##### Table of Contents



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 quarterly period ended June 30, 2009
 OR
 [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
  
 AMERICA SERVICE GROUP INC.
  Delaware(State or other jurisdiction of 
incorporation or organization)
    
    51-0332317(I.R.S. Employer
Identification No.)
 105 Westpark Drive, Suite 200
Brentwood, Tennessee(Address of principal executive offices)
    
    37027(Zip Code)
 (615) 373-3100  (Registrants telephone number, including area code)
 x o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer x
    
    Non-Accelerated filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o x




---



##### 



AMERICA SERVICE GROUP INC.
 QUARTERLY REPORT ON FORM 10-Q
INDEX
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Income for the quarters and six months ended
June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3. Defaults Upon Senior Securities
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    41Signatures
    
    
    42EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I:
 FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICA SERVICE GROUP INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (shown in 000s except share and per share amounts)  (UNAUDITED)
 June 30,
    
    December 31,2009
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    31,532
    
    
    $
    24,855Accounts receivable, net of allowance for doubtful accounts of $463 and $417, respectively
    
    
    46,348
    
    
    
    41,007Inventories
    
    
    2,888
    
    
    
    2,933Prepaid expenses and other current assets
    
    
    13,165
    
    
    
    12,987Current deferred tax assets
    
    
    4,503
    
    
    
    5,333Total current assets
    
    
    98,436
    
    
    
    87,115Property and equipment, net
    
    
    7,407
    
    
    
    6,442Goodwill, net
    
    
    40,772
    
    
    
    40,772Contracts, net
    
    
    2,077
    
    
    
    2,217Other intangibles, net
    
    
    38
    
    
    
    154Other assets
    
    
    5,181
    
    
    
    5,183Total assets
    
    $
    153,911
    
    
    $
    141,883LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,922
    
    
    $
    19,570Accrued medical claims liability
    
    
    22,998
    
    
    
    14,743Accrued expenses
    
    
    38,728
    
    
    
    36,466Deferred revenue
    
    
    3,074
    
    
    
    8,052Total current liabilities
    
    
    83,722
    
    
    
    78,831Noncurrent portion of accrued expenses
    
    
    21,166
    
    
    
    17,146Noncurrent deferred tax liabilities
    
    
    2,830
    
    
    
    1,860Total liabilities
    
    
    107,718
    
    
    
    97,837Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value, 2,000,000 shares authorized at June 30, 2009 and
December 31, 2008; no shares issued or outstanding
    
    
    -
    
    
    
    -Common stock, $0.01 par value, 20,000,000 shares authorized at June 30, 2009 and December
31, 2008; 9,244,032 and 9,260,708 shares issued and outstanding at June 30, 2009 and
December 31, 2008, respectively
    
    
    93
    
    
    
    93Additional paid-in capital
    
    
    37,392
    
    
    
    38,047Retained earnings
    
    
    8,708
    
    
    
    5,906Total stockholders equity
    
    
    46,193
    
    
    
    44,046Total liabilities and stockholders equity
    
    $
    153,911
    
    
    $
    141,883
 
 3




---



##### Table of Contents



AMERICA SERVICE GROUP INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (shown in 000s except share and per share amounts)  (UNAUDITED)
 Quarter ended
    
    Six months endedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Healthcare revenues
    
    $
    157,836
    
    
    $
    121,667
    
    
    $
    287,002
    
    
    $
    243,701Healthcare expenses
    
    
    145,935
    
    
    
    111,727
    
    
    
    265,552
    
    
    
    224,688Gross margin
    
    
    11,901
    
    
    
    9,940
    
    
    
    21,450
    
    
    
    19,013Selling, general and administrative expenses
    
    
    7,415
    
    
    
    6,861
    
    
    
    14,660
    
    
    
    13,340Audit Committee investigation and related expenses
    
    
    120
    
    
    
    -
    
    
    
    133
    
    
    
    58Depreciation and amortization
    
    
    659
    
    
    
    959
    
    
    
    1,297
    
    
    
    1,874Income from operations
    
    
    3,707
    
    
    
    2,120
    
    
    
    5,360
    
    
    
    3,741Interest, net
    
    
    56
    
    
    
    177
    
    
    
    120
    
    
    
    449Income from continuing operations before income tax provision
    
    
    3,651
    
    
    
    1,943
    
    
    
    5,240
    
    
    
    3,292Income tax provision
    
    
    1,562
    
    
    
    746
    
    
    
    2,242
    
    
    
    1,338Income from continuing operations
    
    
    2,089
    
    
    
    1,197
    
    
    
    2,998
    
    
    
    1,954Income (loss) from discontinued operations, net of taxes
    
    
    14
    
    
    
    154
    
    
    
    (196
    )
    
    
    379Net income
    
    $
    2,103
    
    
    $
    1,351
    
    
    $
    2,802
    
    
    $
    2,333Net income (loss) per common share - basic:Income from continuing operations
    
    $
    0.23
    
    
    $
    0.13
    
    
    $
    0.34
    
    
    $
    0.21Income (loss) from discontinued operations, net of taxes
    
    
    -
    
    
    
    0.02
    
    
    
    (0.03
    )
    
    
    0.04Net income
    
    $
    0.23
    
    
    $
    0.15
    
    
    $
    0.31
    
    
    $
    0.25Net income (loss) per common share  diluted:Income from continuing operations
    
    $
    0.23
    
    
    $
    0.13
    
    
    $
    0.33
    
    
    $
    0.21Income (loss) from discontinued operations, net of taxes
    
    
    -
    
    
    
    0.02
    
    
    
    (0.02
    )
    
    
    0.04Net income
    
    $
    0.23
    
    
    $
    0.15
    
    
    $
    0.31
    
    
    $
    0.25Weighted average common shares outstanding:Basic
    
    
    8,955,847
    
    
    
    9,194,473
    
    
    
    8,947,655
    
    
    
    9,187,139Diluted
    
    
    9,169,401
    
    
    
    9,218,425
    
    
    
    9,078,105
    
    
    
    9,209,483
 
 4




---



##### Table of Contents



AMERICA SERVICE GROUP INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (shown in 000s)  (UNAUDITED)
 Six months endedJune 30,2009
    
    2008Cash flows from operating activities:Net income
    
    $
    2,802
    
    
    $
    2,333Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,305
    
    
    
    1,897Loss on retirement of fixed assets
    
    
    31
    
    
    
    16Finance cost amortization
    
    
    18
    
    
    
    21Deferred income taxes
    
    
    1,921
    
    
    
    1,324Share-based compensation expense
    
    
    923
    
    
    
    1,123Excess tax benefits from share-based compensation expense
    
    
    (121
    )
    
    
    -Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (5,341
    )
    
    
    15,401Inventories
    
    
    45
    
    
    
    222Prepaid expenses and other current assets
    
    
    (178
    )
    
    
    (272
    )Other assets
    
    
    (14
    )
    
    
    166Accounts payable
    
    
    (648
    )
    
    
    (733
    )Accrued medical claims liability
    
    
    8,255
    
    
    
    (4,991
    )Accrued expenses
    
    
    6,282
    
    
    
    1,776Deferred revenue
    
    
    (4,978
    )
    
    
    (8,971
    )Net cash provided by operating activities
    
    
    10,302
    
    
    
    9,312Cash flows from investing activities:Capital expenditures
    
    
    (2,047
    )
    
    
    (1,515
    )Net cash used in investing activities
    
    
    (2,047
    )
    
    
    (1,515
    )Cash flows from financing activities:Share repurchases
    
    
    (2,669
    )
    
    
    -Excess tax benefits from share-based compensation expense
    
    
    121
    
    
    
    -Issuance of common stock
    
    
    150
    
    
    
    75Exercise of stock options
    
    
    820
    
    
    
    -Net cash provided by (used in) financing activities
    
    
    (1,578
    )
    
    
    75Net increase in cash and cash equivalents
    
    
    6,677
    
    
    
    7,872Cash and cash equivalents at beginning of period
    
    
    24,855
    
    
    
    8,969Cash and cash equivalents at end of period
    
    $
    31,532
    
    
    $
    16,841
 
 5




---



##### Table of Contents



AMERICA SERVICE GROUP INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
 1. Basis of Presentation
   2. Description of Business
  3. Audit Committee Investigation
  6




---



##### Table of Contents



4. Recently Issued Accounting Pronouncements
 Fair Value Measurement. Fair Value Measurement
 Effective Date of FASB Statement No.
 Business Combinations. Business Combinations
 FASB Codification. The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162
 5. Share-Based Compensation
 Share-Based Payment
 7




---



##### Table of Contents



Weighted Average

    
    Aggregate IntrinsicWeighted Average

    
    Remaining

    
    Value (inOptions

    
    Exercise Price

    
    Contractual Term

    
    thousands) (1)Outstanding, December 31, 2008
    
    
    1,177,011
    
    
    $
    17.26Granted
    
    
    -
    
    
    
    -Exercised
    
    
    (84,269
    )
    
    
    9.73Canceled
    
    
    (12,750
    )
    
    
    13.73Outstanding, June 30, 2009
    
    
    1,079,992
    
    
    $
    17.88
    
    
    
    5.45
    
    
    $
    1,518Exercisable, June 30, 2009
    
    
    1,004,992
    
    
    $
    18.47
    
    
    
    5.17
    
    
    $
    1,064
 
 (1) Based upon the difference between the closing market price of the Companys
common stock on the last trading day of the quarter and the exercise price of
in-the-money options.
  WeightedRestricted
    
    Average Grant-Shares
    
    Date Fair ValueNonvested, December 31, 2008
    
    
    231,390
    
    
    $
    12.68Granted
    
    
    100,700
    
    
    
    10.84Vested
    
    
    (9,490)
    
    
    
    14.23Forfeited
    
    
    (11,000)
    
    
    
    13.42Nonvested, June 30, 2009
    
    
    311,600
    
    
    $
    12.01
 6. Discontinued Operations
 Accounting for the Impairment
or Disposal of Long-Lived Assets
  Quarter ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Healthcare revenues
    
    $
    889
    
    
    $
    4,397
    
    
    $
    2,595
    
    
    $
    10,731Healthcare expenses
    
    
    862
    
    
    
    4,127
    
    
    
    2,918
    
    
    
    10,068Gross margin
    
    
    27
    
    
    
    270
    
    
    
    (323
    )
    
    
    663Depreciation and amortization
    
    
    3
    
    
    
    10
    
    
    
    8
    
    
    
    23Income (loss) from discontinued operations before taxes
    
    
    24
    
    
    
    260
    
    
    
    (331
    )
    
    
    640Income tax provision (benefit)
    
    
    10
    
    
    
    106
    
    
    
    (135
    )
    
    
    261Income (loss) from discontinued operations, net of taxes
    
    $
    14
    
    
    $
    154
    
    
    $
    (196
    )
    
    $
    379
 7. Fair Value of Financial Instruments
  8




---



##### Table of Contents



8. Accounts Receivable
  June 30,
    
    
    December 31,2009
    
    
    2008Billed accounts receivable
    
    $
    29,479
    
    
    $
    16,064Unbilled accounts receivable
    
    
    18,228
    
    
    
    24,126Other accounts receivable
    
    
    793
    
    
    
    2,92348,500
    
    
    
    43,113Less: Allowances
    
    
    (463)
    
    
    
    (417)48,037
    
    
    
    42,696Less: Receivables reclassified as noncurrent
    
    
    (1,689)
    
    
    
    (1,689)$
    46,348
    
    
    $
    41,007
     9. Prepaid Expenses and Other Current Assets
  June 30,
    
    
    December 31,2009
    
    
    2008Prepaid insurance
    
    $
    4,570
    
    
    $
    6,079Prepaid cash deposits for
professional liability claims losses
    
    
    7,650
    
    
    
    6,130Prepaid performance bonds
    
    
    53
    
    
    
    110Prepaid other
    
    
    892
    
    
    
    668$
    13,165
    
    
    $
    12,987
 9




---



##### Table of Contents



10. Property and Equipment
  June 30,
    
    December 31,
    
    Estimated2009
    
    2008
    
    Useful LivesLeasehold improvements
    
    $
    191
    
    
    $
    91
    
    
    5 yearsEquipment and furniture
    
    
    8,852
    
    
    
    8,342
    
    
    5 yearsComputer software
    
    
    4,246
    
    
    
    3,805
    
    
    3-5 yearsMedical equipment
    
    
    1,135
    
    
    
    1,101
    
    
    5 yearsAutomobiles
    
    
    62
    
    
    
    66
    
    
    5 yearsManagement information systems under development
    
    
    1,487
    
    
    
    712
    
    
    
    -15,973
    
    
    
    14,117Less: Accumulated depreciation
    
    
    (8,566
    )
    
    
    (7,675
    )$
    7,407
    
    
    $
    6,442
  Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use
 11. Other Assets
  June 30,
    
    December 31,2009
    
    2008Deferred financing costs
    
    $
    384
    
    
    $
    384Less: Accumulated amortization
    
    
    (299
    )
    
    
    (281
    )85
    
    
    
    103Prepaid insurance deposits
    
    
    3,277
    
    
    
    3,277Noncurrent receivables
    
    
    1,689
    
    
    
    1,689Other refundable deposits
    
    
    130
    
    
    
    114$
    5,181
    
    
    $
    5,183
 12. Contracts and Other Intangible Assets
  June 30,
    
    December 31,2009
    
    2008Contracts:Gross value
    
    $
    4,670
    
    
    $
    4,670Less: Accumulated amortization
    
    
    (2,593
    )
    
    
    (2,453
    )$
    2,077
    
    
    $
    2,217Other intangible assets:Gross value
    
    $
    2,400
    
    
    $
    2,400Less: Accumulated amortization
    
    
    (2,362
    )
    
    
    (2,246
    )$
    38
    
    
    $
    154
  10




---



##### Table of Contents



13. Accrued Expenses
  June 30,
    
    December 31,2009
    
    2008Salaries and employee benefits
    
    $
    20,809
    
    
    $
    20,013Professional liability claims
    
    
    26,784
    
    
    
    22,033Accrued workers compensation claims
    
    
    6,903
    
    
    
    6,263Other
    
    
    5,398
    
    
    
    5,30359,894
    
    
    
    53,612Less: Noncurrent portion of professional
liability and workers compensation
claims
    
    
    (21,166
    )
    
    
    (17,146
    )$
    38,728
    
    
    $
    36,466
 14. Reserve for Loss Contracts
    15. Banking Arrangements
   11




---



##### Table of Contents



12




---



##### Table of Contents



16. Income Taxes
 Accounting for Income Taxes
   Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
   17. Professional and General Liability Self-insurance Retention
  13




---



##### Table of Contents



18. Commitments and Contingencies
 Litigation and Claims
 Lysager Professional Liability Suit.
 Andrew Berkowitz, M.D., Individually and on behalf of all others similarly situated v. Prison
Health Services, Inc. and City of Philadelphia.
 Saint Josephs Regional Medical Center v. Correctional Health Services, et al.
 14




---



##### Table of Contents



Matters involving PHS and Baltimore County, Maryland.
    15




---



##### Table of Contents



Matters Related to the Audit Committee Investigation and Shareholder Litigation
  SEC and United States Attorney Informal Inquiries.
 Shareholder Litigation.
  Delaware Department of Justice Inquiry
 16




---



##### Table of Contents



Other Matters
   Performance Bonds
  19. Net Income (Loss) Per Share
  Earnings Per Share,
 Quarter ended June 30,
    
    Six months ended June 30,2009
    
    2008
    
    2009
    
    2008Numerator:Income from continuing operations
    
    $
    2,089
    
    
    $
    1,197
    
    
    $
    2,998
    
    
    $
    1,954Income (loss) from discontinued operations, net of taxes
    
    
    14
    
    
    
    154
    
    
    
    (196
    )
    
    
    379Numerator for basic and diluted net income per share
    
    $
    2,103
    
    
    $
    1,351
    
    
    $
    2,802
    
    
    $
    2,333Denominator:Denominator for basic net income (loss) per share 
weighted average shares
    
    
    8,955,847
    
    
    
    9,194,473
    
    
    
    8,947,655
    
    
    
    9,187,139Effect of dilutive securities:Employee stock options and restricted shares
    
    
    213,554
    
    
    
    23,952
    
    
    
    130,450
    
    
    
    22,344Denominator for diluted net income (loss) per share 
adjusted weighted average shares and assumed
conversions
    
    
    9,169,401
    
    
    
    9,218,425
    
    
    
    9,078,105
    
    
    
    9,209,483
 17




---



##### Table of Contents



Quarter ended June 30,
    
    Six months ended June 30,2009
    
    2008
    
    2009
    
    2008Net income (loss) per common share - basic:Income from continuing operations
    
    $
    0.23
    
    
    $
    0.13
    
    
    $
    0.34
    
    
    $
    0.21Income (loss) from discontinued operations, net of taxes
    
    
    -
    
    
    
    0.02
    
    
    
    (0.03
    )
    
    
    0.04Net income
    
    $
    0.23
    
    
    $
    0.15
    
    
    $
    0.31
    
    
    $
    0.25Net income (loss) per common share  diluted:Income from continuing operations
    
    $
    0.23
    
    
    $
    0.13
    
    
    $
    0.33
    
    
    $
    0.21Income (loss) from discontinued operations, net of taxes
    
    
    -
    
    
    
    0.02
    
    
    
    (0.02
    )
    
    
    0.04Net income
    
    $
    0.23
    
    
    $
    0.15
    
    
    $
    0.31
    
    
    $
    0.25
  Quarter ended
    
    Six months endedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Options excluded from computation of diluted
income per share as effect would be anti-dilutive
    
    
    621,467
    
    
    
    1,090,499
    
    
    
    967,525
    
    
    
    1,095,603Weighted average exercise price of excluded options
    
    $
    21.64
    
    
    $
    17.87
    
    
    $
    18.80
    
    
    $
    17.87Restricted shares excluded from computation of
diluted income per share as effect would be anti-dilutive
    
    
    3,147
    
    
    
    122,241
    
    
    
    13,098
    
    
    
    122,485
 20. Comprehensive Income
  21. Share Repurchases
  22. Subsequent Event
  Subsequent
Events
 18




---



##### Table of Contents



19




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 General
    Forward-Looking Statements
  
    
    the Companys ability to retain existing client contracts and obtain new contracts at
acceptable pricing levels;
 
    
    whether or not government agencies continue to privatize correctional healthcare
services;
 
    
    risks arising from governmental budgetary pressures and funding;
 
    
    the possible effect of adverse publicity on the Companys business;
 
    
    increased competition for new contracts and renewals of existing contracts;
 
    
    risks arising from the possibility that the Company may be unable to collect accounts
receivable or that accounts receivable collection may be delayed;
 
    
    the Companys ability to limit its exposure for catastrophic illnesses, injuries or
medical malpractice claims in excess of amounts covered under contracts or insurance
coverage;
 
    
    the Companys ability to maintain and continually develop information technology and
clinical systems;
 
    
    the outcome or adverse development of pending litigation, including professional
liability litigation;
 20




---



##### Table of Contents




    
    the Companys determination whether to continue the payment of quarterly cash dividends,
and if so, at the current amount;
 
    
    the Companys determination whether to repurchase shares under its stock repurchase
program;
 
    
    the Companys dependence on key management and clinical personnel;
 
    
    risks arising from potential weaknesses or deficiencies in the Companys internal control
over financial reporting;
 
    
    risks associated with the possibility that the Company may be unable to satisfy covenants
under its credit facility;
 
    
    the risk that government or municipal entities (including the Companys government and
municipal customers) may bring enforcement actions against, seek additional refunds from, or
impose penalties on, the Company or its subsidiaries as a result of the matters investigated
by the Audit Committee in prior years or the previous restatement of the Companys financial
results;
 
    
    the Companys ability to expand its products beyond its traditional correctional health
client base; and
 
    
    risks arising from shareholder litigation.
  Critical Accounting Policies And Estimates
 General
  
    
    revenue (net of contractual allowances) and cost recognition (including the
estimated cost of off-site medical claims);
 
    
    cash and cash equivalents;
 
    
    allowance for doubtful accounts;
 
    
    loss contracts;
 
    
    professional and general liability self-insurance retention;
 
    
    other self-funded insurance reserves;
 
    
    legal contingencies;
 
    
    impairment of intangible assets and goodwill;
    
    amortizable life of contract intangibles;
 
    
    income taxes; and
 
    
    share-based compensation.
 21




---



##### Table of Contents



Revenue and Cost Recognition
       Percentage of Revenue fromContinuing OperationsFor the Six Months
    
    For the Six MonthsContract Category
    
    Ended June 30, 2009
    
    Ended June 30, 2008Fixed Fee
    
    
    13.3
    %
    
    
    15.0
    %Population Based
    
    
    62.1
    %
    
    
    58.4
    %Cost Plus a Fee
    
    
    24.6
    %
    
    
    26.6
    %
 22




---



##### Table of Contents



Cash and Cash Equivalents
  Allowance for Doubtful Accounts
  23




---



##### Table of Contents



Loss Contracts
    Professional and General Liability Self-Insurance Retention
  24




---



##### Table of Contents



Other Self-Funded Insurance Reserves
  25




---



##### Table of Contents



Legal Contingencies
   Impairment of Intangible Assets and Goodwill
 Goodwill and Other
Intangible Assets,
  
    
    significant underperformance or loss of key contracts relative to expected
historical or projected future operating results;
 
    
    significant changes in the manner of use of the Companys assets or in the
Companys overall business strategy; and
 
    
    significant negative industry or economic trends.
    26




---



##### Table of Contents



Amortizable Life of Contract Intangibles
  Income Taxes
 Accounting for Income Taxes
   Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
   Share-Based Compensation
 Share-Based Payment
 27




---



##### Table of Contents



Results of Operations
  Quarter ended
    
    Six months endedJune 30,
    
    June 30,Percentage of Healthcare Revenues
    
    2009
    
    2008
    
    2009
    
    2008Healthcare revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Healthcare expenses
    
    
    92.5
    
    
    
    91.8
    
    
    
    92.5
    
    
    
    92.2Gross margin
    
    
    7.5
    
    
    
    8.2
    
    
    
    7.5
    
    
    
    7.8Selling, general and administrative expenses
    
    
    4.7
    
    
    
    5.7
    
    
    
    5.1
    
    
    
    5.5Audit Committee investigation and related expenses
    
    
    0.1
    
    
    
    -
    
    
    
    -
    
    
    
    -Depreciation and amortization
    
    
    0.4
    
    
    
    0.8
    
    
    
    0.5
    
    
    
    0.8Income from operations
    
    
    2.3
    
    
    
    1.7
    
    
    
    1.9
    
    
    
    1.5Interest, net
    
    
    -
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Income from continuing operations before income tax
provision
    
    
    2.3
    
    
    
    1.6
    
    
    
    1.8
    
    
    
    1.4Income tax provision
    
    
    1.0
    
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.6Income from continuing operations
    
    
    1.3
    
    
    
    1.0
    
    
    
    1.0
    
    
    
    0.8Income (loss) from discontinued operations, net of taxes
    
    
    -
    
    
    
    0.1
    
    
    
    -
    
    
    
    0.2Net income
    
    
    1.3
    %
    
    
    1.1
    %
    
    
    1.0
    %
    
    
    1.0
    %
 Quarter Ended June 30, 2009 Compared to Quarter Ended June 30, 2008
 Healthcare revenues.
 Healthcare expenses.
 Selling, general and administrative expenses.
 28




---



##### Table of Contents



Audit Committee investigation and related expenses.
 Depreciation and amortization
 Interest, net
 Income tax provision.
 Income from continuing operations.
 Income from discontinued operations, net of taxes Accounting for the
Impairment or Disposal of Long-Lived Assets
 Net income.
 Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 Healthcare revenues.
 Healthcare expenses.
 29




---



##### Table of Contents



Selling, general and administrative expenses.
 Audit Committee investigation and related expenses.
 Depreciation and amortization
 Interest, net
 Income tax provision.
 Income from continuing operations.
 Income (loss) from discontinued operations, net of taxes
 Net income.
 Liquidity and Capital Resources
 Overview
  30




---



##### Table of Contents



Share Repurchases
  Dividends
   Credit Facility
  31




---



##### Table of Contents



32




---



##### Table of Contents



Liquidity and Capital Resources Outlook
  Other Financing Transactions
   Off-Balance Sheet Transactions
  Recently Issued Accounting Pronouncements
 Fair Value Measurement. Fair Value Measurement
 Effective Date of FASB Statement No.
 Business Combinations. Business Combinations
 33




---



##### Table of Contents



Subsequent Events. Subsequent Events
 FASB Codification. The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles  a replacement of FASB Statement No. 162
 34




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
    35




---



##### Table of Contents



PART II:
 OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 Lysager Professional Liability Suit.
 Andrew Berkowitz, M.D., Individually and on behalf of all others similarly situated v. Prison
Health Services, Inc. and City of Philadelphia.
 Saint Josephs Regional Medical Center v. Correctional Health Services, et al.
 36




---



##### Table of Contents



Matters involving PHS and Baltimore County, Maryland.
    37




---



##### Table of Contents



Matters Related to the Audit Committee Investigation and Shareholder Litigation
  SEC and United States Attorney Informal Inquiries.
 Shareholder Litigation.
  Delaware Department of Justice Inquiry
 38




---



##### Table of Contents



Other Matters.
  
 ITEM 1A.
    
    RISK FACTORS
  The Company has not established a minimum dividend payment level for its common stockholders
and there are no assurances of the Companys ability to pay dividends to common stockholders in the
future.
 39




---



##### Table of Contents



ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  (d) Maximum Number(c) Total Number of
    
    
    (or Approximate Dollar(a) Total of
    
    
    
    
    
    
    Shares Purchased
    
    
    Value) of shares thatNumber of
    
    
    (b) Average
    
    
    as Part of Publicly
    
    
    May Yet Be PurchasedShares
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    Programs
    
    
    Programs (1)April 2009 (4/1/09
to 4/30/09)
    
    
    -
    
    
    $
    -
    
    
    
    -
    
    
    $
    -May 2009 (5/1/09 to
5/31/09)
    
    
    69,850
    
    
    $
    14.94
    
    
    
    69,850
    
    
    $
    9,957June 2009 (6/1/09
to 6/30/09)
    
    
    -
    
    
    $
    -
    
    
    
    -
    
    
    $
    -
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Director
    
    Votes For
    
    Votes WithheldBurton C. Einspruch, M.D.
    
    
    5,939,363
    
    
    
    1,441,614William M. Fenimore, Jr.
    
    
    6,137,563
    
    
    
    1,243,414John W. Gildea
    
    
    5,077,357
    
    
    
    2,303,620Richard Hallworth
    
    
    7,079,493
    
    
    
    301,484John C. McCauley
    
    
    7,113,238
    
    
    
    267,739Michael W. Taylor
    
    
    6,063,259
    
    
    
    1,317,718Richard D. Wright
    
    
    5,792,055
    
    
    
    1,588,922
  Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non-Votes4,947,277
    
    
    
    1,263,278
    
    
    
    2,361
    
    
    
    1,168,061
 
 ITEM 5.
    
    OTHER INFORMATION
  40




---



##### Table of Contents



ITEM 6.
    
    EXHIBITS
 3.1 --
    
    Amended and Restated Certificate of Incorporation of America Service Group Inc.
(incorporated herein by reference to Exhibit 3.1 to the Companys Quarterly Report on Form
10-Q for the three month period ended June 30, 2002).3.2 --
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of America
Service Group Inc. (incorporated herein by reference to Exhibit 3.4 to the Companys Quarterly
Report on Form 10-Q for the three month period ended June 30, 2004).3.3 --
    
    Amended and Restated By-Laws of America Service Group Inc. (incorporated herein by
reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on March 3, 2009).4.1 --
    
    Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the
Companys Quarterly Report on Form 10-Q for the three month period ended June 30, 2002).4.2 --
    
    Certificate of Designation of the Series A Convertible Preferred Stock (incorporated
herein by reference to Exhibit 99.3 to the Companys Current Report on Form 8-K filed on
February 10, 1999).10.1 --
    
    America Service Group Inc. 2009 Equity Incentive Plan (incorporated by reference to Annex
A of the Companys Definitive Proxy Statement on Schedule 14A filed April 30, 2009).10.2 --
    
    Revolving Credit and Security Agreement dated July 28, 2009 between America Service Group
Inc., a Delaware corporation, Prison Health Services, Inc., a Delaware corporation, Prison Health Services of Indiana, LLC, an
Indiana limited liability company, Secure Pharmacy Plus, LLC, a Tennessee limited liability
company, Correctional Health Services, LLC, a New Jersey limited liability company, and
CapitalSource Bank, a California industrial bank, as lender and collateral and administrative
agent (incorporated herein by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on July 29, 2009).11--
    
    Computation of Per Share Earnings.*31.1 --
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 --
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1--
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2--
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  41




---



##### Table of Contents



SIGNATURES
  AMERICA SERVICE GROUP INC./s/ RICHARD HALLWORTHRichard HallworthPresident & Chief Executive Officer
(Duly Authorized Officer)/s/ MICHAEL W. TAYLORMichael W. TaylorExecutive Vice President & Chief Financial Officer
(Principal Financial Officer)
  42