operations will not require the
investment of capital or result in unforeseen difficulties or absorb significant
management  resources at levels higher than that  anticipated by our management,
or that we will realize meaningful economies of scale or operating  efficiencies
from our  acquisitions.  In addition,  acquisitions and the establishment of new
operations will entail considerable  expenses in advance of anticipated revenues
and may cause substantial fluctuations in our operating results.

     Our failure to  successfully  integrate  acquired  operations  could have a
material adverse effect on us and the value of our Common Stock. Our acquisition
strategy  results in the  amortization  of acquired  contracts over a relatively
short period of time,  generally one to three years.  We had  capitalized  $71.6
million of acquired  facility  contracts as of December 31, 2000. As of December
31, 2000,  we had  capitalized  $84.7  million of  goodwill.  This could lead to
operating  losses  that could have a  material  adverse  effect on us and on the
value of our Common Stock.


We Are Carrying a Large Amount of Debt That Restricts Our Ability to Operate Our
Business

     We have  significant debt and debt service  obligations.  Our Senior Credit
Facility with Canadian  Imperial Bank of Commerce as an agent for a syndicate of
lenders provides for (a) a term loan  acquisition  facility of $55.0 million (b)
an additional $10.5 million term loan facility and (c) a revolving loan facility
of $25.0 million (which includes a $10.0 million letter of credit facility).  In
addition, on June 27, 1997, we sold $115,000,000  principal amount of 11% Senior
Notes due 2007. At December 31, 2000,  we had  approximately  $166.6  million of
long-term debt outstanding (including current maturities).


     Our  significant  debt level will have several  important  consequences  to
holders of our Common Stock, including, but not limited to, the following:


o    we will be required to dedicate a substantial portion of our cash flow from
     operations to the payment of interest and principal  repayment  obligations
     in connection with the Senior Notes, the Senior Credit Facility,  and other
     permitted  indebtedness  thereby  reducing  the  funds  available  for  our
     operations, capital expenditures, and other purposes;

o    our debt level and the covenants  contained in the Senior  Credit  Facility
     and the  indenture  with respect to the Senior Notes will limit our ability
     to obtain  additional  financing,  pay dividends,  repurchase  stock,  make
     investments,  grant liens,  and take other  actions that may be in the best
     interests of our stockholders; and

<PAGE>



o    our  substantial  debt  level  may  make us  more  vulnerable  to  economic
     fluctuations,  limit our ability to withstand  competitive  pressures,  and
     reduce our  flexibility  in  responding  to changing  business and economic
     conditions.

     In  addition,  our  indebtedness  under the Senior  Credit  Facility  bears
interest at floating rates,  which could adversely affect our ability to service
our debt if interest rates rise.

     We  cannot  assure  you  that we will be  able  to meet  our  debt  service
obligations.  If we are unable to  generate  sufficient  cash flow or  otherwise
obtain funds  necessary to make required  payments,  or if we otherwise  fail to
comply with the various covenants contained in our debt obligations, we would be
in default  under the terms  thereof,  which  would  permit the  holders of such
indebtedness  to accelerate the maturity  thereof and could cause defaults under
our other  indebtedness.  Our ability to repay or refinance our obligations with
respect to our  indebtedness  will depend on our future  financial and operating
results,  which in turn, will be subject to prevailing  economic and competitive
conditions and to certain financial,  business, and other factors, many of which
are beyond our control.


We Have a Limited Operating History and Have Accumulated Deficits

     We were founded in December 1996. Accordingly,  we have a limited operating
history  upon  which an  evaluation  of us and our  prospects  can be based.  We
believe  that our future  success  will depend on our  ability to  significantly
increase  revenues,  which we cannot assure you will happen.  Additionally,  our
limited  operating  history makes the accurate  prediction  of future  operating
results difficult or impossible, and we cannot assure you that our revenues will
increase  or even  continue  at their  current  level  or that we will  maintain
profitability or generate cash from operations in future periods. As of December
31, 2000, we had an  accumulated  deficit of $73.2  million.  We may  experience
losses in the future which could have a material adverse effect on us and on the
value of our Common Stock.


We Are Dependent On Transmission Facilities-Based Carriers

     We do not own telecommunications transmission lines. Accordingly, telephone
calls made from correctional facilities are connected through transmission lines
that we lease under a variety of arrangements with transmission facilities-based
long distance  carriers,  some of which are or may become our  competitors.  Our
calls are  transmitted  via facilities  leased on a per minute or monthly basis.
Accordingly,  we are  vulnerable to increases in our cost basis.  If there is an
increase in demand for telecommunications  services (for example, data services)
beyond  the  increase  in supply of  transmission  facilities,  our costs  could
increase,  which could have a material  adverse effect on us and on the value of
our Common Stock.


<PAGE>

Changes in Regulation Could Adversely Affect Our Business

     The inmate  telecommunications  industry is  regulated  by both the Federal
Communications Commission (the "FCC") and state public utility commissions.  Our
operations  are  also   significantly   affected  by  the  regulation  of  other
telecommunications businesses,  including LECs and IXCs. Changes in the laws and
regulations governing our business or other telecommunications  businesses could
have a material adverse effect on us and on the value of our Common Stock.

     At the federal level,  the industry is currently in a period of substantial
regulatory  change in the aftermath of the  Telecommunications  Act of 1996 (the
"Telecom Act"),  which, among other things,  directed the FCC to restructure and
to change the regulatory framework of the pay telephone industry,  including the
inmate  telephone  industry.  Because  the  FCC  is  still  in  the  process  of
implementing  its new  regulations,  and because several aspects of rule changes
proposed by the FCC are subject to requests for reconsideration,  clarification,
and final resolution in related  proceedings,  the ultimate effect of regulatory
changes on our business is uncertain.

     In addition to adopting  regulations  implementing the Telecom Act, the FCC
also recently  adopted new  regulations for interstate  calls  requiring  inmate
telephone  service  providers to announce to called  parties,  before the called
party  incurs any  charges,  that rate quotes may be obtained by dialing no more
than two  digits  or  remaining  on the  line.  We were  required  to come  into
compliance  with these new rules by October 1, 1999,  and we believe that we are
substantially in compliance.  Regulatory authorities do have authority to impose
fines  and  other  sanctions  for  any  violation  of  these  rules.  These  new
regulations could result in an increase in our costs by slightly  increasing the
non-billable  network hold time for interstate  collect calls. In addition,  the
announcement of rate quotes may lead to called parties refusing to accept calls.
The exact effect of the new  regulations  is  difficult  to predict,  as it will
depend in large  part on how  frequently  called  parties  opt to receive a rate
quote.

     We charge relatively high rates for completing inmate collect,  and prepaid
calls. Many states have set maximum rates that can be charged for inmate collect
calls.  If  regulators  reduce the rates that may be  charged,  there could be a
material adverse effect on us and on the value of our Common Stock.


Our Market Growth May Stagnate or Decline

     Our future growth could be affected by negative trends in the growth of the
number of  correctional  facilities or the number of prisoners.  If the societal
and political  trends that have led to this growth rate abate, the growth of the
corrections  industry could stagnate or decline,  and this would have a material
adverse effect on us and on the value of our Common Stock. In particular, if the
drug laws or mandatory sentencing laws that have been enacted in the last decade
are repealed or reduced in scope, there could be an adverse effect on the growth
of the inmate population, which could effect our future success and the value of
our Common Stock.  In addition,  state prison  authorities in the State of Texas
have adopted  policies  severely  restricting  the making of telephone  calls by
inmates in state correctional facilities. The adoption of similar

<PAGE>


policies  by  other  states  could  severely  reduce  the  size  of  the  inmate
telecommunications  market and have a material  adverse  effect on us and on the
value of our Common Stock.


Our New Business Line is Unproven For Us and May Prove Unsuccessful

     We are  pursuing  a new  line of  business  that we  call  the  "Solutions"
business.  The Solutions  business is similar to the  capabilities  and services
that we provide  to one of the RBOCs  today.  The  foundation  of our  Solutions
business  is  our  intelligent  call  management,  billing,  and  fraud  control
capabilities.  We are strengthening the underlying Solutions  applications,  and
have been  successful  in creating  interest  with  potential  new  customers as
evidenced  by recent  new  contract  activity.  We have  limited  experience  in
obtaining  contracts  to  provide,  and in  providing,  such  services  to third
parties,  and we cannot assure you that we will be successful in either of these
endeavors.  Our failure to secure  opportunities  to provide  these  services to
third parties, to successfully  provide these services,  or to generate revenues
from these services  could have a material  adverse effect on our future success
and on the value of our Common Stock.


If We Cannot Recruit and Retain Key Personnel, We Will Have Difficulty Executing
Our Strategy

     Our success is dependent on the efforts of certain of our officers,  senior
management,  technical,  and other personnel,  and on our ability to continue to
attract,  retain,  and motivate  qualified  personnel.  The competition for such
employees  is intense,  and we believe that it would be difficult to replace the
expertise  and  experience of such persons in the event that the services of one
or more such persons were to become  unavailable.  Accordingly,  the loss of the
services of one or more of these individuals without adequate  replacement could
have a material  adverse  effect on us and our ability to implement our business
strategy and to achieve our goals,  and could have a material  adverse effect on
the value of our Common  Stock.  In addition,  our failure to attract and retain
additional  management  to  support  our  business  strategy  could  also have a
material adverse effect on us.


We Lack Patents and Might Be Challenged For Infringement

     None of our  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. We have received notice from two parties that certain features of
our call processing  technology may infringe upon such parties' patents.  Should
our call  processor or any material  feature  thereof be  determined  to violate
applicable  patents,  we would be required  to cease using these  features or to
obtain  appropriate  licenses  for the use of such  technology,  either of which
could  have a  material  adverse  effect  upon us and on the value of our Common
Stock.


We Have Governmental Entities As Customers

     Our customers include state and local governmental entities responsible for
the  administration  and operation of correctional


<PAGE>



facilities.  We are  subject,  therefore,  to the  administrative  policies  and
procedures employed by, and the regulations that govern the activities of, these
governmental   entities,   including  policies,   procedures,   and  regulations
concerning the procurement and retention of contract rights and the provision of
services.  We  cannot  assure  you that  our  operations  will not be  adversely
affected by the policies and  procedures  employed by, or the  regulations  that
govern the  activities  of, these  governmental  entities or that we will not be
limited in our ability to secure additional customer  contracts,  renew existing
customer  contracts,  or consummate  acquisitions  as a result of such policies,
procedures, and regulations.


Our Business Experiences Rapid Technological Change and New Services

     The   telecommunications   industry   has  been   characterized   by  rapid
technological  advancements,  frequent new service  introductions,  and evolving
industry  standards.  Management believes that our future success will depend on
its ability to  anticipate  and respond to such changes and new  technology.  We
cannot  assure  you that we will not be  materially  adversely  affected  by the
introduction and acceptance of new technology.  Some of our technology,  such as
our  call  processor  technology,  has not yet  been  implemented  in all of the
facilities that we service.


<PAGE>


ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company uses fixed and variable rate debt to partially finance budgeted
expenditures. These agreements expose the Company to market risk associated with
changes  in  interest  rates.  The  Company  does not  hold or issue  derivative
financial  instruments  for  trading  purposes.  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 risk  exposure  under the Senior
Credit  Facility.  At December 31, 2000,  the interest rate cap has an aggregate
notional  amount of $30.0 million,  which matures in June 2001 and caps interest
on the LIBO rate portion of the term loan of the Senior Credit Facility at 7.5%,
plus the applicable LIBO rate margin.

     The following  table  presents the carrying and fair value of the Company's
debt along with average  interest  rates.  Fair values are calculated as the net
present value of the expected cash flows of the financial instrument.

<TABLE>
<CAPTION>



Expected
Maturity                                                                                Fair
Date             2001          2002     2003   2004    Thereafter        Total          Value


<S>          <C>            <C>                     <C>              <C>            <C>
Variable
Rate Debt
(1)          $13,776,766    $37,750,000                              $ 51,526,766   $ 51,526,766

Fixed Rate
Debt (2)
                                                     $115,000,000    $115,000,000   $ 82,800,000

Interest
Rate
CAP                                                                                      -0-

(1)     The average interest rate on variable debt is 10.57%
(2)     The interest rate on the fixed rate debt is 11%

</TABLE>


<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   Index to Financial Statements and Schedules


                                                                            Page

Evercom, Inc. and Subsidiaries.................................................

Independent Auditors' Report..................................................38

    Consolidated Balance Sheets at December 31,
       1999 and 2000..........................................................39

    Consolidated Statements of Operations for each of the three
       years in the period ended December 31, 2000............................40


    Consolidated Statements of Stockholders' Equity (Deficit)
       For each of the three years in the period ended
       December 31, 2000......................................................41

    Consolidated Statements of Cash Flows for each of the three
       years in the period ended December 31, 2000............................42

    Notes to Consolidated Financial Statements................................43

    SUPPLEMENTARY DATA:

    Consolidated Valuation and Qualifying Accounts for each of
       the three years in the period ended December 31, 2000..................62




<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
    Stockholders of Evercom, Inc., and Subsidiaries:

We have audited the accompanying  consolidated balance sheets of Evercom,  Inc.,
and  subsidiaries  (the  "Company")as  of December  31,  2000 and 1999,  and the
related  consolidated  statements of operations,  stockholders' equity (deficit)
and cash flows for each of the three  years in the  period  ended  December  31,
2000. Our audits also included the financial  statement  schedule  listed in the
Index at Item 8. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the  consolidated  financial  statements  and financial  statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  consolidated  financial  position of the Company as of
December 31, 2000 and 1999,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  2000,  in
conformity with accounting  principles  generally accepted in the United States.
Also, in our opinion,  such financial  statement  schedule,  when  considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Dallas, Texas

June 1, 2001





<PAGE>

<TABLE>
<CAPTION>


                                   EVERCOM, INC. AND SUBSIDIARIES

                                     CONSOLIDATED BALANCE SHEETS

                                                                       December 31,
ASSETS                                                          1999                  2000
<S>                                                         <C>                    <C>
CURRENT ASSETS:
  Cash and cash equivalents                                  $  1,987,732           $  4,195,034
  Accounts receivable, net                                     38,262,832             38,302,469
  Refundable income taxes                                         364,204                258,993
  Inventories                                                   3,512,073              4,167,609
  Prepaid expenses and other current assets                       380,797                668,623
  Deferred income tax assets                                    1,496,528              1,802,826
                                                            -------------          -------------

     Total current assets                                      46,004,166             49,395,554

PROPERTY AND EQUIPMENT, Net                                    28,375,357             27,069,245

INTANGIBLE AND OTHER ASSETS, Net                               97,729,033             85,991,382
                                                            -------------          -------------


TOTAL                                                       $ 172,108,556          $ 162,456,181
                                                            =============          =============


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Accounts payable                                          $ 19,492,283           $ 21,122,288
   Income taxes payable                                           250,000                500,000
   Accrued expenses                                            21,201,463             20,430,296
   Current portion of long-term debt                           12,434,468             13,776,766
                                                            -------------          -------------

     Total current liabilities                                 53,378,214             55,829,350

LONG-TERM DEBT                                                159,526,766            152,750,000

OTHER LONG-TERM LIABILITIES                                       705,000                100,000

DEFERRED INCOME TAXES                                           1,496,528              1,802,826

COMMITMENTS AND CONTINGENCIES (see notes)

STOCKHOLDERS' EQUITY (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
     December 31, 2000.                                               109                    109
   Common stock, $.01 par value; 50,000 shares
     authorized; 16,433 shares issued and
     outstanding as of December 31, 1999 and
     December 31, 2000, respectively.                                 164                    164
   Additional paid-in-capital                                  26,080,416             25,206,414
   Accumulated deficit                                        (69,078,641)           (73,232,682)
                                                            -------------          -------------

   Total stockholders' equity (deficit)                       (42,997,952)           (48,025,995)
                                                            -------------          -------------

TOTAL                                                       $ 172,108,556          $ 162,456,181
                                                            =============          =============
</TABLE>



                           See notes to consolidated financial statements

<PAGE>


<TABLE>
<CAPTION>



                                    EVERCOM INC. AND SUBSIDIARIES

                                CONSOLIDATED STATEMENTS OF OPERATIONS

                                                          Years Ended December 31,

                                                  1998               1999               2000
                                             ---------------    ---------------    ----------------

<S>                                           <C>               <C>                <C>
OPERATING REVENUE                             $225,292,986      $  236,800,742     $  234,509,613


OPERATING EXPENSES:
   Telecommunication costs                      99,842,779         104,376,362         95,621,886
   Facility commissions                         71,205,505          71,359,313         75,702,367
   Field operations and maintenance              7,817,165           6,428,038          6,667,465
   Selling, general and administrative          17,661,406          17,213,817         17,747,660
   Depreciation and impairment                   6,691,954           7,199,737          8,144,151
   Amortization of intangibles                  26,338,961          21,526,471         14,920,328
   Restructure and other charges (income)        1,743,290             (68,615)                 -
                                              ------------       -------------      -------------

   Total operating expenses                    231,301,060         228,035,123        218,803,857
                                              ------------       -------------      -------------

OPERATING INCOME (LOSS)                         (6,008,074)          8,765,619         15,705,756

OTHER (INCOME) EXPENSE:
   Interest expense, net                        19,637,507          19,457,642         19,362,022
   Other (income), net                            (235,623)             (6,640)           (55,053)
                                              ------------      --------------     --------------

   Total other (income) expense                 19,401,884          19,451,002         19,306,969
                                              ------------      --------------     --------------

LOSS BEFORE INCOME TAXES                       (25,409,958)        (10,685,383)        (3,601,213)

INCOME TAX EXPENSE                                476,471             450,000             552,828
                                              ------------      --------------     --------------

NET LOSS                                       (25,886,429)        (11,135,383)        (4,154,041)

PREFERRED STOCK DIVIDENDS AND
   ACCRETION OF DISCOUNT                           474,000           1,233,613          1,479,289
                                              ------------      --------------     --------------

NET LOSS APPLICABLE TO COMMON STOCK           $(26,360,429)     $  (12,368,996)    $   (5,633,330)
                                              ============      ==============     ==============


</TABLE>




                           See notes to consolidated financial statements

<PAGE>


<TABLE>
<CAPTION>


                                   EVERCOM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


                                                                      Additional
                        Preferred Stock      Common Stock        Paid-in     Accumulated
                       Shares     Amount   Shares     Amount     Capital       Deficit       Total
                      ---------  -------  --------   ---------  ---------    ----------     --------
<S>                     <C>         <C>    <C>         <C>     <C>          <C>            <C>

BALANCE, JAN 1, 1998    5,925       $59    16,200      $162    $22,036,963  ($32,056,829)  ($10,019,645)

Preferred dividends                                               (474,000)                    (474,000)

Issuance of common
  stock ...........                           133         1        266,599                      266,600

Net Loss ..........                                                          (25,886,429)   (25,886,429)
                      -------   -------   -------   -------   ------------  ------------   ------------

BALANCE, DECEMBER .
  31, 1998 ........     5,925        59    16,333       163     21,829,562   (57,943,258)   (36,113,474)

Preferred dividends                                               (794,432)                    (794,432)

Issuance of
preferred stock ...     5,000        50                          4,895,287                    4,895,337

Issuance of common
  stock ...........                           100         1        149,999                      150,000

Net loss ..........                                                          (11,135,383)   (11,135,383)
                      -------   -------   -------   -------   ------------  ------------   ------------

BALANCE, DECEMBER
  31, 1999 ........    10,925       109    16,433       164     26,080,416   (69,078,641)   (42,997,952)

Preferred dividends                                               (874,002)                    (874,002)

Net loss ..........                                                           (4,154,041)    (4,154,041)
                      -------   -------   -------   -------   ------------  ------------   ------------

BALANCE, DECEMBER
  31, 2000 ........    10,925      $109    16,433      $164    $25,206,414  ($73,232,682)  ($48,025,995)
                      =======   =======   =======   =======   ============  ============   ============

</TABLE>




                           See notes to consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>


                                   EVERCOM, INC. AND SUBSIDIARIES

                                CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                 YEARS ENDED DECEMBER 31,
                                                                          1998            1999             2000
                                                                      ------------    ------------     ------------

<S>                                                                  <C>             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss .......................................                   ($25,886,429)   ($11,135,383)     ($4,154,041)
  Adjustments to reconcile net loss to net cash provided by
   operating activities:
    Depreciation and impairment ............                            6,691,954       7,199,737        8,144,151
    Amortization of intangible assets, .....                           27,482,445      22,554,290       16,026,275
      including deferred financing costs and bond discount
    Changes in operating assets and liabilities, net of
      effects of acquisitions:
        Accounts receivable .............                             (22,232,694)        893,098         (265,652)
        Inventories .....................                                (606,359)     (1,151,793)        (655,536)
        Prepaid expenses and other assets                                 134,130         647,947         (148,010)
        Accounts payable ................                              14,782,610      (2,489,201)       1,636,255
        Accrued expenses ................                               3,728,009        (942,522)        (730,086)
        Income taxes ....................                                 164,795         321,389          355,211
                                                                     ------------    ------------     ------------

       Net cash provided by operating
        activities ..........................................           4,258,461      15,897,562       20,208,567
                                                                     ------------    ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Decrease in restricted cash ....................                   1,919,312
     Capital expenditures ...........................                 (13,591,974)     (8,396,973)     (10,222,052)
     Cash outflows for acquisitions .................                 (11,711,061)     (3,741,469)      (1,938,557)
                                                                     ------------    ------------     ------------

            Net cash used in investing
              activities ...........................                  (23,383,723)    (12,138,442)     (12,160,609)
                                                                     ------------    ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from the issuance of debt .............                  19,000,000       5,500,000        7,000,000
     Repayment of debt ..............................                  (5,553,572)    (13,521,495)     (12,434,468)
     Payment of deferred financing costs ............                                    (336,992)        (406,188)
     Payment of preferred dividends .................                    (474,000)
     Proceeds from the issuance of common and
     preferred stock, net of expenses ...............                      66,600       4,895,337
                                                                     ------------    ------------     ------------

           Net cash provided by (used in)
             financing activities ....................                 13,039,028      (3,463,150)      (5,840,656)
                                                                     ------------    ------------     ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....                  (6,086,234)        295,970        2,207,302

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........                   7,777,996       1,691,762       1,987,732
                                                                     ------------    ------------     ------------

CASH AND CASH EQUIVALENTS, END OF YEAR ..............                $  1,691,762      $1,987,732       $4,195,034
                                                                     ============    ============     ============

SUPPLEMENTAL INFORMATION:
     Cash paid for interest .........................                $ 25,102,184     $18,532,282      $17,779,327
                                                                     ============    ============     ============

     Cash paid for income taxes .....................                $    311,676    $    128,611     $    197,620
                                                                     ============    ============     ============

     Non-cash transactions:
          Issuance of subordinated notes, preferred
          stock and common stock for acquisitions ...                $    950,000    $    150,000     $         --
                                                                     ============    ============     ============

          Dividends payable .........................                $    474,000    $    794,432     $    874,002
                                                                     ============    ============     ============

          Issuance of stock for forgiveness of
          acquisition liability .....................                $    200,000    $         --     $         --
                                                                     ============    ============     ============

</TABLE>
                           See notes to consolidated financial statements

<PAGE>



                                    EVERCOM, INC.AND SUBSIDIARIES

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS - Evercom,  Inc. and subsidiaries  (the "Company") owns,  operates
and maintains telephone systems under contracts with correctional  facilities in
43 states and the District of Columbia. The Company was incorporated on November
20, 1996, and effective December 1, 1996, acquired all of the outstanding equity
interests of Talton Telecommunications Corporation and AmeriTel Pay Phones, Inc.
The Company has grown through numerous subsequent acquisitions,  as discussed in
Note 2.

     The Company  accumulates call activity from its various  installations  and
bills its revenues  related to this call activity  through major local  exchange
carriers  ("LECs") or through  third-party  billing  services for smaller volume
LECs,  all of which are granted  credit in the normal  course of  business  with
terms of between 30 and 60 days. The Company also provides Solutions services in
the form of validation,  billing and collection services for the inmate calls of
a  major   regional   bell   operating   company   and  several   other   inmate
telecommunication  carriers.  The Company performs ongoing credit evaluations of
its customers and maintains  allowances for unbillable and uncollectible  losses
based on historical experience.

     The  Company  operates  in  only  one  business  segment  as its  operating
activities  are related to the operation  and  processing of collect and prepaid
calling services to local, county, state and private correctional  facilities in
the United States.


     PREPARATION  OF  FINANCIAL   STATEMENTS  -  The  preparation  of  financial
statements in conformity with accounting  principles,  generally accepted in the
United States,  requires  management to make estimates and assumptions,  such as
estimates  of  allowances  and  reserves  for   unbillable   and   uncollectible
chargebacks  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.


     PRINCIPLES  OF  CONSOLIDATION  - The  accompanying  consolidated  financial
statements   include  the   accounts  of  the  Company  and  its  wholly   owned
subsidiaries, Evercom Systems, Inc. and EverConnect, Inc. As of January 1, 1999,
the company merged most of its then existing  subsidiaries into Talton InVision,
Inc., also a wholly owned  subsidiary at that time.  Concurrent with the merger,
the Company amended Talton  InVision,  Inc.'s  Certificate of  Incorporation  to
continue its existence as Evercom Systems, Inc.


     CASH AND CASH EQUIVALENTS - Cash and cash equivalents  include cash on hand
and investments with a remaining maturity at date of purchase of three months or
less.


     ACCOUNTS  RECEIVABLE - Trade accounts  receivable  represent amounts billed
for calls placed through the Company's  telephone systems to the various LECs or
third-party billing services, net of advance payments

<PAGE>


received,  and an allowance for unbillable  and  uncollectible  calls,  based on
historical  experience,  for estimated chargebacks to be made by the LECs. Under
account advance agreements with various  third-party  billing services,  advance
payments  equal  to a  percentage  of the  outstanding  billed  receivables  are
remitted to the Company  when calls are  submitted  to the  third-party  billing
service, and the Company grants a lien to the third-party billing service on the
related  accounts  receivable  for the  advance.  The  remainder  of the  billed
receivable  is  paid to the  Company,  net of the  advance  amounts,  after  the
third-party  billing  service  has  collected  the amounts  receivable  from the
respective LECs. Interest is charged on the advance payment at varying rates.


     INVENTORIES  -  Inventories  are stated at the lower of cost, as determined
primarily  using the  weighted  average  cost  method,  or market.  Inventory is
primarily  composed of equipment for  installation on new contracts and supplies
and parts for the telephone systems serviced by the Company.


     PROPERTY  AND  EQUIPMENT  -  Property  and  equipment  are  stated at cost.
Depreciation  and  amortization  is provided on a  straight-line  basis over the
estimated  useful  lives of the related  assets.  The  following is a summary of
useful lives for major categories of property and equipment.


          ASSET                                        USEFUL LIFE

Leasehold improvements                             Lesser of life or lease term
Telephone system equipment                         3.5 to 7.5 years
Vehicles                                           3 years
Office equipment                                   3 to 7 years


     Maintenance  and repairs are expensed  when incurred and major repairs that
extend an  asset's  useful  life are  capitalized.  When  items are  retired  or
disposed,  the related  carrying value and accumulated  depreciation are removed
from the respective  accounts,  and the net difference  less any amount realized
from the disposition is reflected in earnings.


     INTANGIBLE AND OTHER ASSETS - Intangible and other assets primarily include
amounts  allocated  to  acquired  facility  contracts,  non-compete  agreements,
goodwill and other intangible  assets,  which are stated at cost, along with the
long-term  portion of customer  advances.  Amortization of intangible  assets is
provided on a straight-line basis over the estimated useful lives of the related
assets.  The  following  is a summary of useful  lives for major  categories  of
intangible assets:


         ASSET                                           USEFUL LIFE

Acquired facility contracts                               Contract term
Non-compete agreements                                    Agreement term
Deferred loan costs                                       Loan term
Other assets and intangibles                              2 to 5 years
Goodwill                                                  20 years

<PAGE>



     Acquired  facility  contracts  consist  primarily  of  costs  allocated  to
locations  acquired  in  acquisitions  of  facility  contract  rights from other
service  providers,  along with signing bonuses paid to the facilities under new
facility  installations  and other  incremental  direct costs paid to obtain the
facility contracts.


     Other  assets and  intangibles  include  costs  incurred  to obtain  direct
billing  agreements  with LECs,  and licensing  fees to obtain state licenses to
conduct business.


     The  Company  periodically   assesses  the  net  realizable  value  of  its
intangible  assets,  as well as all other  long-term  assets,  by comparing  the
expected  future net  operating  cash flow,  undiscounted  and without  interest
charges,  to the carrying  amount of the  underlying  assets.  The Company would
evaluate a potential  impairment if the recorded value of these assets  exceeded
the associated  future net operating cash flows.  Any potential  impairment loss
would be measured  as the amount by which the  carrying  value  exceeds the fair
value of the asset.  Fair value of assets would be measured by market value,  if
an active market exists,  or by a forecast of expected future net operating cash
flows, discounted at a rate commensurate with the risk involved. As discussed in
Note 4, the Company  recorded an  impairment  loss on a portion of its telephone
system equipment in 1998.


     INCOME TAXES - The Company  accounts  for income taxes using the  liability
method in accordance  with the  provisions of Statement of Financial  Accounting
Standards  ("SFAS") No. 109,  "Accounting  for Income Taxes." Under this method,
deferred  tax assets and  liabilities  are provided  for  temporary  differences
between  the  financial  statement  and tax bases of the assets and  liabilities
using current tax rates.


     REVENUE  RECOGNITION  - Revenues  related to collect  and  prepaid  calling
services  are  recognized  during  the  period in which  the calls are made.  In
addition,   during  the  same   period,   the   Company   accrues   the  related
telecommunication  costs for validating,  transmitting,  billing and collection,
and line and  long-distance  charges,  along  with  commissions  payable  to the
facilities  and allowances for  unbillable  and  uncollectible  calls,  based on
historical experience.

     Revenues  related  to  the  validation,  billing  and  collection  services
provided to other  entities are  recognized in the period in which the calls are
processed  through the  Company's  system.  During the same period,  the Company
accrues the related telecommunications costs for validating,  transmitting,  and
billing  and  collection  costs,   along  with  allowances  for  unbillable  and
uncollectible calls, based on historical experience.


     FACILITY  COMMISSIONS - Under the terms of the Company's  telephone  system
contracts with  correctional  facilities,  the Company pays commissions to these
facilities  generally  based on call volume revenues that are accrued during the
period the revenues are generated.


     COMPREHENSIVE  INCOME  - SFAS No.  130,  "Reporting  Comprehensive  Income"
became  effective  as of the first  quarter  of 1998.  This  statement  required
companies  to  report  and  display  comprehensive  income  and  its  components
(revenues,  expenses,  gains and  losses).  Comprehensive  income  included  all
changes in equity during a period

<PAGE>



except those resulting from  investments by owners and  distributions to owners.
For the Company,  comprehensive  income is the same as the net loss  reported in
the  statements of  consolidated  operations  for each of the three years in the
period ended December 31, 2000, since there were no other items of comprehensive
income for the period presented.


     RECENTLY ISSUED  ACCOUNTING  PRONOUNCEMENTS  - 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  January 1, 2001.  The Company  adopted SFAS No. 133  effective
January 1, 2001. The adoption of SFAS 133 will not have a material effect on the
Company's financial position or results of operations.


2.      ACQUISITIONS

     Effective  December 1, 1996,  the Company  acquired all of the  outstanding
equity  interests  of Talton  Telecommunications  Corporation  and  AmeriTel Pay
Phones,  Inc. The aggregate net purchase price was approximately  $47.9 million,
which was funded with the net proceeds from the issuance of common and preferred
stock and the proceeds from the issuance of long-term debt.

     Since certain of the  stockholders of the Company held ownership  interests
in Talton  Telecommunications  and AmeriTel Pay Phones,  Inc.,  their continuing
ownership  interest  in the  Company  has  been  accounted  for at  their  prior
historical basis, which has resulted in a reduction in stockholders'  deficit of
approximately  $14.9  million and a  corresponding  reduction in the fair values
assigned to tangible and identifiable  intangible assets, in accordance with the
provision  of Emerging  Issue Task Force Issue No.  88-16,  "Basis in  Leveraged
Buyout Transactions."

     Effective April 4, 1997, the Company acquired  substantially all of the net
assets of Tri-T, Inc. (d.b.a. Tataka) for cash of $0.8 million, which was funded
primarily by borrowings under the Senior Credit Facility.

     Effective June 27, 1997, the Company acquired  substantially all of the net
assets of Security Telecom  Corporation for cash of $9.9 million and issuance of
900 shares of the  Company's  Class "A" common stock.  The Company  financed the
acquisition  with a portion of the proceeds  from the Senior Notes (as defined).
Approximately  $2.5  million of the  purchase  price was  withheld  at  closing,
pending certain regulatory approvals and final adjustments. $2.0 million of this
amount was paid in 1999 and the  remaining  $0.5  million  was paid in 2000.  In
conjunction  with the acquisition of Security Telecom  Corporation,  the Company
entered  into an  agreement  with an employee of  Security  Telecom  Corporation
giving the  employee  the right to receive cash of $200,000 or to purchase up to
100 shares of the  Company's  Class "A" common  stock for $2,000 per share.  The
employee exercised this right in September 1998.

     Effective  July 31,  1997,  the Company  acquired  all of the net assets of
Correctional  Communications  Corporation  for a cash  purchase  price  of $10.3
million.  The Company  financed the  acquisition  with a portion of the proceeds
from the Senior Notes.

     Effective  October  6, 1997,  the  Company  entered  into an  agreement  to
purchase substantially all of the net assets of the inmate

<PAGE>


telecommunications division of Communications Central Inc., for $40.0 million in
cash  and  assumption  of  $2.0  million  in  liabilities   subject  to  various
adjustments  as defined in the  agreement and subject to a provision for working
capital of  approximately  $1.2 million  provided to the Company pursuant to the
purchase  agreement.  The Company  financed the  acquisition  with the remaining
proceeds from the Senior Notes and borrowings under the Senior Credit Facility.

     Effective  December  1, 1997,  the Company  entered  into an  agreement  to
purchase  substantially  all of the net assets of the inmate  telecommunications
division of North American  InTeleCom,  Inc., from TSC  Communications  for $6.5
million in cash,  a deferred  payment of $1.7  million,  and the  assumption  of
certain  liabilities  of  approximately  $0.7  million.  The Company  funded the
acquisition with borrowings under the Senior Credit Facility.

     Effective  December  19,  1997,  the Company  entered  into an agreement to
purchase  substantially  all of the net assets of the inmate  telecommunications
division  of  Peoples  Telephone  Company,  Inc.,  for  $10.6  million  with the
assumption of certain liabilities.  The acquisition  agreement also provides for
additional  contingent payments if certain financial results are obtained in the
future.  The  additional  payments will be accounted for as an adjustment to the
purchase  price  when the  contingency  is  resolved.  The  Company  funded  the
acquisition with borrowings under the Senior Credit Facility.

     Effective  January  1, 1998,  the  Company  entered  into an  agreement  to
purchase  substantially  all of the net assets of the inmate  telecommunications
division of ILD  Teleservcies,  Inc., for a cash purchase price of $2.6 million.
The acquisition was funded with borrowings under the Senior Credit Facility.

     Effective  February  1, 1998,  the Company  entered  into an  agreement  to
purchase MOG Communications, Inc., for a cash purchase price of $1.9 million and
assumption  of a note  payable of  $950,000.  The  acquisition  was funded  with
borrowings under the Senior Credit Facility.

     Effective July 1, 1998,  the Company  entered into an agreement to purchase
Saratoga  Telephone  Company  for a cash  purchase  price of $2.0  million.  The
acquisition was funded with borrowings under the Senior Credit Facility.

     Effective June 1, 1999,  the Company  entered into an agreement to purchase
substantially all of the net assets of the inmate  telecommunications  divisions
of Alliance  Tel-Com,  Inc.,  KR&K  Communications,  Inc., U.S.  Connect,  Inc.,
Tele-Communications,  Inc., and Lake-Tel, Inc. (collectively "Alliance"),  which
were all part of an affiliated group of companies.  The purchase price consisted
of 100 shares of the Company's  common stock,  a contingent  payment of up to an
additional  440  shares  of the  Company's  common  stock if  certain  financial
objectives are met, assumption of $275,000 of liabilities, and a cash payment of
$10.

     The above  acquisitions  were  accounted  for using the purchase  method of
accounting as of their respective  acquisition dates and, accordingly,  only the
results of operations of the acquired  companies  subsequent to their respective
acquisition dates are included in the consolidated  financial  statements of the
Company.  At the  acquisition  date,  the purchase price was allocated to assets
acquired,  including  identifiable  intangibles and liabilities assumed based on
their fair values.  The excess of the total purchase  prices over the fair value
of the net assets acquired represents goodwill.

<PAGE>


     In connection with the  acquisitions,  assets were acquired and liabilities
were assumed as follows:


<TABLE>
<CAPTION>

                                                                            1999

<S>                                                                <C>
Net cash paid                                                      $                10
Amounts payable for acquisition costs                                        1,262,986
Subordinated notes and common stock issued
   to sellers, net of expenses                                                 150,000
                                                                   -------------------
Total net purchase prices, including
   professional fees                                                         1,412,996

Fair values of net assets acquired:
   Fair values of assets acquired                                            1,687,996
   Liabilities assumed                                                        (275,000)
                                                                   -------------------

Total net assets acquired                                                    1,412,996
                                                                   -------------------

Goodwill                                                           $                --
                                                                   ===================
</TABLE>



     The following  table presents  unaudited pro forma results of operations of
the Company for the years ended December 31, 1998 and 1999  respectively,  as if
the acquisitions had occurred at the beginning of each respective period:


<TABLE>
<CAPTION>

                                                                Years Ended December 31,

                                                             1998                       1999

<S>                                                    <C>                       <C>
Operating revenues                                     $   232,779,019           $   239,300,742
Net loss                                               $    27,172,457           $    10,885,383

</TABLE>



     The  Unaudited  pro  forma  results  of  operations  are  not   necessarily
indicative  of what the actual  results of  operations of the Company would have
been had the  acquisitions  occurred at the beginning of the periods  presented,
nor do they purport to be indicative of the future  results of operations of the
Company.


<PAGE>



3.      ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>

                                                                   December 31,

                                                             1999                  2000
<S>                                                        <C>                   <C>
Trade accounts receivable, net of advance
   payments received of $0 and $289,385 at
   December 31, 1999 and 2000 respectively                 $38,384,376           $41,028,861
Advance commissions receivable                               1,870,475             1,654,595
Receivables related to acquisitions                            226,015
Recoverable Universal Service Fund Fees                      1,123,165               235,817
Employees and other                                            251,419               453,704
                                                           -----------           -----------

                                                            41,855,450            43,372,977

Less allowance for unbillable and
   uncollectible chargebacks                                (3,592,618)           (5,070,508)
                                                           -----------           -----------

                                                           $38,262,832           $38,302,469
                                                           ===========           ===========
</TABLE>


     At December  31, 1999 and 2000,  the Company had  advanced  commissions  to
certain  facilities  of  $2,100,149  and  $1,758,299,  respectively,  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.

     The Company bills the majority of its collect call revenue  through  direct
billing  arrangements with local exchange carriers.  The local exchange carriers
establish  reserves  for future  uncollectibles  by  withholding  funds from the
Company as part of the recurring  receivables  settlement process. The allowance
for  unbillable  and  uncollectible   chargebacks  reflected  in  the  financial
statements of the Company is dependent  upon a number of factors,  including (i)
the amount of reserves  already  established by the LECs or third-party  billing
services  and  (ii)  the  Company's  historical   unbillable  and  uncollectible
experience.


<PAGE>



4.      PROPERTY AND EQUIPMENT

        Property and equipment consist of the following:


<TABLE>
<CAPTION>

                                                                       December 31,

                                                             1999                   2000
<S>                                                        <C>                   <C>
Leasehold improvements                                        $913,420              $944,292
Telephone system equipment                                  39,666,667            46,285,050
Vehicles                                                       429,460               430,548
Office equipment                                             2,540,215             2,727,911
                                                           -----------           -----------
                                                            43,549,762            50,387,801
Less accumulated depreciation                              (15,174,405)          (23,318,556)
                                                           -----------           -----------
                                                           $28,375,357           $27,069,245
                                                           ===========           ===========
</TABLE>


     DEPRECIATION AND IMPAIRMENT - Depreciation and impairment in 1998, 1999 and
2000 includes depreciation expense of $5,996,816;  $7,199,737;  and $ 8,144,151,
respectively.  Also  included  in  depreciation  and  impairment  in  1998 is an
impairment loss of $695,138, representing the net book value of telephone system
equipment that was removed from service.


5.      INTANGIBLE AND OTHER ASSETS

        Intangible and other assets consist of the following:

<TABLE>
<CAPTION>



                                                                      December 31,

                                                              1999                  2000
Intangible and other assets

<S>                                                        <C>                   <C>
  Acquired telephone contracts                             $67,761,060           $71,566,718
  Noncompete agreements                                        568,611               568,611
  Deferred loan costs                                        8,636,059             9,042,247
  Goodwill                                                  84,530,834            84,730,834
  Other intangibles                                            766,502               783,096
                                                           -----------           -----------
                                                           162,263,066           166,691,506
Less accumulated amortization                              (65,195,703)          (81,221,978)
                                                           -----------           -----------
                                                            97,067,363            85,469,528

Deposits                                                       431,996               418,150
Other assets - noncurrent portion
  of commission advances to facilities                         229,674               103,704
                                                           -----------           -----------

                                                           $97,729,033           $85,991,382
                                                           ===========           ===========
</TABLE>



<PAGE>


6.      ACCRUED EXPENSES

        Accrued expenses consist of the following:

<TABLE>
<CAPTION>



                                                                      December 31,

                                                            1999                    2000

<S>                                                        <C>                   <C>
Facility commissions                                        $7,303,783            $8,204,779
Billing and collection fees                                  1,411,127             1,988,157
Uncollectible call chargebacks                               4,554,260
Accrued acquisition and financing costs                      1,493,164               578,081
Accrued interest                                                64,782               541,530
Accrued excise taxes payable                                 1,847,889             1,958,017
Accrued dividends on preferred stock                         1,268,432             2,142,434
Accrued restructure costs                                       17,796
Accrued payroll and bonuses                                  1,689,438               812,898
Accrued payable to joint venture partner                                           1,136,916
Deferred revenue                                                                   1,076,425
Other                                                        1,550,792             1,991,059
                                                            ----------            ----------

                                                           $21,201,463           $20,430,296
                                                           ===========           ===========
</TABLE>


     The accrual for  uncollectible  call  chargebacks  represents a reserve for
amounts  collected from LECs that are expected to be charged back to the Company
in  future  periods.  As of  December  31,  2000 all of the  Company's  LECs had
established  reserves by withholding  funds from the Company and consequently no
accrual was required by the Company.


7.      LONG-TERM DEBT

        The following is a summary of long-term debt:

<TABLE>
<CAPTION>


                                                                      December 31,

                                                            1999                    2000

<S>                                                       <C>                   <C>
Senior Notes                                              $115,000,000          $115,000,000
Senior Credit Facility:
   Revolving loan facility                                  11,500,000            13,500,000
   Term loan facility                                       39,875,000            27,500,000
   Additional term loan facility                             5,500,000             5,500,000
   Second additional term loan facility                                            5,000,000
Other                                                           86,234                26,766
                                                          ------------          ------------
                                                           171,961,234           166,526,766
Less current portion of long-term debt                     (12,434,468)          (13,776,766)
                                                         -------------          ------------

                                                          $159,526,766          $152,750,000
                                                          ============          ============

</TABLE>



<PAGE>

     SENIOR NOTES - On June 27, 1997,  the Company  issued $115.0 million of 11%
Senior  Notes due 2007 (the  "Senior  Notes").  A portion of the proceeds of the
issuance was used to repay  substantially  all of the  Company's  previous  debt
outstanding and to fund the purchase of Security Telecom Corporation.

     Interest on the Senior Notes is payable semiannually.  All of the Company's
subsidiaries  (the  "Subsidiary  Guarantors")  are fully,  unconditionally,  and
jointly and severally liable for the Senior Notes. The Subsidiary Guarantors are
wholly-owned   and  constitute   all  of  the  Company's   direct  and  indirect
subsidiaries.  The Company has not included  separate  financial  statements  of
subsidiaries because (a) the aggregate assets, liabilities,  earnings and equity
of such  subsidiaries are substantially  equivalent to the assets,  liabilities,
earnings and equity of the Company on a  consolidated  basis and (b) the Company
believes that separate  financial  statements and other  disclosures  concerning
subsidiaries are not material to investors.

     The Senior Notes are  redeemable at the  Company's  option on or after June
30, 2002. The Senior Notes are redeemable at the redemption prices (expressed as
percentages  of  principal  amount)  set forth  below  plus  accrued  and unpaid
interest:

               YEAR                                       PERCENTAGE

                2002                                       105.500%
                2003                                       103.667%
                2004                                       101.833%
                2005 and thereafter                        100.000%


     SENIOR CREDIT FACILITY - The Company amended and restated its Senior Credit
Facility with a group of lenders in March 1999 in conjunction  with the issuance
of First Preferred Series "A" stock and warrants.  The amendment provides for an
additional  $5.5 million term loan  facility  that will bear interest at similar
rates to borrowings under the Senior Credit Facility. Subsequent to December 31,
2000,  the Company  again  amended and  restated its Senior  Credit  Facility as
discussed in Note 15.

     The Senior  Credit  Facility  includes a $55 million term loan  acquisition
facility, $10.5 million of additional term loan facilities,  and a $25.0 million
revolving  loan  facility  (which  includes  a  $10  million  letter  of  credit
facility). Scheduled principal payments under the term loan facilities cannot be
reborrowed.

     Amounts  outstanding under the Senior Credit Facility,  as amended in March
1999 (and  subsequently  amended on May 30,  2001),  bore interest at a rate per
annum equal to one of the following rates, at the Company's  option:  (i) a base
rate equal to the higher of the Federal  Funds rate plus 50 basis  points or the
lead  bank's  reference  rate plus a margin  that  varies  form 100 to 300 basis
points,  depending  on the  Company's  Total debt to Earnings  Before  Interest,
Income Taxes,  Depreciation and Amortization ("EBTIDA") Ratio (as defined in the
Senior Credit  Facility) or (ii) the London  Interbank  Offering Rate ("LIBOR"),
plus a margin that varies from 225 to 400 basis  points,  based on the Company's
Total Debt to EBTIDA Ratio.  The Company pays a commitment fee on unused amounts
of the  Senior  Credit  Facility  at the rate of 50 basis  points.  The  blended
interest rate in effect at

<PAGE>

December 31, 2000,  on the Senior  Credit  Facility was 10.45%.  The  subsequent
amendment  of the Senior  Credit  Facility in May,  2001,  discussed in Note 15,
increased all interest rates under the Senior Credit  Facility by 0.5% (50 basis
points).

     Interest is payable quarterly,  and scheduled principal installments on the
term loan acquisition  facility are due in quarterly  installments of $3,437,500
with the remaining  unpaid balance due on December 31, 2002.  Both the revolving
and the term loan  facilities are  collateralized  by  substantially  all of the
assets of the Company.


     INTEREST RATE CAP AGREEMENT - 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  Senior Credit
Facility.  At December 31, 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 at 7.5%, plus the applicable LIBOR margin.


     COVENANTS  AND OTHER - The  Senior  Notes and the  Senior  Credit  Facility
contain  financial and operating  covenants  requiring,  among other items,  the
maintenance of certain financial ratios,  including total debt to free cash flow
(as defined in the Senior  Credit  Facility),  senior  secured debt to free cash
flow and  various  other  ratios  of free cash flow to  specified  minimums.  In
addition,  the Senior Credit Facility contains various  covenants,  which, among
other things,  limit the  Company's  ability to incur  additional  indebtedness,
restrict the Company's  ability to invest in and divest of assets,  and restrict
the Company's ability to pay dividends.  As of December 31, 2000, the Company is
in compliance with its financial and operating covenants under the Senior Credit
Facility.  In the event the Company fails to comply with the covenants and other
restrictions,  as  specified,  it could be in default under the Senior Notes and
the Senior Credit  Facility and  substantially  all of the  Company's  long-term
maturities could be accelerated.

     As a result of the  issuance  of the First  Preferred  Series "A" Stock and
warrants  discussed  in Note 9, the Company was required to obtain a waiver from
its Senior Credit  Facility  group of lenders that waives the lenders'  right to
the proceeds raised by the Company from the equity offering.

     At December 31, 2000,  the scheduled  maturities of long-term  debt were as
follows:


                2001                           $ 13,776,766
                2002                             37,750,000
                2003                                      0
                2004                                      0
                Thereafter                      115,000,000
                                               ------------
                                               $166,526,766
                                               ============

<PAGE>



8.      INCOME TAXES

        A summary of the income tax expense (benefit) is as follows:

<TABLE>
<CAPTION>




                                                             Years Ended December 31,

                                                    1998              1999              2000
<S>                                              <C>                  <C>               <C>
Current income tax expense (benefit)
  provision:
   Federal                                       $(135,134)           $200,000
   State                                           611,605             250,000           552,828
   Deferred income taxes
                                                 ---------            --------          --------

                                                  $476,471            $450,000          $552,828
                                                 =========            ========          ========

</TABLE>


     The following is a reconciliation of the income tax benefit reported in the
statement of operations:

<TABLE>
<CAPTION>


                                                             Years Ended December 31,

                                                  1998               1999              2000

<S>                                            <C>                <C>               <C>
Tax benefit at statutory rates                 $(8,639,386)       $(3,633,030)      $(1,224,412)
Effect of state income taxes                      (521,679)          (287,250)          697,290
Effect of nondeductible goodwill
  Amortization                                     759,953            759,953           759,953
Valuation allowance on deferred tax assets       8,588,395          3,740,708            36,063
Other                                              289,188           (130,381)          283,934
                                               -----------        -----------       -----------

                                                  $476,471           $450,000          $552,828
                                               ===========        ===========       ===========

</TABLE>



<PAGE>


     The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:


<TABLE>
<CAPTION>

                                                                      December 31,

                                                                 1999                2000

<S>                                                            <C>                 <C>
Reserves for unbillable and uncollectible chargebacks          $2,339,632          $1,558,702
Other reserves                                                    234,625             201,790
Amortization of intangibles                                    12,925,463          15,092,834
Net operating loss carryforward                                 3,000,831           1,989,586
Valuation allowance                                           (17,004,023)        (17,040,086)
                                                             ------------         -----------
                                                                1,496,528           1,802,826

Deferred income tax liability:
   Depreciation and amortization                               (1,496,528)         (1,802,826)
                                                             ------------         -----------

Net deferred income tax asset (liability)                           $   -               $   -
                                                             ============         ===========
</TABLE>


     The Company has  established a valuation  allowance for deferred tax assets
primarily as a result of operating  and  extraordinary  losses.  The Company was
unable to determine that it is more likely than not that the deferred tax assets
will be realized. The Company has accumulated a federal income tax net operating
loss  carryforward of  approximately  $5.9 million through December 31, 2000, of
which $3.1 million and $2.8 million will expire in 2018 and 2019, respectively.


9.      STOCKHOLDERS' EQUITY

     COMMON STOCK - The authorized  common stock of the Company  included 49,600
shares  of Class "A"  common  stock and 400  shares of Class "B"  common  stock.
Holders of the shares of the  Company's  Class "A" and the  Company's  Class "B"
common stock have  identical  rights and  privileges  except that holders of the
Company's  Class "B" common stock are entitled to four votes a share as compared
to one vote per share for holders of the Company's Class "A" common stock.

     On May 30, 2001, the Company received commitments to purchase 12,000 shares
of Common Stock for $750 per share primarily  through a Rights Offering  offered
to its existing  shareholders as discussed in Note 15. In addition, as discussed
in Note 15 the Company issued Common Stock in connection with an acquisition.

     In September 1998, an employee exercised his option, received in connection
with a previous  acquisition,  to purchase 100 shares of the Company's Class "A"
common  stock for $2,000 per share.  Additionally,  in November  1998,  a former
employee  exercised  options to  purchase 33 shares of the  Company's  Class "A"
common stock for $2,000 per share.  In June 1999,  the Company issued 100 shares
of Class "A" common stock in conjunction with the Alliance Acquisition (see Note
2).

     Issued and outstanding  shares of Class "A" common stock as of December 31,
1999 and 2000, were 16,033 shares.  Issued and  outstanding  shares of Class "B"
common  stock as of December 31, 1999 and 2000,  were 400 shares.  The Class "B"
common stock is convertible  into four shares of Class "A" common stock upon the
occurrence of a major event, as defined below.


     SENIOR  PREFERRED  STOCK - In connection  with the  acquisitions  of Talton
Telecommunications  Corporation  and AmeriTel Pay Phones,  Inc., as discussed in
Note 2, the Company  issued  5,925  shares of Senior  Preferred  Stock to former
stockholders  of the acquired  companies.  The  preferred  stockholders  have no
voting rights and were originally  entitled to receive  cumulative  dividends at
the rate of $80 per share per annum,  payable  quarterly,  when  declared by the
Board of Directors.

<PAGE>


The  dividend  rate was  modified as  discussed  below in  conjunction  with the
issuance  of  the  First  Preferred  Series  "A"  Stock.  In  the  event  of any
liquidation,   dissolution   or  winding  up  of  the  Company   (voluntary   or
involuntary),  the holders of the preferred stock shall be entitled to receive a
preference  over  common  stockholders  in any  distribution  of  assets  of the
Company,  equal to $1,000 per share plus cumulative unpaid  dividends.  Upon the
occurrence of a major event,  which includes (i) a sale of all or  substantially
all the assets of the  Company or (ii) a  registered  public  offering of equity
interests with gross proceeds of at least $20.0 million under the Securities Act
of 1933, as amended, the Company is required to redeem the outstanding shares of
preferred  stock at a price  equal  to  $1,000 a share  plus  cumulative  unpaid
dividends.  Each holder of preferred stock is entitled to convert each preferred
share into 0.08505 share of Class "A" Common Stock, at the option of the holder,
at any time after the date of issuance  and on or prior to the  occurrence  of a
major event, as defined.

     In March 1999,  the Company  raised $5 million of equity from its  existing
shareholders 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.  In
determining the value of the First Preferred  Series "A" stock and the warrants,
the net proceeds were allocated based on their relative fair values.

     The First  Preferred  Series "A" Stock is entitled to receive  dividends at
the applicable First Preferred Series "A" Rate, payable quarterly  commencing on
April 1, 1999.  Such  dividends  will be payable out of funds legally  available
therefor,  will be  payable  only  when,  as,  and if  declared  by the 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 will be 8% per annum through March 31, 2001,  will be
10% 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 of the Company with
respect to dividend rights upon liquidation. The warrants have a strike price of
$1,000 per share and will expire if not sooner exercised on December 31, 2007.

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

     Also in March 1999, in conjunction with the issuance of the First Preferred
Series "A" Stock and  warrants,  the  Company  amended and  restated  its Senior
Credit  Facility,  as discussed  further in Note 7. The amendment  increased the
Company's  borrowing  capacity under the term loan facility of the Senior Credit
Facility by $5.5 million


     JUNIOR  PREFERRED  STOCK  - In  addition  to  the  senior  preferred  stock
discussed  above,  the  Company is  authorized  to issue up to 39,000  shares of
junior  preferred  stock,  of which no shares had been issued as of December 31,
2000.


     WARRANTS - At the  Company's  inception,  the Company  entered into various
warrant agreements with its subordinated lenders along with its Class "B" common
stockholders  that granted  such  holders the right to purchase  7,315 shares of
Class "A" common  stock of the Company  upon terms  established  by the Board of
Directors. In conjunction with the


<PAGE>


issuance of the Senior  Notes,  1,920 of these  warrants  were  terminated.  The
remaining  5,395  warrants are  exercisable  in whole or part,  at various dates
through  December 27,  2006,  at warrant  prices  ranging from $0.01 to $3,000 a
share.

     In March 1999 and in conjunction  with the issuance of the First  Preferred
Series "A" Stock,  the Company issued 5,000 warrants  giving the holders of each
warrant the right to acquire one share of the  Company's  Class "A" Common Stock
for $1,000 per share.


     OPTIONS - In connection  with certain  employment  agreements in 1998, 1999
and 2000,  the Company  granted 896,  160, and 1,700  options  respectively,  to
acquire  common  stock at an  exercise  price  equal to or in excess of the fair
value of such shares at the date of grant.  The options  vest  ratably  over the
term of the employment agreements and expire ten years from the date of grant.

     On May 26, 1998,  the  Company's  Board of Directors  approved the Evercom,
Inc.  1998 Stock Option Plan (the  "Plan").  The Plan  provides for the grant of
options to purchase  shares of Class "A" common  stock to certain  officers  and
employees:

        The following information summarize the shares subject to options:
<TABLE>
<CAPTION>


                                                   Number of Shares           Weighted Average Exercise
                                                                                   Price per Share

                                              1998       1999       2000       1998       1999       2000
<S>                                           <C>        <C>        <C>       <C>        <C>        <C>
Options outstanding, beginning of
  Year                                          691      1,555      1,855     $2,000     $2,000     $2,000
Granted                                         952        420      1,937      2,000      2,000      2,826
Exercised                                       (33)                           2,000
Cancelled                                       (55)      (120)      (746)     2,000      2,000      2,000
                                              -----      -----      -----

Options outstanding, end of year              1,555      1,855      3,046     $2,000     $2,000     $2,534
                                              =====      =====      =====

Options exercisable, end of year                291        819      1,156
                                              =====      =====      =====

</TABLE>


The following table summarizes information about options outstanding at December
31, 2000:

<TABLE>
<CAPTION>



  Weighted Average                                Weighted Average
   Exercise Price       Number Outstanding            Remaining              Weighted Average
                                                  Contractual Life            Exercise Price

<S>                            <C>                      <C>                       <C>
  $2,000 to $6,000             3,046                    8.21                      $2,534

</TABLE>


     The Company applies the provisions of Accounting  Principles  Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related  interpretations
in accounting for its options. No compensation cost has been recognized for such
option grants as the options have been granted at fair value.  Had  compensation
cost for the Company's  options been determined based upon the fair value at the
grant dates for awards  consistent  with the method  prescribed  by the SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's pro forma net loss
would have been as follows:


<PAGE>


<TABLE>
<CAPTION>


                                                      Years Ended December 31,

                                               1998              1999             2000

<S>                                         <C>               <C>              <C>
Compensation Cost                              $344,000         $438,000         514,000

Net Loss:
   As reported                              (25,886,429)      (11,135,383)     (4,154,041)
   Pro forma                                (26,230,429)      (11,573,383)     (4,668,041)

Stock option share data:
   Stock options granted during the
     period                                         952              420           1,937
   Weighted average option fair
     value      (a)                                 720              669             575

</TABLE>

     (a)  Calculated in accordance with the Black-Scholes  option pricing model,
          using the following  assumptions:  expected volatility of 0%; expected
          dividend  yield of 0%;  expected  option term of five to ten years and
          risk-free  rate of  return  of 4.5%,  5.9%  and  5.9% for the  options
          granted in 1998, 1999, and 2000 respectively.

10.     RELATED-PARTY TRANSACTIONS

     One of the  Company's  subsidiaries  leased office space from a stockholder
under a lease  with  monthly  payments  in 1999 and 2000 of $9,618  and  $9,906,
respectively. The lease term extends through December 31, 2001 at which time the
Company has an option to extend the lease for an additional five years.

     A stockholder of the Company earns a commission  based on the net operating
income,  as  defined  by the  commission  agreement,  generated  from one of the
Company's contracts.  The Company paid $300,000 and $180,000 to this stockholder
in accordance with this commission  agreement during the year ended December 31,
1998 and 1999, respectively.

     The Company  entered into a management  services and  consulting  agreement
with a  company  affiliated  with  certain  stockholders,  along  with  separate
consulting  agreements with four  stockholders  who are former  employees of the
acquired  companies.  These agreements required the payment of aggregate minimum
consulting fees over the agreement life and also provided for the  reimbursement
of direct  expenses  along  with  future  payments  for  transaction  consulting
services.  In connection  with these  agreements,  the Company paid $300,000 and
$200,000 during the years ended December 31, 1998 and 1999,  respectively.  Each
of these agreements were terminated in 1999.

     One of the agreements entitled an affiliate of certain stockholders to a 1%
fee based on the gross acquisition price for any asset or stock  acquisitions by
the Company. This agreement, which was cancelled in 1999, limited the cumulative
acquisition  fees paid to this consultant to an amount not to exceed  $1,250,000
over the life of the agreement. In 1998 and 1999, the Company paid $666,000, and
$210,000, respectively, under the terms of this agreement.


11.     BENEFIT PLAN

     The Company's  subsidiaries sponsor 401(k) savings plans for the benefit of
eligible  full-time  employees,  which are qualified benefit plans in accordance
with  the  Employee   Retirement   Income  Security  Act  ("ERISA").   Employees
participating in the plan can generally make  contributions to the plan of up to
15%  of  their  compensation.  The  plans  provide  for  discretionary  matching
contributions   by  the  Company  of  up  to  50%  of  an  eligible   employee's
contribution. Total plan expenses were $5,490, $9,217, and $22,480 for the years
ended December 31, 1998, 1999, and 2000, respectively.

<PAGE>



12.     COMMITMENTS AND CONTINGENCIES

     OPERATING  LEASES - The Company  leases  office  furniture,  office  space,
vehicles and other equipment  under various  operating  lease  agreements.  Rent
expense  under these  operating  lease  agreements  was  $919,085,  $905,169 and
$1,186,982 during the year ended December 31, 1998, 1999 and 2000, respectively.
Minimum future rental payments under noncancelable  operating leases for each of
the next five years ending December 31, and thereafter and in the aggregate are:


                2001                           $   971,486
                2002                               685,786
                2003                               490,733
                2004                               359,880
                2005                               355,669
                Thereafter                         816,695
                                               -----------
                                               $ 3,680,249
                                               ===========

     EMPLOYMENT  AGREEMENTS - As of December  31, 2000,  the Company had entered
into employment agreements with certain key management personnel, which provided
for minimum  compensation levels and incentive bonuses along with provisions for
termination  of benefits  in certain  circumstances  and for  certain  severance
payments in the event of a change in control (as defined).

     LITIGATION - The Company is subject to various legal proceedings and claims
that arise in the  ordinary  course of  business  operations.  In the opinion of
management, the amount of liability, if any, with respect to these actions would
not  materially  affect the  financial  position,  results of operations or cash
flows of the Company.


13.     FAIR VALUE OF FINANCIAL INSTRUMENTS

     Pursuant  to SFAS No.  107,  "Disclosures  About  Fair  Value of  Financial
Instruments,"  the Company is required to disclose an estimate of the fair value
of the Company's financial  instruments.  The Company believes that the carrying
amounts of cash and cash equivalents,  accounts  receivable and accounts payable
are a  reasonable  estimate  of  their  fair  value  because  of the  short-term
maturities of such instruments.  In addition,  because the interest rates on the
amounts  borrowed  under the Senior  Credit  Facility are  variable,  their fair
values approximate their carrying values.

     The fair value of the Senior Notes is based on their quoted  market  value.
The  following  is a  summary  of  the  carrying  value  of the  Company's  debt
instruments:


<TABLE>
<CAPTION>

                                 December 31, 1999               December 31, 2000

                            Historical       Fair Value       Historical        Fair Value
                             Carrying                          Carrying
                              Value                             Value


<S>                        <C>              <C>              <C>                 <C>
Senior Notes               $115,000,000     $109,250,000     115,000,000         82,800,000

Senior Credit Agreement      56,875,000       56,875,000      51,500,000         51,500,000

Interest Rate Cap                     -          (43,000)              -                  -


</TABLE>

<PAGE>

14.     RESTRUCTURING AND OTHER COSTS

     RESTRUCTURING COSTS - During 1998, management authorized and committed to a
certain plan of restructure.  The plan provided for the consolidation of certain
operations,  including the closing of a number of office  locations and reducing
the workforce by  approximately 21 employees and certain  management  positions.
Based on the  finalization of estimates  included within the plan and the actual
undertaking  of certain  actions in accordance  with the plan,  management  made
revisions  to the  original  estimates  during the fourth  quarter of 1998.  The
revisions primarily relate to the final determination of the number of employees
terminated,  which resulted in 19  terminations,  the  unexpected  subletting of
certain facilities, and a refinement of expected legal and other costs. Although
certain  specific  actions  of the plan  were  modified,  the  overall  plan for
restructuring  the Company has been  substantially  completed at a total cost of
approximately $200,000 less than the original provision.

     Major categories of the restructuring  reserve and the amounts incurred are
summarized below:


<TABLE>
<CAPTION>


                                    Balance                                        Balance
                                     12/31/99      (Reductions)     (Payments)      12/31/00


<S>                                  <C>            <C>              <C>            <C>
Severance and related costs              $  --            $   --          $  --         $  --
Leased facilities                           --                --             --            --
Legal and other costs                   17,796                --       (17,796)            --
                                     ---------         ---------      ---------      --------
                                       $17,796            $   --      $(17,796)         $  --

                                    Balance                                        Balance
                                     12/31/98      (Reductions)     (Payments)      12/31/99

Severance and related costs          $ 361,792            $   --     $(361,792)         $  --
Leased facilities                      149,453          (56,269)       (93,184)            --
Legal and other costs                  143,000          (12,346)      (112,858)        17,796
                                    -----------    --------------   ------------   -----------
                                     $ 654,245        $ (68,615)     $(567,834)       $17,796

                                    Balance                                        Balance
                                     12/31/97        Additions      (Payments)      12/31/98

Severance and related costs              $  --        $614,678       $(252,886)     $ 361,792
Leased facilities                           --         217,902         (68,449)       149,453
Legal and other costs                       --         379,685        (236,685)       143,000
                                    -----------    --------------   ------------   -----------
                                         $  --      $1,212,265       $(558,020)     $ 654,245

</TABLE>




     Management  considered  the 1998 plan to be  substantially  completed as of
December 31, 1999. The accrued expense balance of $17,796 was paid in accordance
with the terms of the remaining  agreements.  Therefore,  $68,615 of the reserve
was reduced in the fourth quarter of 1999.

     OFFERING  COSTS - During 1998,  the Company  incurred  $531,025 of external
costs  associated  with a potential  offering of equity  securities.  Due to the
postponement of the equity offering, these costs were expensed in 1998.


15.     SUBSEQUENT EVENTS

Acquisition

     On May 30, 2001,  with  closing  subject to funding of the May 30, 2001 new
equity  issuance and  approval  from the Senior  Credit  Facility  lenders,  the
Company acquired all of the capital stock of FortuneLinx,

<PAGE>


Inc.,  for shares of the  Company's  Class "A" Common  stock  equal to 6% of the
Company's Common Stock on a fully diluted basis. Of the 6%, 3% was issued on May
30,  2001,  and  the  remaining  3% will  be  issued  twelve  months  after  the
acquisition  date if certain  financial  performance  objectives  are  achieved.
Additionally, options were issued to the sellers allowing them to purchase up to
1% of the  Company's  Class  "A"  Common  Stock on a fully  diluted  basis at an
exercise  price of $2,000 per share.  In  conjunction  with the closing,  a note
payable to a FortuneLinx shareholder in the principal amount of $780,000 will be
repaid plus accrued interest.


Equity Offering and Senior Credit Facility Amendment

     On April 10, 2001,  the  Company's  Board of  Directors  approved a plan to
offer to sell 12,000 shares of the Company's Class "A" Common stock for $750 per
share to the Company's existing  shareholders.  Irrevocable  commitments to fund
this $9  million  of new  equity  were in place  on May 30,  2001  with  funding
scheduled on June 4, 2001.  As part of this offer each  subscribing  shareholder
received their  pro-rata share of warrants equal to 4.5% of the Company's  fully
diluted common stock. The warrants expire on May 30, 2006 and are convertible to
the Company's Class "A" Common Stock at $750 per share.

     On May 30, 2001, and in conjunction  with the commitment  from its existing
shareholders  and other  investors to purchase  12,000  shares of the  Company's
Common  stock for $750 per share,  the  Company and its Senior  Credit  Facility
lenders amended the Company's Senior Credit Facility.  The amendment changed the
requirements and definitions of certain financial covenants through December 31,
2001  and  increased   the  Company's   ability  to  enter  into  capital  lease
arrangements from $2.5 million to $5 million. Additionally, the amendment waived
the Senior Credit Facility Lender's rights to the proceeds from the May 30, 2001
issuance of common stock and waived all  outstanding  defaults  under the Senior
Credit Facility. An amendment fee equal to 0.75% of outstanding commitments,  or
$0.4  million,  was paid to the Senior  Credit  Facility  lenders to effect this
amendment.  Additionally,  the amendment  increased all interest rates under the
Senior Credit Facility by 0.5% (50 basis points).


<PAGE>




<TABLE>
<CAPTION>
                                            EVERCOM, INC.
                                             SCHEDULE II
                           CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS Years
                            Ended December 31, 1998, 1999 and 2000
                                           (In Thousands)

                                                         Additions
                                                         Charged
                                                         to Costs
                                            Beginning    and                        Ending
                    Description             Balance       Expense     Deductions     Balance

<S>       <C>                                <C>           <C>        <C>              <C>
1998      Allowance for doubtful accounts    $ 5,317       $35,670    $ (33,749)       $7,238

1999      Allowance for doubtful accounts    $ 7,238       $43,757    $ (47,402)       $3,593

2000      Allowance for doubtful accounts    $ 3,593       $40,772    $ (39,294)       $5,071


</TABLE>


<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.



<PAGE>


                                    PART III


ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


     The following  table sets forth the names,  ages,  and positions of each of
the directors and officers of Evercom, Inc. (the "Company") as of May 30, 2001:


                 Name              Age                          Position

Richard Falcone                    56   Chairman and Chief Executive Officer
Donald B. Vaello                   54   President and Chief Operating Officer
Keith S. Kelson                    34   Chief Financial Officer, Vice President,
                                        Assistant Secretary, Assistant Treasurer
Todd W. Follmer (1)                42   Director
Gregg L. Engles (4)                43   Director
Richard H. Hochman (1)(3)(4)       55   Director
Jay R. Levine (2)(3)(4)            44   Director
Nina E. McLemore  (2)              55   Director
Bruce I. Raben  (1)                47   Director
David A. Sachs (2)                 41   Director
Roger K. Sallee  (3)               53   Director
Julius E. Talton, Sr.(2)           72   Director
Joseph P. Urso                     47   Director



(1)     Member of the Executive Committee
(2)     Member of the Audit Committee
(3)     Member of the Compensation Committee
(4)     Member of the Finance and Acquisition Committee


     Richard Falcone became Chief Executive Officer in October 2000. Mr. Falcone
was elected  Chairman of the Board on April 5, 2001. Mr. Falcone brings with him
more than 34 years  experience  at AT&T  with  expertise  in  sales,  marketing,
customer service, product management,  information technologies,  operations and
finance.  Among other leadership roles, Mr. Falcone had  responsibility for a $3
billion income statement for the small telecom  business  market,  and managed a
14,000 person service organization  responsible for all business accounts in the
United States.  Prior to joining  Evercom,  Mr. Falcone most recently  served as
Vice  President and General  Manager for the  e-Enabling  AT&T Business  Markets
Organization. Throughout his career Mr. Falcone has received numerous awards and
honors in the telecommunications area and community based organizations. He is a
supporting founder of the National Black Business Council;  was appointed Senior
Executive Corporate Advisory Board of the U.S. Hispanic Chamber of Commerce; and
is the only  corporate  individual  to hold a seat on the Board of the  National
Foundation of Women Business Owners.

     Donald B. Vaello.  Mr. Vaello became President and Chief Operating  Officer
of the Company in April 2000.  Prior to becoming  President and Chief  Operating
Officer, Mr. Vaello served as Chief

<PAGE>


Operating  Officer of the Company beginning in June 1998. From August 1984 until
June 1989,  Mr. Vaello served as Chairman and Chief  Executive  Officer of North
American Intelecom,  a public communications  company that he formed in 1983 and
sold in 1989 to Diamond Shamrock Refining and Marketing,  Inc. After the sale to
Diamond  Shamrock  Refining and  Marketing,  Inc.,  Mr. Vaello served in various
capacities with Diamond North American Intelecom, most recently as President and
Chief Operating Officer.

     Keith S. Kelson.  Mr. Kelson became Chief Financial  Officer in March 2000.
Prior to becoming Chief Financial  Officer,  Mr. Kelson served as Vice President
of  Finance of the  Company  since  April  1998.  Mr.  Kelson  became  Assistant
Secretary and Assistant  Treasurer of the Company in May 1998. From January 1995
until April 1998,  Mr.  Kelson  served as a certified  public  accountant in the
accounting and auditing  services  division of Deloitte & Touche,  LLP. From May
1991 until January  1995,  Mr.  Kelson  served in various  financial  management
capacities with subsidiaries of Kaneb Services Inc.

     Todd Follmer.  Mr. Follmer was elected to the Company's  Board of Directors
in December 1996.  Mr. Follmer served as the Chairman of the Company's  Board of
Directors  from  June  1998  until  November  1998  and as the  Company's  Chief
Executive  Officer  and  President  from June 1998 until  September  1998.  From
November  1997 until June 1998,  Mr.  Follmer  served as Acting Chief  Executive
Officer,  and from December  1996 until June 1998,  Mr.  Follmer  served as Vice
President,  Assistant Secretary, and Assistant Treasurer. Mr. Follmer has been a
principal of Engles,  Urso,  Follmer Capital  Corporation  ("EUF") since January
1996.  From January 1993 until December 1995, Mr. Follmer served as President of
Gulf Capital Partners Inc., a merchant banking firm.

     Gregg Engles. Mr. Engles was elected to the Company's Board of Directors in
December  1996.  Mr. Engles has been a principal of EUF since January 1996.  Mr.
Engles  serves as  Chairman  of the Board and Chief  Executive  Officer of Suiza
Foods  Corporation,  a position he has held since October  1994.  Mr. Engles has
also served in various senior management  positions with certain subsidiaries of
Suiza Foods since 1988.  In  addition,  Mr.  Engles has served as  President  of
Kaminski Engles Capital Corporation  ("KECC") since May 1988 and as President of
Engles  Management  Corporation  ("EMC") since February  1993.  KECC and EMC are
investment banking and consulting firms. Mr. Engles is a director of Electrolux,
Booth Creek, Ltd., Independent Packaging, L.P., and Texas Capital Bank.

     Richard H.  Hochman.  Mr.  Hochman  was elected to the  Company's  Board of
Directors  in December  1996.  Mr.  Hochman has served as the Chairman of Regent
Capital Management  Corporation,  a private investment firm, since January 1995.
From 1990 to December 1994, Mr. Hochman was a Managing  Director of PaineWebber,
Inc., Corporation and RABCO Enterprises.

     Jay R. Levine.  Mr. Levine was elected to the Company's  Board of Directors
in December 1996. Since April 1997, Mr. Levine has served as a Managing Director
of CIBC World Markets Corp., an investment  banking firm. From September 1996 to
May 1997,  Mr.  Levine served as President of PPMJ,  Inc., a private  consulting
firm. From 1990 until June 1996, Mr. Levine served as a senior  executive in the
Morningside and Springfield Group, a private investment company. Mr. Levine is a
director of Aircraft Service  International Group, Inc.,  Consolidated  Advisors
Limited, L.L.C., and Heating Oil Partners, L.P.

     Nina McLemore. Ms. McLemore was elected to the Company's Board of Directors
in  December  1996.  Ms.  McLemore  has been the  President  of  Regent  Capital
Management Corp.,  since January 1995. From 1980 until

<PAGE>


1993, Ms. McLemore served as founder and President of Liz Claiborne  Accessories
and was a member of the Policy  Committee of Liz Claiborne  Inc. She is chair of
the  National  Foundation  for Women  Business  Owners and is a Board  member of
Danskin Inc., and Robb & Stucky, Inc.

     Bruce I. Raben.  Mr. Raben was elected to the Company's  Board of Directors
in  December  1996.  Since  February  1996,  Mr.  Raben has served as a Managing
Director of CIBC World Markets  Corp.,  an investment  banking firm.  From March
1990 to February  1996,  Mr. Raben served as a Managing  Director of Jefferies &
Co., an investment banking firm.

     David A. Sachs.  Mr. Sachs was elected to the Company's  Board of Directors
in  December  1996.  Since July 1994,  Mr.  Sachs has been a  principal  of Onyx
Partners,  Inc., a merchant  banking firm, and since October 1997, Mr. Sachs has
been a Managing  Director of Ares  Management,  L.P., an  investment  management
firm. From October 1990 until June 1994, Mr. Sachs was employed at TMT-FW, Inc.,
an affiliate of Taylor & Co., a private investment management firm. Mr. Sachs is
a director of Terex Corporation.

     Roger K. Sallee. Mr. Sallee was elected to the Company's Board of Directors
in December 1996. Mr. Sallee founded  Ameritel and served as its Chief Executive
Officer from July 1991 until December 1996. Mr. Sallee is Chairman and President
of Ozark Shores Water Company.

     Joseph P. Urso. Mr. Urso was elected to the Company's Board of Directors in
December  1996. Mr. Urso has served as President and has been a principal of EUF
since January 1995.  Since April 1998, Mr. Urso has served as Chairman and Chief
Executive  Officer of Electrolux  LLC. Mr. Urso was a shareholder  of Stutzman &
Bromberg, P.C., from 1983 until May 1995.

     Julius E.  Talton,  Sr. Mr.  Talton was elected to the  Company's  Board of
Directors in December  1996.  From  December  1996 until June 1998,  Mr.  Talton
served as Chairman of the Board and President of the Company. Mr. Talton founded
Talton Telecommunications and served as its Chairman of the Board, President and
Chief  Executive  Officer from 1973 until  December  1996.  Mr. Talton served as
President of Talton  Outdoor  Advertising  from 1976 until  November  1996.  Mr.
Talton was President and Chief Executive Officer of Talton Broadcasting  Company
from 1961 until 1984.

     The Company's  Certificate of Incorporation  divided the Board of Directors
into two classes,  the "Class A/B Directors"  and the "Class B Directors",  with
each class serving a one-year term.  The size of the Board of Directors  depends
on the aggregate  percentage  ownership of all outstanding  Common Stock held by
Gregg  L.  Engles,  Joseph  P.  Urso,  Todd W.  Follmer,  and  their  respective
affiliates  (the  "EUF  Holders")  and Onyx  Talton  Partners,  L.P.  and  Sachs
Investment Partners and their respective affiliates (the "Onyx Holders").

     The size of the Company's  Board of Directors is currently  eleven members,
with the holders of the Class A Common Stock and Class B Common  Stock  entitled
to elect  six  Class  A/B  Directors  and the  holders  of Class B Common  Stock
entitled  exclusively  to elect five Class B Directors.  The Class A/B Directors
are Richard H. Hochman,  Jay R. Levine,  Nina E. McLemore,  Bruce I. Raben,  and
Julius E.  Talton,  Sr.  The Class B  Directors  are  Gregg L.  Engles,  Todd W.
Follmer, David A. Sachs, Roger K. Sallee and Joseph P. Urso.

     Each Class A/B  Director  is  entitled,  at all  times,  to one vote on any
matter voted on by the Board of Directors. The number of votes that each Class B
Director is entitled to on any given  matter  voted on by the Board of Directors
depends on the aggregate  percentage

<PAGE>


ownership of all  outstanding  Common Stock held by the EUF Holders and the Onyx
Holders.  Each Class B Director is currently  entitled to a 0.6 director vote on
any  matter  voted  on by the  Board  of  Directors,  resulting  in the  Class B
Directors having an aggregate of three (3) director votes as a class. As the EUF
Holders'  and the  Onyx  Holders'  ownership  of the  outstanding  Common  Stock
decreases,  the number of Class B Directors  that the EUF Holders have the right
to  designate,  the  aggregate  number of votes  held by the  remaining  Class B
Directors, and the size of the Company's Board of Directors decrease (the number
of Class A/B Directors increases), all as set forth in the Company's Certificate
of Incorporation and the Shareholders Agreement (as defined). Under the terms of
the  Certificate of  Incorporation  and the  Shareholders  Agreement,  the total
number of votes on the Board of Directors will remain at nine.


<PAGE>


ITEM 11.       EXECUTIVE COMPENSATION

Summary Compensation Table

     The following table sets forth annual cash compensation paid or accrued for
the Company's Chief Executive Officer and its other Executive Officers receiving
total salary and bonus in excess of $100,000 for the fiscal years ended December
31, 2001, 1999 and 1998.

<TABLE>
<CAPTION>




                                                                                     Long-Term
                                                                          Other     Compensation     All
                                                                          Annual      Shares        Other
                                                                       Compensation Underlying   Compensation
Name and Principal Position            Year   Salary ($)     Bonus ($)    ($) (1)    Options (#)      ($)

<S>                                    <C>    <C>        <C>       <C>     <C>         <C>
Richard Falcone (2)
  Chief Executive Officer
                                       2000    69,231        --                      1,200
                                       1999        --        --
                                       1998        --        --

Dennis Whipple (2)
     Chief Executive Officer
                                       2000   107,958        --
                                       1999   300,000   750,000                        125
                                       1998    95,577    75,000                        500

Terry C. Matlack (2)
     Interim Chief Executive Officer
                                       2000   156,692   140,000                        400
                                       1999        --        --
                                       1998        --        --

Donald B. Vaello (3)
     Chief Operating Officer
                                       2000   270,288        --                        100
                                       1999   200,000   150,000                         50
                                       1998   106,153    80,000    18,749  (4)         200

Keith S. Kelson (5)
     Chief Financial Officer
                                       2000   116,211        --
                                       1999   100,000    40,000
                                       1998    68,205    40,000                         50
</TABLE>

--------

     (1)  Unless  otherwise  indicated,  the aggregate  value of perquisites and
          other  personal  benefits does not exceed the lesser of $50,000 or 10%
          of the total annual  salary and bonus  report for the named  executive
          officer.
     (2)  Effective in April 2000,  Mr.  Whipple  resigned as Chairman and Chief
          Executive  Officer of the Company.  Terry  Matlack was employed by the
          Company  in April  2000 to serve as Interim  Chief  Executive  Officer
          effective  April 12, 2000.  Richard  Falcone  became  Chief  Executive
          Officer on October 9, 2000.
     (3)  Appointed  President and Chief Operating  Officer  effective April 12,
          2000. Appointed Chief Operating Officer effective June 26, 1998.
     (4)  Consisted of payment of closing costs on sale of residence.

<PAGE>


     (5)  Appointed Chief Financial Officer effective March 24, 2000.  Appointed
          Vice  President  of  Finance,   Assistant  Treasurer,   and  Assistant
          Secretary effective April 27, 1998.


<PAGE>


Option Grants

     During  2000,  options to purchase an  aggregate  of 1,937 shares of Common
Stock at an  exercise  price of $2,000 to $6,000  per share  were  granted.  The
following table provides information regarding stock options granted during 2000
to the Named Executive Officers.

<TABLE>
<CAPTION>



                                      Option Grants During 2000



                                              % of Total
                               Number of       Options                               Potential Realizable
                               Securities      Granted                                 Value at Assumed
                               Underlying    to Employees      Exercise               Annual Rates of Stock
                                Options         During         Price      Expiration  Price Appreciation for
Name                          Granted (#)        2000        ($/Share)      Date         Option Term (1)
                                                                                         5%          10%


<S>                             <C>            <C>         <C>             <C>       <C>          <C>
Richard Falcone                 1,200          61.9%       $2,000-$6,000   10/9/10   1,509,347    3,824,982

Terry C. Matlack                  400          20.6%        $2,000          4/4/05     503,116    1,274,994

Donald B. Vaello                  100           5.2%        $2,000         4/15/10     125,779      318,749


</TABLE>

----------

     (1)  The  5% and  10%  assumed  annual  rates  of  compounded  stock  price
          appreciation  are mandated by the rules of the Securities and Exchange
          Commission.  The actual value,  if any, that an executive  officer may
          realize will depend on the excess of the stock price over the exercise
          price on the date the option is  exercised.  There is no assurance the
          value realized by an executive  officer will be at or near the assumed
          5% or 10% levels.


Aggregated Options Exercised in 2000 and Year-End Option Values

     During 2000, none of the Named Executive Officers exercised any options.

Employment Agreements and Other Arrangements

     Richard Falcone joined Evercom as Chief Executive  Officer in October 2000.
Mr. Falcone's  written  employment  agreement with the Company provides that Mr.
Falcone  receives  an annual  salary of  $300,000  per year and is entitled to a
bonus of up to 100% of his base salary to be earned based on the  achievement of
certain objectives. Additionally, the employment agreement awarded 1,200 options
to purchase common stock of the Company to Mr. Falcone; 700 of these options are
exercisable at $2,000 per share, 200 are exercisable at $3,000 per share and 300
are exercisable at $6,000 per share. The options vest over three years. The term
of this employment  agreement is from October 9, 2000 to January 1, 2003. If the
Company terminates Mr. Falcone without cause, Mr. Falcone is entitled to payment
equal to his  annual  base  salary  and  benefits  and a  pro-rated  bonus.  The
employment  agreement also contains  non-competition  provisions  that cover the
Company's  existing markets and expansion  markets that apply during the term of
the  agreement  and  for a  period  of one  year  after  expiration  or  earlier
termination of the agreement.

     Terry C. Matlack joined the Company as interim Chief  Executive  Officer in
April 2000. Mr. Matlack's letter of employment provided that Mr. Matlack receive
an  annual  base  salary  of  $210,000  and would

<PAGE>


be entitled to three months severance if terminated by the Company.  Mr. Matlack
was also  eligible  to  receive  a bonus of up to  $450,000  in 2000 if  certain
objectives were achieved.  Pursuant to his letter of employment, Mr. Matlack was
awarded  options to purchase  400 shares of Common Stock at a per share price of
$2,000. Mr. Matlack left the Company in October of 2000.

     Donald B.  Vaello  joined the  Company as Chief  Operating  Officer in June
1998. Mr. Vaello became President and Chief Operating Officer in April 2000. The
Company entered into a written employment  agreement with Mr. Vaello on July 26,
1998,  which was amended on April 1, 2000. The initial term expires on March 31,
2003, with successive  one-year  renewals  thereafter  unless notice is given by
either party not less than 90 days immediately preceding the commencement of the
renewal  period.  Mr.  Vaello  receives an annual base salary of  $275,000.  Mr.
Vaello is also  eligible for an annual bonus  generally  equal to an  additional
amount  up to  100% of his  base  salary  based  upon  achieving  pre-determined
performance objectives.  This bonus may be in excess of such amount in the event
such objectives are exceeded. In addition, in 1999 and 1998, Mr. Vaello received
options to purchase 50 shares and 200 shares, respectively, of Common Stock at a
price of  $2,000  per  share.  In  conjunction  with  the  April  2000  contract
amendment,  Mr. Vaello was awarded  options to purchase an additional 100 shares
of the  Company's  Common Stock at a strike price equal to the fair value of the
stock as of the grant date.  The employment  agreement  provides for a severance
payment  equal to one year's  base  salary if Mr.  Vaello is  terminated  by the
Company without cause.  The employment  agreement also contains  non-competition
provisions that cover the Company's  existing markets and expansion markets that
apply  during  the  term of the  agreement  and for a period  of one year  after
expiration or earlier termination of the agreement.

     Keith S. Kelson  joined the Company as Vice  President  of Finance in April
1998 and was appointed Chief Financial Officer in March 2000. Mr. Kelson's offer
letter  specifies that he is eligible for an annual bonus  generally equal to an
additional  amount of up to 40% of his base  salary  based  upon  pre-determined
performance  objectives.  This bonus may actually be in excess of such amount in
the event  such  objectives  are  exceeded.  The  offer  letter  provides  for a
severance payment equal to one year's base salary if Mr. Kelson is terminated by
the Company without cause.

     Dennis  L.  Whipple  joined  the  Company  as Chief  Executive  Officer  in
September 1998. The Company entered into a written employment agreement with Mr.
Whipple that had an initial term expiring on December 31, 2001,  with successive
one-year  renewals  thereafter  unless notice was given by either party not less
than 90 days immediately  preceding the commencement of the renewal period.  Mr.
Whipple received an annual base salary of $300,000,  and was entitled to receive
a guaranteed  bonus of $150,000 for 1999. Mr.  Whipple's target annual bonus was
100%  of  his  base  salary  and  could  be  earned  upon  the   achievement  of
pre-determined performance objectives. This bonus could actually be in excess of
such amount,  up to a maximum of 200% of Mr. Whipple's base salary, in the event
acquisition  targets and the Company achieved  certain  operating  results.  Mr.
Whipple  received a $750,000 bonus for 1999. In addition,  in 1998 and 1999, Mr.
Whipple received options to purchase 500 shares and 125 shares respectively,  of
Common  Stock at a per  share  price  of  $2,000,  subject  to  certain  vesting
requirements.  If Mr. Whipple was terminated by the Company  without cause,  the
employment  agreement  provided  for a  severance  payment  equal  to  the  cash
compensation paid by the Company to Mr. Whipple in the year prior to the year in
which his employment  was  terminated or not to extended,  with the exception of
1999, in which Mr. Whipple would receive a severance payment of $1.2 million if

<PAGE>


terminated  without cause. The employment  agreement  contained  non-competition
provisions  that covered the Company's  existing  markets and expansion  markets
that applied during the term of the agreement and for a period of one year after
the expiration or earlier  termination of the  agreement.  Mr. Whipple  resigned
effective April 2000.


Stock Option Plans

     The  Company's  Stock  Option  Plan  (the  "Stock  Option  Plan")  has been
established  to provide  the  officers  and  employees  of the  Company a strong
incentive to  contribute  to the success of the Company by granting them options
to  acquire  Common  Stock.  The  Stock  Option  Plan  is  administered  by  the
Compensation  Committee for the Board of Directors.  The Compensation  Committee
has the authority to determine the persons employed by the Company who are to be
granted  options  under the Stock Option Plan,  the number of shares  subject to
each option,  the date of the grant of each option,  the option  exercise price,
whether the option  granted is to be treated as an  incentive  stock option or a
non-statutory stock option, the vesting period, and such other determinations as
may be appropriate or necessary for the administration of the Stock Option Plan.

     Only employees of the Company may be granted options under the Stock Option
Plan.  The option  exercise  price of each option granted under the Stock Option
Plan may not be less than 100% of the fair market  value of the Common  Stock on
the date of grant.  In the event of a Change of Control (as defined in the Stock
Option  Plan),   options  issued  pursuant  to  the  Stock  Option  Plan  become
immediately  exercisable  for a period  of 30 days  following  such  event.  Any
options  not  exercised  during the 30 day period are treated as if no Change in
Control had occurred and will be governed by the terms of their original grant.

     The  Stock  Option  Plan may be  abandoned  or  terminated  by the Board of
Directors at any time. Such abandonment or termination,  however, will not alter
or  impair  any  rights  under  any  options  granted  prior to  termination  or
abandonment.  Unless previously terminated, the Stock Option Plan will expire on
January 1, 2008.

     The Company has reserved 2,000 shares of Common Stock for issuance pursuant
to the Stock Option Plan.  As of December  31,  2000,  options to acquire  3,046
shares had been granted to the Company's  employees.  The option exercise prices
for each of these options is $2,000 to $6,000 per share. These options generally
provide for a ratable  vesting over a three to five year period  commencing upon
the  employee's  initial  employment  with the  Company.  The options  generally
expire,  if not previously  exercised,  upon the earlier of ten years  following
their date of grant or three months following the option holder's termination of
employment with the Company.  If any options  terminate or expire without having
been exercised,  the shares not purchased under such options again are available
for issuance under the Stock Option Plan.

Limitation of Liability and Indemnification

     The Company's  Certificate of Incorporation  provides,  consistent with the
provisions of the Delaware General Corporation Law ("DGCL"), that no director of
the Company will be personally  liable to the Company or any of its stockholders
for monetary  damages arising from the director's  breach of fiduciary duty as a
director.  This does not apply, however, with respect to any action for unlawful
payments of dividends, stock purchases or redemptions,  nor does it apply if the
director: (i) has breached his or her duty of loyalty to the Company

<PAGE>


and its stockholders;  (ii) does not act or, in failing to act, has not acted in
good faith;  (iii) has acted in a manner involving  intentional  misconduct or a
knowing  violation of law or, in failing to act, has acted in a manner involving
intentional misconduct or a knowing violation of the law; or (iv) has derived an
improper  personal  benefit.  The provisions of the Certificate of Incorporation
eliminating  liability  of  directors  for  monetary  damages  do not affect the
standard  of conduct to which  directors  must  adhere,  nor do such  provisions
affect the availability of equitable  relief.  In addition,  such limitations on
personal  liability do not affect the  availability  of monetary  damages  under
claims based on federal law.

     The  Company's  bylaws  provide for  indemnification  of its  officers  and
directors to the fullest extent permitted by the DGCL.


<PAGE>


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth the  beneficial  ownership of the Company's
capital stock as of March 31, 2001 by (i) each stockholder  known by the Company
to  beneficially  own more  than 5% of any  class of the  Company's  outstanding
capital stock;  (ii) each director of the Company;  (iii) each executive officer
named in the  Summary  Compensation  Table;  (iv)  all  executive  officers  and
directors  as a group.  The table does not reflect the May 30, 2001  issuance of
Class "A" Common Stock.


<TABLE>
<CAPTION>


                                   Number of                Number of                  Shares of               Number of
                                  Shares  of                Shares of                    First                  Shares of
                                    Class A                  Class B                   Preferred                Senior
                                    Common     Percent of    Common     Percent of     Series  A   Percent of  Preferred Percent of
Name of Beneficial Owner          Stock(1)(2)   Class (2)   Stock (1)    Class(2)      Stock (1)   Class (2)   Stock (1)  Class (2)

<S>                               <C>            <C>             <C>     <C>           <C>            <C>     <C>          <C>
Julius E. Talton (3) ..            2,062.5       12.9%                                                         2,500.0      42.2%
Todd W. Follmer (4)(15)            1,536.2        8.7%           100      25.0%          422.9         8.5%
Gregg L. Engles (4)(16)            1,791.1       10.1%           100      25.0%          527.8        10.6%
Richard H. Hochman (5)             2,426.8       14.7%                                   426.8         8.5%
Jay R. Levine (6) .....            7,825.1       41.1%                                 1,889.6        37.8%
Nina E. McLemore (7) ..            2,426.8       14.7%                                   426.8         8.5%
Bruce I. Raben (6) ....            7,825.1       41.1%                                 1,889.6        37.8%
David A. Sachs (8) ....            2,023.0       11.4%           100      25.0%           53.4         1.1%
Roger K. Sallee (23) ..               22.0           *                                                            61.7       1.0%
Joseph P. Urso (4)(14)             1,163.3        6.8%           100      25.0%           50.0         1.0%
CIBC (9) ..............            7,825.1       41.1%                                 1,889.6        37.8%
Regent Capital Partners, L.P.(10)  2,426.8       14.7%                                   426.8         8.5%
Onyx Talton Partners,L.P. (11)       969.6        5.7%           100      25.0%
Terry C. Matlack (22) .              425.0        2.6%
Dennis L. Whipple (17)               312.5        1.9%
Richard C. Green, Jr ..              233.0        1.5%                                                           310.8       5.3%
Robert K. Green .......              233.0        1.5%                                                           310.8       5.3%
William M. Ohland (12)               774.0        4.8%
Donald B. Vaello (19) .              150.0           *
Keith S. Kelson (20) ..               50.0           *
Ares Leveraged Investment Fund (13)  750.0        4.7%                                   750.0         1.5%
Julius E. Talton, Jr ..            1,237.5        7.7%                                                         1,500.0      25.3%
James E. Lumpkin  .                  825.0        5.1%                                                         1,000.0      16.9%
All executive officers/directors
 as a group (14 persons)(18)      18,420.8       71.3%           400     100.0%        4,120.5        82.4%    2,561.7      43.2%
 .

</TABLE>

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

* Less than 1.0%

<PAGE>



     (1)  Beneficial ownership is determined in accordance with the rules of the
          Securities  and  Exchange  Commission.  Except  as  indicated  in  the
          footnotes to this table and subject to community  property laws, where
          applicable,  each of the  stockholders  named in this  table  has sole
          voting  and  investment  power with  respect  to the  shares  shown as
          beneficially  owned,  unless  otherwise   indicated.   The  beneficial
          ownership  information  does not reflect  shares  issued in connection
          with the FortunLinx,  Inc. transaction,  which closed on May 30, 2001,
          or shares and  warrants  issued in  connection  with the common  stock
          offering which closed on May 30, 2001.
     (2)  Percentages are based on the total number of shares outstanding at May
          30, 2001,  plus the total number of  outstanding  options held by such
          person that are exercisable within 60 days of such date and securities
          exchangeable into the Company's common stock,  however, are not deemed
          outstanding for purposes of computing the percentage  ownership of any
          other person.
     (3)  The address for this stockholder is 801 Alabama Avenue, Selma, Alabama
          36701.
     (4)  The address for each of these  stockholders is 5956 Sherry Lane, Suite
          1575, Dallas, Texas 75225.
     (5)  Includes  2,000 shares of Common  Stock and warrants to acquire  426.8
          shares of Common  Stock  held by Regent  Capital  Partners,  L.P.  and
          Regent  Capital  Equity  Partners,  L.P. The warrants are  exercisable
          within 60 days. Also included 426.8 shares of First Preferred Series A
          stock held by Regent Capital  Partners,  L.P. Mr. Hochman,  who is the
          chairman of Regent Capital  Management  Corp.,  an affiliate of Regent
          Capital  Partners,  exercises voting and investment power with respect
          to such shares. Mr. Hochman's address is 505 Park Avenue,  17th Floor,
          New York, New York 10022.
     (6)  Includes 4,850 shares of Common Stock and warrants to acquire  2,975.2
          shares of Common  Stock held by CIBC.  The  warrants  are  exercisable
          within 60 days. Messrs. Levine and Raben are employees of an affiliate
          of CIBC. Such persons' address is 425 Lexington Avenue,  New York, New
          York 10017. Messrs.  Levine and Raben disclaim beneficial ownership of
          such shares.
     (7)  Includes  2,000 shares of Common  Stock and  warrants to  acquire426.8
          shares of Common  Stock  held by Regent  Capital  Partners,  L.P.  The
          warrants are exercisable within 60 days. Also includes 426.8 shares of
          First  Preferred  series A stock  held by  Regent  Capital  Management
          Corp., an affiliate of Regent Capital  Partners,  exercises voting and
          investment power with respect to such shares.  Ms. McLemore's  address
          is 505 Park Avenue, 17th Floor, New York, New York 10022.
     (8)  Consists  of 250  shares  of  Common  Stock  held by Sachs  Investment
          Partners,  warrants to acquire  969.6  shares of Common  Stock held by
          Onyx Talton Partners,  L.P.,  warrants to acquire 750 shares of Common
          Stock held by Ares  Leveraged  Investment  Fund,  a warrant to acquire
          53.4 shares of Common  Stock held by Sachs  Investment  Partners,  100
          shares of Class B Common Stock held by Onyx Talton Partners, L.P., 750
          shares of First Preferred series A Common Stock held by Ares Leveraged
          Investment  Fund, and 53.4 shares of First  Preferred  Series A Common
          Stock held by Sachs Investment Partners.  The warrants are exercisable
          within 60 days. Mr. Sachs is a Managing  Director of Ares  Management,
          and exercises voting and investment power with respect to such shares.
          Mr. Sachs disclaims  beneficial ownership of the 100 shares of Class B
          Common Stock held by Onyx Talton Partners, L.P. Mr. Sachs is a general
          partner  of  Sachs  Investment  Partners,  and  exercises  voting  and
          investment power with respect to such shares. Mr.

<PAGE>


          Sachs' address is 1999 Avenue of the Stars, Suite 1900, Los Angeles,
          California 90067.
     (9)  Includes 4,850 shares of Common Stock and warrants to acquire  2,975.2
          shares of Common Stock held by CIBC. The warrants are exercisable with
          in 60 days.  CIBC's address is 161 Bay Street,  P.O. Box 500,  M51258,
          Toronto,  Canada.  Jay R. Bloom,  Andrew R. Heyer, and Dean C. Kehler,
          employees of an affiliate of CIBC, share the power to vote and dispose
          of the listed securities.
     (10) Includes  2,000 shares of Common  Stock and warrants to acquire  426.8
          shares of Common  Stock  held by Regent  Capital  Partners,  L.P.  and
          Regent  Capital Equity  Partners,  L.P. an affiliate of Regent Capital
          Partners.  The above warrants are exercisable  within 60 days.  Regent
          Capital  Partners'  address is 505 Park Avenue,  17th Floor, New York,
          New York 10022.
     (11) Includes  969.6  shares of Common Stock  subject to warrants  that are
          exercisable  within 60 days. Onyx Talton  Partners,  L.P.'s address is
          9595 Wilshire Blvd., Suite 700, Hollywood, California 90212.
     (12) Consists of shares issued to STC as part of the purchase  price in the
          STC Acquisition.  Mr. Ohland owns all of the outstanding capital stock
          of STC.
     (13) Includes  750  shares of Common  Stock  subject to  warrants  that are
          exercisable  within 60 days. Ares Leveraged  Investment Fund's address
          is 1999  Avenue of the Stars,  Suite  1900,  Los  Angeles,  California
          90067.
     (14) Includes  1,163.3  shares of Common Stock subject to warrants that are
          exercisable within 60 days.
     (15) Includes  1,536.2  shares of Common Stock subject to warrants that are
          exercisable within 60 days.
     (16) Includes  1,141.1  shares of Common Stock subject to warrants that are
          exercisable within 60 days.
     (17) Includes 312.5 shares of Common Stock subject to options issued to Mr.
          Whipple  under the  Company's  stock option plan that are  exercisable
          within 60 days.
     (18) Includes  183.4  shares of Common Stock  subject to options  issued to
          certain  directors  and  executive  officers of the  Company  that are
          exercisable  within 60 days and 9,515.4 shares of Common Stock subject
          to warrants that are exercisable within 60 days.
     (19) Includes 150 shares of Common Stock  subject to options  issued to Mr.
          Vaello  under the  Company's  stock  option plan that are  exercisable
          within 60 days.
     (20) Includes 50.0 shares of Common Stock subject to options  issued to Mr.
          Kelson  under the  Company's  stock  option plan that are  exercisable
          within 60 days.
     (21) The address  for each of these  stockholders  is 801  Alabama  Avenue,
          Selma, Alabama 36701.
     (22) Includes 400 shares of Common Stock  subject to options  issued to Mr.
          Matlack exercisable within 60 days.
     (23) The address for this  stockholder is P.O. Box 9, Lake Ozark,  Missouri
          65049.


<PAGE>


ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


Certain Relationships and Related Transactions


        Consulting and Strategic Services Agreement

     In   connection   with   the    acquisitions   of   Ameritel   and   Talton
Telecommunications, the Company entered into a Consulting and Strategic Services
Agreement with EUF Talton, a limited partnership  controlled by Messrs.  Engles,
Urso,  and  Follmer,  pursuant to which the  Company  would pay to EUF Talton an
annual  consulting  fee of $300,000  for an initial  term of three years  ending
December  27,  1999.  Pursuant  to this  agreement,  EUF  Talton  would  provide
management  consulting  services  relating to strategic and  financial  matters,
including acquisitions,  business strategies,  and financial planning. In return
for these  services  EUF Talton was  entitled  to a fee equal to 1% of the gross
acquisition price of any acquisition of assets or stock by the Company, up to an
aggregate maximum of $1.25 million. This agreement was terminated in 1999.


        Consulting and Employment Agreements

     In   connection   with   the    acquisitions   of   Ameritel   and   Talton
Telecommunications,  the Company entered into the consulting agreement described
below. Roger K. Sallee was a former stockholder of Ameritel.

     The consulting  agreement of Roger K. Sallee  provides that Mr. Sallee will
serve as a director of the Company and will perform  such duties  related to the
business conducted by the Company as the Chief Executive Officer or the Board of
Directors  may  designate  from time to time.  The  Consulting  agreement had an
initial term of one year, with successive  one-year  renewal periods  thereafter
unless earlier terminated by the Company or Mr. Sallee. In addition,  Mr. Sallee
will  receive  an  annual  consulting  fee of  $30,000  for each  year  that the
agreement  remains  in  effect.  Mr.  Sallee's  consulting   agreement  contains
non-competition provisions covering the Company's existing markets and expansion
markets  that apply during the term of the  agreement  and for a period of three
years and two years,  respectively,  after the expiration or earlier termination
of the agreement.


        Talton Agreement

     On July 1, 1998,  the  Company  entered  into an  agreement  with Julius E.
Talton,   Sr.,  Julius  E.  Talton,  Jr.  and  James  E.  Lumpkin  (the  "Talton
Agreement").  The Talton  Agreement  provided that Julius  Talton,  Sr.,  Julius
Talton,  Jr.,  and James E. Lumpkin  would  provide  consulting  services to the
Company in  relation to the  Company's  contract  with a major RBOC.  The Talton
Agreement  had a term of one year,  ending on June 30, 1999.  Under the terms of
the Talton  Agreement,  Mr. Talton,  Sr., Mr. Talton,  Jr., and Mr. Lumpkin were
paid 10% of the Profits (a defined in the Talton Agreement) between July 1, 1998
and December 31, 1998 and 5% of the Profits between January 1, 1999 and June 30,
1999 from the Company's contract with a major RBOC.


<PAGE>



        Lease Agreement

     In December 1996, Talton Telecommunications  entered into a lease agreement
(the "Talton Lease") with Mr. Talton for office space located in Selma, Alabama.
The Talton Lease has a five-year term commencing January 1, 1997, with an option
to renew for an  additional  five-year  term.  Under the  Talton  Lease,  Talton
Telecommunications  will  pay  fixed  annual  rent  of  approximately  $109,000,
$118,000, $115,000 $119,000 and $122,000 respectively, for the five years of the
initial term.



<PAGE>


                                               PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
               FORM 8-K

(a)     (1) and (2)          The response to this portion of Item 14 is
                             submitted as a separate section of this report
                             commencing on page 29.

(a)     (3)                  Exhibits

   Exhibit No.                                 Description of Exhibit

     1.1  Asset  Purchase  Agreement,  dated as of August  21,  1997,  among the
          Company,  InVision Telecom,  Inc., and Communications  Central,  Inc.,
          (filed as Exhibit  2.1 to the  Company's  Registration  Statement  No.
          333-33639 and incorporated herein by reference).
     1.2  Contribution  Agreement,  dated as of  December  20,  1996,  among the
          Company,  Richard C. Green, Jr., Robert K. Green, T.R. Thompson, Roger
          K. Sallee,  and certain other  stockholders,  and AmeriTel Pay Phones,
          Inc. (filed as Exhibit 2.2 to the Company's Registration Statement No.
          333-33639 and incorporated herein by reference).
     1.3  Contribution  Agreement,  dated as of  December  20,  1996,  among the
          Company,  Julius  Talton,  Julius  Talton,  Jr.,  and James E. Lumpkin
          (filed as Exhibit  2.3 to the  Company's  Registration  Statement  No.
          333-33639 and incorporated herein by reference).
     1.4  Stock Acquisition Agreement,  dated as of December 20, 1996, among the
          Company,  Richard C. Green, Jr., Robert K. Green, T.R. Thompson, Roger
          K. Sallee,  and certain other  stockholders,  and AmeriTel Pay Phones,
          Inc.,  (filed as Exhibit 2.4 to the Company's  Registration  Statement
          No. 333-33639 and incorporated herein by reference).
     1.5  Stock Acquisition Agreement,  dated as of December 20, 1996, among the
          Company,  Julius E. Talton,  Julius E. Talton,  Jr., James E. Lumpkin,
          Carrie T. Glover, Talton  Telecommunications  Corporation,  and Talton
          Telecommunications  of  Carolina,  Inc.  (filed as Exhibit  2.5 to the
          Company's Registration Statement No. 333-33639 and incorporated herein
          by reference).  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).
     3.1  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 of 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).

<PAGE>


     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, 1996, by and among
          the Company and certain Holders named therein (filed as Exhibit 4.4 to
          the Company's  Registration  Statement No.  333-33639 and incorporated
          herein by reference).
     4.5  Registration  Rights Agreement,  dated as of December 27, 1996, by and
          among the Company and certain  Holders named therein (filed as Exhibit
          4.5  to  the  Company's   Registration  Statement  No.  333-33639  and
          incorporated herein by reference).
     4.6  Shareholders  Agreement,  dated as of December 27, 1996,  by and among
          the Company and certain Persons named therein (filed as Exhibit 4.6 to
          the Company's  Registration  Statement No.  333-33639 and incorporated
          herein by reference).
     4.7  Warrant Agreement,  dated as of December 27, 1996, between the Company
          and CIBC  Wood  Gundy  Ventures,  Inc.  (filed as  Exhibit  4.7 to the
          Company's Registration Statement No. 333-33639 and incorporated herein
          by reference).
     4.8  Warrant Agreement,  dated as of December 27, 1996, between the Company
          and  Gregg  L.  Engles   (filed  as  Exhibit  4.8  to  the   Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     4.9  Warrant Agreement,  dated as of December 27, 1996, between the Company
          and  Gregg  L.  Engles   (filed  as  Exhibit  4.9  to  the   Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     4.10 Warrant Agreement,  dated as of December 27, 1996, between the Company
          and  Gregg  L.  Engles   (filed  as  Exhibit  4.10  to  the  Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     4.11 Warrant Agreement,  dated as of December 27, 1996, between the Company
          and Onyx Talton partners, L.P. (filed as Exhibit 4.11 to the Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     4.12 Warrant Agreement,  dated as of December 27, 1996, between the Company
          and Onyx Talton partners, L.P. (filed as Exhibit 4.12 to the Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     4.13 Warrant Agreement,  dated as of December 27, 1996, between the Company
          and Onyx Talton partners, L.P. (filed as Exhibit 4.13 to the Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     4.14 Warrant Agreement,  dated as of December 27, 1996, between the Company
          and  Joseph  P.  Urso  (filed  as  Exhibit   4.14  to  the   Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     4.15 Warrant Agreement,  dated as of December 27, 1996, between the Company
          and  Joseph  P.  Urso  (filed  as  Exhibit   4.15  to  the   Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).

<PAGE>


     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  4.2 to the  Company's  Quarterly  Report on Form 10-Q for the
          quarter ended March 31, 1999 and incorporated herein by reference).
     10.1 Purchase Agreement, dated as of June 27, 1997, between the Company and
          CIBC  Wood  Gundy  Securities  Corp.  (filed  as  Exhibit  10.1 to the
          Company's Registration Statement No. 333-33639 and incorporated herein
          by reference).
     10.2 Amended and  Restated  Credit  Agreement,  dated as of July 30,  1997,
          among the Company,  Canadian Imperial Bank of Commerce, CIBC Inc., and
          First Source  Financial  LLP (filed as Exhibit  10.2 to the  Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     10.3 Asset Purchase Agreement,  dated as of May 9, 1997, among the Company,
          Security Telecom Corporation,  and William H. Ohland (filed as Exhibit
          10.3  to  the  Company's  Registration  Statement  No.  333-33639  and
          incorporated herein by reference).
     10.4 First  Amendment  to Asset  Purchase  Agreement,  dated as of June 21,
          1997, among the Company, Security Telecom Corporation,  and William H.
          Ohland (filed as Exhibit 10.4 to the Company's  Registration Statement
          No. 333-33639 and incorporated herein by reference).
     10.5 Consulting  Agreement,  dated as of  December  27,  1996,  between the
          Company and James E. Lumpkin  (filed as Exhibit 10.6 to the  Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     10.6 Consulting  Agreement,  dated as of  December  27,  1996,  between the
          Company and Julius E. Talton  (filed as Exhibit 10.7 to the  Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     10.7 Consulting and Strategic Services Agreement,  dated as of December 27,
          1996, between the Company and EUF Talton,  L.P. (filed as Exhibit 10.8
          to the Company's Registration Statement No. 333-33639 and incorporated
          herein by reference).
     10.8 Employment  Agreement,  dated as of  December  27,  1996,  between the
          Company and Julius E. Talton  (filed as Exhibit 10.9 to the  Company's
          Registration  Statement  No.  333-33639  and  incorporated  herein  by
          reference).
     10.9 Employment  Agreement,  dated as of  November  17,  1997,  between the
          Company  and  Jeffrey  D.  Cushman  (filed  as  Exhibit  10.12  to the
          Company's Registration Statement No. 333-33639 and incorporated herein
          by reference).

<PAGE>



     10.10Employment  Agreement,  dated as of June 26, 1998, between the Company
          and Donald B. Vaello (filed as Exhibit  10.10 to the Company's  Annual
          Report  on  Form  10-K  for the  year  ended  December  31,  1998  and
          incorporated herein by reference).
     10.11Letter Agreement,  dated as of April 17, 1998, between the Company and
          Keith S.  Kelson  (filed as Exhibit  10.1 to the  Company's  Quarterly
          Report on Form  10-Q for the  quarter  ended  September  30,  1998 and
          incorporated herein by reference).
     10.12Employment  Agreement,  dated as of  September  7, 1998,  between  the
          Company and Dennis L. Whipple (filed as Exhibit 10.12 to the Company's
          Annual  Report on Form 10-K for the year ended  December  31, 1998 and
          incorporated herein by reference).
     10.13First Amendment to Employment Agreement, dated as of October 21, 1998,
          between  Company and Jeffrey D. Cushman (filed as Exhibit 10.13 to the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          1998 and incorporated herein by reference).
     10.14Talton  Agreement,  dated as of July 1, 1998,  among the  Company  and
          Talton  Network  Services,  Inc.,  Julius E. Talton Jr.,  and James E.
          Lumpkin  (filed as Exhibit 10.2 to the Company's  Quarterly  Report on
          Form 10-Q/A for the quarter ended September 30, 1998 and  incorporated
          herein by reference).
     10.15Agreement,  dated as of April 15,  1998,  between the  Company  (doing
          business  as   Correctional   Billing   Services)  and   [Confidential
          information  set  forth  here  has  been  filed  separately  with  the
          Securities  and  Exchange   Commission  under  Rule  24b-2  under  the
          Securities  Exchange  Act of  1934]  (filed  as  Exhibit  10.15 to the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          1998 and incorporated herein by reference).
     10.16Amendment No. 2 to Second Amended and Restated Credit Agreement, dated
          as of March 3, 1999,  among the  Company,  Canadian  Imperial  Bank of
          Commerce,  and lenders  named  therein  (filed as Exhibit  10.1 to the
          Company's  Quarterly  Report on Form 10-Q for the quarter  ended March
          31, 1999 and incorporated herein by reference).
     10.17Amendment to Employment  Agreement,  dated as of June 1, 1999, between
          the  Company  and  Dennis L.  Whipple  (filed as  Exhibit  10.1 to the
          Company's Quarterly Report on form 10-Q for the quarter ended June 30,
          1999 and incorporated herein by reference).
     10.18Amendment No. 3 to Second Amended and Restated Credit Agreement, dated
          as of September  13, 1999,  among the Company,  certain  lenders named
          therein, and Canadian Imperial Bank of Commerce (filed as Exhibit 10.1
          to the Company's  Quarterly  Report on Form 10-Q for the quarter ended
          September 30, 1999 and incorporated herein by reference).
     10.19Terry C. Matlack  Letter of Employment  (filed as Exhibit 10.19 to the
          Company's Annual Report on Form 10-K/A for the year ended December 31,
          1999 and incorporated herein by reference).
     10.20Amendment  No.1 to Employment  Agreement of Donald B. Vaello (filed as
          Exhibit  10.20 to the  Company's  Annual Report on Form 10-K/A for the
          year ended December 31, 1999 and incorporated herein by reference).

<PAGE>


     10.21Amendment No. 4 to Second Amended and Restated Credit Agreement, dated
          as of August 9, 2000,  among the  Company and  certain  lenders  named
          therein and Canadian Imperial Bank of Canada (filed as Exhibit 10.1 to
          the Company's Quarterly Report on Form 10-Q for the quarter ended June
          30, 2000 and incorporated herein by reference).
     10.22* Richard Falcone Letter of Employment
     12.1* Computation of Ratio of Earnings to Fixed Charges.
     21.1* Subsidiaries of the Company.
     27.1* Financial Data Schedule.

----------------------------
*                 Filed herewith.

(b)     Reports on Form 8-K
           None


(c)     Exhibits - The response to this portion of Item 14 is submitted as a
        separate section of this report commencing on page 79.

(d)     Financial Statement Schedules - The response to this portion of of Item
        14 is submitted as a separate section of this report on page 37.


     The agreements  set forth above  describe the contents of certain  exhibits
thereunto  that  are  not  included.  Such  exhibits  will be  furnished  to the
Commission upon request.



<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of Section  13 or 15 (d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  Evercom, Inc.

                             By: /s/ Richard Falcone
                                 Richard Falcone
                             Chief Executive Officer

Date:  June 1, 2001

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following  persons on behalf of the Registrant and
in the capacities indicated.

      Signature                            Title                    Date
/s/ Richard H. Hochman                   Director                 June 1, 2001
    Richard H. Hochman

/s/ Nina E. McLemore                     Director                 June 1, 2001
    Nina E. McLemore

/s/ Julius E. Talton, Sr.                Director                 June 1, 2001
    Julius E. Talton, Sr.

/s/ David A. Sachs                       Director                 June 1, 2001
    David A. Sachs

/s/ Todd W. Follmer                      Director                 June 1, 2001
    Todd W. Follmer

/s/ Bruce I. Raben                       Director                 June 1, 2001
    Bruce I. Raben

/s/ Roger K. Sallee                      Director                 June 1, 2001
    Roger K. Sallee

/s/ Joseph P. Urso                       Director                 June 1, 2001
    Joseph P. Urso

/s/ Jay R. Levine                        Director                 June 1, 2001
    Jay R. Levine

/s/ Gregg L. Engles                      Director                 June 1, 2001
    Gregg L. Engles

/s/ Keith S. Kelson                      Chief Financial          June 1, 2001
    Keith S. Kelson                      Officer, Vice
                                         President, Assistant
                                         Secretary and
                                         Assistant Treasurer



<PAGE>


<TABLE>
<CAPTION>


                                            Exhibit 12.1

                                            Evercom, Inc.
                              Statement Regarding Computation of Ratios
                                 Ratio of Earnings to Fixed Charges
                                           (in thousands)


                                                      Combined
                                                     Predecessors                       The Company
                                                --------------------- -----------------------------------------------

                                                           Eleven      One Month
                                                  Year     Months
                                                 Ended      Ended       Ended         Years Ended December 31,
                                                 Dec 31,    Nov 30,     Dec 31,
                                                  1995      1996         1996      1997     1998     1999     2000
                                                --------------------- -----------------------------------------------
<S>                                             <C>       <C>        <C>        <C>        <C>      <C>       <C>
Earnings
  Income from continuing operations
   before income taxes and
   extraordinary loss ................          $  2,230  $  5,183      ($283)  ($ 12,829) ($25,410)($10,685) ($3,601)

  Interest expense ................                1,360     1,469        612      11,138    19,638   19,458   19,362

  Interest portion of rent
   expense ...........................                87        56          0         129       306      302     396
                                                --------  --------     ------   ---------  -------- --------  -------

  Earnings available for fixed charges ...      $  3,677  $  6,708       $329     ($1,562) ($ 5,466)  $9,075  $16,157
                                                --------  --------     ------   ---------  -------- --------  -------

Fixed Charges:
  Interest expense ................             $  1,360  $  1,469   $    612    $ 11,138  $ 19,638  $19,458 $ 19,362

  Interest portion of rent expense ....               87        56          0         129       306      302      396
                                                --------  --------     ------   ---------  -------- --------  -------

  Total fixed charges ............          .   $  1,447  $  1,525   $    612    $ 11,267  $ 19,944  $19,760  $19,758
                                                --------  --------     ------   ---------  -------- --------  -------

Ratio of earnings to fixed
  charges .........................                  2.5       4.4         --          --        --      --        --
Deficiency of earnings to
  fixed charges ...................                                  $    283    $ 12,829  $ 25,410 $ 10,685 $  3,601

</TABLE>



<PAGE>




                                  Exhibit 21.1


CONSOLIDATED SUBSIDIARIES
Evercom, Inc. and Subsidiaries

     The following  list included  certain  companies that are owned directly by
Evercom, Inc., a Delaware corporation, Irving, Texas, as of December 31, 2000.

     This list included all significant subsidiaries. The place of incorporation
or organization is shown parenthetically. The location of each subsidiary is the
same as Evercom, Inc.

Consolidated Subsidiaries

Evercom Systems, Inc. (Delaware)
EverConnect, Inc.