Correctional Systems, Inc. End of Year Report

Correctional Systems, Inc.

End-of-Year 2001
Status Report

| Growth by Contract | Growth by Revenue |

CSI: Where we are now?

Correctional Systems, Inc. is growing at such a rapid pace that no printed document can accurately portray the dynamic status of our company. The best we can do is to present to our stockholders the essence of our growth and a picture of where we are as Year 2001 ends and we begin our eighth year of operation. The results of our corporate commitment to growth, which we adopted in 1996, have been to see our revenues increase each year from $1 million in 1997, $2.7 million in 1998, $6.7 million in 1999, $8.7 million in 2000, and we anticipate just over $10 million for the Year 2001. Our number of revenue centers has seen a commensurate increase from three in 1996 to twenty-two by the end of Year 2001. We are now diversified and more stable than we have been since our incorporation in 1994.

CSI is organized around three divisions:

Correctional Systems, Inc. operates according to three divisions, each with their own divisional manager.

1. Institutional - this includes Jails, our traditional revenue source, with nine operating facilities in Southern California and New Mexico.

2. Pre-Release - these are Halfway Houses, a substantial funding base, with three federal, one state and one county contract, for a total of five facilities.

3. Alternative Sentencing - our division for electronic monitoring, offender supervision, alcohol and drug counseling and drug testing, with agreements and/or contracts in multiple sites in three California counties as well as a federal outpatient counseling program. We have 2,000 offenders under supervision at any given time.

What we accomplished in the Year 2001:

      In the Year 2001 we stabilized our Institutional Division with eight jails in the Los Angeles and Orange County area, and took over full management and operations of the Lincoln County, New Mexico Jail, after two years of providing only management services. We also transitioned Lincoln County from its old detention facility into a modern facility. We added two halfway houses to our Pre-Release Division: the Beaumont Transitional Treatment Center and the SMART Program. Beaumont was purchased and the SMART Program was awarded in a competitive bidding process.

      Our Alternative Sentencing Division was not re-awarded the Orange County Electronic Monitoring Program and we will be restructuring early in Year 2002. The Year 2001 also saw the beginnings of an increase in insurance costs, a reflection of a national wave which we are including in our business costs. We hope to see this wave peak in mid 2002.

      Our Development staff bid on several Bureau of Prisons halfway houses and jail projects, but these results will not be known till the end of the first quarter of Year 2002, due to 11-September delays.

What's next for CSI?

Year 2002 will see CSI reinforcing its infrastructure so that we can continue to manage our governmental contracts in a safe, secure, humane and profitable manner, in light of our continued growth. And, as we stabilize and support our existing administrative structure, we will also continue to enhance our developmental actions so that continued growth will be assured. We also hope to see several of the contracts we bid on in Year 2001 be awarded to CSI in the early part of this year.

Disclaimer:

This press release contains forward-looking statements regarding future events. Actual results could differ from those contained in these forward-looking statements due to certain factors, including the Company obtaining additional management contracts, obtaining contracts for which proposals have been submitted, business and economic conditions and availability of financing.

Correctional Systems, Inc. End-of-Year 2001 Status Report

Correctional Systems, Inc.

End-of-Year 2001
Status Report