<PAGE>
================================================================================

             FORM 10Q -- QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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

     (MARK ONE)

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

                    FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2001

                                       OR

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

                    FOR THE TRANSITION PERIOD FROM ____________ TO ____________

                         Commission File Number: 0-20135

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

                           AMERICA SERVICE GROUP INC.
             (Exact name of registrant as specified in its charter)

                   DELAWARE                                     51-0332317
       (State or other jurisdiction of                       (I.R.S. Employer
        incorporation or organization)                     Identification No.)

                          105 WESTPARK DRIVE, SUITE 200
                           BRENTWOOD, TENNESSEE 37027
              (Address and zip code of principal executive office)

                                 (615) 373-3100
              (Registrant's telephone number, including area code)

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

    There were 5,428,055 shares of Common Stock outstanding as of November 2,
2001.

================================================================================



<PAGE>

                           AMERICA SERVICE GROUP INC.

                          QUARTERLY REPORT ON FORM 10-Q
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                          NUMBER
                                                                                                          ------
<S>                                                                                                       <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 ...................    3

Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2001
   and September 30, 2000 ..............................................................................    4

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001
   and September 30, 2000 ..............................................................................    5

Notes to Condensed Consolidated Financial Statements ...................................................    6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..........    8


PART II. OTHER INFORMATION

Item 5: Other Information ..............................................................................   11

Item 6: Exhibits and Reports on Form 8-K ...............................................................   11

Signature page .........................................................................................   13

Index to exhibits ......................................................................................   14
</TABLE>




                                       2
<PAGE>

                                     PART I:

                              FINANCIAL INFORMATION

                           AMERICA SERVICE GROUP INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2001           2000
                                                                ---------      ---------
                                                                (AMOUNTS SHOWN IN 000'S)
<S>                                                             <C>            <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents ...............................     $   1,598      $     256
  Accounts receivable, healthcare and other less allowances        80,722         64,053
  Prepaid expenses and other current assets ...............        14,164          8,924
  Current deferred taxes ..................................         2,303          1,143
                                                                ------------------------
          Total current assets ............................        98,787         74,376
Property and equipment, net ...............................         8,297          8,651
Deferred taxes ............................................         5,502             --
Goodwill, net .............................................        45,436         61,358
Contracts, net ............................................        13,432         14,002
Other intangible assets, net ..............................         1,729          1,925
Other assets ..............................................         1,567          1,090
                                                                ------------------------
                                                                $ 174,750      $ 161,402
                                                                ========================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ........................................     $  31,552      $  21,664
  Medical claims liability ................................        18,588         11,285
  Accrued expenses ........................................        31,976         25,854
  Current portion of long-term debt .......................        63,000             --
                                                                ------------------------
          Total current liabilities .......................       145,116         58,803
Noncurrent portion of accrued expenses ....................         5,368          3,680
Deferred taxes ............................................            --            757
Long-term debt ............................................            --         56,800
Commitments and contingencies
Mandatory redeemable preferred stock ......................            --         12,397
Common stock ..............................................            54             41
Additional paid in capital ................................        31,324         18,259
Stockholders' notes receivable ............................        (1,363)        (1,384)
Accumulated other comprehensive income ....................          (598)            --
Retained (deficit) earnings ...............................        (5,151)        12,049
                                                                ------------------------
          Total liabilities and stockholders' equity ......     $ 174,750      $ 161,402
                                                                ========================
</TABLE>




            See notes to condensed consolidated financial statements.




                                       3
<PAGE>

                           AMERICA SERVICE GROUP INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              QUARTER ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                                   2001           2000           2001           2000
                                                   ----           ----           ----           ----
                                              (Amounts shown in 000's except share and per share amounts)
<S>                                            <C>            <C>            <C>            <C>
Healthcare revenue .........................   $   140,145    $   102,842    $   418,865    $   268,460
Healthcare expenses ........................       133,085         92,250        406,394        241,840
                                              ----------------------------------------------------------
Gross margin ...............................         7,060         10,592         12,471         26,620

Selling, general and administrative expenses         4,303          3,896         14,429         10,307
Impairment of long-lived assets ............            --             --         13,236             --
Strategic initiative and severance expenses          1,319             --          2,586             --
Depreciation and amortization ..............         1,798          1,625          5,741          4,038
                                              ----------------------------------------------------------
Income (loss) from operations ..............          (360)         5,071        (23,521)        12,275

Interest, net ..............................         1,390          1,411          3,915          2,767
                                              ----------------------------------------------------------
Income (loss) before taxes (benefit) .......        (1,750)         3,660        (27,436)         9,508

Provision for income taxes (benefit) .......          (754)         1,558        (10,399)         3,897
                                              ----------------------------------------------------------
Net income (loss) ..........................          (996)         2,102        (17,037)         5,611

Preferred stock dividends ..................            --           (165)          (163)          (489)
                                              ----------------------------------------------------------
Net income (loss) attributable to
  common shares ............................   $      (996)   $     1,937    $   (17,200)   $     5,122
                                              ==========================================================
Net income (loss) per common share:
  Basic ....................................   $     (0.18)   $      0.49    $     (3.28)   $      1.35
                                              ==========================================================
  Diluted ..................................   $     (0.18)   $      0.37    $     (3.28)   $      1.02
                                              ==========================================================
Weighted average shares outstanding:
  Basic ....................................     5,428,000      3,925,000      5,245,000      3,796,000
                                              ==========================================================
  Diluted ..................................     5,428,000      5,650,000      5,245,000      5,502,000
                                              ==========================================================
</TABLE>




            See notes to condensed consolidated financial statements.




                                       4
<PAGE>

                           AMERICA SERVICE GROUP INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                                            2001          2000
                                                         ------------------------
                                                         (AMOUNTS SHOWN IN 000'S)
<S>                                                       <C>           <C>
Operating activities:
Net income (loss) ...................................     $(17,037)     $  5,611
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
  Depreciation and amortization .....................        5,741         4,038
  Amortization of deferred financing costs ..........          349           137
  Impairment of long-lived assets ...................       13,236            --
  Deferred income taxes .............................       (7,028)           --
  Interest on stockholders' notes receivable ........          (60)          (45)
  Changes in operating assets and liabilities, net of
     effects of acquisitions:
     Accounts receivable ............................      (16,748)       (5,828)
     Prepaid expenses and other current assets ......       (5,253)          518
     Other assets ...................................          (40)         (412)
     Accounts payable ...............................        9,967        (1,725)
     Accrued expenses ...............................       13,861         9,318
                                                         ------------------------
Net cash provided by (used in) operating activities .       (3,012)       11,612
Investing activities:
Cash paid for acquisitions, net of cash acquired ....           --       (38,669)
Capital expenditures ................................       (1,658)       (2,013)
                                                         ------------------------
Net cash used in investing activities ...............       (1,658)      (40,682)
Financing activities:
Proceeds from long-term debt ........................       31,280        39,007
Payments on long-term debt ..........................      (25,080)      (10,394)
Payment of deferred financing costs .................         (786)         (712)
Proceeds from stockholders' notes receivable ........           81            --
Payment of mandatory redeemable preferred stock
  dividends .........................................          (61)         (324)
Common stock issued under Employee Stock Purchase ...           --           275
Plan
Exercise of stock options ...........................          578         2,536
                                                         ------------------------
Net cash provided by financing activities ...........        6,012        30,388
Net increase (decrease) in cash and cash equivalents         1,342         1,318
Cash and cash equivalents, beginning of period ......          256           444
                                                         ------------------------
Cash and cash equivalents, end of period ............     $  1,598      $  1,762
                                                         ========================
</TABLE>




            See notes to condensed consolidated financial statements.




                                       5
<PAGE>

                           AMERICA SERVICE GROUP INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001

1.  BASIS OF PRESENTATION

    The interim condensed consolidated financial statements as of September 30,
2001 and for the quarter and nine months then ended are unaudited, but in the
opinion of management, have been prepared in conformity with accounting
principles generally accepted in the United States applied on a basis consistent
with those of the annual audited consolidated financial statements. Such interim
condensed consolidated financial statements reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the financial
position and the results of operations for the quarter and nine months
presented. The results of operations for the quarter and nine months presented
are not necessarily indicative of the results to be expected for the year ending
December 31, 2001. The interim condensed consolidated financial statements
should be read in connection with the audited consolidated financial statements
for the year ended December 31, 2000.

2.  ACQUISITIONS

    On September 20, 2000, the Company, through its wholly-owned subsidiary
Secure Pharmacy Plus, Inc. ("SPP"), completed the purchase of the assets of the
correctional pharmacy division of Bergen Brunswig Corporation. The cash purchase
price of $7.9 million was financed under the Company's Senior Secured Credit
Facility. SPP is the largest correctional pharmacy company in the United States,
servicing over 300,000 inmates in forty-one states. SPP's sales to the Company
are eliminated in consolidation. The Company accounted for the acquisition using
the purchase method of accounting.

    On June 1, 2000, the Company acquired the stock of Correctional Health
Services, Inc. ("CHS") for $16.7 million in cash, net of cash acquired. The
purchase price was financed by advances pursuant to the Company's then existing
Credit Facility, which was increased in connection with the acquisition. CHS,
with headquarters in Verona, New Jersey, services nineteen contracts providing
healthcare services to approximately 12,000 inmates.

    On March 29, 2000, the Company acquired the Pennsylvania and New York
contracts from Correctional Physician Services, Inc. ("CPS") for $14 million in
cash financed under the Company's then existing Credit Facility. CPS assigned
its contracts for the Eastern Region of the Pennsylvania Department of
Corrections and the Yonkers Region of the New York Department of Correctional
Services to the Company. Combined, the acquired Pennsylvania and New York
operations of CPS provide healthcare services to approximately 21,000 inmates.

3.  IMPAIRMENT OF LONG-LIVED ASSETS

    During the second quarter of 2001, the Company was notified that another
vendor had been selected to negotiate a contract to provide healthcare services
for the Eastern Region of the Pennsylvania Department of Corrections upon the
expiration of the Company's contract on December 31, 2002. The Company also
anticipates that it will cease operations under the contract with the Yonkers
Region of the New York Department of Correctional Services upon the expiration
of the Company's contract on May 31, 2002 as the healthcare services are to be
assumed by the client. Given these factors, in accordance with FAS 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the Company recorded a non-cash impairment charge of $13.2
million during the second quarter of 2001 representing the excess net goodwill
recorded in connection with the aforementioned acquisition of CPS over the fair
value of the two contracts. The Company estimated the fair value of the
contracts by calculating the net present value of estimated cash flows during
the remaining term of the contracts adjusted for certain other factors.

4.   STRATEGIC INITIATIVE AND SEVERANCE EXPENSES

     During 2001, the Company incurred certain strategic initiative expenses.
This initiative has been discontinued. Additionally during the third quarter of
2001, the Company incurred severance expenses related to staffing reductions.

5.  CHANGES IN ACCOUNTING ESTIMATES

    During the second quarter of 2001, the Company recorded changes in
accounting estimate charges of approximately $6.0 million to strengthen medical
claims reserves due to adverse development of prior years' medical claims and
$1.3 million for legal and $0.4



                                       6
<PAGE>

million for other charges. The charge for medical claims reserve strengthening
was primarily the result of updated information that showed actual utilization
and cost data for inpatient and outpatient services were higher than historical
levels upon which the original estimate was based. The charge for legal and
malpractice insurance exposures primarily relates to liquidity issues of certain
insurance carriers who provided coverage to the Company from 1992-1997.

6.  BANKING ARRANGEMENTS

    As a result of the charges referred to in the preceding footnotes, on August
27, 2001, the Company obtained an amendment to its $65 million Senior Secured
Credit Facility (the "Credit Facility"). Pursuant to the amendment to the Credit
Facility, amounts available to the Company are based upon varying percentages of
accounts receivable and inventory. Certain financial covenants were modified and
other financial covenants were added through the quarter ending March 31, 2003
as a result of the amendment. Pursuant to the amendment, the Company agreed to
make several scheduled reductions in availability under the Credit Facility. The
first reduction occurred on November 1, when the Company repaid $1 million of
the amount outstanding pursuant to the Credit Facility.

    Due to the financial results for the quarter ended September 2001, the
Company has obtained a waiver of certain financial covenants for the period as
part of a second amendment to the Credit Facility. A permanent reduction of $1.0
million to the Credit Facility was made by the Company in conjunction with the
agreement. This reduction was in addition to the $1 million reduction made on
November 1. Additionally, future tax refunds are to be applied as permanent
reductions to the Credit Facility, interest rates have been increased and the
maturity date of the Credit Facility has been shortened to April 1, 2003.

    Absent further amendment to the Credit Facility, the Company may be in
default of its financial covenants within the Credit Facility at its next
reporting date for the fourth quarter of 2001. Therefore, the Company has
classified the debt under the Credit Facility to current. The Company expects to
commence immediate negotiations with the Administrative Agent to complete an
amendment that would revise the financial covenants long term.

7.  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), as amended in June 2000 by SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, which requires the
Company to recognize all derivatives as assets or liabilities measured at fair
value. Changes in fair value are recognized through either earnings or other
comprehensive income dependent on the effectiveness of the hedge instrument. The
Company currently maintains three interest collar agreements with three of its
syndicate banks for a notional amount of $24 million. The collar agreements,
which expire between October 2002 and May 2003, qualify as cash flow hedges
under SFAS 133.

    On January 1, 2001, the Company adopted SFAS 133 and SFAS 138 resulting in a
charge to other comprehensive income of approximately $212,000, net of tax, as
the cumulative effect of a change in accounting principle representing the fair
value of the collar agreements on the date of adoption. During the nine months
ended September 30, 2001, the decrease in fair value of the collar agreements of
approximately $377,900, net of tax, was recognized through other comprehensive
income as the intrinsic change in fair market value during the period. At
September 30, 2001, the fair value of the interest rate collar agreements was a
liability of $988,650, which is included in accrued expenses in the accompanying
condensed consolidated balance sheets. The Company's collar agreements are
maintained for interest rate protection purposes only, pursuant to a provision
of its Credit Facility.

    In June 2001, the FASB issued SFAS No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

    The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of SFAS 142 is expected to result in an increase in
net income of $1.5 million, net of tax per year. During 2002, the Company will
perform the first of the required impairment tests of goodwill as of January 1,
2002 and has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.




                                       7
<PAGE>

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

    This quarterly report on Form 10-Q contains and incorporates by reference
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include, among other things, discussions of the
Company's business strategy and expectations concerning the Company's position
in the industry, future operations, margins, profitability, liquidity and
capital resources. All these forward-looking statements are based on estimates
and assumptions made by management of the Company that, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed on such statements and estimates. No assurance can be given that any of
such estimates or statements will be realized, and it is likely that actual
results may differ materially from those contemplated by such forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 (the "2000 Form 10-K") under the heading "Item 1.
Business -- Cautionary Statements," which cautionary statements are hereby
incorporated herein by reference. All forward-looking statements attributable to
the Company or persons acting on behalf of the Company are expressly qualified
in their entirety by the cautionary statements set forth in the 2000 Form 10-K.
In light of these and other uncertainties, the inclusion of forward-looking
statements herein or in any statement made by the Company should not be regarded
as a representation by the Company that the Company's plans and objectives will
be achieved.

GENERAL

    The financial statements of the Company include the operations of SPP, CHS
and the CPS contracts (collectively the "2000 Acquisitions") since the dates of
the consummation of such acquisitions: September 20, 2000, June 1, 2000, and
March 30, 2000, respectively. The CHS and CPS acquisitions increased the
Company's number of contracts served by 21. The SPP acquisition enables the
Company to better manage its pharmacy costs and provides the Company a vehicle
through which to diversify its presence in the correctional health care
industry.

RESULTS OF OPERATIONS

THIRD QUARTER 2001 COMPARED TO THIRD QUARTER 2000

    Healthcare revenue for the quarter ended September 2001 increased to $140.1
million from $102.8 million in the third quarter 2000. The $37.3 million
increase is attributable to the acquisition of SPP ($11.5 million), increases in
existing contract revenues ($4.8 million), and net new business ($21.0 million).

    Healthcare expenses for the third quarter 2001 were $133.1 million or 95.0%
of revenue versus $92.3 million or 89.7% of revenue for the prior year period.
The $40.8 million increase is mainly attributable to the SPP acquisition, net
new business and increased costs for pharmacy, nursing salaries and off-site
utilization. The Company's contract with the New York City Health and Hospitals
Corporation ("Rikers Island") generates a lower margin than its other
corrections business, as it is a lower risk contract. During the third quarter
2001, five contracts with combined quarterly revenues of $30.2 million accounted
for a negative gross margin of $2.0 million.

    Selling, general and administrative expenses of $4.3 million for the third
quarter 2001 increased $0.4 million as compared to the prior year period. As a
percent of revenue, selling, general and administrative expenses were 3.1% for
the quarter ended September 2001 versus 3.8% for the prior year period. This
decrease reflects the Company's ability to more effectively leverage its
selling, general and administrative expenses as a result of the growth in
healthcare revenue.

    During the quarter ended September 2001, the Company incurred $1.3 million
of expenses related to the discontinued strategic initiatives and severance
related to staffing reductions.

    Depreciation and amortization expense for the quarter ended September 2001
was $1.8 million versus $1.6 million for the same period in 2000. The increase
of $.2 million is mainly due to the amortization of the intangible assets
associated with the SPP acquisition.



                                       8
<PAGE>

    Net interest expense of $1.4 million for the quarter ended September 2001
remained unchanged from the prior year period even though interest rates
declined from the comparable period in 2000. The average outstanding principal
amount under the Credit Facility increased by $7.8 million over the same period
last year in order to meet incremental working capital needs.

    The income tax benefit for the quarter ended September 2001 was $0.8
million, which equates to a 43.1% effective tax rate. Preferred stock dividends
of $.2 million for the quarter ended September 2000 relate to the 5% dividend
rate on the $12.5 million of Series A Convertible Preferred Stock, which was
converted to common stock on February 5, 2001.

NINE MONTHS ENDED SEPTEMBER 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 2000

    Healthcare revenue for the nine months ended September 2001 increased to
$418.9 million from $268.5 million for the nine months ended September 30, 2000.
The $150.4 million increase is attributable to the 2000 Acquisitions ($57.8
million), increases in existing contract revenues ($17.4 million) and net new
business ($75.2 million).

    Healthcare expenses during the nine months ended September 2001 were $406.4
million or 97.0% of revenue versus $241.8 million or 90.1% of revenue for the
same period in 2000. The $164.6 million increase is mainly attributable to the
2000 Acquisitions, net new business, strengthening of current year medical
claims reserves and increased costs for pharmacy, nursing salaries and off-site
utilization. Exclusive of the changes in accounting estimates of $6.0 million
and other charges of $0.4 million recorded during the second quarter of 2001,
healthcare expenses, as a percent of revenue for the nine months ended September
2001 were 95.5%. Additionally, the Company's contract with Rikers Island
generates a lower margin than its other corrections business, as it is a lower
risk contract.

    Selling, general and administrative expenses of $14.4 million for the nine
months ended September 2001 increased $4.1 million as compared to the nine
months ended September 2000. As a percent of revenue, selling, general and
administrative expenses were 3.4% for the nine months ended September 2001
versus 3.8% for the same period in 2000. Exclusive of changes in accounting
estimates for legal liabilities of $1.3 million, selling, general and
administrative expenses as a percent of revenue were 3.1% for the nine months
ended September 2001. This decrease from 3.8% to 3.1% reflects the Company's
ability to more effectively leverage its selling, general and administrative
expenses as a result of the growth in healthcare revenue.

    During the nine months ended September 2001, the Company incurred $2.6
million of expenses related to the terminated strategic initiative and
severance. Additionally, the Company recorded a non-cash impairment charge of
$13.2 million representing the excess net goodwill in connection with the
acquisition of CPS over the fair value of the two expiring contracts.

    Depreciation and amortization expense for the nine months ended September
2001 was $5.7 million versus $4.0 million for the same period in 2000. The
increase of $1.7 million is mainly due to the amortization of the intangible
assets associated with the 2000 Acquisitions.

    Net interest expense of $3.9 million for the nine months ended September
2001 increased $1.1 million from the same period in 2000. The increase is
related to the principal amounts incurred to finance the 2000 Acquisitions and
to fund the incremental working capital needs during 2001.

    The income tax benefit for the nine months ended September 2001 was $10.4
million, which equates to a 37.9% effective tax rate. Preferred stock dividends
of $.2 million for the nine months ended September 2001 relate to the 5%
dividend rate on the $12.5 million of Series A Convertible Preferred Stock,
which was converted to common stock on February 5, 2001.

LIQUIDITY AND CAPITAL RESOURCES

    Cash flows from operating activities during the quarter and nine months
ended September 2001 was a net use of $1.6 million and $3.0 million,
respectively compared to cash provided by operations of $4.5 million and $11.6
million for the comparable 2000 periods. This decrease is due primarily to the
Company's increase in accounts receivable as well as operating losses during the
second and third quarters of 2001. Subsequent to September 30, 2001, accounts
receivable collections have improved decreasing days outstanding from
approximately 53 days and reducing working capital needs. The Company's working
capital was $(46.3) million as of September 30, 2001, due to the classification
of its debt under the Credit Facility to current, as discussed in Note 6.

    As discussed in Note 6 to the Company's consolidated financial statements
included in this Form 10-Q, the Company maintains a senior secured credit
facility with Bank of America, N.A. as Administrative Agent ("Bank of America")
for a syndicate of financial



                                       9
<PAGE>

institutions (the "Bank Group"). The Company uses borrowings pursuant to the
Credit Facility for working capital purposes. The Company has borrowed the
entire amount it is permitted to borrow pursuant to the Credit Facility. The
borrowings are represented by cash advances and letters of credit issued to
secure the Company's obligations to customers and vendors. The Credit Facility
contains certain restrictive covenants that require that the Company maintain
specific financial ratios.

    The Company and the Bank Group amended the Credit Facility on August 27,
2001, to adjust certain of the financial ratio covenants and to increase the
interest rate. Pursuant to the amendment, the Company is obligated to make
several scheduled reductions in availability under the Credit Facility.

    As of September 30, 2001, the Company had violated certain financial ratio
covenants of the Credit Facility, as amended. The Company has obtained a waiver
of the covenant violations from the Bank Group as part of a second amendment to
the Credit Facility. The agreement (i) permanently reduced the amount the
Company is permitted to borrow pursuant to the Credit Facility by requiring that
the Company repay $1 million of borrowings on November 13, 2001; (ii) increased
the interest rate on amounts outstanding pursuant to the Credit Facility; and
(iii) truncated the expiration date of the Credit Facility from August 1, 2003,
to April 1, 2003. The terms of the agreement increase the Company's interest
costs, which increase has been offset, in part, by recent reductions in interest
rates; reduce its borrowing availability; and decrease the amount of time before
the Company is required to refinance its senior debt. Management believes that
amounts available under the Credit Facility, following the reduction of
borrowing availability, will be sufficient to meet the Company's foreseeable
cash needs and anticipated contract renewal activity.

    As permitted under the Credit Facility, as amended, Bank of America has
instituted a sweep arrangement whereby funds collected in the Company's lockbox
account with Bank of America are applied on a daily basis against the
outstanding loans under the Credit Facility. The Company's working capital
requirements are funded with additional borrowings pursuant to the Credit
Facility. As mentioned previously, accounts receivable collections have improved
decreasing days outstanding from approximately 53 days and reducing working
capital needs. The Company must request the additional borrowings; Bank of
America is not obligated to advance additional funds, except to the extent
outstanding borrowings have been paid down under the lockbox arrangement and the
Company is otherwise in compliance with its financial covenants. There can be no
assurance that Bank of America will agree to loan the Company additional funds
beyond the limit of the Credit Facility.

    The waiver did not amend the financial covenants. If the Company is not in
compliance with its current financial covenants at December 31, 2001, it will be
required to seek another waiver. The Company expects to commence immediate
negotiations with the Administrative Agent to complete an amendment that would
revise the financial covenants long term. The Company does not know whether it
will be able to negotiate an amendment with Bank of America or, if so, whether
the other members of the Bank Group will approve the amendment. The Company does
not know the terms on which the Bank Group will agree to any amendment. Among
other things, the amendment could increase the rate of interest applicable to
borrowings pursuant to the Credit Facility or could require that the Company
reduce the amount available for borrowing pursuant to the Credit Agreement more
rapidly than previously scheduled. As such, the Company has classified the debt
under the Credit Facility to current.

    If the financial covenants are not amended, the Company could again be in
default of its financial covenants as of December 31, 2001. Should such covenant
violation occur and not be waived by Bank of America, the Company would be
ineligible to borrow funds pursuant to the Credit Facility, which would have a
material adverse effect on the Company's business, consolidated financial
condition, results of operations, liquidity and ability to pay its debts as they
become due.

    On February 5, 2001, the Company completed the conversion of 125,000 shares
of Series A Convertible Preferred Stock, having an aggregate liquidation
preference of $12.5 million into 1,322,751 shares of common stock. The Company
registered the shares of common stock issued upon the conversion of the
preferred stock.




                                       10
<PAGE>

                                    PART II:

                                OTHER INFORMATION

ITEM 5. -- OTHER INFORMATION

    On August 27, 2001, the Company issued a press release announcing that the
Company had completed an amendment to its credit facility and had filed a Form
8-K with reissued financial statements for the second quarter of 2001. A copy of
such press release is attached hereto as Exhibit 99.1 and is incorporated by
reference.

    On September 17, 2001, the Company issued a press release to adjust earnings
guidance for the third and fourth quarters of 2001 and that activities related
to certain strategic initiatives had been discontinued. A copy of such press
release is attached hereto as Exhibit 99.2 and is incorporated by reference.

    On October 15, 2001, the Company issued a press release announcing Michael
W. Taylor as Senior Vice President and Chief Financial Officer of the Company,
replacing S. Walker Choppin effective November 1, 2001. A copy of such press
release is attached hereto as Exhibit 99.3 and is incorporated by reference.

    On November 14, 2001, the Company issued a press release discussing its
third quarter 2001 operating performance. A copy of such press release is
attached hereto as Exhibit 99.4 and is incorporated by reference.

ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K

    (A) Exhibits

3.1      -- Amended and Restated Certificate of Incorporation of America Service
            Group Inc. (incorporated by reference to Exhibit 3.1 of the
            Registrant's Registration Statement on Form S-1, Registration No.
            33-43306, as amended).

3.2      -- Amended and Restated By-Laws of America Service Group Inc.
            (incorporated by reference to Exhibit 3.2 of the Registrant's Annual
            Report on Form 10-K for the year ended December 31, 1996).

4.1      -- Specimen Common Stock Certificate (incorporated by reference to
            Exhibit 4.1 of the Registrant's Registration Statement on Form S-1,
            Registration No. 33-43306).

10.1     -- Waiver No. 1, dated July 25, 2001, to Amended and Restated
            Credit Agreement, dated as of August 1, 2000 (incorporated by
            reference to Exhibit 10.1 of the Registrant's Quarterly report on
            Form 10-Q for the six months ended June 30, 2001).

10.2     -- Amendment No. 1 To Amended And Restated Credit Agreement, dated
            August 27, 2001, by and among ASG, the subsidiaries of ASG who are
            parties to the Credit Agreement, the several lenders who are now or
            hereafter become parties to the Credit Agreement, and Bank of
            America, N.A., a national banking association, individually and as
            administrative agent for the lenders (incorporated by reference to
            Exhibit 10.2 of the Registrant's report on Form 8-K, Registration
            No _________)

10.3     -- Waiver and Second Amendment To Amended and Restated Credit
            Agreement dated November 13, 2001, by and among ASG, the
            subsidiaries of ASG who are parties to the Credit Agreement, the
            several lenders who are now or hereafter become parties to the
            Credit Agreement, and Bank of America, N.A., a national banking
            association, individually and as administrative agent of the
            lenders.

10.4     -- Contract between ASG and healthprojects, LLC dated September 17,
            2001, to perform services as directed by ASG management.

10.5     -- Employment Agreement, dated October 15, 2001, with Michael W. Taylor
            as Senior Vice President and Chief Financial Officer of the Company.

11.1     -- Statement regarding computation of per share earnings.




                                       11
<PAGE>

99.1     -- Press Release dated August 27, 2001, announcing the completion of an
            amendment to the Credit Facility and reissued financial statements
            for the second quarter of 2001.

99.2     -- Press Release dated September 17, 2001, announcing earnings
            adjustment guidance for the third and fourth quarters of 2001 and
            the discontinued activities related to certain strategic
            initiatives.

99.3     -- Press Release dated October 15, 2001, announcing Michael W. Taylor
            as Senior Vice President and Chief Financial Officer of the Company,
            replacing S. Walker Choppin effective November 1, 2001.

99.4     -- Press Release dated November 14, 2001, announcing third quarter 2001
            operating performance.

     (B) Reports on Form 8-K

         1.       On August 27, 2001, the Company filed a Form 8-K under Item 5
                  announcing the completion of an amendment to its credit
                  facility and the re-issuance of its financial statements for
                  the quarter and six months ended June 30, 2001.










                                       12
<PAGE>

                                   SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly authorized this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                    AMERICA SERVICE GROUP INC.



                                               /s/ MICHAEL CATALANO
                                     -------------------------------------------
                                                  Michael Catalano
                                            Chairman, President & Chief
                                                  Executive Officer

                                               /s/ MICHAEL W. TAYLOR
                                     -------------------------------------------
                                                 Michael W. Taylor
                                          Senior Vice President & Chief
                                                 Financial Officer

Dated: November 14, 2001







                                       13
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                             DESCRIPTION
       ------                             -----------

<S>            <C>                    <C>
         10.2  -- Amendment No. 1 to Amended and Restated Credit Agreement,
                  dated August 27, 2001

         10.3  -- Waiver and Second Amendment To Amended and Restated Credit
                  Agreement dated November 13, 2001, by and among ASG, the
                  subsidiaries of ASG who are parties to the Credit Agreement,
                  the several lenders who are now or hereafter become parties to
                  the Credit Agreement, and Bank of America, N.A., a national
                  banking association, individually and as administrative agent
                  of the lenders.

         10.4  -- Contract between ASG and healthprojects, LLC dated
                  September 17, 2001, to perform services as directed by ASG
                  management.

         10.5  -- Employment Agreement, dated October 15, 2001, with Michael
                  W. Taylor as Senior Vice President and Chief Financial Officer
                  of the Company.

         11.1  -- Statement regarding computation of per share earnings.

         99.1  -- Press Release for completion of an Amendment to the
                  Company's Credit Facility

         99.2  -- Press Release to adjust earnings guidance for the third and
                  fourth quarters and discontinuance of certain strategic
                  initiatives

         99.3  -- Press Release announcing Executive Management changes

         99.4  -- September 2001 Earnings Release
</TABLE>






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