Correctional Systems, Inc. End of Year Report

Correctional Systems, Inc.

End-of-Year 2002
Status Report

| Growth by Contract | Growth by Revenue |

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CSI: Where we are now?

Since 1996, CSI has achieved a compounded annual growth rate of approximately 55%. Our consistent growth has come from increased service levels at our current facilities in addition to a constant flow of new projects. The year 2002 showed record levels of revenue and income for operations of approximately $14 million and $667,000, respectively. Year 2003 is expecting revenue growth projected to increase by 14% as compared to Year 2002 to approximately $16 million. We are using 2003 to develop and define our corporate infrastructure as we expect to open three to four new projects in 2004. It is anticipated that during 2004 we will continue our growth as additional facilities are expected to be opened.

CSI is organized around three divisions:

Correctional Systems, Inc. has been managing jails for cities and counties since 1994. We provide jails, halfway houses, electronic monitoring and drug counseling. We are organized around three correctional divisions as a full-service correctional agency:

1. Institutional Division - this includes eight jail facilities in Southern California and two Detention Centers in New Mexico.

2. Community Treatment Center Division – CSI manages six halfway house contracts: Four for the Federal Bureau of Prisons (three in Texas in the Cities of Austin, Brownsville, and Edinburg, and one in Leavenworth, Kansas), one Community Residential Treatment Center for the County of Travis, Texas, and one Therapeutic Treatment Center for the State of Texas in Beaumont, Texas.

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 California. We may have 1,000 offenders under supervision at any given time.

What we accomplished in the Year 2001:

Project Development. In the Year 2002 we were awarded two major contracts, a 90-bed Bureau of Prisons Halfway House in Leavenworth, Kansas (expanded to 150-bed capacity) and a 160-bed County Detention Center contract for San Miguel, New Mexico.

Infrastructure Development. In 2002 we brought on a professional Human Resources Manager at Corporate level and also hired a full-time Chief Financial Officer. These actions help us to strengthen our infrastructure supervision and prepare for additional growth. Furthering infrastructure support, we added a dedicated HR Benefits position and an Administrative Assistant for Proposal Development to assist our Vice President of Planning and Research.

What's next for CSI?

Year 2003 will see CSI reinforcing its infrastructure so that we can continue to manage our governmental contracts in a safe, secure, humane and profitable manner. And, as we stabilize and support our existing administrative structure, we will also continue to enhance our development actions so that continued growth will be assured. We hope to see several of the contracts we bid on in Year 2002 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 2002 Status Report

Correctional Systems, Inc.

End-of-Year 2002
Status Report