UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, 20549

                                  FORM 10-K

[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 to Section 13 or 15(d) of the Securities  Exchange Act
     of 1934
     For the transition period from__________to__________.


                        Commission File No.:  0-23038


                      CORRECTIONAL SERVICES CORPORATION
                      ---------------------------------
            (Exact name of registrant as specified in its charter)

DELAWARE                                                       11-3182580
--------                                                       ----------
(State of other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                        Identification No.)

1819 Main Street, Sarasota, Florida                                 34236
-----------------------------------                                 -----
(Address of principal executive office)                        (Zip Code)


Registrant's telephone number, including area code:  (941) 953-9199

Securities registered pursuant to Section 12(b) of the Act:  None.

Securities registered pursuant to Section 12(g) of the Act:
Title of each class             Name of each exchange on which registered
-------------------             -----------------------------------------
Common Stock, par value $.01 per share             Nasdaq National Market

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
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.                                                            [X]

The aggregate market value of the voting  stock  (Common  Stock)  held by non-
affiliates of the Registrant as of the close of business on March 26, 2001 was
approximately $23,379,252 based on the closing sale price of the common  stock
on the Nasdaq National Market consolidated tape on that date.

Number  of  shares  outstanding  of each of the Registrant's classes of Common
Stock, as of the close of business on March 26, 2001:

    Common Stock, $.01 par value                             10,248,664 Shares

<PAGE> 1


                             TABLE OF CONTENTS
                             -----------------

                                                            PAGE
                                    PART I

Item 1    Business                                             4

Item 2    Properties                                          13

Item 3    Legal Proceedings                                   14

Item 4    Submission of Matters to a Vote of Security Holders 14


                                   PART II

Item 5    Market  for Registrant's Common Equity and Related
          Stockholder Matters                                15

Item 6    Selected Financial Data                            16

Item 7    Management's Discussion and Analysis of Financial
          Condition and Results of Operations                17

Item 7A   Quantitative and Qualitative Disclosures About
          Market Risk                                        26

Item 8    Financial Statements and Supplementary Data        27

Item 9    Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                27


                                   PART III

Item 10   Directors and Executive Officers of the Registrant 27


Item 11   Executive Compensation                             29


Item 12   Security Ownership of Certain Beneficial Owners
          and Management                                     32


Item 13   Certain Relationships and Related Transactions     32


                                   PART IV

Item 14   Exhibits, Financial Statement Schedules, and
          Reports on Form 8-K                                34

          Signature Page                                     37

<PAGE> 2


SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
------------------------------------------------------------------------

This document contains statements  that  are  not  historical but are forward-
looking statements within the meaning of Section 27A  of the Securities Act of
1933  and Section 21E of the Securities Exchange Act of  1934.  These  include
statements  regarding  the expectations, beliefs, intentions or strategies for
the future. The Company intends that all forward-looking statements be subject
to the safe-harbor provisions  of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements  reflect  the  Company's views as of
the   date  they  are  made  with  respect  to  future  events  and  financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed  or  implied  by  such  forward-looking statements. Examples of such
uncertainties and risks include, but  are  not  limited  to:  fluctuations  in
occupancy levels and labor costs; the ability to secure both new contracts and
the  renewal  of existing contracts; the availability and cost of financing to
redeem common shares  and  to  expand  our  business; and public resistance to
privatization.  Additional risk factors include  those  discussed  in  reports
filed by the Company  from  time  to  time  on  Forms  10-K, 10-Q and 8-K. The
Company  does  not  undertake  any  obligation  to update any  forward-looking
statements.

<PAGE> 3


                                    PART I

ITEM 1.   Business.
          --------

GENERAL

     Correctional   Services  Corporation  ("CSC"  or   the   "Company")   was
incorporated in Delaware on October 28, 1993 to acquire all of the outstanding
capital stock of a number  of affiliated corporations engaged in the operation
of correctional and detention  facilities.   CSC later acquired Youth Services
International  ("YSI"), a leading national provider  of  private  educational,
developmental and  rehabilitative programs to adjudicated juveniles, through a
merger accounted for  as  a  pooling  of interests.  In the merger, CSC issued
3,114,614 shares of CSC common stock in  exchange  for  all of the outstanding
common stock of YSI.  The merger closed March 31, 1999.

     The  combined  Company  is  one  of  the  largest and most  comprehensive
providers  of  juvenile  rehabilitative  services  with   32   facilities  and
approximately  4,300  juveniles  in  its care. In addition, the Company  is  a
leading developer and operator of adult  correctional  facilities operating 13
facilities representing approximately 4,700 beds. On a combined  basis,  as of
December 31, 2000, the Company provided services in 18 states and Puerto Rico,
representing approximately 9,000 beds including aftercare services.

     Revenues  for the year ended December 31, 2000 were $210.8 million versus
$233.9 million in  1999.   Contribution  from operations was $25.2 million for
2000 compared to $27.1 million in 1999, with  net  income  of  $5.8 million or
$0.51  per diluted share compared to net income of $5.7 million or  $0.51  per
diluted share (excluding merger related charges of $9.2 million net of tax, or
$0.82 per  diluted  share) in the similar period of 1999.  Diluted shares were
11,367,000 and 11,219,000 in 2000 and 1999, respectively.

     CSC operates a wide  range  of  correctional  facilities  targeted toward
solving  the specialized needs of governmental agencies. CSC's adult/community
corrections  division  specializes  in  facilities  that  service, among other
populations:

     <circle> substance abuse offenders;
     <circle> parole violators;
     <circle> pre-trial detainees;
     <circle> sex offenders; and
     <circle> community corrections.

     CSC's  juvenile division operates largely under the YSI  brand  name  and
focuses on facilities that provide:

     <circle>   intensive   treatment   programs   including  educational  and
        vocational services;
     <circle> treatment for habitual offenders;
     <circle> specialized female services;
     <circle> detention services;
     <circle> sexually delinquent juvenile treatment programs;
     <circle> academy training programs; and
     <circle> high impact programs.

     In addition to providing fundamental residential  services  for adult and
juvenile  offenders,  CSC has developed a broad range of programs intended  to
reduce  recidivism,  including   basic,  special,  and  vocational  education,
substance abuse treatment and counseling,  life  skills  training,  behavioral
modification counseling and comprehensive aftercare programs.  In all  of  its
facilities,  CSC  strives  to provide the highest quality services designed to
reduce recidivism. CSC continually  evaluates  and  audits  its  programs  and
believes  the  reputation  of  its  programs  will  lead to continued business
opportunities.

     CSC  is also a leading provider of design and construction  services  for
juvenile and  adult correctional facilities, including project consulting, the
design,  development  and  construction  of  new  correctional  and  detention

<PAGE> 4


facilities  and  the  redesign  and  renovation  of existing facilities. These
services usually are provided in conjunction with  an  agreement  for  CSC  to
operate the facility upon completion of the construction or renovation.


OPERATIONAL DIVISIONS

     CSC  has  organized  its  operations  into two divisions: Adult/Community
Corrections and Juvenile (YSI).

     ADULT/COMMUNITY  CORRECTIONS.  At  year  end  2000,  the  Adult/Community
Corrections Division operated 13 facilities, seven  in Texas, two in New York,
two  in Arizona and one each in Mississippi and Washington,  for  a  total  of
4,700  beds.   During the year 2000, contracts and subcontracts with the Texas
Department of Criminal  Justice  comprised  10%  of the Company's consolidated
revenue.   In  its  10 secure adult facilities, CSC not  only  provides  adult
inmates with housing  but  also  with  other  basic services, including health
care, transportation and food service.  In addition,  CSC remains committed to
providing  a  variety  of  rehabilitative and educational services,  including
community  service  and  recreational   programs   for   adult  inmates  where
appropriate.

     CSC's   Community  Corrections  facilities  are  non-secure   residential
facilities  for   adult   male   and   female   offenders  transitioning  from
institutional to independent living. Qualified offenders  may  spend  the last
six  months  of  their  sentence  in  a  community corrections program.  These
programs assist the offender in the reunification  process with family and the
community.  Independent research has indicated that  successful  reunification
can  play  a  key role in recidivism reduction.  Recidivism reduction  is  the
primary goal of  any  corrections  operation.   To that end, CSC provides life
skills  training,  case management, home confinement  supervision  and  family
reunification programs  from  these  facilities.  CSC  believes that community
correctional facilities help reduce recidivism, result in  prison  beds  being
available  for  more  violent  offenders  and, in appropriate cases, represent
cost-effective alternatives for jurisdictions to prisons.

     JUVENILE. The Juvenile Division operates  32  facilities in 14 states and
Puerto  Rico.  The  addition  of  the YSI facilities to the  combined  Company
allowed CSC to expand its juvenile  operations into 10 new states and increase
its presence in Florida and Texas.  During the year 2000, the combined Company
expanded its operations into Nevada.  Contracts with the Florida Department of
Juvenile Justice comprised over 10% of  the  Company's consolidated revenue in
2000 as did contracts with the Maryland Department  of  Juvenile Justice.  The
Company's  facilities  house  youths aged 10 to 20 and represent  a  total  of
approximately 4,300 beds (excluding  aftercare  services  provided  by certain
facilities  outside  of  Georgia).  CSC manages secure and non-secure juvenile
offender facilities for low, medium, and high risk youths in highly structured
programs, including military-style boot  camps,  wilderness  programs,  secure
education  and  training  centers;  including  academy  programs,  high impact
programs   servicing  lower  level  or  first  time  offenders  and  detention
facilities.   In addition, the Company also provides non-residential aftercare
programs.  The  Company  provides services for over 600 juveniles in the State
of Georgia as well as for  juveniles  who  have completed residential programs
throughout the Company's system.

     CSC believes its programs, by instilling  the  qualities of self-respect,
respect  for  others  and their property, personal responsibility  and  family
values, can help reduce  the  recidivism  rate  of  program  participants  and
hopefully  help  to  prevent  adult incarceration. To that end, CSC's juvenile
programs  are  comprised  of  four  major  components:  education;  vocational
training;  socialization;  and recreation.  Behavioral  management  principles
intended  to  dramatically  change   the  thinking  and  behavior  of  program
participants are consistently applied  throughout  each segment of programming
in  order  to  teach  participants  basic  life skills while  reinforcing  the
principle that success begins with appropriate, acceptable behavior.


MARKETING AND BUSINESS DEVELOPMENT

     CSC engages in extensive marketing and business development on a national
basis  and  markets  selected projects in the international  arena.  Marketing
efforts are spearheaded by CSC's business development team in conjunction with
CSC's executive officers and outside consultants.

<PAGE> 5


     CSC  receives frequent  inquiries  from  or  on  behalf  of  governmental
agencies. Upon  receiving  such an inquiry, CSC determines whether there is an
existing or future need for  CSC's  services,  whether the legal and political
climate is conducive to privatized correctional  operations and whether or not
the project is commercially viable.


CONTRACT AWARD PROCESS

     Most governmental procurement and purchasing activities are controlled by
procurement  regulations  that  take  the  form of a Request  for  a  Proposal
("RFP"), and to date most of CSC's new business  has  resulted from responding
to these requests. Interested parties submit proposals  in  response to an RFP
within a time period of 15 to 120 days from the time that the RFP is issued. A
typical RFP requires a bidder to provide detailed information,  including  the
services   to   be  provided  by  the  bidder,  the  bidder's  experience  and
qualifications and  the  price  at  which the bidder is willing to provide the
services. From time to time, CSC engages  independent consultants to assist in
responding  to the RFPs. Approximately six to  eighteen  months  is  generally
required from the issuance of the RFP to the contract award.

     Before responding  to  an  RFP, CSC researches and evaluates, among other
factors:

     <circle>  the  current  size and  growth  projections  of  the  available
               correctional and detention population;
     <circle>  whether or not a minimum capacity level is guaranteed;
     <circle>  the willingness of  the  contracting  authority to allow CSC to
               house   populations   of   similar  classification  within  the
               proposed facility for other governmental agencies; and
     <circle>  the willingness of the contracting authority  to allow  CSC  to
               make adjustments in operating activities, such  as  work  force
               reductions in the event the actual population is less than  the
               contracted capacity.

     Under the RFP, the  bidder  may be required to design and construct a new
facility or to redesign and renovate  an existing facility at its own cost. In
such event, CSC's ability to obtain the  contract  award is dependent upon its
ability to obtain the necessary financing or fund such costs internally.

     In  addition  to issuing formal RFPs, governmental  agencies  may  use  a
procedure known as Purchase of Services or Requests for Qualification ("RFQ").
In the case of an RFQ,  the  requesting  agency  selects a firm it believes is
most qualified to provide the necessary services and then negotiates the terms
of the contract, including the price at which the services are to be provided.


MARKET

     Throughout  the  United  States,  there  is  a  growing   acceptance   of
privatization  of governmental services.  Correctional and detention functions
traditionally performed  by  federal,  state  and local governments have faced
continuing pressure to control costs and reduce  the  number  of  governmental
employees.   Further,  despite  recent  decreases  in the overall crime  rate,
incarceration  costs generally grow faster than many  other  parts  of  budget
items.  In  an attempt  to  address  these  pressures,  governmental  agencies
responsible  for   correctional   and  detention  facilities  are  privatizing
facilities.

     An estimated 1.9 million inmates  are  held  in  the nation's prisons and
local jails due to sentencing guidelines and the increased  popularity  of  "3
strikes"  laws.   In  recent  years,  both  state and federal prisons have had
serious  overcrowding issues.  According to the  Department  of  Justice,  the
prison population  rose  an  estimated  1,585  new  inmates per week from 1990
through   midyear   2000.    During  that  same  period,  growth   in   female
representation in the adult inmate  population  has grown 110% compared to 77%
for men.

     In  addition to the current growth in the adult  corrections  population,
over the next  several  years,  the  number  of  juveniles  approaching crime-
committing  age  is  expected to increase significantly.  The Company  expects
that as juvenile crime  continues  to receive increasing levels of visibility,
the need for services for troubled youth will increase.

<PAGE> 6


COMPETITION

     CSC competes on the basis of cost, quality and range of services offered,
its experience in managing facilities, the reputation of its personnel and its
ability  to  design,  finance and construct  new  facilities.  Some  of  CSC's
competitors have greater resources than CSC. CSC also competes in some markets
with local companies that  may have a better understanding of local conditions
and a better ability to gain  political  and  public  acceptance. In addition,
CSC's Community Corrections and Juvenile operations compete  with governmental
and  not-for-profit  entities.  CSC's  main  competitors include but  are  not
limited   to  Corrections  Corporation  of  America,   Wackenhut   Corrections
Corporation, and Cornell Corrections.


FACILITIES

     CSC operates  adult  and  juvenile  pre-disposition  and post-disposition
secure  and  non-secure correctional and detention facilities  and  non-secure
community correctional  facilities  for  federal, state and local correctional
agencies.   Pre-disposition  secure  detention   facilities   provide   secure
residential detention  for  individuals  awaiting  trial and/or the outcome of
judicial proceedings, and for aliens awaiting deportation  or  the disposition
of  deportation  hearings.  Post-disposition secure facilities provide  secure
incarceration for individuals who have been found guilty of a crime by a court
of  law. CSC operates six types  of  post-disposition  facilities:  1)  secure
prisons  (adult);  2) intermediate sanction facilities (adult); 3) high impact
programs (juvenile);  4)  academies  (juvenile);  5) military-style boot camps
(juvenile); 6) secure treatment and training facilities  (adult and juvenile);
and 7) sexually delinquent juveniles (juvenile).

     Secure  prisons  and  intermediate  sanction  facilities  provide  secure
correctional  services for individuals who have been found guilty  of  one  or
more offenses.   Offenders  placed  in  intermediate  sanction  facilities are
typically  persons  who  have committed a technical violation of their  parole
conditions, but whose offense  history  or  current  offense  does not warrant
incarceration  in  a  prison.   Both  types  of  facilities  offer  vocational
training,  substance  abuse  treatment  and offense specific treatment.   High
impact programs provide residential placement  for  juveniles  who  are either
first time offenders or who were unable to meet the terms of a non-residential
placement.  High impact programs are generally short term with stays  of 30 to
90 days, but involve all of the rehabilitative elements of an academy program.
Academies  are  secure  facilities  that  range  from hardware secure to staff
secure.  These facilities typically service juveniles who are repeat offenders
and/or  violent  crime  offenders.   The  academies  emphasize  rehabilitative
programming,  including education, recreation and vocational  training.   Boot
camps provide intensely  structured  and  regimented  residential correctional
services  which emphasize disciplined activities modeled  after  the  training
principles  of  military  boot  camps and stress physical challenges, fitness,
discipline and personal appearance.  Secure treatment and training facilities,
including  specialized  sex  offender   programs,  provide  numerous  services
designed to reduce recidivism including:  educational and vocational training,
life  skills, anger control management, and  substance  abuse  counseling  and
treatment.  Juvenile  sex  offender  programs  are generally locked secure and
involve a length of stay from 12 to 24 months.

     CSC  also operates non-secure residential and  non-residential  community
corrections  programs.  Non-secure  residential  facilities,  known as halfway
houses,  provide residential correctional services for offenders  in  need  of
less supervision  and  monitoring  than  are provided in a secure environment.
Offenders in community corrections facilities  are  typically allowed to leave
the  facility  to  work  in  the  immediate  community and/or  participate  in
community-based educational and vocational training  programs  during  daytime
hours. Generally, persons in community correctional facilities are serving the
last  six  months  of  their  sentence.  Non-residential  programs  permit the
offender to reside at home or in some other approved setting under supervision
and  monitoring by CSC. Supervision may take the form of either requiring  the
offender to report to a correctional facility a specified number of times each
week and/or  having  CSC  employees  monitor the offender on a case management
basis at his/her work site and home.   In  the  juvenile  division,  the  non-
residential  programs  take  the form of aftercare programs.  Unlike the adult
division where a non-residential supervision program may replace the last part
of an adult's residential supervision,  in  the juvenile division counterpart,
the aftercare program is strictly post release.   The  goal of these programs,
like  adult community corrections, is to assist the juvenile  in  effecting  a
positive  return  to  their  families  and  communities.    Aftercare programs
provide the contact, supervision and support that is needed to further instill
the principles learned by the juvenile during the longer residential program.

<PAGE> 7


ADULT DIVISION

     The following information is provided with respect to the facilities for
which CSC had management contracts as of March  26, 2001:

<TABLE>
<CAPTION>

   Facility Name,                  Design                             Contracting              Owned,
   Location and Year              Capacity                           Governmental            Leased, Or
   Operations Commenced            Beds(1)     Type of Facility          Agency              Managed(2)
   --------------------           -------      ----------------      ------------            ----------

<S>                                   <C>    <C>                     <C>                    <C>

Arizona State Prison, Florence        600           Prison                State                  Owned
  Florence, Arizona (1997)

Arizona State Prison, Phoenix West    400           Prison                State                  Owned
  Phoenix, Arizona (1996)

Bronx Community Corrections Center     60    Residential Community    Federal Bureau            Leased
  Bronx, New York  (1996)                    Correctional Facility      of Prisons

Brooklyn Community Correctional       500    Residential Community    Federal Bureau            Leased
Center                                       Correctional Facility      of Prisons
  Brooklyn, New York (1989)

Dickens County Correctional Center    489     Long Term Detention         State                 Leased
  Spur, Texas (1998)

Fort Worth Community Corrections      200         Residential             State                 Leased
Center                                       Correctional Facility
  Fort Worth, Texas (1994)

Frio County Jail                      391        Jail/Long Term     County/State/Federal   Part-Leased/
  Pearsall, Texas (1997)                           Detention                                Part-Owned

Grenada County Jail                   160            Jail                 County               Managed
  Grenada, Mississippi (1998)

Jefferson County Downtown Jail        500        Jail/Long Term        County/State            Managed
  Beaumont, Texas (1998)

Newton County Correctional Facility   872           Prison             State/Federal           Managed
  Newton, Texas (1998)

Salinas Treatment Center              144       Secure Treatment      Commonwealth of           Leased
  Salinas, Puerto Rico (2000)(3)                    Facility            Puerto Rico

Seattle INS Detention Center          150       Secure Detention            INS                Managed
  Seattle, Washington (1989)                         Facility

South Texas Intermediate Sanction     450      Secure Intermediate         State               Managed
Facility                                        Sanction Facility
  Houston, Texas (1993)

Tarrant County Community              230      Secure Intermediate         County              Managed
Correctional Facility(4)                        Sanction Facility
  Mansfield, Texas (1992)
</TABLE>
   -------------------

<PAGE> 8


  (1) Design capacity is based on the physical space available  presently,  or
      licensure for offender  or  residential beds in compliance with relevant
      regulations and contract requirements.  In certain cases, the management
      contract for a facility provides for a lower number of beds.
  (2) A  managed facility is  a  facility  for  which CSC provides  management
      services  pursuant  to  a  management  contract  with   the   applicable
      governmental agency but, unlike  a leased  or owned facility, CSC has no
      property interest in the facility.
  (3) The  status of the Company's Agreement with the  Commonwealth  of Puerto
      Rico  is  uncertain.  Originally,  the  Company  was contracted  by  the
      government of  Puerto Rico  to design  and  build  a  juvenile facility.
      However, in November of 2000, the Puerto Rican government  entered  into
      an agreement  with  the Company  for an adult facility at that location.
      Since that time, the  new  government  of  Puerto  Rico  has  questioned
      the  enforceability  of  the  contract  and  the  Company  has initiated
      litigation to enforce it.  Negotiations with the government are ongoing,
      however, the Company cannot predict the outcome  of  the  litigation  or
      collateral negotiations.
  (4) This facility  is listed both  as part  of CSC's  Adult Division and its
      Juvenile Division  as  the facility  houses  both  adult  and   juvenile
      offenders.


JUVENILE DIVISION

<TABLE>
<CAPTION>


   Facility Name,                  Design                             Contracting              Owned,
   Location and Year              Capacity                           Governmental            Leased, Or
   Operations Commenced            Beds(1)     Type of Facility          Agency              Managed(2)
   --------------------           -------      ----------------      ------------            ----------

<S>                                  <C>     <C>                   <C>                   <C>
Bartow Youth Training Center          74     Secure & Residential         State                 Managed
  Bartow, Florida (1995)                      Treatment Facility

Bayamon Treatment Center             141       Secure Treatment     Commonwealth of             Managed
  Bayamon, Puerto Rico (1998)                       Facility          Puerto Rico

Bell County Youth Training Center     96        Secure Detention         County                 Managed
  Killeen, Texas (1997)                             Facility

Bill Clayton Detention Center        152        Secure Treatment          State                 Managed
  Littlefield, Texas (2000)                         Facility

Chamberlain Academy                   78          Non Secure          Multi-State/                Owned
  Chamberlain, South Dakota (1993)              Academy Facility         Federal

Chanute Transition Center             56     Non Secure Transition        State               Subleased
  Rantoul, IL (1998)(3)                             Facility

Charles Hickey School                355      Secure Academy/High         State                 Managed
  Baltimore, Maryland(1993)                   Impact/Detention and
                                              Sex Offender Facility

Colorado County Boot Camp            100        Secure Detention     Multi-County/          Part Owned/
  Eagle Lake, Texas (1998)                          Facility              State            Part Managed

Cypress Creek Academy                100         Secure Academy           State                 Managed
  Lecanto, Florida (1997)                           Facility

Dallas County Secure Post             96        Secure Treatment         County                 Managed
Adjudication Facility                               Facility
  Dallas, Texas (1998)

Dallas Youth Academy                  96        Secure Treatment         County                 Managed
  Dallas, Texas (1998)                              Facility

<PAGE> 9


Elmore Academy                       150       Non Secure Academy      Multi-State                Owned
  Elmore, Minnesota (1998)                          Facility

Forest Ridge Youth Services          140        Non Secure Female      Multi-State                Owned
 Wallingford, Iowa (1993)                        Academy Facility

Genesis Treatment Agency              75           Secure Sexual          City/                   Owned
  Newport News, Virginia (1997)                Delinquent Juveniles    Multi-County
                                                Treatment Facility

Hemphill County Juvenile             100          Secure Boot Camp        County                 Leased
Detention Center                                      Facility
  Canadian, Texas (1994)

Hillsborough Academy                  25      Secure Sexual Offender      State                 Managed
  Tampa, Florida (1997)                               Facility

Hondo Detention Center                15          Secure Detention        County                Managed
  Hondo, Texas (1998)(4)                              Facility

JoAnn Bridges Academy                 30            Secure Female         State                 Managed
  Greenville, Florida (1998)                      Academy Facility

Judge Roger Hashem Juvenile           64          Secure Detention     Multi-County/            Managed
Justice Center                                        Facility             State
  Rockdale, Texas (1997)

Keweenaw Academy                     150         Non Secure Academy       State               Subleased
  Mohawk, Michigan (1997)                             Facility

Lockhart Boot Camp                    38          Secure Boot Camp     Multi-County              Leased
  Lockhart, Texas (1998)                              Detention
                                                      Facility

Okaloosa County Juvenile              64          Secure Treatment        State                 Managed
Residential Facility                                  Facility
  Okaloosa, Florida (1998)

Paulding Regional Youth              126          Secure Detention        State                 Managed
Detention Center                                      Facility
  Paulding, Georgia (1999)

Polk City Youth Training             350          Secure Treatment        State                 Managed
Center                                                Facility
  Polk City, Florida (1997)

Reflections Treatment Agency          52       Secure Sexual Offender     State                  Leased
  Knoxville, Tennessee (1992)                         Facility

Snowden Cottage Academy               18         Non Secure Academy       State                 Managed
  Wilmington, Delaware (1997)                         Facility

Springfield Academy                  108         Non Secure Academy    State/Federal              Owned
  Springfield, South Dakota (1993)                    Facility

<PAGE> 10


Summit View Youth Facility            96          Secure Treatment        State                 Managed
  Las Vegas, Nevada (2000)                            Facility

Tarkio Academy                       302           Secure Academy      Multi-State            Subleased
  Tarkio, Missouri (1994)                          Sexual Offender
                                                      Facility

Tarrant County Community             120           Secure Boot Camp       County                Managed
Correctional Center                                   Facility
  Mansfield, Texas (1992)(5)

Texarkana Boot Camp                  124           Secure Boot Camp    Multi-County/             Leased
  Texarkana, Texas (1998)                              Detention           State
                                                       Facility

Victor Cullen Academy                225            Secure Academy        State                 Managed
  Sabillasville, Maryland (1992)                       Facility
</TABLE>
   ___________________

(1)  Design  capacity  is based on the physical space available presently,  or
     licensure for offender  or residential  beds  in compliance with relevant
     regulations and contract requirements. In certain cases,  the  management
     contract for a facility provides for a lower number of beds.
(2)  A  managed  facility  is  a  facility  for  which CSC provides management
     services  pursuant   to  a  management  contract  with   the   applicable
     governmental agency but, unlike  a  leased  or owned facility, CSC has no
     property interest in the facility.
(3)  The Company's contract with the State will terminate  March 31, 2001.  At
     this time, the Company anticipates that it will then contract  with other
     agencies for use of the Facility or sublease the bulding.
(4)  Operations will discontinue effective March 31, 2001.
(5)  This  facility  is  listed  both  as part of CSC's Adult Division and its
     Juvenile Division  as  the  facility  houses   both  adult  and  juvenile
     offenders.

FACILITY CHANGES DURING THE YEAR 2000

     During 2000, the Company discontinued its operations of the following
adult facilities:

     1)   Crowley County Correctional Facility;
     2)   Central Oklahoma Correctional Facility;
     3)   South Fulton Municipal Jail;
     4)   Manhattan Community Corrections Facility;
     5)   LeMarquis Community Corrections Facility; and
     6)   McKinley County Jail

     The Company discontinued its operations of the following juvenile
facilities during that same time period:

     1)   Camp Washington;
     2)   Everglades Academy;
     3)   Pompano Academy;
     4)   Woodward Academy; and
     5)   Cotulla County Boot Camp

     The Company began operations at the following facilities:

     1)   Bill Clayton Detention Center and
     2)   Summit View Youth Correctional Facility.

<PAGE> 11


FACILITY MANAGEMENT CONTRACTS

     CSC is primarily compensated on the basis of the  population  in  each of
its  facilities  on  a  fixed rate per inmate per day; however, some contracts
have a minimum revenue guarantee.  Invoices  are  generally  sent on a monthly
basis  detailing  the  population  for  the prior month. Occupancy  rates  for
facilities  tend to be low when first opened  or  when  expansions  are  first
available. However,  after  a facility passes the start-up period, typically 3
months, the occupancy rate tends to stabilize.

     CSC is required by its contracts  to maintain certain levels of insurance
coverage for general liability, workers'  compensation,  vehicle liability and
property  loss  or damage. CSC is also required to indemnify  the  contracting
agencies for claims  and  costs arising out of CSC's operations and in certain
cases, to maintain performance bonds.

     As is standard in the industry, CSC's contracts are short term in nature,
generally  ranging from one  to  three  years  and  contain  multiple  renewal
options. Most facility contracts also generally contain clauses that allow the
governmental  agency  to  terminate  a contract with or without cause, and are
subject to legislative appropriation of funds.


OPERATING PROCEDURES

     CSC is responsible for the overall  operation  of each facility under its
management,  including  staff  recruitment,  general  administration   of  the
facility, security of inmates and employees, supervision of the offenders  and
facility  maintenance.  CSC,  either  directly or through subcontractors, also
provides health care, including medical,  dental  and psychiatric services and
food service.

     CSC's  contracts  generally  require  CSC  to operate  each  facility  in
accordance with all applicable local, state and federal  laws,  and  rules and
regulations.   In addition, adult facilities are generally required to  adhere
to the guidelines  of  the American Correctional Association ("ACA").  The ACA
standards, designed to safeguard  the life, health and safety of offenders and
personnel,  describe  specific  objectives  with  respect  to  administration,
personnel and staff training, security, medical and health care, food service,
inmate supervision and physical plant  requirements. CSC believes the benefits
of operating its facilities in accordance  with ACA standards include improved
management, better defense against lawsuits  by  offenders alleging violations
of  civil rights, a more humane environment for personnel  and  offenders  and
measurable  criteria  for upgrading programs, personnel and the physical plant
on a continuous basis.  Several  of our facilities are fully accredited by the
ACA  and  certain  other  facilities  currently   are   being   reviewed   for
accreditation.   It   is  the  Company's  goal  to  obtain  and  maintain  ACA
accreditation for all of its adult facilities, and for its juvenile facilities
when applicable.


FACILITY DESIGN AND CONSTRUCTION

     In addition to its  facility  management services, CSC also consults with
various governmental entities to design  and  construct  new  correctional and
detention  facilities  and  renovate  older  facilities  to  provide  enhanced
services  to the population. CSC manages all of the facilities it has designed
and constructed or redesigned and renovated.

     Pursuant  to  CSC's  design, construction and management contracts, it is
responsible for overall project  development  and  completion.  Typically, CSC
develops the conceptual design for a project, then hires architects, engineers
and  construction  companies  to  complete  the development. When designing  a
particular facility, CSC utilizes, with appropriate  modifications,  prototype
designs  CSC has used in developing other projects. Management of CSC believes
that the use  of  such prototype designs allows it to reduce cost overruns and
construction delays.


EMPLOYEES

     At March 26, 2001,  CSC  had approximately 4,200 employees, consisting of
clerical  and  administrative  personnel,  security  personnel,  food  service
personnel and facility administrators.

     Each of CSC's facilities is  led by an experienced facility administrator
or  executive  director.  Other  facility  personnel  include  administrative,
security, medical, food service, counseling,  classification  and  educational

<PAGE> 12


and  vocational  training personnel. CSC conducts background screening  checks
and  drug testing on  potential  facility  employees.  Some  of  the  services
rendered  at  certain  facilities, such as medical services, education or food
service are provided by third-party contractors.


EMPLOYEE TRAINING

     All jurisdictions require  corrections  officers  and  youth  workers  to
complete a specified amount of training. Generally, CSC employees must undergo
at least 160 hours of paid training before being allowed to work in a position
that  will  bring  them  in contact with offenders or detainees. This training
consists of approximately  40  hours  relating  to  CSC  policies, operational
procedures, management philosophy and ethics and compliance  training  and 120
hours  relating to legal issues, rights of offenders and detainees, techniques
of communication  and supervision, improvement of interpersonal skills and job
training relating to the specific tasks to be held.  The Company believes that
its training programs meet or exceed the applicable licensing requirements.


INSURANCE

     Each management  contract  with  a  governmental  agency  requires CSC to
maintain certain levels of insurance coverage for general liability,  workers'
compensation,  vehicle  liability and property loss or damage and to indemnify
the contracting agency for claims and costs arising out of CSC's operations.

     CSC maintains general liability insurance in the amount of $5,000,000 and
an umbrella policy in the  amount  of $25,000,000, covering itself and each of
its subsidiaries. There can be no assurance  that  the  aggregate  amount  and
kinds  of CSC's insurance are adequate to cover all risks it may incur or that
insurance will be available in the future.

     In  addition,  CSC is unable to secure insurance for some unique business
risks which may include,  but not be limited to, riot and civil commotion, the
acts of an escaped offender, and potentially some types of punitive damages.


REGULATION

     Generally, providers of  correctional services must comply with a variety
of applicable federal, state and  local  regulations,  including  educational,
health  care  and  safety  regulations administered by a variety of regulatory
authorities.   Management contracts  frequently  include  extensive  reporting
requirements. In  addition,  many  federal,  state  and  local governments are
required to follow competitive bidding procedures before awarding  a contract.
Certain  jurisdictions  may  also  require  the  successful  bidder  to  award
subcontracts  on a competitive bid basis and to subcontract to varying degrees
with businesses owned by women or minorities.


Item 2.   Properties.
          ----------

     The Company  leases  office  space  for  its  corporate  headquarters  in
Sarasota,  Florida.   Additionally,  the  Company  leases  office  space for a
regional office in New York, New York.

     The  Company  also  leases  the  space  for  the following facilities  it
manages:  Lockhart  Boot  Camp,  Hemphill  County Juvenile  Detention  Center,
Reflections  Treatment  Agency,  Tarkio  Academy,  Keweenaw  Academy,  Chanute
Transition Center, Texarkana Boot Camp, Frio  County  Jail, Brooklyn Community
Correctional Center, Bronx Community Correctional Center, Fort Worth Community
Corrections Center, Salinas Treatment Center and Dickens  County  Correctional
Center.

     The  Company  owns its facilities located in Florence, Arizona;  Phoenix,
Arizona;  Chamberlain,  South  Dakota;  Springfield,   South  Dakota;  Elmore,
Minnesota;  portions  of  the Frio County, Texas facility; Forest Ridge, Iowa;
portions of Eagle Lake, Texas expansion; and Newport News, Virginia.

<PAGE> 13


Item 3.   Legal Proceedings.
          -----------------

     The nature of CSC's business  results  in  numerous  claims or litigation
against CSC for damages arising from the conduct of its employees  or  others.
Under  the  federal  securities  law  and  applicable  SEC regulations, CSC is
obligated to disclose lawsuits which involve a claim for  damages in excess of
10% of its current assets notwithstanding CSC's belief as to  the merit of the
lawsuit and the existence of adequate insurance coverage.

     In  March 1996, former inmates at one of CSC's facilities filed  suit  in
the Supreme  Court  of  the  State  of  New York, County of Bronx on behalf of
themselves  and  others similarly situated,  alleging  personal  injuries  and
property damage purportedly  caused  by negligence and intentional acts of CSC
and claiming $500,000,000 for each compensatory  and  punitive  damages, which
suit was transferred to the United States District Court, Southern District of
New  York,  in  April  1996.  In  July  1996, seven detainees at one of  CSC's
facilities, and certain of their spouses,  filed suit in the Superior Court of
New Jersey, County of Union, seeking $10,000,000  each in damages arising from
alleged  mistreatment  of  the detainees, which suit was  transferred  to  the
United States District Court,  District of New Jersey, in August 1996. In July
1997 former detainees of CSC's Elizabeth,  New  Jersey  Facility filed suit in
the  United  States District Court for the District of New  Jersey.  The  suit
claims violations  of  civil  rights,  personal  injury  and  property  damage
allegedly  caused  by  the negligent and intentional acts of CSC.  No monetary
damages have been stated.   Through stipulation, all these actions will now be
heard in the United States District  Court  for  the  District  of New Jersey.
This   will  streamline  the  discovery  process,  minimize  costs  and  avoid
inconsistent rulings.

     CSC  believes  the  claims  made  in  each of the foregoing actions to be
without merit and will vigorously defend such  actions.  CSC  further believes
the outcome of these actions and all other current legal proceedings  to which
it  is  a  party  will not have a material adverse effect upon its results  of
operations, financial  condition  or  liquidity. However, there is an inherent
risk in any litigation and a decision adverse to CSC could be rendered.


Item 4.   Submission of Matters to a Vote of Security Holders.
          ---------------------------------------------------

     The  2000  Annual  Meeting  of  Stockholders   of  Correctional  Services
Corporation was held on October 3, 2000.

     At the meeting, two (2) proposals were considered and voted upon with the
following results:

     (1)  To elect seven (7) directors to serve until  the next annual meeting
of stockholders;

          Results:

<TABLE>
<CAPTION>
                             VOTES CAST   VOTES CAST               BROKER
             NAME             IN FAVOR     AGAINST      ABSTAIN  NON VOTES
             ----            ----------  ----------     -------  ---------

          <S>                  <C>          <C>            <C>       <C>

          Stuart M. Gerson     8,929,754    540,640         0         0
          Shimmie Horn         8,929,884    540,510         0         0
          James F. Slattery    8,929,884    540,510         0         0
          Aaron Speisman       8,929,871    540,523         0         0
          Richard P. Staley    8,929,767    540,627         0         0
          Melvin T. Stith      8,929,841    540,523         0         0
          Bobbie L. Huskey     8,929,767    540,627         0         0
</TABLE>

     (2)  To  ratify  the  reappointment of Grant Thornton, LLP as Independent
Auditors of the Company for the year ending December 31, 2000.

          Results:

          NUMBER OF VOTES      NUMBER OF VOTES
           CAST IN FAVOR         CAST AGAINST       ABSTAIN
           -------------         ------------       -------
             9,277,747              173,679          18,968

<PAGE> 14


                                    PART II


Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters.
          -------------------------------------------------------------

     The common stock of CSC  is  traded  on  the Nasdaq National Market. Such
quotations represent inter-dealer prices without  retail  markup,  markdown or
commission,  and  may  not  necessarily  represent  actual transactions.   The
following table sets forth, for the calendar quarters  indicated, the high and
low sale prices per share on the Nasdaq National Market,  based  on  published
financial sources.

<TABLE>
<CAPTION>
                                           CSC Common Stock
                                              Sale Price
                                           ----------------
                                            High       Low
                                            ----       ---

           <S>                             <C>      <C>

           1999
               First Quarter               15 3/4   10 3/16
               Second Quarter              16 7/8   12 1/2
               Third Quarter               15 1/2    8 7/8
               Fourth Quarter              14 1/4    6 3/4

           2000
               First Quarter                5 1/4    3 3/4
               Second Quarter               5 7/8    2 25/32
               Third Quarter                5        3 1/8
               Fourth Quarter               3 7/8    1 5/8
</TABLE>

     On  December 31, 2000, there were 199 holders of record and approximately
4,275 beneficial  shareholders  registered  in  nominee  and street name.  The
Company has paid no cash dividends in the past two years.

<PAGE> 15


Item 6.   Selected Financial Data.
          -----------------------

     The information below is only a summary and should be read in conjunction
with Correctional Services Corporation's historical financial  statements  and
related notes (in thousands except per share data).

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                     2000      1999     1998(1)    1997      1996
                                     ----      ----     -------    ----      ----
<S>                                <C>       <C>       <C>       <C>       <C>
Revenues                           $210,812  $233,918  $188,454  $175,933   $ 99,349
Operating expenses                  185,447   205,662   166,443   149,389     75,710
Startup costs (1)                       155     1,177     8,171       211          -
General and administrative           13,670    13,899    21,119    18,167     16,519
Merger costs and related
  restructuring charges                   -    12,052     1,109         -          -
Loss on sale of behavioral health         -         -         -    20,898
Other operating (income) expenses    (1,115)    1,874     2,327         -      3,329
Operating income (loss)              12,655      (746)  (10,715)  (12,732)     3,791
Interest expense, net                (3,157)   (3,069)   (2,611)   (2,381)    (3,317)
                                   ---------  --------  --------  --------   --------
Income (loss) before income taxes,
  extraordinary gain on
  extinguishment of debt and
  cumulative of change in
  accounting                          9,498    (3,815)  (13,326)  (15,113)       474
Income tax (provision) benefit       (3,710)     (429)    1,593     1,062       (323)
Income (loss) before extraordinary
  gain on extinguishment of debt
  and cumulative effect of change
  in accounting principle             5,788    (4,244)  (11,733)  (14,051)       151
Extraordinary gain on extinguishment
  of debt, net of tax of $467             -       716         -         -          -
Cumulative effect of change in
  accounting, net of tax of $3,180        -         -    (4,863)        -          -
                                   --------  --------  --------  --------   --------
Net earnings (loss)                $  5,788  $ (3,528) $(16,596) $(14,051)  $    151
                                   ========  ========  ========  ========   ========
Net earnings (loss) per share:
    Basic                          $   0.51  $  (0.31) $  (1.53) $  (1.32)  $   0.02
    Diluted                        $   0.51  $  (0.31) $  (1.53) $  (1.32)  $   0.01
Balance Sheet Data:
    Working capital                $ 18,831  $ 22,281  $ 23,167  $ 29,663   $ 36,355
    Total assets                     96,775   111,198   125,314   120,750    143,393
    Long-term debt, net of current
      portion                        16,338    33,497    44,288    33,379     38,633
    Shareholders' equity             53,738    50,738    51,006    65,503     71,818
</TABLE>
   ___________________

(1)  The 1998 amounts include the effect of the adoption of the AICPA
     Statement of Position 98-5, Accounting for Startup Costs.  (See
     "Management's Discussion and Analysis of Financial Condition and Results
     of Operations.")

<PAGE> 16


Item 7.   Management's  Discussion  and  Analysis  of  Financial Condition and
          Results of Operations.
          --------------------------------------------------------------------

GENERAL

     The  Company  is one of the largest and most comprehensive  providers  of
juvenile rehabilitative  services  with  32 facilities and approximately 4,300
juveniles in its care.  In addition, the Company  is  a  leading developer and
operator of adult correctional facilities operating 13 facilities representing
approximately 4,700 beds. On a combined basis, as of December  31,  2000,  the
Company   provided  services  in  18  states  and  Puerto  Rico,  representing
approximately 9,000 beds including aftercare services.

     The Company's  primary  source of revenue is generated from the operation
of  its  facilities  pursuant to  contracts  with  federal,  state  and  local
governmental agencies,  and  management  agreements  with  third  parties that
contract   directly  with  governmental  agencies.  Generally,  the  Company's
contracts are  based  on  a  daily  rate  per  resident,  some  of  which have
guaranteed  minimum  payments;  others  provide  for  fixed  monthly  payments
irrespective  of  the  number  of  residents housed.  In addition, the Company
receives  revenue  for  educational  and   aftercare   services.  The  Company
recognizes revenue at the time the Company performs the  services  pursuant to
its contracts.

     The  Company  typically pays all facility operating expenses, except  for
rent or lease payments  in  the case of certain government-provided facilities
or  for facilities for which the  Company  has  only  a  management  contract.
Operating expenses are principally comprised of costs directly attributable to
the management  of  the  facility  and  care  of  the residents, which include
salaries  and  benefits  of administrative and direct  supervision  personnel,
food,  clothing,  medical  services   and  personal  hygiene  supplies.  Other
operating expenses are comprised of fixed  costs,  which  consist  of rent and
lease payments, utilities, insurance, depreciation and professional fees.

     The  Company  also  incurs  costs  as  it relates to the start-up of  new
facilities.  Such costs are principally comprised  of expenses associated with
the recruitment, hiring and training of staff, travel  of  personnel,  certain
legal costs and other costs incurred after a contract has been awarded.

     Contribution   from  operations  consists  of  revenues  minus  operating
expenses and start-up  costs.  Contribution  from  operations,  in general, is
lower in the initial stages of a facility's operations.  This is  due  to  the
need to incur a significant portion of the facility's operating expenses while
the facility is in the process of attaining full occupancy.

     General  and  administrative  costs  primarily  consist  of  salaries and
benefits  of non-facility based personnel, insurance, professional fees,  rent
and utilities  associated  with  the  operation  of  the  Company's  corporate
offices.  In addition, general and administrative costs consist of development
costs  principally comprised of travel, proposal development, legal fees,  and
various consulting and other fees incurred prior to the award of a contract.

<PAGE> 17


RESULTS OF OPERATIONS

     The  following  table  sets  forth  certain  operating  data  as a
percentage of total revenues:

<TABLE>
<CAPTION>
                                                         Percentage of Total Revenues
                                                         ----------------------------
                                                           Years Ended December 31,
                                                           ------------------------
                                                            2000     1999     1998
<S>                                                        <C>      <C>      <C>
Revenues                                                   100.0%   100.0%   100.0%
                                                           ------   ------   ------
Facility expenses:
     Operating                                              88.0     87.9     88.4
     Startup costs                                           0.0      0.5      4.3
                                                           ------   ------   ------
Contribution from operations                                12.0     11.6      7.3
Other operating expenses:
     General and administrative                              6.5      5.9     11.2
     College Station closure costs                             -        -      1.2
     Merger costs and related restructuring charges            -      5.2      0.6
     Gain on sale of assets                                 (0.5)       -        -
     Write-off of deferred financing costs                     -      0.8        -
Operating income (loss)                                      6.0     (0.3)    (5.7)
Interest expense, net                                       (1.5)    (1.3)    (1.4)
                                                           ------   ------   ------
Income (loss) before income taxes, extraordinary gain
     on extinguishment of debt and cumulative effect
     of change in accounting principle                       4.5     (1.6)    (7.1)
Income tax (provision) benefit                              (1.8)    (0.2)     0.9
                                                           ------   ------   ------
Gain (loss) before extraordinary gain on extinguishment
      of debt and cumulative effect of change
      in accounting principle                                2.7     (1.8)    (6.2)
Extraordinary gain on extinguishment of debt, net of tax       -      0.3        -
Cumulative effect of change in accounting principle            -        -     (2.6)
                                                           ------   ------   ------
Net income (loss)                                            2.7%    (1.5)%   (8.8)%
                                                           ======   ======   ======
</TABLE>


YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Revenue  decreased  by  $23.1 million or 9.9% for the year ended December
31, 2000 to $210.8 million compared  to the same period in 1999.  The decrease
was primarily due to:

     <circle> An increase of $1.3 million  generated  from  the  opening  of 2
              juvenile facilities (248 beds).

     <circle> A net increase of $8.6 million generated from per diem rate and
              net occupancy level increases in existing facilities.

     <circle> A  decrease  of  $33.0  million  from  the  discontinuance of 16
              programs  (911  beds in 7 facilities discontinued in  2000,  and
              1,713 beds in 9 facilities discontinued in 1999.)

     Operating expenses  decreased  $20.2  million  or 9.8% for the year ended
December  31,  2000  to  $185.4 million compared to the same  period  in  1999
primarily due to the closing of the 16 facilities mentioned above.

     As  a  percentage of revenues,  operating  expenses  remained  relatively
constant, increasing  to  88.0%  for the twelve months ended December 31, 2000
from  87.9% for the twelve months ended  December  31,  1999.   Other  factors
impacting  operating  expenses  were  increased  labor,  insurance and utility
costs.

     Startup costs were $155,000 for the twelve months ended December 31, 2000
compared  to  $1.2  million  for  the twelve months ended December  31,  1999.
Startup costs for the twelve months  ended  December  31,  2000  were incurred

<PAGE> 18


related to the Salinas, Puerto Rico (144 beds) and Las Vegas, Nevada (96 beds)
facilities.  Startup for the twelve months ended December 31, 1999, related to
the  startup  of  the  South  Fulton,  Georgia  facility  (288  beds), 300-bed
expansion  of the Crowley, Colorado facility and the 45 bed expansion  of  the
Bayamon, Puerto Rico treatment facility

     General  and  administrative  expenses decreased to $13.7 million for the
twelve months ended December 31, 2000 from $13.9 million for the twelve months
ended  December  31,  1999.  The  decrease   of   $229,000   in   general  and
administrative expenses was primarily attributable to:

     <circle>  Lower  costs associated with the full effect of the YSI  merger
        and a  lower level  of  operations,  primarily  offset  by  a $927,000
        increase   in   the  reserve  recorded  against  accounts  receivable,
        including $700,000 reserved against a receivable from a not-for-profit
        entity.

     As  a  percentage  of  revenues,   general  and  administrative  expenses
increased to 6.5% for the twelve months ended  December 31, 2000 from 5.9% for
the  twelve  months  ended December 31, 1999.  The  increase  in  general  and
administrative expenses  as  a  percentage of revenue is a result of the items
noted  above  and  the  decrease  in  revenues  related  to  the  discontinued
operations at the facilities noted above.

     During the first quarter of 1999,  the  Company recorded merger costs and
related restructuring charges of approximately  $12.1  million  ($9.2 million,
after  taxes  or $0.82 per share) for direct costs related to the merger  with
YSI and certain  other  costs  resulting  from  the restructuring of the newly
combined  operations.   Direct merger costs consisted  primarily  of  fees  to
investment bankers, attorneys,  accountants,  financial  advisors and printing
and other direct costs.  Restructuring charges included severance  and  change
in  control  payments  made  to  certain former officers and employees of YSI;
losses associated with the write-off  of  the  carrying  value of the software
used by YSI, which will not be used by the Company and computer equipment that
is incompatible with that used by the Company; and miscellaneous  other  costs
which  included  the  cancellation  of  lease  agreements  and other long-term
commitments.

     In  September  1999,  the  Company wrote off $1.9 million of  unamortized
deferred financing costs associated  with the Company's previously established
credit facility, which was repaid in full on September 1, 1999.

     The Company recognized a gain on  the  sale  of  assets  of  $1.1 million
during   the   year-ended   December   31,   2000  primarily  related  to  the
discontinuance  of operations at the Crowley, Colorado  and  McLoud,  Oklahoma
facilities, and the  sale  of  undeveloped land in Pacific, Washington.  These
gains were partially offset by the  loss  on the sale of the Tampa Bay Academy
and  the  write-off  of leasehold improvements  due  to  the  closure  of  the
Manhattan, New York facility.

     Interest expense, net of interest income, was $3.2 million for the twelve
months ended December  31, 2000 compared to $3.1 million for the twelve months
ended December 31, 1999,  a net increase in interest expense of $88,000.  This
increase resulted from a decrease  in  interest  income  as  the  Company used
available funds to repay debt and repurchase common stock and increases in the
Company's borrowing rates during 2000.

     For the twelve months ended December 31, 2000, the Company recognized  an
income  tax  provision  of $3.7 million compared to an income tax provision of
$429,000 for the twelve months ended December 31, 1999.  The provision in 1999
principally arose from nondeductible permanent differences and the recognition
of a valuation allowance  for  certain  deferred  tax  assets.   Additionally,
$467,000   related  to  the  extraordinary  gain  on  extinguishment  of  debt
associated with  the  YSI  7%  Convertible Debt, was recognized for the twelve
months ended December 31, 1999.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Revenue increased by $45.5  million  or 24.1% for the year ended December
31,  1999  to  $233.9 million compared to the  same  period  in  1998.   These
increases were primarily due to:

     <circle> An  increase  of  $51.1 million generated from the opening of 11
              juvenile  facilities  (1,546 beds) and 7 adult facilities (4,283
              beds).
     <circle> A net increase of $4.7  million generated from per diem rate and
              occupancy level increases in existing facilities.
     <circle> A  decrease  of $10.3 million  from  the  discontinuance  of  7
              programs (956 beds.)

<PAGE> 19


     Operating expenses increased  $39.2  million  or 23.6% for the year ended
December  31,  1999  to $205.7 million compared to the  same  period  in  1998
primarily due to the opening of the 18 facilities mentioned above.

     As a percentage of  revenues,  operating  expenses decreased to 87.9% for
the twelve months ended December 31, 1999 from 88.3%  for  the  twelve  months
ended  December 31, 1998. Operating costs for the twelve months ended December
31, 1998  were higher as a percentage of revenue than the comparable period in
1999 primarily  due  to the recording of approximately $6.6 million in charges
consisting  of adjustments  to  accruals  and  reserves  associated  with  the
collectibility  of  accounts  receivable,  recoverability  of  certain program
expenses  and  self-insurance  of  employee  medical  costs.  The decrease  in
operating expenses as a percentage of revenue from 1999  to 1998 was partially
offset by an increase in operating expenses from a number  of  facilities that
were in their early stages of operations during the fourth quarter of 1998 and
the first quarter of 1999 and were experiencing less than optimal  utilization
rates.  Depending  on  their  cost structure, facilities that are experiencing
less than 85% utilization rates generally incur significantly higher operating
expenses as a percentage of revenue  compared to those at or near capacity.  A
portion of the decrease was also attributable  to lower costs for resident and
operating expenses as a result of the Company's  ability  to  negotiate better
rates  due  to  its  increased size after the merger.  in addition,  operating
costs as a percentage  of  revenue  were  reduced due to the implementation of
enhanced financial controls and oversight of  the  facilities  acquired in the
merger.

     Startup costs were $1.2 million for the twelve months ended  December 31,
1999 compared to $8.2 million for the twelve months ended December  31,  1998.
Startup  for the twelve months ended December 31, 1999, related to the startup
of the South  Fulton,  Georgia  facility  (288 beds), 300-bed expansion of the
Crowley, Colorado facility and the 45 bed expansion  of  the  Bayamon,  Puerto
Rico  treatment  facility.   During the twelve months ended December 31, 1998,
there were fourteen facilities (5,596 beds) generating start up costs.

     General and administrative  expenses decreased from $21.1 million for the
twelve months ended December 31, 1998  to  $13.9 million for the twelve months
ended  December  31,  1999.  The  decrease  of $7.2  million  in  general  and
administrative expenses was primarily attributable to:

     <circle> A $4.9 million reduction of deferred development costs.
     <circle> A $1.1 million write-off on the  fourth  quarter of 1998 related
              to the buyout of a YSI training contract.
     <circle> The reduction of the administrative staff of the YSI subsidiary.
     <circle> The  synergies  realized  from the  merger including  costs  for
              insurance, office expenses and travel.

     As  a  percentage  of  revenues,  general   and  administrative  expenses
decreased to 5.9% for the twelve months ended December 31, 1999 from 11.2% for
the  twelve  months  ended  December 31, 1998.  The decrease  in  general  and
administrative expenses as a  percentage  of  revenue is a result of the items
noted above and leveraging of the remaining costs over a larger revenue base.

     The Company recorded a charge of $2.3 million  in the twelve months ended
December  31,  1998  relating  to  anticipated losses in connection  with  the
College Station program that the Company closed on September 15, 1998.

     During the first quarter of 1999,  the  Company recorded merger costs and
related restructuring charges of approximately  $12.1  million  ($9.2 million,
after  taxes  or $0.82 per share) for direct costs related to the merger  with
YSI and certain  other  costs  resulting  from  the restructuring of the newly
combined  operations.   Direct merger costs consisted  primarily  of  fees  to
investment bankers, attorneys,  accountants,  financial  advisors and printing
and other direct costs.  Restructuring charges included severance  and  change
in  control  payments  made  to  certain former officers and employees of YSI;
losses associated with the write-off  of  the  carrying  value of the software
used by YSI, which will not be used by the Company and computer equipment that
is incompatible with that used by the Company; and miscellaneous  other  costs
which  included  the  cancellation  of  lease  agreements  and other long-term
commitments.

     The  Company incurred $1.1 million in merger related charges  during  the
twelve months  ended  December  31,  1998  in  connection with the CSC and YSI
merger.  In addition, a small portion of the merger  charges  related to costs
associated with the pooling transaction with CCI which was consummated on June
30, 1998.

<PAGE> 20


     In  September  1999,  the  Company  wrote off $1.9 million of unamortized
deferred financing costs associated with the  Company's previously established
credit facility, which was repaid in full on September 1, 1999.

     Interest expense, net of interest income, was $3.1 million for the twelve
months ended December 31, 1999 compared to $2.6  million for the twelve months
ended December 31, 1998, a net increase in interest  expense  of  $.5 million.
This  increase  resulted  from borrowings on the Company's credit facility  to
finance the growth of the Company.

     For the twelve months  ended  December 31, 1999 the Company recognized an
income tax provision of $429,000 and  an  income  tax  provision  of  $467,000
related  to  the extraordinary gain on extinguishment of debt associated  with
the YSI 7% Convertible  Debt.   For  the twelve months ended December 31, 1998
the Company recognized a benefit for income  taxes  of  $1.6  million  and  an
income  tax benefit of $3.2 million related to the cumulative effect of change
in accounting  principle  representing an effective tax benefit of 32.4%.  The
increase in  the effective  tax  rate was a result of expensing certain merger
costs that are non-deductible for tax purposes.

     In September 1999, the Company  recorded  an  extraordinary  gain  on the
early  extinguishment  of  debt  of  $716,000  (net  of  tax of $467,000).  In
anticipation  of  entering  into  the new financing arrangement,  the  Company
agreed with certain holders of the 7% Convertible Subordinated Debentures (who
had previously agreed to postpone the  redemption  of  their  Debentures until
March 31, 2000) to redeem their Debentures upon the closing of  the new credit
facilities.  The agreed upon redemption price was equal to 90% of the original
principal  amount  plus accrued but unpaid interest.  In September  1999,  the
Company used approximately  $14.8  million  of  its available credit to redeem
$16.3 million face value of Debentures leaving a balance of $14.2 million.

     Due to the early adoption of SOP 98-5, for the  year  ended  December 31,
1998  the  Company  expensed  startup  and deferred development costs totaling
$11.6 million.  In addition, the Company  was  required to record a cumulative
effect  of  change in accounting principle of $4.9  million  (net  of  tax  of
$3.2 million) retroactively to January 1, 1998 (See Note A of the notes to the
consolidated financial statements).


LIQUIDITY AND CAPITAL RESOURCES

     The  Company  has  historically  financed  its  operations  through  bank
borrowings,  private  placements,  the  sale  of  public  securities  and cash
generated from operations.

     The  Company  had  working  capital at December 31, 2000 of $18.8 million
compared to $22.3 million at December  31,  1999.  The Company's current ratio
decreased to 1.70 to 1 at December 31, 2000,  from  1.83  to 1 at December 31,
1999.  The decrease in the current ratio is attributable to  cash  used to pay
down  debt  and  the  purchase  of  treasury  stock, partially offset by other
changes in working capital.

     Net cash of $10.0 million was provided by  operating  activities  for the
year  ended  December  31,  2000  as  compared  to  $6.5  million  provided by
operations for the year ended December 31, 1999.  The $3.5 million change  was
attributed primarily to:

     <circle>  The  payment  of  cash  expenses  related to the merger of $7.7
               million in 1999.
     <circle>  The  reduction  in accrued liabilities  related  to  a  monthly
               resident fee that is contractually  prepaid, but  was  paid  by
               the customer after December 31, 2000.
     <circle>  A  decrease   in  accrued  expenses  and  accounts  payable  of
               approximately $1.8 million during 2000.
     <circle>  The payment of $1.2  million  for Federal and State income taxes
               in 2000.

     Net cash of $326,000 was provided by investing activities during the year
ended December 31, 2000 as compared to $2.8 million  being  used  in  the year
ended  December  31,  1999.   The  $3.1  million increase in cash provided was
primarily attributable to proceeds from the sale of assets in 2000.

     Net cash of $17.3 million was used in  financing  activities  in the year
ended  December  31,  2000  as  compared  to  $4.3  million  used in financing
activities  in  the  year ended December 31, 1999.  During 2000 the  Company's
primary financing activities consisted of:

<PAGE> 21


     <circle> Net repayment of senior debt of $750,000.
     <circle> Repayment of subordinated debt of $14.2 million.
     <circle> Repurchase of common stock of $2.8 million.

     During 1999 the Company's primary funding activities consisted of:

     <circle> Proceeds of $3.3 million from the exercise of stock warrants and
              options.
     <circle> Net proceeds from senior debt of $11.9 million.
     <circle> Redemption of subordinated debt totaling $17.5 million.
     <circle> Payment of debt issuance costs of $2.4 million.

     On August 31, 1999,  the  Company  finalized a financing arrangement with
Summit Bank, N.A, which was amended in November  2000.   The  amendment to the
Credit Agreement will allow the Company the option of utilizing  a  percentage
of  both:   (i)  excess  cash flow (as defined by the agreement) and (ii)  the
proceeds  of  the sale of certain  assets,  to  repurchase  Company  stock  in
furtherance of the Company's stock repurchase plan (see Treasury Stock below).
Borrowings under  the  line  are  subject to compliance with various financial
covenants and borrowing base criteria  (which were also amended).  The amended
Credit Agreement is effective retroactive  to  September 30, 2000. The Company
is in compliance with the amended loan covenants  as  of  December  31,  2000.
This financing arrangement is secured by all of the assets of the Company  and
consists of the following components:

<circle>$25 million (as amended) revolving line of credit to be used by
        the Company  and  its  subsidiaries  for  working  capital and general
        corporate  purposes  and  to  finance  the acquisition of  facilities,
        properties and other businesses.   At December  31,  2000  the Company
        had $10.0 million outstanding under the revolving line of credit.

<circle>$20 million delayed drawdown credit facility which provided  the
        Company with additional financing to be used to fund the redemption of
        the  outstanding  7% Convertible Subordinated Debentures due March 31,
        2000  that  were issued  by  Youth  Services  International,  Inc.,  a
        subsidiary of  the  Company (the "Debentures").  At December 31, 2000,
        the Company had $12.7  million  outstanding  on  the  delayed drawdown
        credit facility.

<circle>$35 million (as amended) in financing which may be used  to  purchase
        land  and  property  and to finance the construction of new facilities
        through an operating lease  arrangement.   The  Company  currently has
        approximately  $24.9  million  outstanding under this operating  lease
        financing facility.

     The $25 million revolving line of credit  and  the  $35 million operating
lease financing facility mature on August 31, 2002.  They bear a variable rate
of  interest  on a margin over the prime rate or LIBOR rate.   The  margin  is
determined by the ratio of funded debt to adjusted EBITDA and ranges from 1.0%
to 2.0% for prime  rate  and  from  2.5%  to  3.5%  for LIBOR rate loans.  The
Company  has the discretionary ability to elect either  prime  rate  or  LIBOR
rate.

     The $20  million  Delayed  Drawdown  note  matures  March 31, 2003.  This
credit  facility  bears  interest at 1% over the prime rate with  payments  of
principal and interest payable quarterly.

     The Company's ability  to  compete  for future capital intensive projects
and repurchase stock is dependent upon, among  other  things,  its  ability to
meet  certain  financial  covenants  included  in  the  Credit  Agreement.   A
continued  decline  in  the  Company's  financial  performance, as a result of
decreased occupancy or an increase in operational expenses,  could  negatively
impact  the  Company's  ability to meet these covenants, and could, therefore,
limit the Company's access to capital or ability to repurchase stock.

<PAGE> 22


7% CONVERTIBLE SUBORDINATED DEBENTURES

     On March 31, 1999, in  connection  with  the  merger, the Company assumed
$32.2 million of 7% Convertible Subordinated Debentures  Due  February 1, 2006
originally issued during the year ended June 30, 1996 by YSI.   Due to certain
provisions in the indenture, the change of control as a result of  the  merger
enabled  the holder to demand immediate redemption by the Company.  Agreements
were reached with certain holders representing $30.5 million of the total debt
to defer payment until March 31, 2000.

     In anticipation  of entering into the credit facilities with Summit Bank,
the Company agreed with  certain holders of the Debentures (who had previously
agreed to postpone the redemption of their Debentures until March 31, 2000) to
redeem their Debentures upon  the  closing  of  the  credit  facilities  at  a
redemption  price  equal to 90% of the original principal amount thereof, plus
accrued but unpaid interest.   The Company used approximately $14.8 million of
its available credit under the Delayed  Drawdown  facility and other resources
to  redeem  $16.3 million face value of these Debentures.   A  total  of  $1.7
million was repaid from working capital during the second quarter of 1999.  An
additional $312,000  was  paid  on  the  delayed drawdown facility in December
leaving an available balance of $5.6 million  at  December 31, 1999 to be used
to redeem additional Debentures on or before March 31, 2000.

     Substantially all of  the remaining $14.2 million in  principal amount of
these Debentures was paid on March 31, 2000 at 100% of the original  principal
amount.  As of December 31, 2000, $10,000  remains outstanding pending receipt
of the original Debentures from the Debenture holders.

TREASURY STOCK

     On October 20, 2000, the Company announced  that  its  Board of Directors
had  authorized  a  share  repurchase  program  of  up to $10.0 million.   The
repurchases are funded from the proceeds of asset sales  and excess cash flow.
In  conjunction with the stock repurchase plan, the Company  renegotiated  its
Credit  Agreement  (see  above).   The  Company repurchased 1.1 million shares
during the quarter ended December 31, 2000.


                                 RISK FACTORS

     Investors should carefully consider the following factors that may affect
future results, together with the other information  contained  in this Annual
Report  on  Form  10-K,  in  evaluating  the  Company  before  purchasing  its
securities.  In particular, prospective investors should note that this Annual
Report on Form 10-K contains forward-looking statements within the  meaning of
the  Private Securities Litigation Reform Act of 1995 and that actual  results
could differ materially from those contemplated by such statements.  See "Safe
Harbor  Statement  under the Private Securities Litigation Reform Act of 1995"
on page 3 of this Annual  Report  on  Form  10-K.   The  factors  listed below
represent  certain  important  factors  the Company believes could cause  such
results to differ.  These factors are not  intended  to  represent  a complete
list of the general or specific risks that may affect the Company.  It  should
be recognized that other risks may be significant, presently or in the future,
and the risks set forth below may affect the Company to a greater extend  than
indicated.

DECREASES  IN  OCCUPANCY  LEVELS  AT OUR FACILITIES OR RISING COSTS MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

     While the non-personnel cost structures  of the facilities we operate are
relatively fixed, a substantial portion of our  revenues  are  generated under
facility management contracts with government agencies that specify a net rate
per  day  per inmate or a per diem rate, with no minimum guaranteed  occupancy
levels. Under this per diem rate structure, a decrease in occupancy levels may
have  a material  adverse  effect  on  our  financial  condition,  results  of
operations and liquidity. We are each dependent upon the governmental agencies
with which  we  have management contracts to provide inmates for, and maintain
the occupancy level  of,  our  managed  facilities.  We  cannot  control those
occupancy levels. In addition, our ability to estimate and control  our  costs
with respect to all of these contracts is critical to our profitability.

     During  2000,  the  Company  experienced  a  significant  decline  in the
occupancy   levels  of  certain  of  its  facilities,  which  has  caused  its
contributions  from operations to decline. Occupancy levels may decline at the

<PAGE> 23


Company's facilities  in  the  future and facilities might not reach occupancy
levels required to produce profitability.  In addition, personnel expenses are
a material cost of the Company's operation.

THE NON-RENEWAL OR TERMINATION OF  OUR  FACILITY  MANAGEMENT  CONTRACTS, WHICH
GENERALLY RANGE FROM ONE TO THREE YEARS, COULD HAVE A MATERIAL  ADVERSE EFFECT
ON OUR BUSINESS.

     As  is  typical  in  our industry, our facility management contracts  are
short-term, generally ranging  from  one  to  three  years,  with  renewal  or
extension  options  as well as termination for convenience clauses in favor of
the contracting governmental  agency.  Many  YSI contracts renew annually. Our
facility  management  contracts  may  not  be renewed  or  our  customers  may
terminate such contracts in accordance with  their  right  to  do so. The non-
renewal  or  termination of any of these contracts could materially  adversely
affect our financial condition, results of operations and liquidity, including
our ability to  secure  new  facility management contracts from others. Of the
multi-year contracts in place  as  of  December  31, 2000, seventeen contracts
representing approximately 2,700 beds are up for renewal in 2001.

     A  contracting  governmental  agency often has a  right  to  terminate  a
facility contract with or without cause  by  giving  us  adequate  notice.  At
times  a  contracting  government  agency  may  notify  us that we are not  in
compliance with certain provisions of a facility contract. Our failure to cure
any such noncompliance could result in termination of the  facility  contract,
which  could  materially adversely affect our financial condition, results  of
operations and  liquidity. If a governmental agency does not receive necessary
appropriations, it  could  terminate its contract or reduce the management fee
payable to us. Even if funds  are  appropriated,  delays in payments may occur
which could have a material adverse effect on our financial condition, results
of operations and liquidity. We currently lease many of the facilities that we
manage.  If a management contract for a leased facility  were  terminated,  we
would continue to be obligated to make lease payments until the lease expires.

OUR ABILITY  TO  SECURE  NEW  CONTRACTS  TO  DEVELOP  AND  MANAGE CORRECTIONAL
DETENTION FACILITIES DEPENDS ON MANY FACTORS WE CANNOT CONTROL.

   Our growth is generally dependent upon our ability to obtain  new contracts
to develop and manage new correctional and detention facilities. This  depends
on a number of factors we cannot control, including crime rates and sentencing
patterns  in  various  jurisdictions and acceptance of privatization.  Certain
jurisdictions recently have  required successful bidders to make a significant
capital investment in connection with the financing of a particular project, a
trend  which will require the combined  company  to  have  sufficient  capital
resources  to  compete effectively. We may not be able to obtain these capital
resources when needed.

WE FACE RISKS AND  UNCERTAINTIES  IN  EXPANDING  OUR OPERATIONS OUTSIDE OF THE
UNITED  STATES  AND ITS TERRITORIES, INCLUDING NEW AND  UNFAMILIAR  REGULATORY
REQUIREMENTS, CURRENCY  EXCHANGE  ISSUES,  POLITICAL  AND ECONOMIC ISSUES, AND
STAFFING AND MANAGING THESE OPERATIONS.

   Our business plan includes the possible expansion of  our  operations  into
markets  outside  of the United States and its territories. We may not succeed
in entering any of these markets, and if we are successful, we will be subject
to the risks of international  operations. These risks include various new and
unfamiliar regulatory requirements,  issues  relating  to  currency  exchange,
political and economic changes and disruptions, tariffs or other barriers, and
difficulties in staffing and managing foreign operations.

FUTURE  ACQUISITIONS  MAY  INVOLVE  SPECIAL  RISKS, INCLUDING POSSIBLE ADVERSE
SHORT-TERM  EFFECTS  ON  OUR  OPERATING  RESULTS,  DIVERSION  OF  MANAGEMENT'S
ATTENTION FROM EXISTING BUSINESS, DEPENDENCE ON KEY  PERSONNEL,  UNANTICIPATED
LIABILITIES AND COSTS OF AMORTIZATION OF INTANGIBLE ASSETS. ANY OF THESE RISKS
COULD MATERIALLY ADVERSELY AFFECT US.

   The  Company  also  intends  to  grow  through  selective  acquisitions  of
companies  and  individual facilities although there are no current  plans  or
agreements to acquire  any  other companies. We may not be able to identify or
acquire any new company or facility  and  we  may  not  be  able to profitably
manage  acquired operations. Acquisitions involve a number of  special  risks,
including  possible  adverse  short-term  effects  on  our  operating results,
diversion  of  management's  attention  from existing business, dependence  on
retaining,  hiring  and  training  key  personnel,   risks   associated   with
unanticipated   liabilities,   and  the  costs  of  amortization  of  acquired
intangible assets, any of which  could  have  a material adverse effect on our
financial condition, results of operations and liquidity.

<PAGE> 24


PUBLIC RESISTANCE TO PRIVATIZATION OF CORRECTIONAL  AND  DETENTION  FACILITIES
COULD RESULT IN OUR INABILITY TO OBTAIN NEW CONTRACTS OR THE LOSS OF  EXISTING
CONTRACTS.

   The  operation of correctional and detention facilities by private entities
is a relatively new concept and has not achieved complete acceptance by either
governments  or  the public. The movement toward privatization of correctional
and detention facilities  has also encountered resistance from certain groups,
such as labor unions and others  that  believe that correctional and detention
facility  operations  should  only  be  conducted  by  governmental  agencies.
Political  changes or changes in attitudes  toward  private  correctional  and
detention facilities  management  in any market in which we will operate could
result in significant changes to the  previous  acceptance of privatization in
such market and the subsequent loss of facility management contracts. Further,
some sectors of the federal government and some state  and  local  governments
are   not   legally   permitted   to   delegate  their  traditional  operating
responsibilities  for  correctional  and  detention   facilities   to  private
companies.

OPPOSITION TO FACILITY LOCATION MAY ADVERSELY IMPACT THE COMPANY'S ABILITY  TO
DEVELOP SITES FOR NEW FACILITY LOCATIONS.

     The Company's success in opening new facilities is dependent in part upon
its  ability  to  obtain  facility  sites  that  can  be leased or acquired on
economically favorable terms.  Some locations may be in or near populous areas
and, therefore, may generate legal action or other forms  of  opposition  from
residents  in  areas  surrounding  a  proposed  site.   Certain facilities are
already located in or adjacent to such areas and, in one instance, the Company
abandoned  its  plan  to  expand  a facility after consulting  with  community
leaders who raised concerns about the  expansion.   There  can be no assurance
the Company will be able to open new facilities or expand existing  facilities
in any particular location.

ADVERSE PUBLICITY COULD MATERIALLY ADVERSELY AFFECT THE COMPANY'S BUSINESS.

     The Company's business is subject to public scrutiny.  An escape, riot or
other  disturbance  at a Company-managed facility or another privately-managed
facility may result in  publicity  adverse  to the Company and the industry in
which  it  operates,  which could materially adversely  affect  the  Company's
business.

OUR FAILURE TO COMPLY WITH  UNIQUE  GOVERNMENTAL  REGULATION  COULD  RESULT IN
MATERIAL  PENALTIES  OR  NON-RENEWAL OR TERMINATION OF OUR FACILITY MANAGEMENT
CONTRACTS.

   The industry in which we operate is subject to extensive federal, state and
local regulations, including  education,  health  care and safety regulations,
which are administered by many regulatory authorities. Some of the regulations
are  unique to our industry, and the combination of  regulations  we  face  is
unique.  We  may  not  always  successfully comply with these regulations, and
failure  to  comply  can  result  in  material  penalties  or  non-renewal  or
termination  of our facility management  contracts.  Our  contracts  typically
include  extensive   reporting   requirements,  and  supervision  and  on-site
monitoring  by  representatives  of  the  contracting  governmental  agencies.
Corrections officers and youth care workers  are  customarily required to meet
certain  training  standards and, in some instances,  facility  personnel  are
required to be licensed  and  subject  to  background  investigation.  Certain
jurisdictions also require us to award subcontracts on a competitive basis  or
to  subcontract  with  businesses  owned  by  members  of minority groups. Our
businesses  also  are  subject  to  operational and financial  audits  by  the
governmental agencies with which we have  contracts.  The  outcomes  of  these
audits  could  have  a  material  adverse  effect  on  our business, financial
condition or results of operations.

DISTURBANCES AT ONE OR MORE OF OUR FACILITIES COULD RESULT IN CLOSURE OF THESE
FACILITIES BY THE RELEVANT GOVERNMENTAL ENTITIES AND A LOSS  OF  OUR CONTRACTS
TO MANAGE THESE FACILITIES.

     An escape, riot or other disturbance at one of our facilities  could have
a  material  adverse  effect on our financial condition, results of operations
and liquidity. Among other things, the adverse publicity generated as a result
any such event could have  a  material adverse effect on our ability to retain
an existing contract or obtain  future  ones.  In  addition,  if such an event
occurs, there is a possibility that the facility where the event  occurred may
be  shut  down  by the relevant governmental entity. A closure of any  of  our
facilities could  have  a  material adverse effect on our financial condition,
results of operations and liquidity.

<PAGE> 25


INSURANCE  COVERAGE  MAY  BE INADEQUATE  OR  UNAVAILABLE  TO  COVER  POTENTIAL
LIABILITY RELATED TO MANAGEMENT  OF  CORRECTIONAL  AND DETENTION FACILITIES OR
ITS COSTS MAY ADVERSELY AFFECT RESULTS OF OPERATIONS.

     Our  management of correctional and detention facilities  exposes  us  to
potential third-party  claims  or litigation by prisoners or other persons for
personal injury or other damages,  including  damages  resulting  from contact
with  our facilities, programs, personnel or students (including students  who
leave our  facilities  without  our  authorization  and cause bodily injury or
property  damage). Currently, we are subject to actions  initiated  by  former
employees, inmates and detainees alleging assault, sexual harassment, personal
injury, property  damage,  and  other  injuries.  In  addition, our management
contracts  generally require us to indemnify the governmental  agency  against
any damages to which the governmental agency may be subject in connection with
such claims  or  litigation.  We  maintain  insurance  programs  that  provide
coverage  for  certain liability risks faced by us, including personal injury,
bodily injury, death or property damage to a third party where we are found to
be negligent. There  is  no  assurance,  however,  that  our insurance will be
adequate to cover potential third-party claims. In addition,  we are unable to
secure  insurance  for  some  unique business risks including riot  and  civil
commotion or the acts of an escaped offender.

     Committed offenders often  seek  redress  in  federal  courts pursuant to
federal  civil rights statutes for alleged violations of their  constitutional
rights caused  by  the  overall  condition of their confinement or by specific
conditions or incidents. We may be  subject  to liability if any such claim or
proceeding  is  made  or instituted against us or  the  state  with  which  we
contract or subcontract.

     The Company continues  to incur increased  costs for insurance.  Workers'
compensation and general liability  insurance represent  significant costs  to
the Company.

STAFF RECRUITMENT DIFFICULTIES MAY IMPACT OPERATIONS.

      Many of our facilities are  located  in  areas  where  there are smaller
populations  and/or  where  there  are more jobs than available workers.   Our
choice of employees is further limited  by our drug free workplace status, and
licensure and other policy prohibitions against  hiring  individuals with past
criminal  histories.  However, many of our contracts require  the  Company  to
have certain numbers and certain types of employees on duty at the facility at
all times.   Although the Company makes rigorous efforts to recruit and retain
a sufficient work  force,  it is sometimes unable to achieve adequate staffing
without significant overtime  expense.   This additional expense may adversely
effect the Company's results.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.
          ----------------------------------------------------------

     The Company's current financing is subject  to variable rates of interest
and  is therefore exposed to fluctuations in interest  rates.   The  Company's
subordinated  debt and mortgage on property accrues interest at fixed rates of
interest.

     The table below presents the principal amounts, weighted average interest
rates, fair value  and  other terms, by year of expected maturity, required to
evaluate the expected cash  flows  and  sensitivity  to interest rate changes.
Actual maturities may differ because of prepayment rights.

<TABLE>
<CAPTION>
                                                        Expected Maturity Dates
                                                        -----------------------
                                                                            There             Fair
                                    2001     2002    2003    2004    2005   after   Total    Value
                                    ----     ----    ----    ----    ----   ----    -----    -----
<S>                                 <C>      <C>     <C>     <C>     <C>    <C>     <C>      <C>
Fixed rate debt
 (in thousands)                     6,679    6,029       3       3       4    299   13,017   13,017
                                    =====   ======   =====   =====   =====  =====   ======   ======
Weighted average Interest
 Rate at December 31, 2000   10.49%
                             ======

Variable rate LIBOR
debt (in thousands)                     -   10,000       -       -       -      -   10,000   10,000
                                    =====   ======   =====   =====   =====  =====   ======   ======
Weighted average interest
 Rate at December 31, 2000    9.15%
                              =====
</TABLE>

<PAGE> 26


Item 8.   Financial Statements and Supplementary Data.
          -------------------------------------------

     The information required by this item is contained on Pages F-1 through
F-27 hereof.


Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure.
          ---------------------------------------------------------------

     None.


                                   PART III

Item 10.  Directors and Executive Officers of the Registrant.
          --------------------------------------------------

     Information Regarding Directors and Officers

          The following table sets forth the Directors and Executive Officers
     of the Company, together with their respective ages and positions.

<TABLE>
<CAPTION>
Name                                Age  Position with CSC
----                                ---  -----------------
<S>                                  <C> <C>

James F. Slattery(1)                 51  President, Chief Executive Officer and
                                         Chairman of the Board
Michael C. Garretson                 53  Executive Vice President and
                                         Chief Operating Officer
Ira M. Cotler                        37  Executive Vice President and
                                         Chief Financial Officer
Aaron Speisman                       52  Executive Vice President and Director
Richard P. Staley                    69  Senior Vice President and Director
Stuart M. Gerson(1)(2)(3)(4)(5)      57  Director
Shimmie Horn(2)                      28  Director
Bobbie L. Huskey(2)(4)(5)            52  Director
Melvin T. Stith(3)(4)(5)             54  Director

</TABLE>

(1) Member of the Rights Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Stock Options Committee
(5) Member of the Strategic Alternatives Committee

     James  F.  Slattery  co-founded  CSC  in  October  1987  and has been its
President,  Chief  Executive Officer and a director since CSC's inception  and
Chairman since August  1994. Prior to co-founding CSC, Mr. Slattery had been a
managing partner of Merco  Properties,  Inc.,  a hotel operation company, Vice
President of Coastal Investment Group, a real estate  development company, and
had held several management positions with the Sheraton Hotel Corporation.

     Michael  C.  Garretson  joined the Company in August  1994  as  its  Vice
President of Business Development.  In October 1995, he became the Director of
Planning and Economic Development for  the  City  of Jacksonville, Florida and
served in such position until rejoining the Company  in  January  1996, during
which  period he also acted as a consultant to the company. Mr. Garretson  was
elected  Executive  Vice  President and Chief Operating Officer in March 1996.
From September 1993 to August 1994, Mr. Garretson was Senior Vice President of
Wackenhut Corrections Corporation  and  from  August  1990  to August 1993 was
Director of Area Development for Euro Disney S.C.A.

     Ira M. Cotler was elected Chief Financial Officer in January 1998. He had
served as the Company's Executive Vice President-Finance since  joining CSC in
March 1996. Prior to joining the Company, from June 1989 to February 1996, Mr.
Cotler  was  employed  by Janney Montgomery Scott Inc., an investment  banking
firm, serving in several  capacities,  most  recently  as  Vice  President  of
Corporate Finance.

<PAGE> 27


     Aaron  Speisman co-founded CSC in October 1987 and has been its Executive
Vice President  and  a  director  since  CSC's inception. From October 1987 to
March 1994, Mr. Speisman also served as Chief  Financial Officer of CSC. Since
June 1, 1996, Mr. Speisman has been employed by CSC on a part-time basis.

     Richard P. Staley has served as a Director  since May 1994.  From 1988 to
1998, Mr. Staley was the Company's Senior Vice President  of Operations and in
1999  was  named Senior Vice President of Strategic Planning.   From  1984  to
1987, Mr. Staley  was  the  Evaluation and Compliance Director for Corrections
Corporation of America and, from 1953 to 1983, held various positions with the
United States Department of Justice,  Immigration  and Naturalization Service.
Mr. Staley is a certified American Correctional Association  standards auditor
for jail and detention facilities.

     Stuart M. Gerson was elected a director of CSC in June 1994.  Since March
1993, Mr. Gerson has been a member of the law firm of Epstein  Becker & Green,
P.C.  From January 1993 to March 1993, he was acting Attorney General  of  the
United  States.   From  January  1989  to  January  1993,  Mr.  Gerson was the
Assistant  U.S.  Attorney General for the Civil Division of the Department  of
Justice.

     Shimmie Horn  was  elected  a  director of CSC in June 1996.  Mr. Horn is
President of Iroquois Properties, Inc.  a  real  estate  holding company.  Mr.
Horn, received a B.A. degree in Economics from Yeshiva College  in  1993,  and
graduated  from  the Benjamin Cardozo School of Law in 1996.  He is the son of
the late Morris Horn,  the  former Chairman of the Board and a founder of CSC,
and Esther Horn, a principal stockholder of CSC.

     Bobbie L. Huskey was a director  of  Youth  Services International, Inc.,
which was acquired by CSC in March 1999, at which  time  Ms.  Huskey  became a
director of the Company.  Ms. Huskey has been president of Huskey & Associates
since  1984  and has 29 years in corrections, specializing in juvenile justice
planning, facilities  and program development.  She has served as a consultant
to  more than  one-half of  the  states in  the U.S.  Ms. Huskey  has hands-on
experience in juvenile justice facilities, having worked with delinquent girls
in  a treatment facility in Kentucky  and has  served in  executive leadership
positions in corrections in Virginia, Indiana and Chicago.  She has held every
elective office in the American Correctional Association, including president,
and was a member of the association's  executive  committee for 12 years.  Ms.
Huskey has authored numerous articles and  appeared on national news  programs
discussing  corrections and  juvenile justice  issues.  She  has  won national
awards  including  the E.R. Cass Award  for  outstanding  achievement  in  the
correctional field.

     Melvin  T.  Stith was elected a director of the Company in November 1994.
Since July 1991, Mr.  Stith  has  been  Dean  of  the Florida State University
College of Business.  From December 1989 to July 1991,  Mr. Stith was Chairman
of  the  Marketing  Department  of  the  Florida State University  College  of
Business where he was also a Professor.  Mr.  Stith  is  also  a  director  of
Sprint and United Telephone of Florida.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Section  16(a)  of  the  Securities  Exchange  Act  of  1934 requires the
Company's officers and directors and persons who own more than  ten percent of
a  registered  class  of  the  Company's equity securities (collectively,  the
"Reporting Persons"), to file reports  of  ownership  and changes in ownership
with the Securities and Exchange Commission and to furnish  the  Company  with
copies  of  these reports.  Based solely on the Company's review of the copies
of such forms  received  by it during the Company's fiscal year ended December
31, 2000, the Company believes  that  the  Reporting Persons complied with all
filing requirements applicable to them.

<PAGE> 28


Item 11.  Executive Compensation.
          ----------------------

     The following table sets  forth  a  summary  of  the compensation paid or
accrued by CSC during the three fiscal years ended December 31, 2000, 1999 and
1998  with respect to CSC's Chief Executive Officer and  for  CSC's  executive
officers  whose total cash compensation for 2000 exceeded $100,000 (the "Named
Executives"):

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                             Long-Term
                             Annual Compensation                            Compensation
                             -------------------                            ------------
                                                                       Number of
                                                        Other Annual  Securities    All Other
                                      Salary     Bonus  Compensation  Underlying  Compensation
Name and Principal Position    Year     ($)       ($)      ($)(1)       Options        (2)
---------------------------    ----   -------    -----  ------------  ----------  ------------

<S>                            <C>    <C>       <C>        <C>         <C>           <C>

James F. Slattery              2000   288,744   160,000     4,311            0        29,109
  Chairman, Chief              1999   270,000   200,000    11,815       40,000         9,625
  Executive Officer            1998   260,519   200,000    11,815      150,000        18,365
  and President

Michael Garretson(3)           2000   213,692         0     5,077(3)         0           516
  Executive Vice President,    1999   194,307         0    12,000(3)         0           292
  Chief Operating Officer      1998   128,814    75,000    12,000(3)         0           292

Ira Cotler                     2000   208,461    23,334     6,000            0            76
  Executive Vice President,    1999   191,077    82,827     6,000       25,000            67
  Chief Financial Officer      1998   141,431    75,000     6,000            0            67
</TABLE>
-----------------
(1) Consists of car lease payments.
(2) Consists of life insurance premiums.
(3) Also includes housing allowance.

<PAGE> 29


EMPLOYMENT AGREEMENTS

     On September  29, 1999, CSC entered into an employment agreement with its
Chief Executive Officer,  James F. Slattery, replacing the existing employment
agreement between the Company  and  Mr.  Slattery dated February 17, 1998. The
new  agreement  has  a  term  of  three years with  automatic  annual  renewal
provisions.  Mr. Slattery's minimum  annual  compensation  is  $270,000  until
September  29, 2000, thereafter the base compensation will be adjusted through
annual costs of living increases of at least 3.5%.  Mr. Slattery also receives
use of an automobile,  reimbursement  of  business expenses, health insurance,
related benefits and a bonus equal to 5% of CSC's pre-tax profits in excess of
$1,000,000, such bonus not to exceed $200,000.

     Also,  on  September  29, 1999, CSC entered  into  a  Change  in  Control
Agreement with Mr. Slattery  which provides for payments of specified benefits
to  Mr.  Slattery  in  the event his  employment  terminates  under  specified
circumstances following  a  change in control of CSC. For the purposes of this
agreement, a change in control is deemed to take place whenever:

<circle>for any  period  of  two  consecutive  years  beginning  on  any  date
        from and after September 29, 1999,  if  the  Board of Directors at any
        time during or at the end of such period is not  comprised  so  that a
        majority  of  the  directors are either (i) individuals who constitute
        the Board of Directors  at  the  beginning  of  such  period  or  (ii)
        individuals  who  joined the Board during such period who were elected
        or nominated for election pursuant to a vote of at least two-thirds of
        the directors then  still  in  office who either were directors at the
        beginning of the period or whose  election  or nomination for election
        was previously so approved (but not including,  for purposes of (i) or
        (ii),  a  director  designated  by  a person who has entered  into  an
        agreement with the Company to effect a transaction described in clause
        (B) of Subsection 1(b) of the Change  in Control Agreement relating to
        stockholder approval of a merger, share  exchange  or consolidation of
        the Company);
<circle>the  stockholders  of   CSC  approve  a  merger,   share  exchange  or
        consolidation  of  CSC  with  or  into  any  other corporation wherein
        immediately following such merger, the stockholders  of  CSC  prior to
        the  transaction own less than 51% of the outstanding voting stock  of
        CSC (if  it  is  the  survivor  of  the  transaction) or the surviving
        entity; or
<circle>the  stockholders  of  CSC  approve  a  plan  of  complete liquidation
        of CSC or an agreement for the sale or disposition  by  CSC  of all or
        substantially all CSC's assets.

     Benefits made available to Mr. Slattery under the terms of the change  in
control  agreement  in  the  event that his employment is terminated under the
above specified circumstances may include:

<circle>payment  of  his  full  base  salary  through  the date of termination
        at the rate in effect at the time notice of termination is given, plus
        all other amounts and benefits to which Mr. Slattery is entitled under
        his employment agreement or pursuant to any plan of CSC in which he is
        participating at the time of termination;
<circle>a lump  sum  severance  payment  equal  to  the sum of (A) three times
        Mr.  Slattery's  annual base salary  and  incentive  bonus  in  effect
        immediately prior  to  the occurrence of the change in control and (B)
        $1,000,000 as payment for  Mr.  Slattery's  agreement  to  extend  his
        agreement  not to compete under his employment agreement to four years
        following the date of termination;
<circle>any  deferred  compensation  allocated  or  credited  to  Mr. Slattery
        or his account as of the date of termination;
<circle>Certain  additional  payments  to cover  any  excise  tax  imposed  by
        Section 4999 of the Internal Revenue Code;
<circle>maintenance  of  life,  disability,  accident   and  health  insurance
        benefits  substantially  similar  to  those  that  Mr.  Slattery   was
        receiving  immediately  prior  to  the  notice of termination, for the
        period beginning on the date of termination  and ending on the earlier
        of (A) the end of the 36th month after the date  of termination or (B)
        the  date  Mr. Slattery becomes eligible for such benefits  under  any
        plan offered  by  an employer with which he is employed on a full-time
        basis; and
<circle>All   benefits  payable   to  Mr.  Slattery   under   any   applicable
        retirement, thrift, and incentive plans as well as any other  plan  or
        agreement  sponsored  by  CSC  or  any of its subsidiaries relating to
        retirement benefits.

<PAGE> 30


     On  December  5, 1998  CSC  entered  into  a  new three  year  employment
agreement    with   Mr.  Garretson,  which   provides   for   minimum   annual
compensation  of $200,000,  annual  salary  increases,  automobile allowances,
reimbursement  of  business  expenses,  health  or  disability  insurance, and
related benefits. The agreement also entitles Mr. Garretson to an annual bonus
of $100,000 in the first year and $110,000, and  $120,000 in  the  second  and
third years respectively, provided that the CSC's total bed count at each year
end exceeds certain amounts.

     On  May  3,  1999,  CSC  amended the employment agreement with its  Chief
Financial Officer, Ira Cotler,  dated  July  9,  1997 to provide for a term of
three years with automatic annual renewal provisions.   Mr.  Cotler's  minimum
annual  compensation  is  $200,000  until  February  26,  2000, $210,000 until
February 26, 2001 and an amount to be renegotiated by the parties,  but  in no
event  less  than  $210,000 until February 26, 2002.  Mr. Cotler also receives
automobile allowances and a bonus equal to four tenths of 1% of CSC's earnings
before interests, taxes,  depreciation,  amortization and start-up, such bonus
not to exceed $100,000.  Mr. Cotler is entitled  to  terminate  his employment
with  CSC  and  to  receive in a lump sum payment three times his annual  base
salary plus a bonus at  the  bonus  cap  ($100,000  per  annum or the pro rata
amount) if he is required to relocate to a location not within 50 miles of his
present  office,  except for required travel on CSC's business  to  an  extent
substantially consistent with his present travel obligations.

     Also, on May 3, 1999, CSC entered into a Change in Control Agreement with
Ira Cotler which provides  for payments to Mr. Cotler of specified benefits in
the  event  that  his  employment  terminates  under  specified  circumstances
following a change in control  of  CSC.  The definition of a change in control
is substantially similar to that set forth in Mr. Slattery's change in control
agreement previously described.

     Benefits made available to Mr.  Cotler  under  the terms of the change in
control  agreement in the event that his employment is  terminated  under  the
above specified circumstances may include:

<circle>Payment of  his  full  base  salary  through  the  date of termination
        at the rate in effect at the time notice of termination is given, plus
        all other  amounts  and benefits to which Mr. Cotler is entitled under
        his employment agreement or pursuant to any plan of CSC in which he is
        participating at the time of termination;
<circle>A  lump  sum  severance  payment  equal  to  the sum of (A) 2.99 times
        Mr. Cotler's annual base salary  in  effect  immediately  prior to the
        occurrence  of  the change in control and (B) $600,000 as payment  for
        Mr. Cotler's agreement  to  extend  his agreement not to compete under
        his  employment  agreement  to  three  years  following  the  date  of
        termination;
<circle>Any  deferred  compensation  allocated  or  credited  to Mr. Cotler or
        his account as of the date of termination, Certain additional payments
        to  cover  any  excise tax imposed by Section  4999  of  the  Internal
        Revenue Code;
<circle>Maintenance  of  life,  disability,  accident  and  health   insurance
        benefits substantially similar  to those that Mr. Cotler was receiving
        immediately  prior  to  the  notice of  termination,  for  the  period
        beginning on the date of termination  and ending on the earlier of (A)
        the end of the 36th month after the date  of  termination  or  (B) the
        date  Mr.  Cotler  becomes  eligible  for such benefits under any plan
        offered by an employer with which he is employed on a full-time basis;
        and
<circle>All   benefits   payable   to   Mr.   Cotler   under   any  applicable
        retirement, thrift, and incentive  plans   as   well as any other plan
        or agreement sponsored by CSC or any of its subsidiaries  relating  to
        retirement benefits.

STOCK OPTIONS

     The  following  table  sets  forth the value of unexercised stock options
held  by  the  Named  Executives.  No options  were  exercised  by  the  Named
Executives in 2000:

                      OPTION VALUES AT DECEMBER 31, 2000
<TABLE>
<CAPTION>
                    Number Of Shares Underlying   Value Of In-The Money Options
                        Options At Year End                 At Year End
  Name               Exercisable/Unexercisable      Exercisable/Unexercisable
  ----              ---------------------------   -----------------------------
<S>                       <C>                                  <C>
James F. Slattery         113,334/76,666                       $0/$0
Mike Garetson              90,000/0                            $0/$0
Ira Cotler                116,667/8,333                        $0/$0
</TABLE>

<PAGE> 31


Item 12.  Security Ownership of Certain Beneficial Ownership and
          Management.
          ------------------------------------------------------

     The following table sets forth the beneficial  ownership  of  the  Common
Stock  on  December  31,  2000  by (i) each person known by the Company to own
beneficially more than five percent  of such shares, (ii) each director, (iii)
each  person  named  in  the  Summary  Compensation   Table  under  "Executive
Compensation" of this Annual Report on Form 10-K, and (iv)  all  directors and
executive  officers  as  a  group,  together  with their respective percentage
ownership of the outstanding shares:


<TABLE>
<CAPTION>
                                       Number of    Acquirable       Percent
Name and Address Of Beneficial Owner    Shares   within 60 Days**  Outstanding
------------------------------------   --------- ----------------  -----------

<S>                                    <C>             <C>           <C>
Esther Horn(1)                         637,175               -        6.2%
James F. Slattery(1)                   772,600         113,334         8.6
Aaron Speisman(1)                      427,485          13,334         4.3
Jennifer Anna Speisman 1992 Trust(1)    83,438               -           *
Joshua Israel Speisman 1992 Trust(1)    83,438               -           *
Ira M. Cotler(1)                        18,518(2)      108,334         1.2
Richard P. Staley(1)                     9,450          15,001           *
Michael C. Garretson(1)                      -          90,000           *
Stuart Gerson(1)                         1,000          42,500           *
Melvin T. Stith(1)                           -          27,500           *
Shimmie Horn(1)                         14,312          22,500           *
Bobbie L. Huskey(1)                      1,206          17,500           *
Dimensional Fund Advisors, Inc.(3)     653,387               -         6.4
All officers and directors as a
  group (eight persons)              1,411,447         450,003        18.2
</TABLE>
---------------
*   Less than 1%
**  Consists of shares issuable upon exercise of options unless otherwise
    noted.
(1) Address is c/o Correctional  Services Corporation, 1819 Main Street, Suite
    1000, Sarasota, Florida 34236.
(2) Includes 2,612 shares of CSC common  stock  owned by his wife, as to which
    he disclaims beneficial ownership.
(3) Address is 1299 Ocean Avenue, 11th Floor, Santa  Monica, CA  90401.  Based
    on a Schedule 13G filed with the SEC by Dimensional  Fund Advisors, Inc. on
    February 2, 2001, Dimensional Fund Advisors, Inc. has  sole voting power to
    vote or direct the vote for 653,387 shares.


Item 13.  Certain Relationships and Related Transactions.
          ----------------------------------------------

     During the year 2000, the Company subleased a building  located  at 12-16
East  31st Street, New York, New York from LeMarquis Operating Corp. ("LMOC"),
a corporation owned 25% by Ester Horn and 8% by James F. Slattery. The Company
used the  space  in  the  building  for  the  Manhattan and New York Community
Corrections  programs.   The  Company  has  ceased  its  operations  of  these
programs.

     LMOC leases this building from an unaffiliated party  at  a  current base
monthly  rental  of  approximately  $16,074  (the  "Base  Rent"),  plus taxes,
currently  approximately  $14,000,  and  water  and  sewer  charges, currently
approximately  $3,500,  for  a total monthly rental of approximately  $33,000.
The Company was able to use as  much  of  the  building as it required for its
business subject to the rights of certain residential  subtenants to remain in
the  building. These rights include the right to housing  at  a  predetermined
rental  for  an  indefinite  period  of  time  pursuant to New York State rent
stabilization laws.

<PAGE> 32


     As  a result of the lease negotiations, under  a  sublease  dated  as  of
January 1,  1994,  since May 1, 1995, the Company has paid rent of $18,000 per
month above the rent  paid by LMOC to the building's owner for a total monthly
rent of approximately $51,420.  The Company has, to date, invested $739,000 in
leasehold improvements  and  will  not  receive  any  credit,  in  terms  of a
reduction  in  rent  or  otherwise, for these improvements.  The terms of this
sublease were not negotiated  at  arm's length due to the relationship of Mrs.
Horn and Mr. Slattery with both the Company and LMOC.
The negotiation of the sublease, including the renewal terms, was requested by
the Representative of the Underwriters  of  the  Company's  February  2,  1994
initial  public  offering  to  substantially  track  the  renewal terms of the
Company's management contract.  The negotiations were not subject to the board
resolution,  adopted  subsequent to the negotiations, relating  to  affiliated
transactions, although  the  terms were approved by all of the directors.  The
initial term of the Company's  sublease  expired April 30, 1995, and its first
renewal term expired April 30, 2000.  The  sublease  contained  two additional
successive five-year renewal options beginning May 1, 2000.  The Company chose
not  to exercise the options and instead occupied the building as  a  holdover
tenant until its complete cessation of operations on December 31, 2000.

     The  Company had previously paid $40,000 to LMOC for the renewal options.
These  renewal  options  were  separately  negotiated  between  the  Board  of
Directors  of  the  Company  and  LMOC.   Mr.  Slattery  participated  in such
negotiations.  Mrs.  Horn  and  Mr.  Slattery will receive their proportionate
shares of rents received by LMOC under the terms of this sublease.

     Previously, residential and commercial tenants of this building paid rent
to LeMarquis Enterprise Corp. ("Enterprises"),  a  company  owned  30% by Mrs.
Horn,  28%  by Mr. Slattery and 25% by Mr. Speisman, and Enterprises paid  all
expenses of operating  the residential and commercial portions of the building
as well as a portion of  the overall expenses of the building.  As of February
1994  and until December, 2000,  however,  all  of  the  building's  revenues,
including  rent  from  the residential and commercial tenants are now received
and expenses paid by the Company.

     The Company leases  the  entire  building  located  at 988 Myrtle Avenue,
Brooklyn, New York from Myrtle Avenue Family Center, Inc. ("MAFC") pursuant to
a lease which commenced January 1, 1994 and expired on December 31, 1998.  The
lease  established a monthly rental of $40,000 and contained  three  five-year
renewal  options.  The  Company is currently in its first option period, which
runs from January 1, 1999  through  December  31,  2003.   The  monthly rental
payment during the first option period is $40,000. The monthly rental  for the
second  option  period,  which  runs from January 1, 2004 through December 31,
2008, is $45,000, and the monthly  rental  for  the third option period, which
runs from January 1, 2009 through December 31, 2013,  is $50,000. In addition,
the Company pays taxes, insurance, repairs and maintenance  on  this building.
MAFC is a corporation owned by Mrs. Horn (27.5%) and Messrs. Slattery (8%) and
Speisman (27.5%).  The terms of the lease were not negotiated at  arm's length
due  to  their  relationship  with MAFC and the Company. Messrs. Slattery  and
Speisman participated in such negotiations.

     The Company leases a building  located at 2534 Creston Avenue, Bronx, New
York from Creston Realty Associates,  L.P.  ("CRA"), the corporation owned 10%
by Ester Horn. The lease term is two years commencing  October 1, 1996 and has
three additional one year option periods.  The Company also  pays  a base rent
of $180,000 per year which will escalate five percent per year for each of the
three  year options if they are exercised.  The Company pays taxes, insurance,
repairs  and  maintenance  on  this  building  which  will  be used to house a
community correctional center. The terms of this lease were not  negotiated at
arms length due to the relationship between the Company, Ms. Horn and CRA.

     Stuart  M.  Gerson,  a  director of CSC, is a member of Epstein Becker  &
Green,  CSC's  legal counsel, which  has  received  fees  for  legal  services
rendered to CSC during the last fiscal year.

     On  November   29,  2000,  Youth  Services  International  Real  Property
Partnership, L.L.C., a wholly-owned subsidiary of the Company, entered into an
agreement to sell real  property  located  at  12012  Boyette Road, Riverview,
Florida to a two-person Florida based partnership.  Aaron Speisman, a director
of CSC, is a member of that partnership.  This contract  was  reviewed  by the
independent directors of the Company and deemed to be at arm's length.

     The  sale closed on December 29, 2000, and the partnership agreed to  pay
the Company  $3,940,000.   A  portion  of  the  purchase  price  was paid by a
promissory note guaranteed by the members of the partnership in the  amount of
$480,000.   The  promissory note is to be paid in full no later than September
1, 2001.

<PAGE> 33


     Pursuant to the  terms  of  a  Board  of  Directors resolution adopted in
connection  with  the  Company's  initial  public offering,  all  transactions
between the Company and any of its officers,  directors  or affiliates (except
for  wholly-owned  subsidiaries)  must  be  approved  by  a  majority  of  the
unaffiliated  members  of  the  Board  of  Directors and be on terms  no  less
favorable  to  the  Company  than could be obtained  from  unaffiliated  third
parties and be in connection with bona fide business purposes of the Company.

     In the event the Company  makes  a loan to an individual affiliate (other
than a short-term advance for travel, business  expense, relocation or similar
ordinary operating expenditure), such loan must be  approved  by a majority of
the unaffiliated directors.

     In October 1989, a subsidiary of the Company, entered into  an employment
agreement with William Banks. Under this agreement, Mr. Banks was  responsible
for developing and implementing community relations projects on behalf  of the
Company  and  for  acting as a liaison between the Company and local community
and civic groups who  may  have  concerns  about  Company's  facilities  being
established in their communities, and with government officials throughout the
State  of  New  York.   As  compensation,  Mr.  Banks received 3% of the gross
revenue  from  all  Federal Bureau of Prisons, state  and  local  correctional
agency contracts within  the  State  of  New  York  with  a guaranteed minimum
monthly  income  of  $4,500. In December 1993, Mr. Banks agreed  to  become  a
consultant to the Company  upon  the  same  terms  and  conditions in order to
accurately reflect the level and nature of the services he  provided.  In 1999
and 2000, Mr. Banks earned approximately $272,000 and $281,000 respectively.


                                   PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
          ----------------------------------------------------------------

     (a)  The following documents are filed as part of this report:

          (1)  Financial Statements:

               The  consolidated  statements  of  the  Company are included on
               pages F-1 through F-27 of this Form 10-K.

          (2)  The financial statement schedules prescribed  by  this  Item 14
are not required.

          (3)  Exhibits  (All  referenced  herein to "SEC" shall mean the U.S.
               Securities and Exchange Commission.)

     (b)  The Company filed a Form 8-K Report  on  November 10, 2000, relating
          to the First Amendment of its August 31, 1999, Credit Agreement with
          Summit Bank, N.A.

     (c)  Exhibits:

  2.1     Agreement  and Plan of Merger, dated as of September 23, 1998, among
          YSI, CSC and Palm Merger Corp.(28)
  2.2     First  Amendment, dated as of January 12, 1999, to the Agreement and
          Plan of  Merger,  dated as of September 23, 1998, among YSI, CSC and
          Palm Merger Corp.(29)
  2.3     Second  Amendment,  dated  as of March 2, 1999, to the Agreement and
          Plan of Merger, dated as of  September  23, 1998, among YSI, CSC and
          Palm Merger Corp.(35)
  3.1     Certificate of Incorporation of CSC dated October 28, 1993.(1){
  3.1.1   Copy  of Certificate of Amendment of Certificate of Incorporation of
          CSC dated July 29, 1996.(4)
  3.1.2   Copy   of   Certificate   of  Correction  to  CSC's  Certificate  of
          Incorporation.(1)
  3.1.3   Copy   of  Certification  of  Correction  to  CSC's  Certificate  of
          Amendment to CSC's Certificate of
          Incorporation. (1)
  3.2     CSC's By-Laws.(33)
  4.1     Form of YSI's 7% Convertible Subordinated Debentures Due February 1,
          2006.(14)
  4.2.1   Amendment  to  Fiscal  and  Paying Agency Agreement, dated March 31,
          1999, by and among YSI, The Chase  Manhattan  Bank,  N.A., New York,
          The  Chase  Manhattan  Bank,  N.A., London and Chase Manhattan  Bank
          Luxembourg S.A.(15)

<PAGE> 34


  4.3 a.  Form of CSC Series A Warrant.(2)
  4.3     Indenture,  dated October 15, 1996, by and between YSI and The Chase
          Manhattan Bank, N.A., as Trustee.
  4.3.1   Amendment to Indenture, dated March 31, 1999, by and between YSI and
          The Chase Manhattan Bank, as Trustee.(15)
  4.4 a.  Form of CSC 10% Subordinated Promissory Note.(37)
  4.4     Form  of  Letter  Agreement  executed  by  certain Debenture holders
          agreeing to receive proceeds from redemption of their Debentures one
          year following the effective date of the Merger  together  with Form
          of Guaranty from CSC.(14)
  4.4.2   Fiscal  and  Paying Agency Agreement, dated January 29, 1996, by and
          among YSI, The  Chase  Manhattan  Bank,  N.A.,  New  York, The Chase
          Manhattan  Bank,  N.A.,  London and Chase Manhattan Bank  Luxembourg
          S.A.(14)
  4.5     Form  of Placement Agent's Warrant between CSC and Janney Montgomery
          Scott Inc.(1)
* 10.1    CSC's 1993 Stock Option Plan, as amended.(33)
* 10.5.1  Employment  Agreement  between  CSC  and  James  F.  Slattery  dated
          February 17, 1998.(9)
* 10.6    Employment Agreement between CSC and Aaron Speisman.(1)
* 10.6.1  Modification  to  the  Employment  Agreement  between  CSC and Aaron
          Speisman, dated June 13, 1996.(4)
  10.15   Agreement between CSC and William Banks, dated October 31, 1989.(1)
  10.15.1 Letter dated December 9, 1993 from William Banks to CSC.(1)
  10.16   Form    of   Sub-Lease   between   CSC   and   LeMarquis   Operating
          Corporation.(1)
  10.17   Form of Lease between CSC and Myrtle Avenue Family Center, Inc.(1)
  10.24.1 Renewal  of  the  Revolving  Line  of  Credit Note dated January 15,
          1998.(7)
* 10.25   1994 Non-Employee Director Stock Option Plan.(3)
  10.26   Loan  and Security Agreement with NationsBank, N.A. (South) dated as
          of December 31, 1995.(3)
  10.26.2 Deed of Trust Modification Agreement dated January 14, 1998.(7)
  10.26.3 Third Amendment to Loan Agreement dated January 5, 1998.(7)
  10.26.4 Fourth Amendment to Loan Agreement dated January 14, 1998.(7)
  10.44   Lease  Agreement  between  CSC  and Creston Realty Associates, L.P.,
          dated October 1, 1996.(4)
  10.45   Lease between CSC and Elberon Development Company.(1)
  10.45.1 Assignment of Lease between CSC and Elberon Development Company.(4)
* 10.47.1 Amended  Employment  Agreement  between  CSC and Ira M. Cotler dated
          July 9, 1997.(5)
* 10.47.2 Amendment  No.  1  dated May 3, 1999 to Employment Agreement between
          CSC and Ira M. Cotler of July 9, 1997.(11)
* 10.47.3 Change in Control Agreement between CSC and Ira M. Cotler, dated May
          3, 1999.(11)
* 10.48   Employment  Agreement  between  CSC  and Michael C. Garretson, dated
          January 21, 1996.(4)
* 10.48.1 Employment  Agreement  between  CSC  and Michael C. Garretson, dated
          December 5, 1998.(17)
  10.51.1 First  Amendment  to  Asset  Purchase Agreement between CSC and Dove
          Development  Corporation, Consolidated  Financial  Resources/Crystal
          City, Inc., dated August 27, 1997.(6)
  10.60   Credit  facility with NationsBank and a syndicate of banks for up to
          $30 million dated April, 1998.(8)
  10.60.1 Amendment  No. 1 to credit facility with NationsBank and a syndicate
          of banks, dated October 16, 1998.(10)
  10.60.2 Amendment  No. 2 to credit facility with NationsBank and a syndicate
          of banks, dated March 31, 1999.(11)
  10.61   Sublease  for  Sarasota,  Florida  office  space dated April 9, 1998
          between Lucent Technologies, Inc. and CSC and  Landlord  Consent  to
          Sublease.(8)
  10.67   Asset  Purchase  Agreement  between  CSC  and the County of Dickens,
          Texas dated July 14, 1998 for the purchase  of  the  Dickens  County
          Correctional Facility.(9)
  10.70.1 Subcontract, Facility Use Agreement, and Asset Purchase by and among
          CSC,  Trans-American  Development  Associates,  Inc. and FBA, L.L.C.
          dated December 14, 1998.(36)
  10.72   Credit  Agreement,  dated  August  31,  1999, between CSC and Summit
          Bank, N.A.(16)
  10.73   Master  Agreement,  dated  August 31, 1999, between CSC and Atlantic
          Financial Group, Ltd., Summit Bank, N.A. and SunTrust Bank.(16)
* 10.74   Employment  Agreement dated September 29, 1999 between CSC and James
          F. Slattery.(13)

<PAGE> 35


* 10.75   Change in Control Agreement dated September 29, 1999 between CSC and
          James F. Slattery.(13)
  10.114  Construction/Installment  Purchase  and Management Services Contract
          by  and  among  CSC,  the  State  of  Nevada,  Department  of  Human
          Resources, Nevada Real Property Corporation  and  Clark  &  Sullivan
          Constructors-Rite of Passage, Inc. dated February 2, 1999.(36)
  21      List of Subsidiaries
  23.1    Consent   of   Grant   Thornton  L.L.P.,  CSC's  independent  public
          accountants.
  27.     Financial Data Schedule
------------------

(1)  Incorporated  by  reference  to  exhibit  of same number filed with CSC's
     Registration Statement on Form SB-2 (Registration No. 33-71314-NY).
(2)  Incorporated by reference to exhibit 4.3 filed  with  CSC's  Registration
     Statement on Form SB-2 (Registration No. 33-71314-NY).
(3)  Incorporated  by  reference  to  exhibit  of  same number filed with  the
     initial filing of CSC's Annual Report on Form 10-KSB  for  the year ended
     December 31, 1995.
(4)  Incorporated  by  reference  to  exhibit  of same number filed with CSC's
     Annual Report on Form-10-KSB for the year ended December 31, 1996.
(5)  Incorporated by reference to exhibit of same number filed with CSC's Form
     10-Q for the six months ended June 30, 1997.
(6)  Incorporated by reference to exhibit of same number filed with CSC's Form
     10-Q for the nine months ended September 30, 1997.
(7)  Incorporated  by reference to exhibit of same  number  filed  with  CSC's
     Annual Report on Form-10-K for the year ended December 31, 1997.
(8)  Incorporated by reference to exhibit of same number filed with CSC's Form
     10-Q for the three months ended March 31, 1998.
(9)  Incorporated by reference to exhibit of same number filed with CSC's Form
     10-Q for the six months ended June 30, 1998.
(10) Incorporated by reference to exhibit of same number filed with CSC's Form
     10-Q for the nine months ended September 30, 1998.
(11) Incorporated by reference to exhibit of same number filed with CSC's Form
     10-Q for the three months ended March 31, 1999.
(13) Incorporated by reference to exhibit of same number filed with CSC's Form
     10-Q for the nine months ended September 30, 1999.
(14) Incorporated by reference  to  exhibit  of  same  number filed with CSC's
     Current Report on Form 8-K filed with the SEC on April 15, 1999.
(15) Incorporated  by reference to  exhibit of same number  filed  with  CSC's
     Current Report  on Form 8-K filed with the SEC on April 22, 1999.
(16) Incorporated by  reference  to  exhibit  of  same number filed with CSC's
     Current Report on Form 8-K filed with the SEC on September 29, 1999.
(17) Incorporated by reference to exhibit of same number filed with CSC's Form
     10-K filed with the SEC on March 31, 1999.
(28) Incorporated by reference to CSC's Current Report on Form 8-K, filed with
     the SEC on September 25, 1998.
(29) Incorporated by reference to CSC's Current Report on Form 8-K, filed with
     the SEC on January 21, 1999
(33) Incorporated  by reference to exhibit of same number  filed  with  CSC's
     Registration Statement on Form S-1 (Registration Number 333-6457).
(35) Incorporated by  reference  to  exhibit  of same number filed with CSC's,
     Current Report on Form 8-K, filed with the SEC on March 3, 1999.
(36) Incorporated by reference to exhibit of same  number  filed  with  CSC's
     Registration Statement on Form S-4 (Registration Number 333-72003).
(37) Incorporated  by  reference  to Exhibit 4.4 filed with CSC's Registration
     Statement on Form SB-2 (Registration No. 33-71314-NY).

*   Management Contract or Compensatory Plan or arrangement.

<PAGE> 37


                                 SIGNATURES

     In  accordance  with  Section  13  or  15(d)  of  the  Exchange  Act, the
registrant caused this report to be signed on  its behalf by  the undersigned,
thereunto duly authorized.

                                   CORRECTIONAL SERVICES CORPORATION
                                   Registrant


                                   By:  /s/ James F. Slattery
                                        James F. Slattery, President

Dated: April 2, 2001


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature                   Title                                         Date


/s/ James F. Slattery       President, Chief Executive Officer
James F. Slattery           and Chairman of the Board            April 2, 2001


/s/ Ira M. Cotler           Executive Vice President,
Ira M. Cotler               and Chief Financial Officer          April 2, 2001


/s/ Aaron Speisman          Executive Vice President
Aaron Speisman              and Director                         April 2, 2001


/s/ Richard Staley          Senior Vice President
Richard Staley              and Director                         April 2, 2001


/s/ Stuart Gerson           Director                             April 2, 2001
Stuart Gerson


/s/ Shimmie Horn            Director                             April 2, 2001
Shimmie Horn


/s/ Bobbie L. Huskey        Director                             April 2, 2001
Bobbie L. Huskey


/s/ Melvin T. Stith         Director                             April 2, 2001
Melvin T. Stith

<PAGE> 37


                              C O N T E N T S


                                                                         Page
                                                                         ----

Report of Independent Certified Public Accountants                        F-1

  Consolidated Balance Sheets as of December 31, 2000 and 1999            F-2

  Consolidated Statements of Operations for the years ended
     December 31, 2000, 1999 and 1998                                     F-3

  Consolidated Statement of Stockholders' Equity for the years ended
     December 31, 2000, 1999 and 1998                                     F-4

  Consolidated Statements of Cash Flows for the years ended
     December 31, 2000, 1999 and 1998                                     F-5

  Notes to Consolidated Financial Statements                         F-6-F-27

<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors
Correctional Services Corporation


We have audited the accompanying consolidated  balance  sheets of Correctional
Services Corporation and Subsidiaries as of December 31,  2000  and  1999, and
the  related  consolidated statements of operations, stockholders' equity  and
cash flows for  the  years  then  ended.   These  financial statements are the
responsibility of the Company's management.  Our responsibility  is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  auditing standards generally
accepted  in the United States of America.  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,  the  consolidated  financial  statements  referred  to  above
present  fairly, in all material respects, the consolidated financial position
of Correctional  Services Corporation and Subsidiaries as of December 31, 2000
and 1999, and the  consolidated  results  of their operations and consolidated
cash flows for the years ended December 31,  2000 and 1999, in conformity with
accounting principles generally accepted in the United States of America.

We  previously  audited  and  reported  on  the  consolidated   statements  of
operations,  stockholders'  equity  and  cash  flows  of Correctional Services
Corporation and Subsidiaries for the year ended December  31,  1998  prior  to
their  restatement  for  the  1999  pooling of interests.  The contribution of
Correctional Services Corporation and  Subsidiaries  to  revenues for the year
ended  December  31, 1998 represented 52.0 percent of the respective  restated
totals.  Separate  financial  statements  of the other company included in the
1998 restated statements of operations, stockholders'  equity  and  cash flows
were  audited and reported on separately by another auditor.  We also  audited
the combination  of  the  accompanying  consolidated statements of operations,
stockholders' equity and cash flows for the  year  ended  December  31,  1998,
after  restatement  for  the  1999  pooling of interests; in our opinion, such
consolidated statements have been properly  combined on the basis described in
Note A of the notes to the consolidated financial statements.


                              /s/  GRANT THORNTON LLP

Tampa, Florida
March 2, 2001

<PAGE> F-1


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                                (in thousands)

<TABLE>
<CAPTION>
ASSETS                                                        December 31,
                                                            ----------------
                                                              2000     1999
                                                            -------  -------
<S>                                                         <C>      <C>
CURRENT ASSETS
  Cash and cash equivalents                                 $   133  $  7,070
  Restricted cash                                                92       192
  Accounts receivable, net of allowance for doubtful
    accounts of $1,718 and $1,380 for December 31,
    2000 and 1999, respectively                              36,976    35,768
  Notes receivable                                            3,730         -
  Deferred tax asset                                          1,926     3,227
  Prepaid expenses and other current assets                   2,673     2,987
                                                            -------   -------
     Total current assets                                    45,530    49,244

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET          39,543    47,972

OTHER ASSETS
  Deferred tax asset                                          5,431     7,060
  Goodwill, net                                               1,049     1,428
  Other                                                       5,222     5,494
                                                            -------   -------

                                                            $96,775  $111,198
                                                            =======  ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                                          $ 5,338  $  3,124
  Accrued liabilities                                        14,682    18,836
  Current portion of subordinated debt                           10     3,797
  Current portion of senior debt                              6,669     1,206
                                                            -------  --------
     Total current liabilities                               26,699    26,963

LONG-TERM SENIOR DEBT                                        16,338    22,551
SUBORDINATED DEBENTURES                                           -    10,393
LONG-TERM PORTION OF FACILITY LOSS RESERVES                       -       553

COMMITMENTS AND CONTINGENCIES                                     -         -

STOCKHOLDERS' EQUITY
  Preferred stock, $.01 par value, 1,000 shares
     aurhorized, none issued and outstanding                      -         -
Common Stock, $.01 par value, 30,000 shares authorized,
  11,373 and 10,249 shares issued and outstanding,
  respectively,in 2000 and 11,373 shares issued and
  outstanding in 1999                                           114       114
  Additional paid-in capital                                 82,797    82,807
  Accumulated deficit                                       (26,395)  (32,183)
  Treasury stock, at cost                                    (2,778)        -
                                                           --------  --------
                                                             53,738    50,738
                                                           --------  --------

                                                            $96,775  $111,198
                                                           ========  ========
</TABLE>


  The accompanying notes are an integral part of these financial statements.

<PAGE> F-2


             CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                    ----------------------
                                                  2000       1999      1998
                                                --------   --------  --------
<S>                                             <C>        <C>        <C>
Revenues                                        $210,812   $233,918   $188,454
                                                --------   --------   --------
Facility expenses:
     Operating                                   185,447    205,662    166,443
     Startup costs                                   155      1,177      8,171
                                                --------   --------   --------
                                                 185,602    206,839    174,614
                                                --------   --------   --------
Contribution from operations                      25,210     27,079     13,840
Other operating expenses:
     General and administrative                   13,670     13,899     21,119
     (Gain) loss on sale of assets                (1,115)         -          -
     College Station closure costs                     -          -      2,327
     Merger costs and related restructuring
       charges                                         -     12,052      1,109
     Write-off of deferred financing costs             -      1,874          -
                                                --------   --------   --------
Operating income (loss)                           12,655       (746)   (10,715)

Interest expense, net                             (3,157)    (3,069)    (2,611)
                                                --------   --------   --------
Income (loss) before income taxes,
     extraordinary gain on extinguishment
     of debt and cumulative effect of
     change in accounting principle                9,498     (3,815)   (13,326)
Income tax (provision) benefit                    (3,710)      (429)     1,593
                                                --------   --------   --------
Income (loss) before extraordinary gain on
     extinguishment of debt and cumulative
     effect of change in accounting
     principle                                     5,788     (4,244)   (11,733)
Extraordinary gain on extinguishment of debt,
     net of tax of $46                                 -        716          -
Cumulative effect of change in accounting
     principle, net of tax of $3,180                   -          -     (4,863)
                                                --------   --------   --------
Net income (loss)                                 $5,788    $(3,528)  $(16,596)
                                                ========   ========   ========

Basic and diluted income (loss) per share:
     Income (loss) before extraordinary gain on
          extinguishment of debt and cumulative
          effect of change in accounting
          principle                                $0.51     $(0.38)    $(1.08)
     Extraordinary gain on extinguishment of
          debt                                         -       0.07          -
     Cumulative effect of change in accounting
          principle                                    -          -      (0.45)
                                                --------   --------   --------
          Net income (loss) per share              $0.51     $(0.31)    $(1.53)
                                                ========   ========   ========

Number of shares used to compute EPS:
       Basic                                      11,366     11,219     10,860
       Diluted                                    11,367     11,219     10,860
</TABLE>

  The accompanying notes are an integral part of these financial statements.

<PAGE> F-3


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                (in thousands)


<TABLE>
<CAPTION>
                                      Additional
                              Common    Paid-in   Accumulated   Treasury
                               Stock    Capital    (Deficit)     Stock     Total
                              ------    -------   -----------   --------  --------
<S>                             <C>     <C>       <C>           <C>       <C>
Balance at December 31, 1997    $107    $77,396   $ (12,000)    $      -  $ 65,503

Stock issuance cost                -         (4)          -            -        (4)
Exercise of stock options          1      1,069           -            -     1,070
Exercise of warrants               1        630           -            -       631
Tax benefit realized due to
   exercise of non-qualified
   stock options                   -        352           -            -       352
Issuance of common stock as
   compensation                    -        109           -            -       109
Dividend distribution              -          -         (59)           -       (59)
Net loss                           -          -     (16,596)           -   (16,596)
                                ----    -------    --------      -------   -------

Balance at December 31, 1998     109     79,552     (28,655)           -    51,006

Exercise of stock options          1        515           -            -       516
Exercise of warrants               4      2,740           -            -     2,744
Net loss                           -          -      (3,528)           -    (3,528)
                                ----    -------    --------      -------   -------

Balance at December 31, 1999     114     82,807     (32,183)           -    50,738

Adjustment for overpaid warrants   -        (10)          -            -       (10)
Stock repurchase                   -          -           -       (2,778)   (2,778)
Net income                         -          -       5,788            -     5,788
                                ----    -------    --------      -------   -------

Balance at December 31, 2000    $114    $82,797    $(26,395)     $(2,778)  $53,738
                                ====    =======    ========      =======   =======
</TABLE>

  The accompanying notes are an integral part of this financial statement.

<PAGE> F-4


             CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                     -----------------------
                                                    2000      1999       1998
                                                  --------  --------   --------
<S>                                               <C>       <C>        <C>
Cash flows from operating activities:
  Net income (loss)                               $  5,788  $ (3,528)  $(16,596)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                  4,874     6,707      5,667
      Stock granted as compensation                      -         -        109
      Merger related asset writedown                     -     4,831          -
      Cumulative effect of a change in
        accounting principle, net of tax                 -         -      4,863
      Deferred income tax expense (benefit)          2,930       945       (897)
      Gain (loss) on disposal of fixed
        assets, net                                 (1,115)      316         17
      Write off of other assets                          -         -        321
      Tax benefit realized due to exercise of
        nonqualified stock options                       -         -        352
      Gain on extinguishment of debt                     -    (1,628)         -
      Deferred financing costs                           -     1,874          -
      Changes in operating assets and
        liabilities:
          Restricted cash                              100       (35)       167
          Accounts receivable                       (1,208)    2,230    (10,088)
          Prepaid expenses and other current
            assets                                     397     1,410     (1,727)
          Accounts payable and accrued liabilities  (1,709)   (6,609)    11,414
                                                   -------   -------   --------
               Net cash provided by (used in)
                 operating activities:              10,057     6,513     (6,398)
                                                   -------   -------   --------
Cash flows from investing activities:
    Capital expenditures                            (3,656)   (4,137)   (12,942)
    Proceeds from the sale of property, equipment
      and improvements                               4,355     1,232      1,292
    Proceeds from the sale of behavioral health
      business                                           -         -      4,500
    Collection of notes receivable                       -         -         38
    Other assets                                      (373)      136       (802)
                                                   -------   -------   --------
                Net cash provided by (used in)
                  investing activities:                326    (2,769)    (7,914)
                                                   -------   -------   --------
Cash flows from financing activities:
    (Payment) proceeds on short-term, long-term
      borrowings and capital lease obligations        (751)   11,874     11,021
    Payment of subordinated debt                   (14,180)  (17,483)    (3,886)
    Proceeds from exercise of stock options
      and warrants                                       -     3,260      1,700
    Debt issuance costs                                  -    (2,363)      (431)
    Stock repurchase                                (2,778)        -          -
    Long-term portion of prepaid lease                 399       399        375
    Adjustment for overpaid warrants                   (10)        -          -
    Dividend distribution                                -         -     (1,324)
                                                   -------   -------   --------
                 Net cash provided by (used in)
                   financing activities:           (17,320)   (4,313)     9,985
                                                   -------   -------   --------
Net decrease in cash and cash equivalents           (6,937)     (569)    (5,592)
Cash and cash equivalents at beginning of period     7,070     7,639     13,231
                                                   -------   -------   --------

Cash and cash equivalents at end of period         $   133   $ 7,070   $  7,639
                                                   =======   =======   ========

Non-cash investing activities
    Property exchanged for a note receivable       $ 3,812         -          -
                                                   =======   =======   ========

Supplemental disclosures of cash flows
  information:
    Cash paid (refunded) during the period for:
      Interest                                     $ 3,846   $ 3,712   $  2,631
                                                   =======   =======   ========
      Income taxes                                 $   872   $     8   $    703
                                                   =======   =======   ========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

<PAGE> F-5


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Correctional  Services  Corporation  and  its subsidiaries  are  organized  to
privately operate and manage detention, and correctional facilities as well as
educational, developmental and rehabilitative  programs for federal, state and
local government agencies.

1.   Principles of Consolidation

     The consolidated financial statements as of December 31, 2000 include the
     accounts  of  Correctional  Services Corporation  and  its  wholly  owned
     subsidiaries:

     <circle> Esmor, Inc.
     <circle> Esmor New Jersey, Inc.
     <circle> CSC Management de Puerto Rico, Inc.
     <circle> CSC UK, Ltd.
     <circle> YSI Holdings, Inc.
     <circle> YSI Real Property Partnership, LLP
     <circle> YSI Investment LLC
     <circle> YSI International Management LLC
     <circle> Community Corrections, Inc.
     <circle> FF & E, Inc.
     <circle> Youth Services International, Inc.
     <circle> Youth Services International of Iowa, Inc.
     <circle> Youth Services International of Tennessee, Inc.
     <circle> Youth Services International of Northern Iowa, Inc.
     <circle> Youth Services International of South Dakota, Inc.
     <circle> Youth Services International of Missouri, Inc.
     <circle> Youth Services International of Central Iowa, Inc.
     <circle> Youth Services International of Texas, Inc.
     <circle> Youth Services International of Virginia, Inc.
     <circle> Youth Services International of Delaware, Inc.
     <circle> Youth Services International of Minnesota, Inc.
     <circle> Youth Services International of Illinois, Inc.
     <circle> Youth Services International of Michigan, Inc.

     All  significant  intercompany   balances   and  transactions  have  been
     eliminated.


2.   Pooling-Of-Interests Business Combinations

     Youth Services International, Inc.

     On  March  31,  1999,  the  Company  exchanged 3,114,614  shares  of  the
     Company's common stock for all of the  common  stock  of  Youth  Services
     International, Inc. (YSI).  The merger was accounted for as a

<PAGE> F-6


               CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

     pooling-of-interests,   and   accordingly,   the  accompanying  financial
     statements  have  been retroactively adjusted to  include  the  financial
     position and results of operations of YSI for all periods presented.

     The following balances of the separate companies for the period preceding
     the YSI merger were as follows (in thousands):

                                                   For the twelve months
                                                  ended December 31, 1998
                                                  -----------------------
          Revenues
          CSC                                                    $ 97,928
          YSI                                                      90,526
                                                  -----------------------
          Combined                                               $188,454
                                                  =======================

          Net (Loss)
          CSC                                                    $ (6,022)
          YSI                                                     (10,574)
                                                  ------------------------
          Combined                                               $(16,596)

                                                  As of December 31, 1998
                                                 ------------------------
          Stockholders' equity
          CSC                                                    $ 37,923
          YSI                                                      14,103
                                                 ------------------------
          Combined                                                 52,026
          Adjustments to stockholders' equity
            for adoption of accounting policy                      (1,020)
                                                 -------------------------
          Adjusted stockholders' equity                          $ 51,006
                                                 =========================

     In connection with  the  merger,  a  conforming accounting adjustment was
     recorded to conform the accounting policy  relating  to  YSI's accounting
     for  supplies  inventory.  Previously YSI capitalized supplies  inventory
     while CSC expensed  them as incurred.  The above adjustment to equity was
     made to effect the accounting adjustment as of January 1, 1997.

     During  the first  quarter  of  1999,  the  Company  recorded a charge to
     operating  expenses  of  approximately  $12.1 million  for  direct  costs
     related  to  the  merger  and  certain  other costs  resulting  from  the
     restructuring of the newly combined operations.   In  connection with the
     combination,  the Company planned to close the YSI corporate  offices  in
     Maryland, withdraw from a facility in Iowa, and close facilities in Texas
     and Virginia, which  were  expected  to  result in the elimination of 350
     positions.  Direct merger costs consisted primarily of fees to investment
     bankers,  attorneys, accountants, financial  advisors  and  printing  and
     other direct  costs.  Restructuring charges included severance and change
     in control payments made to certain former officers and employees of YSI;
     losses associated  with  the  write-off  of  the  carrying  value  of the
     software  used by YSI, which will not be used by the Company and computer
     equipment that  is  incompatible  with  that  used  by  the  Company; and
     miscellaneous  other  costs  which  included  the  cancellation  of lease
     agreements and other long-term commitments.

<PAGE> F-7


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

        Merger costs and related restructuring charges are comprised of the
        following (in thousands):

             Direct merger costs                                 $ 4,350
             Restructuring charges:
               Employee severance and change in control payments   2,339
               Write-off of buildings and leasehold improvements   2,661
               Write-off of software and computer equipment        1,749
               Other                                                 953
                                                                 -------
             Total                                               $12,052
                                                                 =======

     The  Company  closed the  corporate facility  and withdrew  from the Iowa
     facility, which resulted in  the elimination of 273 positions.  The Texas
     and  Virginia  facilities  were  closed  in  2000  and  resulted  in  the
     elimination  of  72  positions.  At  December  31,  2000, all  merger and
     restructuring  charges  have  been paid  as noted  above,  except  for  a
     $300,000 surplus  from exit  costs which was recognized as a reduction in
     2000 operating expenses.

     Community Corrections, Inc.

     On   June  30,  1998,  the   Company  exchanged  238,362  shares  of  the
     Company's  common  stock  for  all  of  the  common  stock  of  Community
     Corrections, Inc. (CCI).  The  merger  was accounted for as a pooling-of-
     interests  and,  accordingly,  the  accompanying  consolidated  financial
     statements for the periods presented  have been retroactively adjusted to
     include the financial position and results  of operations for all periods
     presented.  CCI operates residential boot camp  and  detention facilities
     with  a  total  capacity  of  204  beds  in Texas and provides  aftercare
     services  to  adjudicated  youth in Georgia.   CCI  was  a  Subchapter  S
     corporation for federal income  tax  purposes whereby the earnings of the
     corporation pass through to the respective  owners.  It was the policy of
     CCI to distribute necessary amounts to the owners  on a periodic basis in
     order  to allow them to fund their personal tax liabilities  attributable
     to the earnings  of CCI.  During the year ended December 31, 1998, income
     tax dividends were  distributed  to  the  owners  totaling  approximately
     $59,000.

3.   Use of Estimates in Consolidated Financial Statements

     In  preparing  consolidated  financial  statements  in  conformity   with
     generally  accepted accounting principles, management makes estimates and
     assumptions  that  affect  the reported amounts of assets and liabilities
     and disclosures of contingent  assets  and liabilities at the date of the
     consolidated financial statements, as well  as  the  reported  amounts of
     revenues and expenses during the reporting period.  Actual results  could
     differ from those estimates.

4.   New Accounting Pronouncements

     On December 3, 1999, the Securities and Exchange Commission (SEC) issued
     Staff Accounting Bulletin (SAB) No. 101, which provides guidance on the
     recognition, presentation, and disclosure of revenue in financial
     statements.  This SAB was effective during the fourth quarter of 2000 for
     the Company.  The Company's adoption of SAB No. 101 did not have a
     material impact on revenue or earnings.

<PAGE> F-8


             CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

5.   Revenue Recognition and Contract Provisions

     Revenues  are  principally  derived  pursuant  to contracts with federal,
     state  and  local  government agencies and not-for-profit  entities  that
     contract directly with  governmental  entities. These contracts generally
     provide  for  fixed  per  diem  payments based  upon  program  occupancy.
     Revenues on fixed per diem and management contracts are recognized as the
     services are performed.

     One of the Company's significant programs operates under a contract
     whereby revenues are recognized as reimbursable costs are incurred
     through a gross maximum price cost reimbursement arrangement. This
     contract has costs, including indirect costs, subject to audit and
     adjustment by negotiations with government representatives.  Contract
     revenues subject to audit relating to this contract of approximately
     $15.0 million, $13.8 million, and $13.5 million have been recorded for
     the years ended December 31, 2000, 1999 and 1998, respectively, at
     amounts which are considered to be earned.  Subsequent adjustments if
     any, resulting from the audit process are recorded when known.

     Contract  terms  with government and  not-for-profit  entities  generally
     range from one to  five  years  in  duration and expire at various dates.
     Most of these contracts are subject to termination for convenience by the
     governmental entity.

6.   Cash and Cash Equivalents

     The Company considers all highly liquid  debt instruments with maturities
     of three months or less when purchased to be cash equivalents.

     Included in the restricted cash of $92,000  and  $192,000 at December 31,
     2000 and 1999 is a major maintenance and repair reserve  fund established
     by the Company as required by certain contracts.

7.   Building, Equipment and Leasehold Improvements

     Building,  equipment  and  leasehold  improvements are carried  at  cost.
     Depreciation of buildings is computed using the straight-line method over
     twenty and thirty year periods.  Depreciation  of  equipment  is computed
     using  the  straight-line  method  over  a  five-year  period.  Leasehold
     improvements  are  being amortized over the shorter of the  life  of  the
     asset or the applicable  lease  term (ranging from five to twenty years).
     For tax purposes accelerated methods of depreciation are utilized.

8.   Development and Start-Up Costs

     In the fourth quarter of 1998 the  Company  elected  to  early  adopt the
     AICPA's  Statement  of  Position 98-5 (SOP 98-5), ACCOUNTING FOR START-UP
     COSTS.  The Company incurs  costs  prior  to  obtaining certain contracts
     that are recorded as development costs.  Costs  incurred  subsequent to a
     signed  contract  and  up  to  the  first three months of operations  are
     recorded  as  start-up costs.  The new  accounting  change  required  the
     Company to expense  start-up  and  development  costs as incurred, rather
     than  capitalizing  and  subsequently  amortizing such  costs.  SOP  98-5
     required  the  Company  to  record  a  cumulative  effect  of  change  in
     accounting  of  $4.9  million  (net  of  tax  benefit  of  $3.2  million)
     retroactively to January 1, 1998 and a current  year  effect of expensing
     startup and development costs as incurred throughout the remainder of the
     year totaling $11.6 million.  These costs are included  in  startup costs
     and  general  and  administrative expenses amounting to $7.7 million  and
     $3.9 million, respectively in 1998.

<PAGE> F-9


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

     The Company incurred  start  up costs of $155,000 and $1.2 million in the
     years ended December 31, 2000  and 1999, respectively.  Development costs
     of $642,000 and $689,000 were expensed  in  the  years ended December 31,
     2000 and 1999, respectively.

9.   Goodwill

     Goodwill  representing  the excess of the cost over  the  net  assets  of
     acquired businesses is stated  at  cost  and  is  amortized over 10 years
     using the straight-line method.  Amortization expense for the years ended
     December  31, 2000, 1999 and 1998 was $370,000, $362,000,  and  $375,000,
     respectively.  Accumulated amortization at December 31, 2000 and 1999 was
     $2.7 million and $2.3 million, respectively.

10.  Accounting for the Impairment of Long-Lived Assets and Goodwill

     The  Company   reviews   long-lived   assets   and  certain  identifiable
     intangibles including goodwill to be held and used  or  disposed  of, for
     impairment whenever events or changes in circumstances indicate that  the
     carrying  amount  of an asset may not be recoverable. The Company uses an
     estimate of the undiscounted  cash  flows  over the remaining life of its
     long-lived assets and goodwill in measuring whether the assets to be held
     and used will be realizable.

11.  Income Taxes

     The  Company  utilizes  an  asset and liability  approach  for  financial
     accounting and reporting for  income  taxes.   The  primary objectives of
     accounting  for  income  taxes  are to (a) recognize the  amount  of  tax
     payable for the current year and (b) recognize the amount of deferred tax
     liability  or  asset  based  on  management's   assessment   of  the  tax
     consequences  of  events  that  have  been  reflected  in  the  Company's
     consolidated financial statements.

12.  Earnings Per Share

     Basic  earnings  per  share  is  computed  by  dividing net income by the
     weighted-average number of common shares outstanding.  In the computation
     of  diluted  earnings  per share, the weighted-average number  of  common
     shares outstanding is adjusted, when the effect is not anti-dilutive, for
     the effect of all common  stock  equivalents  and the average share price
     for  the  period is used in all cases when applying  the  treasury  stock
     method to potentially dilutive outstanding options.

13.  Stock Based Compensation

     With respect  to  stock  options granted to employees the Company applies
     the accounting method promulgated  by  the  Accounting  Principles  Board
     Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, to measure  and
     recognize  compensation.  Management has adopted the disclosure provision
     of the Financial  Accounting  Standards  Board  No.  123,  ACCOUNTING FOR
     STOCK-BASED COMPENSATION, for accounting related to stock options granted
     to employees.

14.  Comprehensive Income

     The  Company's  comprehensive  income (loss) is equivalent to net  income
     (loss) for the years ended December 31, 2000, 1999 and 1998.

<PAGE> F-10


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)


15.  Reclassifications

     Unamortized costs related to debt  issuance  of  certain  YSI debt, which
     were included in the 1999 consolidated financial statement  of operations
     with   "merger   costs  and  related  restructuring  charges"  have  been
     reclassified as an increase in "general and administrative" ($1,064,000),
     an increase in "write-off  of deferred financing costs" ($252,000), and a
     decrease of the "extraordinary  gain" ($445,000).  Income tax expense was
     reclassified to reflect the income  tax change in the extraordinary gain.
     This  reclassification  reduced the loss  before  extraordinary  gain  on
     extinguishment of debt by  $269,000  or $0.02 per share and has no effect
     on previously reported net loss or net loss per share.

16.  Treasury Stock

     On October 20, 2000, the Company announced that its Board of Directors had
     authorized a share repurchase program of up to $10 million.  The Company
     had 1.1 million shares of common stock held in treasury at December 31,
     2000, at a cost of $2.8 million.

<PAGE> F-11


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE B - CONTRACTUAL AGREEMENTS WITH GOVERNMENT AGENCIES

The Company currently operates forty-five secure and non-secure corrections or
detention programs as well as educational,  developmental  and  rehabilitative
programs in the states of Arizona, Delaware, Florida, Georgia, Iowa, Illinois,
Maryland, Michigan, Minnesota, Mississippi, Missouri, Nevada, New  York, South
Dakota,  Tennessee,  Texas,  Virginia, Washington and Puerto Rico for federal,
state and local government agencies.   The Company's secure facilities include
a detention and processing center for illegal  aliens,  intermediate  sanction
facilities for parole violators and a shock incarceration facility, which is a
military  style  "boot  camp"  for  youthful offenders.  Non-secure facilities
include  residential  programs such as  community  correction  facilities  for
federal and state offenders serving the last six months of their sentences and
non-residential  programs   such   as   home   confinement  supervision.   The
educational,  developmental  and rehabilitative programs  include  an  academy
style residential treatment program  for  high  impact  juvenile offenders and
non-residential highly structured supportive aftercare programs for juveniles.

The Company is generally compensated on the basis of the  number  of residents
held in each of its facilities.  The Company's contracts may provide for fixed
per  diem  rates  or  monthly  fixed  rates.  Some contracts also provide  for
minimum guarantees.  One of the Company's  programs  operates under a contract
whereby  revenues  which  are recognized as reimbursable  costs  are  incurred
through a gross maximum price cost reimbursement arrangement.

The terms of each contract  vary and can be from one to five years.  Contracts
for more than one year have renewal  options  which  either are exercisable on
mutual  agreement  between  the  Company  and  the government  agency  or  are
exercisable by the government agency alone.


NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used  to estimate the fair value of
each class of financial instruments for which it is  practicable  to  estimate
that value:

1.   Cash and Cash Equivalents

     The  carrying  amount  reasonably approximates fair value because of  the
     short maturity of those instruments.

2.   Accounts and Notes Receivable, Accounts Payable and Accrued Expenses

     The carrying amount reasonably  approximates  fair  value  because of the
     short-term maturities of these items.

3.   Subordinated Promissory Notes and Long-Term Debt

     The fair value of the Company's subordinated promissory notes  and  long-
     term  debt  is estimated based upon the quoted market prices for the same
     or similar issues or on the current rates offered to the Company for debt
     of the same remaining  maturities.   As of December 31, 2000 and 1999 the
     estimated fair values of the subordinated  promissory notes and long-term
     debt approximated their carrying values.

<PAGE> F-12


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE D - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid  expenses and other current assets consist of the following (in
thousands):

                                                  December 31,
                                                2000       1999
                                               ------     ------

          Prepaid insurance                    $  235     $  269
          Prepaid real estate taxes               168        217
          Prepaid and refundable income taxes     281        225
          Prepaid rent - current portion          488        473
          Prepaid expenses                      1,149      1,233
          Other current assets                    352        570
                                               ------     ------
                                               $2,673     $2,987
                                               ======     ======


NOTE E - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements, at cost, consist of the
following (in thousands):

                                                  December 31,
                                                2000       1999
                                              -------    -------

          Buildings and land                  $32,055    $37,008
          Equipment                            11,572     13,531
          Leasehold improvements               11,449     11,536
                                              -------    -------
                                               55,076     62,075

          Less accumulated depreciation       (15,533)   (14,103)
                                              -------    -------
                                              $39,543    $47,972
                                              =======    =======

Depreciation expense for the years  ended December 31, 2000, 1999 and 1998 was
approximately $4.1 million, $4.9 million, and $5.1 million, respectively.


NOTE F - OTHER ASSETS

Other assets consist of the following (in thousands):


                                                    December 31,
                                                  2000       1999
                                                 ------     ------

          Deferred refinancing costs, net        $1,038     $1,229
          Deposits                                  731        482
          Prepaid rent - net of current portion   3,162      3,561
          Other                                     291        222
                                                 ------     ------
                                                 $5,222     $5,494
                                                 ======     ======

<PAGE> F-13


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE G - ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):


                                                               December 31,
                                                             2000       1999
                                                            -------    -------

          Accrued expenses                                  $ 6,194    $ 6,727
          Accrued interest                                       16        533
          Accrued medical claims and premiums                 1,522      1,886
          Accrued worker's compensation claims and premiums   1,486        978
          Payroll and related taxes                           4,495      3,965
          Construction costs (including retainage)                -        728
          Unearned revenue                                       70      1,509
          Facility loss reserves                                  -        808
          Other                                                 899      1,702
                                                            -------    -------
                                                            $14,682    $18,836
                                                            =======    =======


NOTE H - DEBT

SENIOR DEBT:

Senior debt consists of the following (in thousands):

                                                               December 31,
                                                             2000       1999
                                                            -------    -------

Revolving line of credit expiring August 2002.  Interest
payable monthly at LIBOR plus 2.75% or prime plus 1.25%.
Interest rate at December 31, 2000 was 10.75%.              $10,000    $ 9,000

Delayed drawdown term note, principal payments of $1.67
million due quarterly beginning June 30, 2000.  Interest
payable monthly at prime plus 1%.  Interest rate at
December 31, 2000 was 10.5%.                                 12,694     14,438

Mortgage payable due in semi-annual installments of $17,083
which includes principal plus interest at 10% per annum, due
in full October 2006 collateralized by land with a book value
of $434,000.                                                    313        319
                                                            -------    -------

                                                             23,007     23,757

Less current portion                                          6,669      1,206
                                                            -------    -------
                                                            $16,338    $22,551
                                                            =======    =======

<PAGE> F-14


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H - DEBT - (CONTINUED)

SENIOR DEBT:

     On August 31, 1999, the Company  finalized  a  financing arrangement with
Summit Bank, N.A, which was amended in November 2000.   The  amendment  to the
Credit  Agreement  will allow the Company the option of utilizing a percentage
of both:  (i) excess  cash  flow  (as  defined  by the agreement) and (ii) the
proceeds  of  the  sale  of  certain assets, to repurchase  Company  stock  in
furtherance of the Company's stock repurchase plan (Note A).  Borrowings under
the  line  are subject to compliance  with  various  financial  covenants  and
borrowing  base  criteria  (which  were  also  amended).  The  Company  is  in
compliance with  the  amended  loan  covenants  as of December 31, 2000.  This
financing  arrangement  is secured by all of the assets  of  the  Company  and
consists of the following components:

<circle>$25  million  (as  amended)  revolving  line  of  credit to be used by
        the Company and its  subsidiaries  for  working  capital  and  general
        corporate  purposes  and  to  finance  the  acquisition of facilities,
        properties and other businesses.   At December  31,  2000  the Company
        had $10.0 million outstanding under the revolving line of credit.

<circle>$20  million  delayed  drawdown  credit  facility  which provided  the
        Company with additional financing to be used to fund the redemption of
        the  outstanding  7% Convertible Subordinated Debentures due March 31,
        2000  that  were issued  by  Youth  Services  International,  Inc.,  a
        subsidiary of  the  Company (the "Debentures").  At December 31, 2000,
        the Company had $12.7  million  outstanding  on  the  delayed drawdown
        credit facility.  The Company expects to make prepayments on this debt
        in 2001 based on excess cash flow as defined in the Company's  amended
        credit  agreement.   Accordingly,  the  Company expects to make a $1.6
        million prepayment on March 31, 2001, funded  by  its  other long-term
        financing arrangement.

<circle>$35  million  (as  amended)  in  financing  which  may  be   used   to
        purchase land and property  and  to  finance  the  construction of new
        facilities  through  an  operating  lease  arrangement.   The  Company
        currently  has  approximately  $24.9  million outstanding  under  this
        operating lease financing facility.


SUBORDINATED DEBENTURES:

Subordinated debentures consists of the following (in thousands):


                                                     December 31,
                                                   2000       1999
                                                 --------    -------

     7% Convertible Subordinated Debentures due
     March 31, 2000 which includes interest
     payable semi-annually in arrears.           $     10    $14,190

     Less current portion                              10      3,797
                                                 --------    -------

                                                 $      -    $10,393
                                                 ========    =======

<PAGE> F-15


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE H - DEBT - (CONTINUED)


During the year ended June 30, 1996, YSI issued  7%  Convertible  Subordinated
Debentures  due  February  1,  2006, in the principal amount of $38.0 million.
The debentures are convertible into  common  stock at the rate of one share of
YSI common stock for each $12.47 of principal.

In connection with the merger, the Company assumed  the outstanding balance of
$32.2 million of Debentures.  Due to certain provisions  in the indenture, the
change  of  control  as  a result of the merger enabled the holder  to  demand
immediate redemption by the Company.

In anticipation of entering  into  the credit facilities with Summit Bank, the
Company agreed with certain holders  of  the  Debentures  (who  had previously
agreed to postpone the redemption of their Debentures until March 31, 2000) to
redeem  their  Debentures  upon  the  closing  of the credit facilities  at  a
redemption price equal to 90% of the original principal  amount  thereof, plus
accrued but unpaid interest.  The Company used approximately $14.8  million of
its   available   credit   under  the  delayed  drawdown  facility  to  redeem
$16.3 million face value of these Debentures.  The balance of $1.7 million was
repaid during the second quarter  of  1999.  An extraordinary gain of $716,000
(net of tax of $467,000 or $0.07 per share)  was  recognized by the Company in
connection with this early extinguishment.

As a result of the above note redemptions, $14.2 million  in  principal amount
of these Debentures remained outstanding at December 31, 1999.  As of December
31,  2000,  $10,000  remains  outstanding  pending  receipt  of  the  original
Debentures from the Debenture holders.

At  December  31,  2000  aggregate  maturities of senior debt and subordinated
debentures were as follows (in thousands):

       Year Ending December 31,
       -----------------------
                2001                        6,679
                2002                       16,029
                2003                            3
                2004                            3
                2005                            4
                Thereafter                    299

            TOTAL                         $23,017
                                          =======

<PAGE> F-16


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I - RENTAL AGREEMENTS

The Company has operating leases for  certain  of  its  facilities and certain
machinery and equipment which expire at various dates.  Substantially  all the
facility  leases provide for payment by the Company of all property taxes  and
insurance.

Future minimum  rental  commitments  under  both cancelable and non-cancelable
leases as of December 31, 2000 are as follows (in thousands):

                                                   Related
          Year Ending December 31,       Total    Companies
          -----------------------       -------   ---------

                  2001                  $ 5,347      $  627
                  2002                    4,030         480
                  2003                    2,860         480
                  2004                    1,896           -
                  2005                    1,112           -
                  Thereafter              4,546           -
                                        -------      ------
                                        $19,791      $1,587
                                        =======      ======

The  Company  leased  one  facility  from a related  party  under  a  sublease
arrangement, which expired April 30, 2000.   The  Company  has  two  five-year
options  to  renew  this sublease arrangement.  The Company did not renew  the
lease in 2000 and is investigating alternative locations.

The  Company leases a  second  facility  from  a  related  party.   The  lease
commenced  January  1,  1999  and  expires December 31, 2003.  Thereafter, the
Company has two successive five-year  options  to  renew.   In addition to the
base rent, the Company pays taxes, insurance, repairs and maintenance  on this
facility.

The Company leases a third facility from a related party.  The lease commenced
October 1, 1996 and expires September 30, 2001.  In addition to the base rent,
the Company pays taxes, insurance, repairs and maintenance on this facility.

Rental  expense  of operating leases and machinery and equipment for the years
ended December 31, 2000, 1999, and 1998 aggregated $7.2 million, $6.8 million,
and $6.2 million,  respectively.   Rent  to  related companies aggregated $1.3
million for each of the years ended December 31, 2000, 1999, and 1998.

<PAGE> F-17


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE J - INCOME TAXES

The income tax expense (benefit) consists of the following (in thousands):

                                              Years Ended December 31,
                                              -----------------------
                                           2000        1999        1998
                                          ------      ------     --------

     Current:
        Federal                           $  114      $ (335)    $(1,159)
        State and local                      666         286        (107)

     Deferred:
        Federal, state and local           2,930         945      (3,507)
                                          ------      ------     --------

                                          $3,710      $  896     $(4,773)
                                          ======      ======     ========

The  following is a reconciliation of the federal  income  tax  rate  and  the
effective tax rate as a percentage of pre-tax income (loss):


                                                Years Ended December 31,
                                                -----------------------
                                             2000        1999        1998
                                            ------      ------     --------

     Statutory federal rate                   34.0%      (34.0)%    (34.0)%
     State taxes, net of federal tax
       benefit                                 6.5        (5.1)      (5.0)
     Non-deductible items                     (0.4)       37.3        2.1
     Valuation allowance and reconciliation   (3.4)       35.0       15.6
     Other                                     2.4          .8       (1.0)
                                              ----        ----       ----
                                              39.1%       34.0%     (22.3)%
                                              ====        ====       ====

At December  31,  2000,  the  Company  had net operating loss carryforwards of
approximately $8.9 million, $26.3 million and $4.1 million for federal, state,
and  foreign  income  tax  purposes,  respectively,  that  expire  in  periods
beginning in 2006 through 2020.  At December 31, 2000, the Company also had an
Alternative Minimum Tax (AMT) credit of approximately $562,000, which does not
expire.

The  net  operating  loss  carryforwards  are   subject  to  IRS  Section  382
limitations and other limitations, which limit the  utilization of the federal
and state net operating loss carryforwards in any given  year.  Realization of
the  portion  of  the  deferred  tax  asset  resulting from the Company's  net
operating  loss  carryforward  in  certain  states  and  Puerto  Rico  is  not
considered more likely than not.  Accordingly,  a valuation allowance has been
established for the full amount of those deferred  tax  assets.   The Company,
after  considering  its  pattern  of profitability and its anticipated  future
taxable  income,  believes it is more  likely  than  not  that  the  remaining
deferred tax assets will be realized.

<PAGE> F-18


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE J - INCOME TAXES - (CONTINUED)

Deferred income taxes reflect the tax effected impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as  measured  by tax laws and regulations.  The components of
the Company's deferred tax assets  (liabilities) are summarized as follows (in
thousands):


                                                     December 31,
                                                  2000        1999
                                                -------     -------

          Facility closure costs                $     -     $  648
          Vacation accrual                          284        289
          Startup and development costs           1,112      2,148
          Accrued expenses                        1,517      1,874
          Depreciation                              498        249
          Net operating loss carryforwards        5,594      4,880
          Alternative minimum tax credit            562        374
          Other                                     888      1,310
                                                -------     ------
                                                 10,455     11,772
          Valuation allowance                    (3,098)    (1,485)
                                                 ------     ------
                                                  7,357     10,287
          Less: current portion                   1,926      3,227
                                                 ------     ------
                                                $ 5,431    $ 7,060
                                                =======    =======


NOTE K - COMMON STOCK WARRANTS

The Company issued to individuals and sold to certain underwriters' warrants
associated with the 1994 public offering and the 1995 Private Placement. The
following represents all warrant activity for the years presented:

                                                 Public   Underwriter   Total
                                                -------   -----------   -----

Balance at December 31, 1998                    650,510       33,549  684,059
                                                -------   ----------  -------

Warrants exercised                              350,589        5,906  356,495

Warrants expired                                299,921            -  299,921
                                                -------   ----------  -------

Balance at December 31, 1999                          -       27,643   27,643

Warrants expired                                      -       27,643   27,643
                                                -------   ----------  -------

Balance at December 31, 2000                          -            -        -
                                                =======   ==========  =======

<PAGE> F-19


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE L - COMMITMENTS AND CONTINGENCIES

1.   NEW JERSEY FACILITY CLOSURE

     Due  to  a disturbance at the Company's Elizabeth, New Jersey facility on
     June 18, 1995,  the  facility  was closed and the INS moved all detainees
     located therein to other facilities.   On  December 15, 1995, the Company
     and  a publicly-traded company (the "Buyer"),  which  also  operates  and
     manages  detention  and  correctional  facilities,  entered into an asset
     purchase agreement pursuant to which the Buyer purchased  the  equipment,
     inventory  and supplies, contract rights and records, leasehold and  land
     improvements  of the Company's New Jersey facility for $6.2 million.  The
     purchase price is payable in non-interest bearing monthly installments of
     $123,000 effective January 1997, the month the Buyer commenced operations
     of the facility.   The  Company has no continuing obligation with respect
     to the Elizabeth, New Jersey  facility.   According  to  the terms of the
     asset  purchase agreement, the monthly payments beginning September  1999
     are contingent upon the renewal of the contract by the INS and the Buyer.
     The INS  did  re-award the contract to the Buyer in 1999.  Therefore, the
     Company will continue to receive monthly non-interest bearing payments of
     $123,000, beginning September 1999 through March 2001, and will recognize
     income ratably over this period.


2.   LEGAL MATTERS

     In March 1996,  former  inmates  at one of the Company's facilities filed
     suit in the Supreme Court of the State  of  New  York, County of Bronx on
     behalf  of  themselves and others similarly situated,  alleging  personal
     injuries  and  property  damage  purportedly  caused  by  negligence  and
     intentional  acts  of  the  Company  and claiming $500.0 million each for
     compensatory and punitive damages, which  suit  was  transferred  to  the
     United  States  District  Court,  Southern District of New York, in April
     1996. In June 1996, seven detainees  at  one  of the Company's facilities
     (and certain of their spouses) filed suit in the  Superior  Court  of New
     Jersey,  County  of  Union, seeking $10.0 million each in damages arising
     from alleged mistreatment of the detainees, which suit was transferred to
     the United States District Court, District of New Jersey, in August 1996.
     In June 1997, former detainees  of  the  Company's  Elizabeth, New Jersey
     facility filed suit in the United States District Court  for the District
     of  New  Jersey.   The  suit  claims violation of civil rights,  personal
     injury  and  property  damage  allegedly  caused  by  the  negligent  and
     intentional acts of the Company.   No  monetary damages have been stated.
     Through stipulation, all these actions will  now  be  heard in the United
     States  District  Court  for  the  District  of  New Jersey.   This  will
     streamline the discovery process, minimize costs and  avoid  inconsistent
     rulings.

     The Company believes the claims made in each of the foregoing  actions to
     be  without  merit  and will vigorously defend such actions.  The Company
     further believes the outcome of these actions and all other current legal
     proceedings to which  it  is  a  party  will  not have a material adverse
     effect upon its results of operations, financial  condition or liquidity.
     However,  there  is  an inherent risk in any litigation  and  a  decision
     adverse to the Company could be rendered.

3.   CONTRACTS

     Renewal of government  contracts  is  subject  to,  among  other  things,
     appropriations  of  funds  by  the  various levels of government involved
     (Federal, state or local).  Also, several  contracts  contain  provisions
     whereby  the  Company  may be subject to audit by the government agencies
     involved.  These contracts  also  generally  contain "termination for the
     convenience  of  the  government"  and "stop work  order"  clauses  which
     generally allow the government to terminate a contract without cause.  In
     the event one of the Company's larger  contracts  is  terminated,  it may
     have a material adverse effect on the Company's operations.

<PAGE> F-20


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE L - COMMITMENTS AND CONTINGENCIES - (CONTINUED)

4.   DISPUTED RECEIVABLE

     In  April  1999,  immediately following the merger with YSI, a non-profit
     entity for whom YSI  provided  management services elected to discontinue
     all contracted services pursuant  to  a  change  in control clause of its
     management agreement with YSI. Upon this determination,  YSI  presented a
     final bill for management services rendered, which the non-profit  entity
     disputed,   claiming,  among  other  things,  that  it  had  been  billed
     incorrectly over  the course of the management contract.  The Company has
     investigated these  claims  and  is  currently  attempting to negotiate a
     settlement with the non-profit in order to avoid  litigation.   Based  on
     currently  available  information, the Company has reserved approximately
     $1.4  million  against  the   receivable  due  from  this  non-profit  at
     December 31, 2000.

5.   OFFICERS' COMPENSATION

     The Company has an employment agreement  with its President which expires
     February  17,  2002  and is subject to automatic  annual  renewals.   The
     contract provides for  minimum  annual  compensation of $270,000, cost of
     living  increases,  use  of  an  automobile,  reimbursement  of  business
     expenses, health insurance, related benefits and  a  bonus equal to 5% of
     pre-tax  profits  in  excess of $1.0 million, such bonus  not  to  exceed
     $200,000.

     The Company has an employment  agreement with its Chief Operating Officer
     (COO) which expires on January 20,  2002  and provided for minimum annual
     compensation  of  $200,000  with pre-determined  annual  increases.   The
     contract also includes automobile  allowances,  reimbursement of business
     expenses,  health  or  disability  insurance,  related  benefits,  and  a
     $110,000 bonus based upon the attainment of a certain level of beds under
     contract.

     In January 1999, as part of the renegotiations of  compensation  with its
     Chief  Financial  Officer  (CFO)  for  the period commencing February 26,
     1999, the Company increased the CFO's base  compensation to $200,000 with
     an annual bonus not to exceed $100,000, equal  to 0.4% of earnings before
     interest,  taxes,  depreciation, amortization and  start  up  costs.   In
     addition the CFO was  granted five-year options to purchase 25,000 shares
     of the Company's common  stock  at $11.125 per share.  The options become
     exercisable at the annual rate of 8,333 shares, commencing on the date of
     grant.  The contract is subject to automatic annual renewals.

6.   CONCENTRATIONS OF CREDIT RISK

     The Company's contracts in 2000,  1999  and 1998 with government agencies
     where revenues exceeded 10% of the Company's  total consolidated revenues
     were as follows:

                                                       Years Ended December 31,
                                                       -----------------------
                                                        2000    1999    1998
                                                        ----    ----    ----

     Florida Department of Juvenile Justice              10%     13%     15%
     Texas Department of Criminal Justice                13%     10%      -
     Various Agencies in the State of Texas              13%     11%     10%
     State of Maryland Department of Juvenile Justice    11%     10%     13%

7.   FIDUCIARY FUNDS

     The Company has acted as a fiduciary disbursing  agent  on  behalf  of  a
     governmental  entity.   Funds  received from the governmental entity have
     been paid to the general contractor,  which  constructed  the  government
     owned   facilities.    The   Company  is  responsible  for  managing  the
     construction process. The Company  has  no  legal rights to the funds nor
     the constructed facility, and accordingly, such  funds  do  not appear in
     the accompanying financial statements.

<PAGE> F-21


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE L - COMMITMENTS AND CONTINGENCIES - (CONTINUED)

8.   CONSTRUCTION COMMITMENTS

     The  Company  has  various  construction  contracts  related  to  ongoing
     projects totaling approximately $1.3 million as of December 31, 2000.

9.   LETTER OF CREDIT

     In   connection  with  the  Company's  workmen's  compensation  insurance
     coverage  requirements,  the Company obtained a $269,000 Letter of Credit
     from its bank in favor of  the  insurance carrier.  This letter of credit
     was released in the first quarter  of 2001.  In February 2001 the Company
     engaged a new insurance carrier.  The  new  carrier  requires  a  step-up
     letter of credit with the initial commitment of $450,000 to be secured on
     May  1,  2001.   This  letter  of credit will be increased by $450,000 on
     August 1, 2001, and again on November  1,  2001 for a total of $1,350,000
     by November 1, 2001


NOTE M - CONTRACT WITH THE STATE OF LOUISIANA

In  December  1998,  the Company entered into a contract  with  the  State  of
Louisiana (`the State") to operate the Tallulah Correctional Center for Youth.
The  express terms of this  contract  obligated  the  State  to  maintain  the
facility  at  a full population of 686; however, in light of the conditions at
the facility inherited  by  the Company and the State's desire to maintain the
population of the facility at less than 686 juveniles on an interim basis, the
Company reached an agreement  with  the  State  under  which the Company would
invoice the State only for the actual monthly population  for a period of six-
months  from  the  commencement of operations by the Company.   The  Company's
agreement was made in  consideration  of  the  State's commitment to honor the
terms of the contract and increase the population  to the full capacity or pay
for its full utilization, regardless of the actual population  level,  at  the
end  of  the  six  month period.   As contemplated by the foregoing agreement,
commencing in July 1999,  the  Company  began  billing  the  State  at the 686
population  level  of the original contract.  These invoices were disputed  by
the State and the Company  received  payment  only  for  the  actual number of
juveniles  housed  in  the  facility.   During  this  period, in order  to  be
conservative, the Company recognized revenues for a population  level  of  620
(the population level the facility was approved to house by the local judicial
authority  prior  to  commencement  of  operations by the Company) despite its
belief  that  it  was entitled to payment assuming  full  utilization  of  the
facility regardless  of  the  court  order.   In  September  1999,  the  State
unexpectedly  indicated  it  could not commit to achieve the population levels
required by the contract or to pay for the full utilization of the facility as
provided for in the contract during  the  remaining  term of the contract, and
subsequently, the Company discontinued operations of the facility on September
24, 1999.  The Company is currently pursuing payment of  all  funds that would
be owed under the original contract from the commencement of operation as well
as damages for breach of the contract by the State.  The Company did not incur
any material losses in conjunction with this closure.

<PAGE> F-22


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE N - EARNINGS PER SHARE

The  following table sets forth the computation of basic and diluted  earnings
per share in accordance with SFAS No. 128:

<TABLE>
<CAPTION>

                                                     Years Ended December 31,
                                                     -----------------------
                                                     2000    1999      1998
                                                    ------  ------   ---------

<S>                                                 <C>     <C>      <C>
Numerator:
   Net income (loss)                                $5,788  $(3,528) $(16,596)
                                                    ======  =======  =========
Denominator:
   Basic earnings per share:
   Weighted average shares outstanding              11,366   11,219    10,860

   Effect of dilutive securities - stock options
      and warrants
                                                         1        -         -

   Denominator for diluted earnings per share       11,367   11,219    10,860
                                                    ======   ======   ========

   Net income (loss) per common share - basic       $ 0.51   $(0.31)  $ (1.53)
                                                    ======   =======  ========
   Net income (loss) per common share - diluted     $ 0.51   $(0.31)  $ (1.53)
                                                    ======   =======  ========
</TABLE>

The effect  of  dilutive  securities  was  not  included in the calculation of
diluted net loss per common share as the effect would  have been anti-dilutive
in all years.

<PAGE> F-23


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE O - STOCK OPTIONS

In October 1993, the Company adopted a stock option plan  (the  "Stock  Option
Plan").   This  plan  as  amended,  provides  for  the  granting of both:  (i)
incentive stock options to employees and/or officers of the  Company  and (ii)
non-qualified options to consultants, directors, employees or officers  of the
Company.   The  total  number  of  shares that may be sold pursuant to options
granted under the stock option plan  is  1.5  million.   The  Company, in June
1994, adopted a Non-employee Directors Stock Option Plan, which  provides  for
the  grant  of  non-qualified  options to purchase up to 150,000 shares of the
Company's Common Stock.  In May  1999,  the  Company  adopted  the  1999  Non-
Employee  Director  Stock  Option  Plan,  which provides for the grant of non-
qualified options to purchase up to 300,000  shares  of  the  Company's Common
Stock.

Options  granted under all plans may not be granted at a price less  than  the
fair market  value  of  the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company).  Options granted  under  all plans will expire not more than ten
years from the date of grant.

The Company has adopted only the disclosure  provisions  of  SFAS No. 123.  It
applies APB No. 25 and related interpretations in accounting for its plans and
does not recognize compensation expense for its stock based compensation plans
other  than  for  restricted  stock.  If the Company had elected to  recognize
compensation expense based upon  the  fair  value at the grant date for awards
under these plans consistent with the methodology  prescribed by SFAS No. 123,
the Company's net loss per share would be adjusted to  the  pro  forma amounts
indicated below:


<TABLE>
<CAPTION>

                                                     Years Ended December 31,
                                                     -----------------------
                                                     2000    1999      1998
                                                    ------  ------   ---------

<S>                                                 <C>     <C>      <C>
Net income (loss)
  As reported                                       $5,788  $(3,528) $(16,596)
  Pro forma (unaudited)                              4,845   (4,454)  (22,102)

Income (loss) per common share - basic
  As reported                                       $ 0.51  $ (0.31) $  (1.53)
  Pro forma (unaudited)                               0.43    (0.40)    (2.04)

Income (loss) per common share - diluted
  As reported                                       $ 0.51  $ (0.31) $  (1.53)
  Pro forma (unaudited)                               0.43    (0.40)    (2.04)
</TABLE>

These  pro  forma  amounts  may  not  be  representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before 1995.  The fair value of these options was estimated at the
date  of grant using Black-Scholes option-pricing  model  with  the  following
weighted-average  assumptions for the years ended December 31, 2000, 1999, and
1998.

<TABLE>
<CAPTION>

                                                  Years Ended December 31,
                                                  -----------------------
                                                  2000    1999      1998
                                                 ------  ------   ---------
          <S>                                    <C>     <C>      <C>
          Volatility                               75%     62%      77%
          Risk free rate                         5.50%   5.00%    5.75%
          Expected life                         3 years 3 years  3 years
</TABLE>

The weighted average fair value of options granted during 2000, 1999, and 1998
for  which  the  exercise  price equals the market price on the grant date was
$2.16, $3.51, and $18.19, respectively.

<PAGE> F-24


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE O - STOCK OPTIONS (CONTINUED)

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable.  In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility.  Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially effect the fair value
estimate, in management's opinion the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

Stock option activity during 2000, 1999 and 1998 is summarized below:

<TABLE>
<CAPTION>
                                                     Weighted-Average
                                         Options      Exercise Price
                                         -------     ----------------
        <S>                              <C>               <C>
        Balance, December 31, 1997       896,707           $15.49
          Granted                        351,544            26.12
          Exercised                      (44,061)           20.67
          Canceled                      (113,012)           31.96
                                       ---------
        Balance, December 31, 1998     1,091,178            16.58
          Granted                        319,001             7.72
          Exercised                     (108,501)            4.67
          Canceled                      (369,553)           28.24
                                       ---------
        Balance, December 31, 1999       932,125            10.34
          Granted                         59,000             4.11
          Exercised                            -                -
          Canceled                       (83,875)           13.67
                                       ---------
        Balance, December 31, 2000       907,250           $ 9.66
                                       =========
</TABLE>

<PAGE> F-25


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE O - STOCK OPTIONS (CONTINUED)

The  following  table  summarizes information concerning currently outstanding
and exercisable stock options at December 31, 2000:

<TABLE>
<CAPTION>
                                       Weighted-Average
                                           Remaining
       Range of           Number       Contractual Life      Weighted-Average
    Exercise Prices     Outstanding         (Years)           Exercise Price
    ---------------     -----------    ----------------      ----------------
    <S>                    <C>                <C>                 <C>
    $ 2.06 -  4.12         21,000             9.2                 $ 3.88
      4.12 -  6.18         37,000             9.1                   4.26
      6.18 -  8.25        275,000             8.3                   7.50
      8.25 - 10.31        241,000             4.5                   8.96
     10.31 - 12.37        111,500             2.1                  11.57
     12.37 - 14.44        184,250             2.2                  12.98
     14.44 - 16.50         17,500             0.5                  15.25
     16.50 - 18.56         20,000             0.4                  17.82
                          -------
                          907,250             5.8                 $ 9.66
                          =======

       Range of            Number        Weighted-Average
    Exercise Prices     Exercisable       Exercise Price
    ---------------     -----------      ---------------
    $ 4.12 -  6.18          1,334             $ 4.45
      6.18 -  8.25        110,003               7.50
      8.25 - 10.31        241,000               8.96
     10.31 - 12.37         85,001              11.66
     12.37 - 14.44        126,171              12.97
     14.44 - 16.50         17,500              15.25
     16.50 - 18.56         20,000              17.82
                          -------
                          601,009             $10.38
                          =======
</TABLE>


NOTE P - EMPLOYEE BENEFIT PLANS

On July 1, 1996, the Company  adopted  a  contributory  retirement  plan under
Section  401(k) of the Internal Revenue Code, for the benefit of all employees
meeting  certain   minimum   service  requirements.   Eligible  employees  can
contribute up to 15% of their  salary but not in excess of $10,500 in 2000 and
$10,000 in 1999 and 1998. The Company's contribution under the plan amounts to
20%  of  the  employees'  contribution.   The  Company  contributed  $154,000,
$322,000 and $127,000 in 2000, 1999, and 1998 respectively, to the plan.


NOTE Q - SELF INSURANCE

The  Company is self-insured  for  workers'  compensation.   The  Company  has
obtained  an aggregate excess policy, which limits the Company's exposure to a
maximum of  $2.5  million  and  $1.2 million as of December 31, 2000 and 1999,
respectively.  The estimated insurance  liability  totaling  $1.4  million and
$909,000  on December 31, 2000 and 1999, respectively is based upon review  by
the Company of claims filed and claims incurred but not reported.

The Company  maintains a group health plan subject to a self-insured retention
and subject to  a  loss limit of $100,000 per individual. At December 31, 2000
the  plan  had  approximately  3,000  participants  and  a  medical  insurance
liability of $1.6  million  was  recognized.   This  liability  represents the
maximum  claim exposure under the plan less actual payments made during  2000.
In addition,  the  Company  is  subject  to  a  maximum  terminal liability of
$917,000.   Since  termination is not anticipated, no terminal  accruals  were
made at December 31, 2000.

<PAGE> F-26


              CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE R - RELATED PARTY TRANSACTIONS

In addition to related party transactions disclosed elsewhere, the Company has
a note receivable from a limited partnership in the amount of $480,000 related
to the sale of the Tampa Bay Academy.  The note is guaranteed by a member of
the Board of Directors.  Interest is payable quarterly beginning April 1, 2001
at 9.5% and the note is due in full on September 1, 2001.  Cash of
approximately $3.3 million was received and a loss of approximately $1.0
million was recorded upon the sale of the Tampa Bay Academy.


NOTE S - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1999 and 2000 (in thousands).

<TABLE>
<CAPTION>
                         First Quarter     Second Quarter     Third Quarter      Fourth Quarter
                        -------------     --------------     -------------       --------------
                        1999(A)   2000    1999(B)    2000     1999     2000      1999     2000
                       -------  -------   -------  -------   -------  -------   -------  -------

<S>                    <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>
Revenues               $58,934  $53,709   $60,878  $52,357   $60,464  $52,209   $53,642  $52,537
Operating expenses      70,468   49,889    56,684   49,338    57,975   48,833    49,538   50,100
                       -------  -------   -------  -------   -------  -------   -------  -------

Income from operations (11,534)   3,820     4,194    3,019     2,489    3,376     4,104    2,437
Other income (expense)   2,176   (2,020)   (2,095)  (1,682)   (1,427)  (1,802)   (2,151)  (1,360)
                       -------  -------   -------  -------   -------  -------   -------  -------
Income (loss) before
  extraordinary gain    (9,358)   1,800     2,099    1,337     1,062    1,574     1,953    1,077
Extraordinary gain           -        -         -        -       716        -         -        -
                       -------  -------   -------  -------   -------  -------   -------  -------
Net income (loss)      $(9,358) $ 1,800   $ 2,099  $ 1,337   $ 1,778  $ 1,574   $ 1,953  $ 1,077
                       =======  =======   =======  =======   =======  =======   =======  =======

Basic and diluted
  earnings (loss) per
  share:
Income (loss) before
  extraordinary gain   $(0.84)  $0.16     $0.19    $0.12     $0.10    $0.14     $0.17    $0.10
Extraordinary gain          -       -         -        -      0.06        -         -        -
                       ------   -----     -----    -----     -----    -----     -----    -----

Net income (loss)      $(0.84)  $0.16     $0.19    $0.12     $0.16    $0.14     $0.17    $0.10
                       ======   =====     =====    =====     =====    =====     =====    =====
</TABLE>
(A) - Results of first quarter reflect $12.1 million in merger costs and
      related restructuring charges
(B) - Results of third quarter reflect the write-off of $1.9 million in
      deferred financing costs and the extraordinary gain on the early
      extinguishment of debt of $716,000, net of tax of $467,000.

<PAGE> F-27