<PAGE>   1

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             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 JUNE 30, 1999

                                       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 300
                           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 3,589,078 shares of Common Stock outstanding as of August 3,
1999.

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<PAGE>   2

                           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 at June 30, 1999 and December 31, 1998..........................      3
  Condensed Consolidated Statements of Operations for the quarters and six months ended June 30, 1999
    and June 30, 1998...................................................................................      4
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and June 30,
    1998................................................................................................      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 Events....................................................................................     12
Item 6: Exhibits and Reports on Form 8-K................................................................     12
Signature page..........................................................................................     13
</TABLE>







                                       2
<PAGE>   3



                                     PART I:

                              FINANCIAL INFORMATION


                           AMERICA SERVICE GROUP INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                  JUNE 30,       DECEMBER 31,
                                                                    1999           1998
                                                                ------------     -----------
<S>                                                             <C>              <C>
                         ASSETS
Current assets:
  Cash and cash equivalents ...............................     $  5,828,000     $ 7,211,000
  Accounts receivable: Healthcare and other, less allowance
     for doubtful accounts ................................       42,466,000      13,760,000
  Prepaid expenses and other current assets ...............        3,579,000       1,098,000
  Current deferred taxes ..................................        2,730,000       2,730,000
                                                                ------------     -----------
          Total current assets ............................       54,603,000      24,799,000
Property and equipment, net ...............................        3,498,000       1,886,000
Deferred taxes ............................................        1,341,000       1,341,000
Cost in excess of net assets acquired, net ................       45,360,000              --
Other assets ..............................................        1,096,000         349,000
                                                                ============     ===========
                                                                $105,898,000     $28,375,000
                                                                ============     ===========

          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ........................................     $  6,673,000     $ 2,438,000
  Accrued expenses ........................................       32,535,000      11,846,000
  Subordinated notes ......................................       14,623,000              --
                                                                ------------     -----------
          Total current liabilities .......................       53,831,000      14,284,000
Noncurrent portion of accrued expenses ....................        1,876,000       1,300,000
Long-term debt ............................................       30,000,000              --
Commitments and contingencies
Mandatory redeemable preferred stock ......................        5,000,000              --
Mandatory redeemable common stock .........................        1,842,000       1,842,000
Common stock ..............................................           36,000          36,000
Additional paid in capital ................................       11,120,000       8,351,000
Retained earnings .........................................        2,193,000       2,562,000
                                                                ============     ===========
          Total liabilities and stockholders' equity ......     $105,898,000     $28,375,000
                                                                ============     ===========
</TABLE>

            See notes to condensed consolidated financial statements.





                                       3

<PAGE>   4



                           AMERICA SERVICE GROUP INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                       QUARTER ENDED JUNE 30,            SIX MONTHS ENDED JUNE 30,
                                                        1999             1998             1999              1998
                                                    ------------      -----------     -------------      ------------
<S>                                                 <C>               <C>             <C>                <C>
Healthcare revenue ............................     $ 72,218,000      $27,831,000     $ 130,499,000      $ 55,463,000
Healthcare expenses ...........................       65,261,000       25,163,000       117,739,000        50,005,000
                                                    ------------      -----------     -------------      ------------
Gross margin ..................................        6,957,000        2,668,000        12,760,000         5,458,000
Selling, general and administrative expenses ..        2,944,000        2,309,000         5,964,000         5,070,000
Depreciation and amortization .................        1,031,000          518,000         1,698,000           812,000
MedPartners settlement ........................               --         (960,000)               --        (2,555,000)
                                                    ------------      -----------     -------------      ------------
Income from operations ........................        2,982,000          801,000         5,098,000         2,131,000
Interest, net .................................       (1,267,000)         202,000        (2,291,000)          334,000
                                                    ------------      -----------     -------------      ------------
Income before taxes ...........................        1,715,000        1,003,000         2,807,000         2,465,000
Provision for income taxes ....................          511,000            5,000         1,123,000             5,000
                                                    ------------      -----------     -------------      ------------
Net income ....................................        1,204,000          998,000         1,684,000         2,460,000
Preferred stock dividends .....................           64,000               --         2,053,000                --
                                                    ============      ===========     =============      ============
Net income (loss) attributable to common shares     $  1,140,000      $   998,000     $    (369,000)        2,460,000
                                                    ============      ===========     =============      ============
Net income (loss) per common share:
  Basic .......................................     $       0.32      $      0.28     $       (0.10)     $       0.69
                                                    ============      ===========     =============      ============
  Diluted .....................................     $       0.28      $      0.27     $       (0.10)     $       0.67
                                                    ============      ===========     =============      ============
Weighed average shares outstanding:
  Basic .......................................        3,576,000        3,556,000         3,576,000         3,542,000
                                                    ============      ===========     =============      ============
  Diluted .....................................        4,284,000        3,735,000         3,576,000         3,663,000
                                                    ============      ===========     =============      ============
</TABLE>

            See notes to condensed consolidated financial statements.









                                       4
<PAGE>   5



                           AMERICA SERVICE GROUP INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          SIX MONTHS
                                                                           JUNE 30,
                                                                    1999             1998
                                                                ------------      -----------
<S>                                                             <C>               <C>
Operating activities:
Net income ................................................     $  1,684,000      $ 2,460,000
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization ...........................        1,698,000          812,000
  Accretion of subordinated notes .........................          282,000               --
  Changes in operating assets and liabilities, net of
     Effects from acquisition:
     Accounts receivable ..................................       10,747,000          852,000
     Prepaid expenses and other current assets ............       (1,683,000)         928,000
     Other assets .........................................         (577,000)          30,000
     Accounts payable .....................................        4,233,000         (152,000)
     Accrued expenses .....................................         (998,000)      (1,032,000)
                                                                ------------      -----------
Net cash provided by operating activities .................       15,386,000        3,898,000
Investing activities:
Cash paid for acquisition, net of cash acquired ...........      (66,077,000)              --
Capital expenditures ......................................         (858,000)        (168,000)
Sale of property and equipment ............................               --          533,000
Change in short-term investments ..........................               --        1,319,000
Change in restricted investments ..........................               --       (1,552,000)
                                                                ------------      -----------
Net cash provided by (used in) investing activities .......      (66,935,000)         132,000
Financing activities:
Proceeds from long-term debt ..............................       47,000,000               --
Proceeds from mandatory redeemable preferred stock ........        5,000,000               --
Proceeds from subordinated notes ..........................       15,000,000               --
Payments on long-term debt ................................      (17,000,000)              --
Exercise of stock options .................................          166,000          268,000
                                                                ------------      -----------
Net cash provided by financing activities .................       50,166,000          268,000
Net increase (decrease) in cash and cash equivalents ......       (1,383,000)       4,298,000
Cash and cash equivalents, beginning of period ............        7,211,000        3,445,000
                                                                ------------      -----------
Cash and cash equivalents, end of period ..................     $  5,828,000      $ 7,743,000
                                                                ============      ===========
</TABLE>

            See notes to condensed consolidated financial statements.




                                       5
<PAGE>   6


                           AMERICA SERVICE GROUP INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1999

1.  BASIS OF PRESENTATION

    The interim consolidated financial statements as of June 30, 1999 and for
the six months and quarter then ended are unaudited, but in the opinion of
management, have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with those of the annual audited
consolidated financial statements. Such interim 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 six months and quarter presented. The results of operations
for the six months presented are not necessarily indicative of the results to be
expected for the year ending December 31, 1999. The interim consolidated
financial statements should be read in connection with the audited consolidated
financial statements for the year ended December 31, 1998.

2.  RECLASSIFICATIONS

    Certain reclassifications have been made to the June 1998 Condensed
Consolidated Income Statement relating to the presentation of the MedPartners
Release and Settlement Agreement as discussed in Note 4. Specifically, $0.4 and
$0.8 million for the quarter and six months of reimbursements relating to
healthcare and lease costs are now reflected in healthcare expenses and $0.5 and
$1.2 million for the quarter and six months of costs associated with the failed
merger are included in selling, general and administrative expenses and
amortization expense. The reclassifications increased the nonrecurring gain by
$0.9 million for the quarter and $2.0 million for the six months. The gain now
reflected for the quarter and six months is $1.0 and $2.6 million, respectively.
The reclassifications did not impact net income or earnings per share
calculations and were discussed in conjunction with the Company's March 1998
10-Q's Management's Discussion and Analysis of Financial Condition and Results
of Operations.

3.  ACQUISITION OF GOVERNMENT SERVICES DIVISION

    On January 26, 1999, the Company purchased all of the outstanding stock of
EMSA Government Services, Inc. ("EMSA") from InPhyNet Administrative Services,
Inc. ("InPhyNet") for $67.0 million in cash pursuant to a Stock Purchase
Agreement, dated as of December 18, 1998 (the "Stock Purchase Agreement"), as
amended by the First Amendment to Stock Purchase Agreement, dated as of January
26, 1999 (the "First Amendment"), between the Company and InPhyNet. InPhyNet is
a wholly-owned subsidiary of MedPartners, Inc. ("MedPartners").

    EMSA conducts its operations through two wholly-owned subsidiaries, EMSA
Correctional Care, Inc. and EMSA Military Services, Inc., each of which became
indirect subsidiaries of the Company pursuant to its acquisition of EMSA. EMSA
Correctional provides comprehensive managed healthcare solutions to state and
local correctional facilities, managing healthcare for approximately 70,000
inmates. Following the EMSA acquisition, the Company, through EMSA Correctional
and Prison Health Services, Inc. ("PHS"), manages healthcare for approximately
133,000 inmates in 25 states. EMSA Military contracts with the U.S. Department
of Defense (the "DOD") and the Veterans Administration (the "VA") to provide
emergency medicine and primary healthcare services to active and retired
military personnel and their dependents at medical facilities operated by the
DOD and the VA.

    The purchase price paid to InPhyNet was subject to increase or decrease on a
dollar-for-dollar basis by an amount equal to the amount by which EMSA's working
capital, as defined, and as reflected on its balance sheet as of January 25,
1999 (the "Closing Date Balance Sheet"), was in excess of or was less than $27.6
million. The Closing Date Balance Sheet reflected working capital, as defined,
of $24.0 million. Accordingly, the Company received $3.6 million in March 1999
as part of the purchase price adjustment. The Company accounted for the EMSA
acquisition using the purchase method of accounting.

    In connection with the EMSA acquisition: (i) the Company and all of its
subsidiaries, including EMSA, EMSA Military and EMSA Correctional, entered into
an Amended and Restated Credit Agreement, dated as of January 26, 1999, with
NationsBank, N.A., as Administrative Agent and Issuing Bank ("NationsBank"),
which provides for a revolving credit facility of up to $46.0 million (the
"Credit Facility") subject to scheduled reductions and (ii) the Company entered
into a Securities Purchase Agreement, dated as of January 26, 1999 (the
"Securities Purchase Agreement") with Health Care Capital Partners L.P.
("Capital Partners") and Health Care Executive Partners L.P. ("Executive
Partners"), investment funds managed by Ferrer Freeman Thompson & Co.
(collectively, with Capital Partners and Executive Partners, "FFT"). On January
26, 1999, pursuant to the Securities Purchase Agreement, the Company issued to
Capital Partners and Executive Partners (i) $15.0 million aggregate principal
amount of the Company's 12% Subordinated



                                       6
<PAGE>   7

Convertible Bridge Notes due January 26, 2000 (the "Notes") with detachable
warrants (the "Warrants") to purchase an aggregate 135,000 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), and (ii)
50,000 shares of the Company's Series A Convertible Preferred Stock, par value
$0.01 per share (the "Preferred Stock"), for $5.0 million. The Preferred Stock
is subject to mandatory redemption on July 26, 2005. The Notes, Warrants and
Preferred Stock are referred to collectively as the "Convertible Shares."

    The Company has obtained an independent valuation computation of the fair
values of the Warrants ($4.88 per Warrant). Significant assumptions used in the
fair value calculation include: risk-free interest rate (4.79%); expiration
period (7 years); volatility (49%); and dividend per share (zero). The proceeds
from the sale of the Notes and Warrants were allocated in January 1999 based on
the relative fair values of the Warrants and Notes, with the fair value of the
Warrants being accounted for as an addition to paid-in capital. The resulting
discount on the Notes is accounted for as such and is being accreted and charged
to interest expense over the one-year life of the notes.

    Preferred stock dividends of $2.0 million relate to the 5% coupon rate on
the $5.0 million of Convertible Preferred Stock issued as part of the EMSA
acquisition, which equates to $0.1 million and a noncash, nonrecurring dividend
of $1.9 million, which increased paid-in capital and represents a $3.68 dividend
on each outstanding share of Convertible Preferred Stock. The dividend equals
the increase in the fair market value of a share of the Company's Common Stock
from the date the Company entered into a commitment to issue the Convertible
Preferred Stock ($9.45 per share) to the Company's issuance of the convertible
Preferred Stock on January 26, 1999 ($13.125 per share).

    The Company follows the requirements of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. Diluted earnings per share will
include shares to be issued relating to the Warrants under the treasury stock
method and the conversion of Preferred Stock to Common Stock at the applicable
conversion ratio. The Notes are contingent as to conversion based on a vote of
the stockholders. Under SFAS No. 128, until all necessary conditions to
conversion have been satisfied, the Notes are not considered in the diluted
earnings per share computation.

    The Company has included in its proxy statement filing a detailed
description of the Notes, the Warrants and the Preferred Stock, including
conversion features and redemption requirements.

    The Company used $47.0 million in borrowings under the Credit Facility and
the aggregate $20.0 million in proceeds received from its issuance of the
Convertible Securities to Capital Partners and Executive Partners to finance, in
part, the EMSA acquisition, which consisted of assets acquired of $89.2 million,
including cash of $0.9 million and $46.4 million of cost in excess of net assets
acquired and the assumption of $22.2 million in liabilities. The following
unaudited pro forma results of operations give effect to the operations of the
Company as if the acquisition had occurred effective January 1, 1999 and January
1, 1998:

<TABLE>
<CAPTION>
                                                      THREE MONTHS       THREE MONTHS        SIX MONTHS            SIX MONTHS
                                                        JUNE 30,           JUNE 30,           JUNE 30,              JUNE 30,
                                                          1999               1998               1999                  1998
                                                     --------------     --------------     ---------------      ---------------
<S>                                                  <C>                <C>                <C>                  <C>
Healthcare revenue ...............................   $   72,218,000     $   65,679,000     $   140,227,000      $   131,471,000

Net income (loss) attributable to common shares ..        1,140,000            195,000            (371,000)          (1,820,000)
Net income (loss) per common share:
  Basic ..........................................   $         0.32     $         0.05     $         (0.10)     $         (0.51)
                                                     ==============     ==============     ===============      ===============
  Diluted ........................................   $         0.28     $         0.05     $         (0.10)     $         (0.51)
                                                     ==============     ==============     ===============      ===============
</TABLE>

4.  RELEASE AND SETTLEMENT AGREEMENT

    On October 1, 1997, the Company entered into a Plan and Agreement of Merger
(the "Merger Agreement") with MedPartners, Inc., a Delaware corporation
("MedPartners"), and a wholly-owned subsidiary of MedPartners, pursuant to which
the Company would have been acquired by MedPartners (the "Merger"). In
connection with the Merger, each issued and outstanding share of the Company's
Common Stock, $0.01 par value per share (the "Company's Common Stock") would
have been converted into the right to receive 0.71 of a share of MedPartners'
Common Stock. On October 28, 1997, MedPartners entered into a Plan and Agreement
of Merger (the "PhyCor Merger Agreement") with PhyCor, Inc., a Delaware
corporation ("PhyCor"), pursuant to which MedPartners would have been acquired
by PhyCor and each issued and outstanding share of MedPartners' Common Stock
would have been converted into the right to receive 1.18 shares of PhyCor Common
Stock.


                                       7
<PAGE>   8

    The Company mailed a Proxy Statement to the holders of its Common Stock on
November 20, 1997. The Proxy Statement related to a special meeting of the
Company's stockholders scheduled to be held on December 29, 1997, for the
purpose of considering and voting upon the Merger. On December 29, the Company
postponed the special meeting at the request of MedPartners until January 20,
1998.

    On January 20, 1998, the Company announced that it would not hold the
special meeting of its stockholders originally scheduled for December 29, 1997,
and that it was engaged in discussions with MedPartners regarding the Merger
Agreement. On February 26, 1998, the Company announced the termination of the
Merger Agreement and the execution of a Release and Settlement Agreement (the
"Settlement Agreement") with MedPartners relating to the Merger Agreement.
Pursuant to the Settlement Agreement, MedPartners agreed to pay the Company
approximately $3.5 million in cash and to reimburse or assume certain other
costs incurred by the Company in connection with the Merger in the amount of
approximately $2.0 million.



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, 1998 (the "1998 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 1998 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 for the six months ended June 30,
1999 include the operations of EMSA since January 26, 1999, the date of
acquisition. The acquisition was strategic in that it positions the Company as
the second largest provider of comprehensive managed healthcare for incarcerated
individuals in the United States and positions the Company to capitalize on
opportunities within the $4.5 billion correctional healthcare industry. Through
the acquisition of EMSA, the Company was able to (1) increase its contracts from
thirty-five to ninety-six; (2) increase the number of inmates served from 64,000
to 133,000; (3) leverage its revenue base whereby no one contract exceeds 8% of
combined revenue; (4) increase its market presence to twenty-five states, versus
sixteen; (5) leverage its corporate general and administrative expenses; (6)
obtain more favorable pricing in areas such as pharmacy, medical supplies and
lab costs; and (7) strengthen certain critical disciplines such as marketing and
client development.

    In addition to the strategic advantages, EMSA's contracts are similar to the
Company's prison and jail contracts, which will allow the Company to implement
its operational process, which includes (1) a claims management tracking system
that monitors incidents, claims and litigation; (2) a Daily Operating Report to
control staffing and off-site utilization; (3) Bi-weekly pharmacy reports; and
(4) a comprehensive cost review system that analyzes average costs per inmate at
each facility. Through the implementation of the above processes, the Company
anticipates an overall improvement in EMSA's margins.

RESULTS OF OPERATIONS

SECOND QUARTER JUNE 1999 COMPARED TO SECOND QUARTER JUNE 1998

    Healthcare revenues for the quarter June 1999 increased to $72.2 million
from $27.8 million in the second quarter 1998. The $44.4 million increase is
attributable to the acquisition of EMSA, an increase in inmate population and
automatic pricing adjustments



                                       8

<PAGE>   9

of existing PHS contracts and new business. Revenue from EMSA was $39.6 million,
existing PHS contracts increased $2.9 million or 10.4% as compared to June 1998
and new business was $1.9 million.

    Healthcare expenses during the second quarter 1999 were $65.3 million or
90.4% of revenue versus $25.2 million or 90.4% of revenue for the same period in
1998. The $40.1 million increase is mainly attributable to the EMSA acquisition.

    Selling, general and administrative expenses for the quarter ended June 1999
increased $0.6 million as compared to June 1998, due to the additional costs
related to the EMSA acquisition. As a percent of revenue, selling, general and
administrative expenses are 4.1% for June 1999 versus 8.3% for June 1998,
exclusive of the costs associated with the terminated merger with MedPartners.
The percentage decrease demonstrates the leverage on selling, general and
administrative expense provided by the EMSA acquisition.

    Depreciation and amortization increased $0.5 million to $1.0 million for
June 1999. The increase of $0.5 million is mainly due to the amortization of
cost in excess of net assets related to the EMSA acquisition, totaling $46.4
million, which is being amortized over twenty years.

    Net interest expense of $1.3 million for June 1999, which includes $0.2
million of noncash accretion on the Convertible Subordinated Notes, relates to
the financing of the EMSA acquisition through the Senior Revolving Credit
Facility of $47.0 million and the $15.0 million Convertible Subordinated Notes.
Interest expense of $1.4 million was offset by $0.1 million of interest income.
The outstanding balance of the Senior Revolving Credit Facility was $30.0
million as of June 1999. In addition, the Company repaid $7.5 million of the
$15.0 million Convertible Subordinated Notes on July 2, 1999.

    Income taxes for June 1999 were $0.5 million, which equates to a 30%
effective tax rate. Income taxes reflect a six month effective rate of 40%. The
June 1998 financial statements have minimal income taxes due to the utilization
of income tax loss carryforwards.

    The Company recorded a gain of $1.0 million in the second quarter of 1998
related to the Settlement Agreement between the Company and MedPartners. As part
of the Settlement Agreement, the Company received a payment totaling $0.6
million and $0.4 million in employee healthcare and lease costs were reimbursed
by MedPartners for the quarter ended June 1998.

    Preferred stock dividends of $64,000 relate to the 5% coupon rate on the
$5.0 million of Convertible Preferred Stock issued as part of the EMSA
acquisition.


SIX MONTHS JUNE 1999 COMPARED TO SIX MONTHS JUNE 1998

    Healthcare revenues for the six months June 1999 increased to $130.5 million
from $55.5 million for six months 1998. The $75.0 million increase is
attributable to the acquisition of EMSA, an increase in inmate population and
automatic pricing adjustments of existing PHS contracts and new business.
Revenue from EMSA was $68.1 million, existing PHS contracts increased $4.9
million or 8.9% as compared to June 1998 and new business was $2.0 million.

    Healthcare expenses during the six months ended June 1999 were $117.7
million or 90.2% of revenue versus $50.0 million or 90.2% of revenue for the
same period in 1998. The $67.7 million increase is primarily attributable to the
EMSA acquisition.

    Selling, general and administrative expenses for the six months ended June
1999 increased $0.9 million as compared to June 1998, due to the additional
costs related to the EMSA acquisition. Selling, general and administrative
expenses for the six months ended June 1998 include $0.7 million of costs
related to the failed merger with MedPartners. As a percent of revenue, selling,
general and administrative expenses are 4.6% for June 1999 versus 7.9% for June
1998, exclusive of the costs associated with the failed merger. The percentage
decrease demonstrates the leverage on selling, general and administrative
expense provided by the EMSA acquisition.

    Depreciation and amortization increased $0.9 million to $1.7 million for
June 1999. The increase of $0.9 million is mainly due to the amortization of
cost in excess of net assets related to the EMSA acquisition, totaling $46.4
million, which is being amortized over twenty years.

    Net interest expense of $2.3 million for June 1999, which includes $0.3
million of noncash accretion on the Convertible Subordinated Notes, relates to
the financing of the EMSA acquisition through the Senior Revolving Credit
Facility of $47.0 million and the $15.0 million Convertible Subordinated Notes.
Interest expense of $1.4 million was offset by $0.1 million of interest income.



                                       9

<PAGE>   10

The outstanding balance of the Senior Revolving Credit Facility was $30.0
million as of June 1999. In addition, the Company repaid $7.5 million of the
$15.0 million Convertible Subordinated Notes on July 2, 1999.

    Income taxes for June 1999 were $1.1 million, which equates to a 40%
effective tax rate. The June 1998 financial statements have minimal income taxes
due to the utilization of income tax loss carryforwards.

    The Company recorded a gain of $2.6 million for the six months of 1998
related to the Settlement Agreement between the Company and MedPartners. As part
of the Settlement Agreement, the Company received payments totaling $2.8
million, of which $1.0 million reimbursed the Company for costs directly
associated with the terminated merger transaction. In addition to the $1.8
million recognized from payments from MedPartners, an additional $0.8 million in
employee healthcare and lease costs were reimbursed by MedPartners for the six
months ended June 1998.

    Preferred stock dividends of $2.0 million relate to the 5% coupon rate on
the $5.0 million of Convertible Preferred Stock issued as part of the EMSA
acquisition, which equates to $0.1 million and a noncash, nonrecurring dividend
of $1.9 million, which increased paid-in capital and represents a $3.68 dividend
on each outstanding share of Convertible Preferred Stock. The dividend equals
the increase in the fair market value of a share of the Company's Common Stock
from the date the Company entered into a commitment to issue the Convertible
Preferred Stock ($9.45 per share) to the Company's issuance of the convertible
Preferred Stock on January 26, 1999 ($13.125 per share).


LIQUIDITY AND CAPITAL RESOURCES

    The Company's cash and cash equivalents at June 30, 1999, were $5.8 million,
compared with cash and cash equivalents of $7.2 million at December 31, 1998.
Cash provided by operating activities during the six months ended June 30, 1999
was $15.4 million compared to cash provided by operations of $3.9 million for
the comparable 1998 period. The overall increase in cash from operating
activities was due to the completion of the transitioning of EMSA's corporate
finance functions during the second quarter, including processing of vendor and
medical claims invoices and accounts receivable. The transition had temporarily
slowed the processing of both vendor and medical providers' claims, as well as
billing and collections of certain contracts' monthly base fees. With the
completion of the transition, accounts receivable during the second quarter were
reduced by $12.4 million, while accounts payable and accrued expenses declined
by $2.7 million. Due to the significant improvement in cash flow from
operations, the Company was able to reduce the Senior Revolving Credit Facility
by an additional $7.0 million in the second quarter whereby a total of $17.0
million has been repaid. In addition to the Senior Revolving Credit Facility
paydowns, the Company paid $7.5 million on the Subordinated Convertible Notes on
July 2, 1999.

    The transitioning of corporate finance functions was a slower process than
planned as time and effort was committed to complete the independent financial
statement audits for EMSA for January 25, 1999, for working capital statement
purposes, and as of December 31, 1998 and for three years ending December 31,
1998. The working capital audit was required to be completed within 60 days of
the closing date while the December audits had a 90-day deadline. The task of
completing four audits mandated the full attention of the entire EMSA finance
department. Additionally, no employees within the EMSA finance department
relocated to Brentwood, Tennessee where the Company maintains its corporate
headquarters. Accordingly, during the months of February and March replacements
were recruited and hired at the Brentwood location to support the EMSA
contracts.

    The following transition tasks have been completed and are operational: (1)
general ledger conversion; (2) medical claims adjudication through its medical
claims system; (3) billing and collection functions are in place with daily and
weekly cash reports being generated which has reduced accounts receivable
outstanding by $12.4 million from March 31, 1999 to June 30, 1999; (4) Daily
Operations Report used to manage site financial operations; (5) bi-weekly
reports for staffing and pharmacy costs; (6) site, contract and region specific
operating statements; and (7) utilization management reports identifying open
authorizations which will reduce potential delinquent medical claims payment.

    The Company believes the impact the transition had on vendor relations was
minimal as the Company had notified its vendors and EMSA medical and non-medical
providers of the acquisition. However, the Company has implemented a priority
list for any medical providers who are displeased whereby any open or disputed
invoices can be quickly researched and resolved. Additionally, the sites are
receiving weekly reports whereby any missing authorizations can be identified
and fixed immediately. The Company is not aware of any violations under its
agreements with its providers.



                                       10

<PAGE>   11

    The Company believes that the disciplines impacted by the EMSA transition
including medical claims and vendor payables processing, billing and
collections, daily operational reporting are functioning in a manner similar to
the Company's other operating subsidiary, Prison Health Services, Inc. whereby
accounts receivables and accounts payable days outstanding will begin to
approach the Company's days prior to the acquisition.

    Management believes that the current levels of cash, when coupled with
internally generated funds, acquired working capital of $24.0 million from the
EMSA acquisition and the line of credit is sufficient to meet the Company's
foreseeable cash needs.


YEAR 2000 UPDATE

    The Year 2000 problem is the result of two potential malfunctions that could
have an impact on the Company's operations. The first is computer systems and
software being programmed to use two rather than four digits to define the
applicable year. The second is the use of embedded chips that have been designed
using two rather than four digits to define the applicable year. These chips are
often used in medical equipment used in certain Company sites.

    The Company has completed the evaluation of all computer systems and
software it currently utilizes and has determined that 85% of all computer
systems and software will be in compliance without modification. The Company is
currently in the process of modifying or replacing the remaining 15% of its
computer systems and software. The general ledger, accounts payable, accounts
receivable and timekeeping systems have been upgraded, tested and are in
production. The Company's most significant outsourcing contract is for medical
claims processing and payment and that vendor has certified that all Year 2000
modifications will be completed by December 31, 1999.

    The Company has undertaken a program to inventory, assess and correct or
replace the equipment that contains embedded chips. The Company has completed
its inventory of its sites, and is in its final stages of its inventory with
contract vendors. The analysis, replacement or modification, or implementation
of alternative plans for equipment that will have a direct impact on patient
safety and health will be completed by September 1999.

    The Company is relying on information that is being provided by equipment
and medical device manufacturers regarding the Year 2000 compliance status of
their products. While the Company is attempting to evaluate information provided
by its present vendors, there can be no assurances that in all instances
accurate information is being provided. The Company also cannot in all instances
guarantee that the repair, replacement or upgrade of all items of equipment and
medical device systems will occur on a timely basis. Contingency planning will
be established and implemented in an effort to minimize any impact from Year
2000-related failures of such equipment. The Company anticipates its contingency
planning for this aspect of its Year 2000 assessment to be completed by
September 30, 1999. Costs as a result of these types of occurrences are in the
process of being determined.

    The Company has also initiated communications with suppliers and vendors
whose supplies are essential for day-to-day operations regarding their state of
Year 2000 readiness. The Company is continuing its efforts to obtain such
information from all critical suppliers and vendors and feels that it will be
able to determine its vendors' status by September 30, 1999. Failure of certain
suppliers and vendors to remain in business without interruptions following
December 31, 1999 could have a material impact on operations or the Company's
ability to provide healthcare services. Contingency plans may include
stockpiling medical supplies and materials, increasing inventory levels and
securing alternate sources of supply. The Company anticipates its contingency
planning for this aspect of its Year 2000 assessment to be completed by
September 30, 1999. Costs as a result of these types of occurrences are in the
process of being determined.

    Because the Company's physical sites are located within facilities owned and
operated by other entities whose Year 2000 readiness efforts it does not
control, there will be issues that arise which are dependent on these clients'
efforts. The Company has initiated communications with its clients on these
matters. The Company anticipates its contingency planning for this aspect of its
Year 2000 assessment to be completed by September 30, 1999 and feels costs
related to this phase will be immaterial.

    The Company expects to expend approximately $0.1 million in connection with
evaluating, modifying and replacing its computer systems and software and
expects to fund such expenditures through operating cash flows. However, there
can be no guarantees that these estimates will be achieved and actual results
could differ materially from those anticipated.





                                       11
<PAGE>   12



                                    PART II:

                                OTHER INFORMATION

ITEM 5. -- OTHER EVENTS

    On July 23, 1999, the Company issued a press release discussing its second
quarter 1999 operating performance. A copy of such press release is attached
hereto as Exhibit 99.1 and is hereby incorporated herein by reference.

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

    (A) Exhibits
<TABLE>
<S>     <C> <C>
  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).

 11.1   --  Statement re-computation of per share earnings.

 27.1   --  Financial Data Schedule for the quarter and six months ended
            June 30, 1999 (for SEC use only)

 27.2   --  Financial Data Schedule for the quarter and six months ended
            June 30, 1998 (for SEC use only)

 99.1   --  June 1999 Earnings Release
</TABLE>

    (B) Reports on Form 8-K

        1.      On February 10, 1999, the Company filed Form 8-K, announcing
                the completion of the acquisition of MedPartners' Government
                Services Division.

        2.      On March 26, 1999, the Company filed Form 8-K/A, amending and
                replacing its report on Form 8-K, which was originally filed
                on February 10, 1999, announcing the completion of the
                acquisition of MedPartners' Government Services Division.




                                       12
<PAGE>   13



                                   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
                                    President & Chief Executive Officer



                                              /s/ BRUCE A. TEAL
                              --------------------------------------------------
                                                 Bruce A. Teal
                              Executive Vice President & Chief Financial Officer



Dated: August 12, 1999






                                       13
<PAGE>   14



                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER                             DESCRIPTION                                                         PAGE
   -------                             -----------                                                         ----
<S>           <C> <C>                                                                                      <C>
    11.1      --  Statement re-computation of per share earnings........................................

    27.1      --  Restated Financial Data Schedule for the quarter and six months ended June 30, 1999
                  (for SEC use only) ...................................................................

    27.2      --  Financial Data Schedule for the quarter and six months ended June 30, 1998
                  (for SEC use only)....................................................................

    99.1      --  June 1999 Earnings Release............................................................
</TABLE>







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