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

                                   -----------

                                   FORM 10-KSB

(Mark One)

|X|                  ANNUAL REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 2005

|_|              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: 000-51603

                       AMERICAN CARESOURCE HOLDINGS, INC.
                 (Name of Small Business Issuer in its Charter)

                Delaware                                          20-0428586
    -------------------------------                          -------------------
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)

   8080 Tristar Drive, Irving, Texas                                75063
----------------------------------------                          ----------
(Address of principal executive offices)                          (Zip Code)

       Registrant's telephone number, including area code: (214) 596-2400

           Securities registered pursuant to Section 12(b) of the Act:

          Title of Each Class                              Name of Each Exchange
                                                            on Which Registered

                 None.                                             None.

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

Check whether the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. Yes |_| No |X|

Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act")
during the past 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 |_|

Check mark if no disclosure of delinquent filers pursuant to Item 405 of
Regulations S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

Indicate by check mark whether the registrants is a shell company as defined in
Rule 12b-2 of the Exchange Act. |_|

Issuer's revenue for the year ended December 31, 2005: $4,417,446

As of March 30, 2006, the aggregate market value of the voting and nonvoting
common stock held by nonaffiliates of the registrant was $41,664,640 and
7,729,989 shares of common stock were outstanding.

As of March 30, 2006, there were 14,370,709 shares of the issuer's common stock
outstanding.

<PAGE>

                                     PART I

Item 1. Description of Business.

      American CareSource Holdings, Inc. ("American CareSource Holdings", "we",
"us", "our", or the "Company") became an independent public company, on December
23, 2005, after Patient Infosystems, Inc. ("Patient Infosystems") distributed by
dividend substantially all of its shares of American CareSource Holdings common
stock to Patient Infosystems' stockholders. Public trading of the Company's
stock commenced on December 28, 2005 on the Over the Counter Bulletin Board
Market (the "OTC Bulletin Board") under the symbol ACSH.OB.

      American CareSource Holdings is an ancillary benefits management company.
Through its comprehensive network, customer service support and claims
management services, the Company assists health benefits plan sponsors such as
preferred provider organizations, third party administrators, workers
compensation benefits administrators, insurance companies, and employers expand
the range of provider choices available to their patients while reducing overall
ancillary benefits costs. Ancillary healthcare services include a broad array of
services that supplement or support the care provided by hospitals and
physicians, including the non-hospital, non-physician services associated with
surgery centers, free-standing diagnostic imaging centers, home health and
infusion, durable medical equipment, orthotics and prosthetics, laboratory and
many other services.

      American CareSource Holdings was incorporated in November 2003 under the
laws of Delaware as a wholly-owned subsidiary of Patient Infosystems in order to
facilitate its acquisition of substantially all of the assets of American
CareSource Corporation. American CareSource Corporation had been in operation
since 1997. The predecessor company to American CareSource Corporation,
Physician's Referral Network, had been operable since 1995. The business of
American CareSource Holdings includes the previous business of American
CareSource Corporation.


      American CareSource Holdings principal executive offices are located at
8080 Tri-Star Drive, Irving, Texas 75063 and its telephone number is (214)
596-2400. Our Internet address is www.anci-care.com.

Recent Developments

      On December 23, 2005, Patient Infosystems distributed by dividend
12,071,309 of its shares of common stock of American CareSource Holdings, of
which 10,091,899 shares of common stock were distributed pursuant to a
registration statement on Form SB-2. Patient Infosystems did not receive any
proceeds from the distribution of the shares to its stockholders. Approximately
300,000 shares were retained by Patient Infosystems. Of the 300,000 American
CareSource Holdings' shares, 146,482 shares were registered under the
aforementioned registration statement and 153,518 are restricted shares.
Immediately following the distribution, American CareSource Holdings became an
independent public company.

      The American CareSource shares distributed by dividend in December 2005
included dividends on shares sold in October 2005 by Patient Infosystems. In
October 2005, Patient Infosystems, in a private placement to accredited
investors sold 3,411,512 shares of its common stock from which it received gross
proceeds of approximately $12,000,000. In connection with this transaction,
Patient Infosystems granted investors certain registration rights pursuant to a
registration rights agreement. The purchasers of the shares of common stock of
Patient Infosystems received 1,705,756 shares of common stock of American
CareSource Holdings as a result of the dividend declared and paid in connection
with the distribution of American CareSource Holdings stock which took place
December 23, 2005. However, the American CareSource Holdings shares issued to
such investors were deemed to be restricted securities and issued pursuant to
exemptions from registration under the Securities Act.

      Also in October 2005, Patient Infosystems issued 547,244 shares of common
stock valued at $3.44 per share and paid $17,351 in cash to the holders of
Patient Infosystems' preferred stock in lieu of accrued dividends which it was
obligated to pay upon conversion of such preferred stock into common stock. The
holders of these shares also received 273,618 shares of American CareSource
Holdings common stock as a result of the dividend declared and paid in
connection with the December 23, 2005 distribution. Such American CareSource
Holding's shares were also restricted and issued pursuant to an exemption from
the registration requirements of the Securities Act.

      In January 2006, American CareSource Holdings created a wholly owned
subsidiary, Ancillary Care Services, Inc. ("Care Services"). Ancillary Care
Services is a holding company which wholly owns the following newly formed
operating subsidiaries: Ancillary Care Services Medicare, Inc., Ancillary Care
Services Workers Compensation, Inc. and Ancillary Care Services Group Health,
Inc. American CareSource Holdings intends to operate its ancillary care services
business within each of the foregoing operating subsidiaries.

<PAGE>

      In March 2006, American CareSource Holdings completed a private placement
of securities from which it received gross proceeds of approximately $10.0
million. A portion of the proceeds from this transaction was used to re-pay the
balance of an existing credit line with Wells Fargo Bank, N.A.. The transaction
consisted of a sale to accredited investors of approximately two million shares
of common stock. The Company relied upon the exemption from registration
provided under Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder. The private placement was only made available to
"accredited investors" as defined in Rule 501 of Regulation D. Laidlaw & Company
(UK) Ltd. acted as the placement agent in connection with the private placement.
American CareSource Holdings paid an 8% fee to the placement agent and issued
warrants to purchase up to 159,952 shares of common stock with an exercise price
of $5.50, in connection with the financing in addition to other costs.
Additionally, American CareSource Holdings granted the accredited investors
certain registration rights pursuant to a registration rights agreement, in
connection with this transaction. The registration rights agreement requires the
Company to file a registration statement following the final closing of our
private placement covering the resale of all shares included therein, as well as
the shares underlying the placement agent's warrants. If the registration
statement is not filed or effective before, June 29, 2006, being the 120th day
following the final closing date, the Company will be subject to a penalty of
1.0% per month ($100,000 per month) of the aggregate purchase price for each
month that the registration statement is not effective. This penalty would be in
effect for 20 months following the expiration of the 120 day period and would be
a maximum of 20% or approximately $2 million.

Products and Capabilities

Ancillary benefits management

      Ancillary healthcare services include a broad array of services that
supplement or support the care provided by hospitals and physicians, including
the non-hospital, non-physician services associated with surgery centers,
free-standing diagnostic imaging centers, home health and infusion, durable
medical equipment, orthotics and prosthetics, laboratory and many other
services. These ancillary services are provided to patients as benefits under
group health, workers compensation plans and Medicare plans.

      Ancillary services include but are not limited to the following
categories:

 o  Outpatient Therapy/Rehab         o  Orthotics and Prosthetics
 o  Home Health Services             o  Pain Management
 o  Surgical Centers                 o  Pharmacy
 o  Laboratory Services              o  Physical Therapy
 o  Home Infusion Therapy            o  Respiratory Services
 o  Chiropractic Services            o  Sleep Studies
 o  Diagnostic Imaging/Radiology     o  Sub-Acute and Skilled Nursing facilities
 o  Dialysis Services                o  Hospice Services
 o  Durable Medical Equipment        o  Bone Growth Stimulators

American CareSource Holdings manages the administration of these non-hospital,
non-physician services.

      Through its contracts with over 2,400 ancillary service providers (with
over 20,000 sites nationwide), American CareSource Holdings is able to offer its
clients direct cost savings in the form of discounted rates for contracted
services and administrative cost savings by functioning as a single point of
contact for managing a comprehensive array of ancillary benefits. American
CareSource Holdings benefits management services include processing the claims
submitted by its covered providers, re-pricing the claims, submitting the claims
for payment, receiving and disbursing claims payments and performing customer
service functions for its clients and contracted providers. For preferred
provider organization ("PPO"), third party administrator ("TPA") and similar
clients, contracting with American CareSource Holdings also allows the clients
to market comprehensive, efficient and affordable ancillary service benefits to
their payor customers.

      As part of its ancillary benefits management services, ancillary providers
submit claims for services performed for covered members. American CareSource
Holdings re-prices these claims under the relevant payor fee schedule, performs
electronic conversion and HIPAA formatting services, and submits the re-priced
claims to the appropriate payors. After adjudication of the claims by the Payor,
the Payor issues an Explanation of Benefits, Explanation of Payment and check
for each claim. In most cases, these checks are sent to American CareSource
Holdings. American CareSource Holdings then pays the providers under the
relevant provider fee schedule. The difference between the amounts received by
American CareSource Holdings from its clients and the amounts paid by American
CareSource Holdings to its contracted providers represents American CareSource
Holdings gross margin on its benefits management services.


                                      -2-
<PAGE>

      Value-added services that American CareSource Holdings provides to its
clients include the following:

      Ancillary network analysis. American CareSource Holdings analyzes the
available claims history from each client and develops a specific plan to meet
their needs. This analysis identifies high-volume providers that are not already
in American CareSource Holdings network. American CareSource Holdings attempts
to contract with such providers to maximize discount levels and capture rates.

      Ancillary custom network. American CareSource Holdings customizes its
network to meet the needs of each client. In particular, American CareSource
Holdings reviews the "out-of-network" claims history through its network
analysis service and develops a strategy to create a network that efficiently
serves the client's needs. This may involve adding additional providers for a
client and removing providers the client wants excluded from their network.

      Ancillary reimbursement. American CareSource Holdings uses its network
analysis to develop a single reimbursement level for all clients. American
CareSource Holdings also processes denials and appeals for its clients and for
its contracted providers.

      Ancillary network management. American CareSource Holdings manages
ancillary service provider contracts, reimbursement and credentialing for its
clients. This provides administrative benefits to American CareSource Holdings
clients and reduces the burden on providers who typically must supply
credentialing documentation and engage in contract negotiation with separate
payors.

      Ancillary systems integration. American CareSource Holdings has created a
proprietary software system that enables it to manage many different customized
accounts and includes the following modules:

o     Provider network management
o     Credentialing
o     Claims and case referral management
o     Data transfer management/EDI
o     Repricing and auto-adjudication
o     Multi-level reimbursement management
o     Posting, EOB, check, and e-funds processes
o     Customer service management
o     Directory management
o     Claim repricing / adjudication
o     Advanced data reporting

      Ancillary reporting. American CareSource Holdings provides a complete
suite of reports available to each client monthly. The reports cover contracting
efforts and capture rates, discount levels, referral volumes by service category
and complete claims and utilization reports.

      Ancillary claims management. American CareSource Holdings can manage
ancillary claims flow, both electronic and paper, and integrate into the
client's process electronically or through repriced paper claims. American
CareSource Holdings can also perform a number of customized processes that add
additional value for each client. As part of the claims management process,
American CareSource Holdings manages the documentation requirements specific to
each payor. When claims are submitted from the service provider without required
documentation, American CareSource Holdings works with the provider to get the
documentation so that the claim is not denied by the payor. This also saves
labor costs for the payors.

      American CareSource Holdings estimates that at least 80% of all ancillary
claims in categories served by American CareSource Holdings are submitted by
paper. American CareSource Holdings is able to provide a conversion of these
paper claims into the HIPAA-compliant Electronic Data Interchange ("EDI") form
through its scanning and outsourcing operations.


                                      -3-
<PAGE>

Sales and Marketing

      Sales and marketing efforts for the American CareSource Holdings product
line are currently focused on healthcare payor organizations as well as TPA'S,
large self-funded organizations and Taft-Hartley groups that self-administrate.
American CareSource Holdings spent several years developing its business model,
know-how, infrastructure, client base and provider base and until 2001, American
CareSource Holdings had focused on managing ancillary benefits in the Workers
Compensation market. In early 2001, American CareSource Holdings expanded and
refocused its business to address the management of ancillary benefits in the
Group Health market. It launched its Group Health initiatives by marketing to
healthcare networks such as TPAs and PPOs. As of the end of 2004, American
CareSource Holdings began to focus its marketing efforts on the direct payor
community.

Customers

      Major customers of American CareSource Holdings include Med Partners d/b/a
Lutheran ("Lutheran"), ppoNEXT and Accountable Health Plans. For the fiscal year
ended December 31, 2005, American CareSource Holdings derived 57% of its
revenues from Lutheran, 18% of its revenues from ppoNext and 8% of its revenues
from Accountable Health Plans. For the fiscal year ended December 31, 2004,
American CareSource Holdings derived 40% of its revenues from Lutheran, 28% of
its revenues from ppoNext and 11% of its revenues from Accountable Health Plans.

Competition

      While American CareSource Holdings is aware of no competitor that
currently offers ancillary benefits management services similar to its own,
several companies offer benefits or other management services relating to
workers compensation benefits and specific categories of ancillary services. It
should be noted that American CareSource Holdings provided its services for the
workers compensation market until January 2001 when it expanded into the group
health market. Its growth in the group health market may encourage other
companies active in the workers compensation market to develop service offerings
competitive with American CareSource Holdings in the group health market.
Similar competitors may include companies that have created niche market
management businesses, such as companies aggregating or managing chiropractic
services, sub-acute healthcare services (such as so-called step-down facilities)
and laboratory services.

      Pharmacy benefit management companies represent actual or potential
competitors. American CareSource Holdings is developing an ancillary benefits
management business model that in some respects is analogous to the business
model employed by pharmacy benefit management companies. These companies manage
pharmacy benefits for health plan providers, and in some cases manage selected
ancillary benefits as well. A number of these companies are very large,
including Medco, Express Scripts, AdvancePCS and Caremark Rx. These and other
pharmacy benefit management companies possess substantially greater financial
and personnel resources than American CareSource Holdings, have current
contracts with large numbers of payors and could enter the ancillary benefits
management market.

      In addition to the companies described above, a large number of companies
offer health benefit plans and related services to payors and other groups.
These plans cover hospital and physician services, as well as ancillary
services. While these companies are potential competitors for American
CareSource Holdings, they also constitute the core of American CareSource
Holdings current client base and its potential client pool.

Research and Development

      The company invests in its information technology infrastructure to
enhance the capabilities of its data bases, date retrieval tools, data exchange
capabilities and re-pricing engine. These investments are made in the normal
course of business and are not separately identified.


                                      -4-
<PAGE>

Government Regulation

      The health care industry is subject to extensive regulation by both the
Federal and state governments. A number of states have extensive licensing and
other regulatory requirements applicable to companies that provide health care
services. Additionally, services provided to health benefit plans in certain
cases are subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").

      Furthermore, state laws govern the confidentiality of patient information
through statutes and regulations that safeguard privacy rights. In addition,
American CareSource Holdings is subject to the Health Insurance Portability and
Accountability Act of 1996 which includes national standards for electronic
health transactions and the data elements used in such transactions. American
CareSource Holdings and its customers may be subject to Federal and state laws
and regulations that govern financial and other arrangements among health care
providers. Furthermore, American CareSource Holdings and its customers may be
subject to federal and state laws and regulations governing the submission of
false healthcare claims to the government and private payers. Possible sanctions
for violations of these laws and regulations include minimum civil penalties
between $5,000-$10,000 for each false claim and treble damages.

      Therefore, American CareSource Holdings must continually adapt to changing
regulations. If American CareSource Holdings fails to comply with these
applicable laws, American CareSource Holdings may be subject to fines, civil
penalties, or criminal prosecution.

Employees

      As of March 30, 2006, American CareSource Holdings had 36 full time and 2
part-time employees.


                                      -5-
<PAGE>

                                  RISK FACTORS

      You should carefully consider each of the following risk factors and all
of the other information in this report. The following risks relate principally
to American CareSource Holdings' business. If any of the following risks
actually occur, the business, financial condition or results of operations of
American CareSource Holdings could be materially adversely affected. As a
result, the market price of shares of American CareSource Holdings common stock
could decline significantly.

American CareSource Holdings has a history of losses, has never been profitable
and will likely continue to lose money for the foreseeable future.

      American CareSource Holdings has incurred net losses in each year since
its inception in December 2003 and has an accumulated deficit of approximately
$5.3 million as of December 31, 2005. Its predecessor never achieved
profitability either. From the year ended December 31, 2004 to the year ended
December 31, 2005, revenues declined from approximately $5.5 million to 4.2
million primarily as a result of the cancellation of contracts by major clients
and the reduction of revenue from certain providers. No assurance can be given
that revenue will not continue to decline. American CareSource Holdings will
require significant growth in either claims volume for existing contracts, new
contracts or both in order to generate sufficient operational margin to become
profitable. No assurances can be given that American CareSource Holdings will be
able to generate additional revenues or ever operate profitably in the future.
American CareSource Holdings prospects must be considered in light of the
numerous risks, expenses, delays and difficulties frequently encountered in an
industry characterized by intense competition, as well as the risks inherent in
the development of new programs and the commercialization of new services
particularly given its failure to date to operate profitably.

American CareSource Holdings has faced working capital shortfalls and may need
to identify additional sources of capital within 12 months to maintain its
operations.

      American CareSource Holdings and American CareSource Corporation have
never earned profits. Based on American CareSource Holdings' current plans, as a
result of the March 2006 private placement, the Company believes that it has
sufficient funds to meet its operating expenses and capital requirements through
2006. If the Company is unable reach profitability within the year, it will need
to raise additional funds to continue is operations following that period. No
assurance can be given that American CareSource Holdings will be able to obtain
financing, or successfully sell assets or stock, or, even if such transactions
are possible, that they will be on terms reasonable to American CareSource
Holdings or that such transactions will enable American CareSource Holdings to
satisfy its cash requirements. If American CareSource Holdings does not obtain
additional funds, American CareSource Holdings will likely be required to
eliminate programs, delay development of its products, alter its business plans,
or in the extreme situation, cease operations.

American CareSource Holdings may be subject to a monthly penalty in connection
with the March 2006 private placement if a registration statement covering the
resale of the shares issued in connection with the private placement is not
declared effective by June 29, 2006.

      Pursuant to a registration rights agreement entered into by American
CareSource Holdings and each of the investors to the March 2006 private
placement, American CareSource is required to file a registration statement
covering the resale of all shares issued in connection with the private
placement, as well as the shares underlying the placement agent's warrants. If a
registration statement is not filed or effective before June 29, 2006, the 120th
day following the final closing date of the private placement, American
CareSource Holdings is subject to an aggregate penalty of $100,000 per month,
being 1.0% per month of the aggregate purchase price from such private
placement. Although American CareSource Holdings will file a registration
statement on a timely basis covering the resale of the shares issued in
connection with the March 2006 private placement, there can be no assurance that
such registration statement will be declared effective by the SEC by June 29,
2006. Therefore, American CareSource Holdings may be required to pay a monthly
penalty to each investor in the March 2006 private placement if a registration
statement covering the resale of such shares is not declared effective by the
June 29, 2006.

American CareSource Holdings is dependent on payments from third party payors
who may reduce rates of reimbursement.

      The profitability of American CareSource Holdings will depend on payments
provided by third-party payors. Competition for patients, efforts by traditional
third-party payors to contain or reduce healthcare costs and the increasing
influence of managed care payors such as health maintenance organizations in
recent years have resulted in reduced rates of reimbursement. If these trends
continue, they could adversely affect American CareSource Holdings' results of
operations unless American CareSource Holdings can implement measures to offset
the loss of revenues and decreased profitability. In addition, changes in
reimbursement policies of private and governmental third-party payors, including
policies relating to the Medicare and Medicaid programs, could reduce the
amounts reimbursed to these customers for American CareSource Holdings' services
and consequently, the amount these customers would be willing to pay for the
services.


                                      -6-
<PAGE>

American CareSource Holdings has a limited number of customers, a few of which
account for a substantial portion of its business.

      American CareSource Holdings' four largest customers account for
approximately 90% of its revenues during 2005 and 55% of its revenue during the
fiscal year ended December 31, 2005 from a single customer. In 2004, American
CareSource Holding's four largest customers accounted for 82% of its revenue
(including 9.3% from non-continuing customers which are defined as customers who
terminated their agreements with American CareSource Holdings or elected not to
renew their agreements upon expiration). Significant declines in the level of
use of American CareSource Holdings services by one or more of these customers
could have a material adverse effect on American CareSource Holdings' business
and results of operations. Additionally, an adverse change in the financial
condition of any of these customers, including an adverse change as a result of
a change in governmental or private reimbursement programs, could have a
material adverse effect on its business. No assurance can be given that American
CareSource Holdings will not lose additional substantial customers in the
future. Ancillary health claims revenue for the fiscal year ended December 31,
2005 decreased to $4,219,133 as compared to $5,512,927 for the fiscal year ended
December 31, 2004. This decrease is attributable to the cancellation of
contracts by major clients and to the reduction of revenue from certain
providers in American CareSource Holdings' ancillary health provider network.
Pinnacol Assurance ("Pinnacol") notified American CareSource Holdings on
December 19, 2003 of its intent to terminate its contract with American
CareSource Holdings effective March 18, 2004, and was winding down through the
first quarter and into the second quarter of 2004. Revenue from Pinnacol
decreased from $563,042 for 2004 to $0 for 2005.

American CareSource Holdings is dependent upon discounted rates made available
by ancillary service providers which may be discontinued at any time.

      American CareSource Holdings obtains revenue from cost savings that it is
able to receive from the ancillary service providers and pass on to customers.
Should the ancillary service providers not continue to provide a discount to
American CareSource Holdings, American CareSource Holdings will be unable to
recognize any gain from the sale of services to payors or networks. If American
CareSource Holdings is unable to recognize these margins, it will be unable to
continue its business as it is currently conducted.

American CareSource Holdings historically has not entered into any long-term
contracts with any of its customers and failure to retain such customers could
have a material adverse effect on American CareSource Holdings' business and
results of operations.

      Generally, American CareSource Holdings does not have any long-term
contracts with any of its customers. Currently, American CareSource Holdings
only has one long-term contract with its customers that is set to extend beyond
the next twelve months. In the aggregate, customer agreements that are set to
expire within the next twelve months accounted for 60% of the revenues of
American CareSource Holdings during the fiscal year ended December 31, 2005.
There can be no assurance that customers will maintain their agreements with
American CareSource Holdings or that customers will renew their contracts upon
expiration, or on terms favorable to, American CareSource Holdings.
Consequently, the failure to retain such customers could have a material adverse
effect on American CareSource Holdings' business and results of operations.

Changes in state and federal regulations could restrict American CareSource
Holdings' ability to conduct its business.

      Numerous state and federal laws and regulations affect American CareSource
Holdings' business and operations. These laws and regulations include, but are
not necessarily limited to:

o     healthcare fraud and abuse laws and regulations, which prohibit illegal
      referral and other payments;
o     Employee Retirement Income Security Act of 1974 and related regulations,
      which regulate many healthcare plans;
o     mail pharmacy laws and regulations;
o     privacy and confidentiality laws and regulations;
o     consumer protection laws and regulations;
o     legislation imposing benefit plan design restrictions;
o     various licensure laws, such as managed care and third party administrator
      licensure laws;
o     drug pricing legislation; and
o     Medicare and Medicaid reimbursement regulations.


      American CareSource Holdings believes it is operating its business in
substantial compliance with all existing legal requirements material to the
operation of its business. There are, however, significant uncertainties
regarding the application of many of these legal requirements to its business,
and there cannot be any assurance that a regulatory agency charged with
enforcement of any of these laws or regulations will not interpret them
differently or, if there is an enforcement action, that American CareSource
Holdings' interpretation would prevail. In addition, there are numerous proposed
healthcare laws and regulations at the federal and state levels, many of which
could materially affect American CareSource Holdings' ability to conduct its
business or adversely affect its results of operations.

If American CareSource Holdings fails to comply with the requirements of HIPAA,
it could face sanctions and penalties.

      HIPAA provides safeguards to ensure the integrity and confidentiality of
such health information. Violation of the standards is punishable by fines and,
in the case of wrongful disclosure of individually identifiable health
information, imprisonment. Although American CareSource Holdings intends to
comply with all applicable laws and regulations regarding medical information
privacy, failure to do so could have an adverse effect on American CareSource
Holdings' business.


                                      -7-
<PAGE>

There are large competitors in the healthcare industry that could choose to
compete against American CareSource Holdings, reducing American CareSource
Holdings' profit margins.

      Traditional health insurance companies, preferred provider networks, and
pharmacy benefit managers are potential competitors of American CareSource
Holdings. These companies include well-established companies which may have
greater financial, marketing and technological resources than American
CareSource Holdings, such as Merck-Medco, Express Scripts and Caremark Rx.
Competition in the marketplace has caused many PBMs to reduce the prices charged
to clients for core services and share a larger portion of the formulary fees
and related revenues received from drug manufacturers with clients. Increased
price competition could reduce American CareSource Holdings' profit margins and
have a material adverse effect on its results of operations.

There are limited barriers to entry into the ancillary services market which
could result in greater competition.

      Although American CareSource Holdings is not aware of any organization or
company that currently provides similar ancillary services management, there are
limited barriers to entry into the ancillary services management market. Major
benefit management companies and healthcare companies not presently offering
ancillary services management may decide to enter the market. These companies
may have greater financial, marketing and other resources than American
CareSource Holdings. Competition from other companies may have a material
adverse effect on American CareSource Holdings' financial condition and results
of operations.

American CareSource Holdings' inability to react effectively to changes in the
healthcare industry could adversely effect its operating results.

      In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including potential national
healthcare reform, trends toward managed care, cuts in Medicare reimbursements,
and horizontal and vertical consolidation within the healthcare industry.
Proposed changes to the U.S. healthcare system may increase governmental
involvement in healthcare and ancillary health services, and otherwise change
the way payors, networks and providers conduct business. Healthcare
organizations may react to these proposals and the uncertainty surrounding them
by reducing or delaying purchases of cost control mechanisms and related
services that American CareSource Holdings provides. Other legislative or
market-driven changes in the healthcare system that American CareSource Holdings
cannot anticipate could also materially adversely affect American CareSource
Holdings' business. American CareSource Holdings' inability to react effectively
to these and other changes in the healthcare industry could adversely affect its
operating results. American CareSource Holdings cannot predict whether any
healthcare reform efforts will be enacted and what effect any such reforms may
have on American CareSource Holdings or its customers. The inability of American
CareSource Holdings to react effectively to changes in the healthcare industry
may result in a material adverse effect on its business.

The continued services and leadership of American CareSource Holdings' senior
management is critical to its ability to maintain growth and any loss of key
personnel could adversely affect its business.

      The future of the business of American CareSource Holdings depends to a
significant degree on the skills and efforts of its senior executives, in
particular, Wayne Schellhammer, its Chief Executive Officer and David Boone, its
Chief Operating Officer and Chief Financial Officer. If American CareSource
Holdings loses the services of any of its senior executives, and especially if
any of its executives joins a competitor or forms a competing company, American
CareSource Holdings' business and financial performance could be seriously
harmed. American CareSource Holdings has employment agreements with Mr.
Schellhammer and Mr. Boone. Mr. Schellhammer's initial term under his employment
agreement expired October 10, 2005, but was automatically renewed for a
successive one year term. Mr. Boone's initial term under his employment
agreement expires April 30, 2006, but will automatically renew for a successive
one year term. If, for any reason, we lose any of our executive officers'
skills, knowledge of the industry, contacts and expertise, it could result in a
setback to the American CareSource Holdings operating plan.

American CareSource Holdings will incur additional costs as an independent
public company and may be unable to operate profitably as a stand-alone company.


                                      -8-
<PAGE>

      American CareSource Holdings will incur significant additional costs as a
newly separate and independent public company. These costs include, among other
things, additional legal and accounting costs incurred as a result of becoming a
public company. Furthermore, American CareSource Holdings will need to put in
place the financial, administrative and managerial structure necessary to
operate as an independent public company, or the development of such structure
may require a significant amount of management's time and other resources
including financial resources, which could hinder American CareSource Holdings'
ability to operate profitably.

American CareSource Holdings may be unsuccessful in the successful hiring and
retention of skilled personnel.

      The future growth of American CareSource Holdings' business depends on
successful hiring and retention of skilled personnel, and American CareSource
Holdings may be unable to hire and retain the skilled personnel it needs to
succeed. Qualified personnel are in great demand throughout the healthcare
industry. The failure of American CareSource Holdings to attract and retain
sufficient skilled personnel may limit the rate at which its business can grow,
which will harm its financial performance.

The interruption of data processing capabilities and telecommunications will
negatively impact American CareSource Holdings' operating results.

      The business of American CareSource Holdings is dependent upon its ability
to store, retrieve, process and manage data and to maintain and upgrade its data
processing capabilities. Interruption of data processing capabilities for any
extended length of time, loss of stored data, programming errors, other computer
problems or interruptions of telephone service could have a material adverse
effect on its business.

Any inability to adequately protect its intellectual property could harm
American CareSource Holdings' competitive position.

      American CareSource Holdings considers its methodologies, processes and
know-how to be proprietary. American CareSource Holdings seeks to protect its
proprietary information through confidentiality agreements with its employees.
American CareSource Holdings' policy is to have employees enter into
confidentiality agreements containing provisions prohibiting the disclosure of
confidential information to anyone outside of American CareSource Holdings,
requiring employees to acknowledge, and, if requested, assist in confirming
American CareSource Holdings' ownership of new ideas, developments, discoveries
or inventions conceived during employment, and requiring assignment to American
CareSource Holdings of proprietary rights to such matters that are related to
American CareSource Holdings' business. There can be no assurance that the steps
taken by American CareSource Holdings to protect its intellectual property will
be successful. If American CareSource Holdings does not adequately protect its
intellectual property, competitors may be able to use its technologies and erode
or negate its competitive advantage.

Fluctuations in the number and types of claims processed could make it more
difficult to predict American CareSource Holdings' revenues from quarter to
quarter.

      Monthly fluctuations in the number of claims American CareSource Holdings
processes and the types of claims they process will impact the quarterly and
annual results of the company. American CareSource Holdings' discount rate
varies by type of service provided and the overall mix of these claims will
impact profitability. Consequently, it will be difficult to predict the revenue
for American CareSource Holdings from one quarter to another quarter.


                                      -9-
<PAGE>

Future sales of American CareSource Holdings common stock, or the perception
that these sales may occur, could depress the price of American CareSource
Holdings' common stock.

      Sales of substantial amounts of American CareSource Holdings common stock,
or the perception in the public that such sales may occur, could cause the
market price of American CareSource Holdings common stock to decline. This could
also impair the ability of American CareSource Holdings to raise additional
capital through the sale of equity securities. As of March 31, 2006, American
CareSource Holdings has 14,370,709 shares of common stock outstanding. Of the
outstanding shares, 10,238,381 are freely tradable without restriction or
further registration under the Securities Act, unless the shares are held by one
of our "affiliates" as such term is defined in Rule 144 of the Securities Act.
An additional 4,132,328 shares are restricted securities as that term is defined
under the Securities Act. At March 31, 2006, there are outstanding warrants to
purchase 1,897,502, shares of common stock and 2,249,329 shares are available
for grant (1,759,442 shares granted and outstanding as of March 31, 2006) under
the 2005 Stock Option Plan. If all of the outstanding warrants are exercised and
all options available under the 2005 Stock Option Plan are issued and exercised,
there will be approximately 18,517,540 shares of common stock outstanding.
Accordingly, American CareSource Holdings stockholders could experience
significant dilution. In addition, American CareSource Holdings will file a
registration statement that will register for resale substantially all of its
restricted securities, the effect of which could have a depressive effect on the
market price of the common stock.

Some of our existing stockholders can exert control over us and may not make
decisions that further the best interests of all stockholders.

      As of March 31, 2006, our officers, directors and principal stockholders
(greater that 5% stockholders) together control approximately 52%of our
outstanding common stock. As a result, these stockholders, if they act
individually or together, may exert a significant degree of influence over our
management and affairs and over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Furthermore, the interests of this concentration of ownership may
not always coincide with our interests or the interests of other stockholders
and accordingly, they could cause us to enter into transactions or agreements
which we would not otherwise consider. In addition, this concentration of
ownership may delay or prevent a merger or acquisition resulting in a change in
control of us and might affect the market price of our common stock, even when
such a change in control may be in the best interest of all stockholders.

Arrangements between American CareSource Holdings and Patient Infosystems may
not be deemed to be on an "arms-length" basis.

      Although American CareSource Holdings is an independent company from
Patient Infosystems, due to the relationships between the Boards of Directors
and management of American CareSource Holdings and Patient Infosystems, the
arrangements between American CareSource Holdings and Patient Infosystems may
not be deemed to be on an "arms-length" basis. Accordingly, although American
CareSource Holdings will seek to establish terms and conditions at least as
favorable as those that could have been obtained from an independent third
party, it is possible that American CareSource Holdings will overpay for any
services, if any, to be performed by Patient Infosystems.

The sale of shares of common stock by Patient Infosystems during October 2005
may be treated as the offer and sale of American CareSource Holdings common
stock using a non-conforming prospectus under the Securities Act.

      In October 2005, Patient Infosystems sold, in a private placement to
accredited investors, 3,411,512 shares of its common stock from which it
received gross proceeds of approximately $12,000,000. The purchasers of the
shares of common stock of Patient Infosystems received shares of common stock of
American CareSource Holdings as a result of the dividend declared and paid in
connection with the distribution which took place on December 23, 2005. To the
extent that the investors in the private placement received shares of common
stock of American CareSource Holdings in the distribution, it may be asserted
that shares of American CareSource Holdings common stock were offered and sold
as part of the Patient Infosystems private placement. Because the registration
statement used in connection with the December 2005 distribution had been filed


                                      -10-
<PAGE>

with the Securities and Exchange Commission ("SEC") prior to the date of the
private placement, it could therefore also be asserted that the private
placement might have been conducted using a non-conforming prospectus under the
Securities Act. As a result, investors in the private placement could assert a
claim against Patient Infosystems and American CareSource Holdings with respect
to the sale of the securities. Neither Patient Infosystems nor American
CareSource Holdings can determine whether any such claim would be valid or
whether or not, or to what extent, damages could in fact be asserted.

Our common stock qualifies as a "penny stock" under SEC rules which may make it
more difficult for our stockholders to resell their shares of our common stock.

      American CareSource Holdings' common stock trades on the OTC Bulletin
Board. As a result, the holders of American CareSource Holdings common stock may
find it more difficult to obtain accurate quotations concerning the market value
of the stock. Stockholders also may experience greater difficulties in
attempting to sell the stock than if it were listed on a stock exchange or
quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market. Because our
common stock does not trade on a stock exchange or on the Nasdaq National Market
or the Nasdaq Small-Cap Market, and the market price of the common stock is, at
times, less than $5.00 per share, the common stock qualifies as a "penny stock."
SEC Rule 15g-9 under the Securities Exchange Act, of 1934, as amended (the
"Exchange Act") imposes additional sales practice requirements on broker-dealers
that recommend the purchase or sale of penny stocks to persons other than those
who qualify as an "established customer" or an "accredited investor." This
includes the requirement that a broker-dealer must make a determination on the
appropriateness of investments in penny stocks for the customer and must make
special disclosures to the customer concerning the risks of penny stocks.
Application of the penny stock rules to our common stock could adversely affect
the market liquidity of the shares, which in turn may affect the ability of
holders of our common stock to resell the stock.

Item 2. Description of Properties.

      American CareSource Holdings leases 10,000 square feet of office space in
Irving, Texas and 7,500 square feet of office space in Pittsboro, Indiana. These
operating leases expire at various times between April 30, 2008 and July 31,
2008.

      American CareSource Holdings believes its offices are suitable to meet its
current needs, however, the Company is currently exploring its real estate
options.

Item 3. Legal Proceedings.

      On March 1, 2006, Dayton Area Health Plan and CareSource Management Group,
Co. Inc. (collectively "DAHP"), notified American CareSource Holdings of its
infringement of the designation "CARESOURCE", which DAHP represented to the
United States Patent and Trademark Office that it first used the "CARESOURCE"
designation on August 25, 2000. American Caresource Holdings, which is the
successor-in-interest to Physician's Referral Network and Patient Infosystems
had used the designation "AMERICAN CARESOURCE," "CARESOURCE," and other similar
designations in connection with its ancillary care business since May 9, 1996.
Accordingly, American Caresource Holdings, demanded that DAHP, cease and desist
from all use of the "CARESOURCE" designation and related designations, and
abandon its registrations of such mark and related marks. No assurance can be
given that American Caresource Holdings will prevail or that it will not be
required to cease use of the name itself or that it will not incur costs or
expenses in connection with the action.


                                      -11-
<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders.

      None.


                                      -12-
<PAGE>

                                    PART II

Item 5. Market Price for Registrant's Common Equity and Related Stockholder
Matters.

Market Information

      American CareSource Holdings' common stock is traded on the OTC Bulletin
Board under the symbol ACSH.OB. Public trading for our stock commenced on
December 28, 2005. The following table sets forth, for the periods indicated,
the range of high and low bid quotations for American CareSource Holdings'
common stock as quoted on the OTC Bulletin Board. The reported bid quotations
reflect inter-dealer prices without retail markup, markdown or commissions, and
may not necessarily represent actual transactions.

                                                             High        Low
                                                             ----        ---

        2005

        Fourth Quarter (commencing December 28, 2005)       $5.50       $2.50

Holders

      The approximate number of record holders of American CareSource Holdings'
common stock as of March 31, 2006 is 617. The Company estimates that the number
of beneficial owners is in excess of 904.

Dividends

      American CareSource Holdings has not declared cash dividends on its common
stock and does not anticipate that it will do so for the foreseeable future.

Securities authorized for issuance under equity compensation plans

            Equity Compensation Plan Information at December 31, 2005

<TABLE>
<CAPTION>
                                                                                               Number of securities
                                                                            Weighted-average    remaining available
                                                 Number of securities to     exercise price     for future issuance
                                                    be issued upon the       of outstanding        under equity
                                                 exercise of outstanding        options,        compensation plans
                                                  options, warrants and       warrants and     (excluding securities
                                                        rights (a)               rights        reflected in column )
<S>                                                    <C>                        <C>                 <C>
Equity compensation plans approved by
securities holders                                     3,346,288                  $.38                640,591

Equity compensation plans not approved by
securities holders
                                                               0                     0                      0
                                                 ------------------------------------------------------------------
Total                                                  3,346,288                  $.38                640,591
</TABLE>


                                      -13-
<PAGE>

(a) Includes 1,608,738 options outstanding as per American CareSource Holdings'
2005 Stock Option Plan and 1,737,550 warrants issued as compensation to debt
guarantors.

Recent sales of unregistered securities

      In October, 2005, Patient Infosystems sold 3,411,512 shares of its common
stock from which it received gross proceeds of approximately $12,000,000. In
connection with this private placement, approximately 1,705,756 shares of
restricted American CareSource Holdings' common stock were issued as a result of
the December 2005 dividend distribution. Patient Infosystems relied upon the
exemption from registration provided under Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated thereunder. In connection with this
transaction, the placement agent received commissions of approximately
$1,080,000 and warrants to purchase up to 307,036 shares of Patient Infosystem's
common stock. The private offering was only made available to "accredited
investors" as defined in Rule 501 of Regulation D and the required number of
manually executed originals and true copies of Form D were duly and timely filed
with the Securities and Exchange Commission. Additionally, in connection with
this transaction Patient Infosystems granted investors certain registration
rights pursuant to a registration rights agreement. The purchasers of the shares
of common stock of Patient Infosystems received shares of common stock of
American CareSource Holdings as a result of the dividend declared and paid in
connection with the December 23, 2005 distribution of American CareSource
Holdings common stock. However, the shares issued to such investors were
restricted securities and were issued to such investors pursuant to exemptions
from registration under Regulation D of the Securities Act or in the alternative
did not constitute a sale pursuant to Section 2(3) of the Securities Act. The
issuance of additional shares of Patient Infosystems, pursuant to this private
offering, may be extremely dilutive to American CareSource Holdings
shareholders.

      On October 31, 2005, Patient Infosystems issued 547,244 shares of common
stock valued at $3.44 per share and paid $17,351 in cash to the holder of
Patient Infosystems preferred stock in lieu of accrued dividends which it was
obligated to pay upon conversion of such preferred stock into common stock as
required under the terms of the merger agreement by and between Patient
Infosystems and CareGuide. In connection with Patient Infosystems' declared
dividend, approximately 276,618 shares of restricted American CareSource
Holdings' common stock were distributed to Patient Infosystems' preferred
stockholders through the December 2005 dividend distribution. The distribution
of such common stock was only made available to "accredited investors" as
defined in Rule 501 of Regulation D. The holders of these shares received
restricted shares of American CareSource Holdings common stock as a result of
the dividend declared and paid in connection with the December 23, 2005
distribution of American CareSource Holdings common stock.

      As of December 31, 2005, American CareSource Holdings had issued warrants
to purchase a total of 1,737,550 shares of American CareSource Holdings common
stock as compensation for certain debt guarantees by John Pappajohn, Derace
Schaffer and Matthew Kinley. As compensation for Mr. Pappajohn's and Dr.
Schaffer's initial guarantees, on January 26, 2005, American CareSource Holdings
issued to Mr. Pappajohn warrants to purchase 822,368 shares of common stock and
issued to Derace Schaffer warrants to purchase 274,123 shares of common stock.
These warrants have an exercise price of $0.40 equal to the per share fair
market value of American CareSource Holdings common stock established by
American CareSource Holdings' Board of Directors based upon an independent
appraisal. American CareSource Holdings issued the warrants in reliance upon the
exemption from registration provided under Section 4(2) of the Securities Act.
In connection with subsequent guarantees on August 9, 2005, American CareSource
Holdings issued to Mr. Pappajohn additional warrants to purchase 432,715 shares
of common stock and issued to Dr. Schaffer additional warrants to purchase
144,238 shares of common stock. These warrants have an exercise price of $0.49
based on current fair value as of the date of the guarantees. In addition,
American CareSource Holdings issued warrants to purchase 64,106 shares as
compensation to Matthew Kinley, who also guaranteed the increased credit line.
American CareSource Holdings issued the warrants in reliance upon the exemption
from registration provided under Section 4(2) of the Securities Act.

      In March 2006, American CareSource Holdings completed a private placement
of securities from which it received gross proceeds of approximately $10.0
million. A portion of the proceeds from this transaction was used to re-pay the
existing credit line with Wells Fargo Bank N.A. The transaction consisted of a
sale to accredited investors of approximately two million shares of common
stock. The Company relied upon the exemption from registration provided under
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder. The private placement was only made available to "accredited


                                      -14-
<PAGE>

investors" as defined in Rule 501 of Regulation D. Laidlaw & Company (UK) Ltd.
acted as the placement agent in connection with the private placement. American
CareSource Holdings paid an 8% fee to the placement agent and issued warrants to
purchase up to 159,952 shares of common stock with an exercise price of $5.50,
in connection with the financing in addition to other costs. Additionally,
American CareSource Holdings granted the accredited investors certain
registration rights pursuant to registration rights agreement, in connection
with this transaction. The registration rights agreement requires the Company to
file a registration statement following the final closing of our private
placement covering the resale of all shares included therein, as well as the
shares underlying the placement agents warrants. If the registration statement
is not filed or effective before June 29, 2006, being the 120th day following
the final closing date, the Company is subject to a penalty of 1.0% per month
($100,000 per month) of the aggregate purchase price for each month that the
registration statement is not effective.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

      Management's discussion and analysis provides a review of American
CareSource Holdings' operating results for the fiscal year ended December 31,
2005 and its financial condition at December 31, 2005. The focus of this review
is on the underlying business reasons for significant changes and trends
affecting the revenues, net losses and financial condition of American
CareSource Holdings. This review should be read in conjunction with the
accompanying consolidated financial statements.

      In an effort to give investors a well-rounded view of American CareSource
Holdings' current condition and future opportunities, this Annual Report on Form
10-KSB includes forecasts by American CareSource Holdings' management about
future performance and results. Because they are forward-looking, these
forecasts involve uncertainties. They include risks of market acceptance of, or
preference for, American CareSource Holdings' systems and services, competitive
forces, the impact of, and changes in, government regulations, general economic
factors in the healthcare industry, and other factors discussed in American
CareSource Holdings' filings with the SEC.

Overview

      American CareSource Holdings was incorporated in November 2003 under the
laws of Delaware as a wholly-owned subsidiary of Patient Infosystems in order to
facilitate its acquisition of substantially all of the assets of American
CareSource Corporation. American CareSource Corporation had been in operation
since 1997. The predecessor company to American CareSource Corporation,
Physician's Referral Network, had been operable since 1995. The business of
American CareSource Holdings includes the previous business of American
CareSource Corporation. Accordingly, all information provided herein with
respect to American CareSource Holdings prior to December 31, 2003 is the
historical information of American CareSource Corporation. As of December 23,
2005, American CareSource Holdings became an independent public company, after
Patient Infosystems distributed by dividend all of its shares of American
CareSource Holdings common stock to Patient Infosystems' stockholders.

      American CareSource Holdings has, since formation, maintained separate
books, accounts and records. American CareSource Holdings has been allocated the
Patient Infosystems corporate assets, liabilities and expenses related to
Patient Infosystems' ancillary health benefits management business based on an
estimate of the proportion of such amounts allocable to American CareSource
Holdings, utilizing such factors as total revenues, employee headcount and other
relevant factors. American CareSource Holdings believes that these allocations
have been made on a reasonable basis. American CareSource Holdings believes that
all costs allocated to American CareSource Holdings are a reasonable
representation of the costs that American CareSource Holdings would have
incurred if American CareSource Holdings had performed these functions as an
independent company.

      American CareSource Holdings recognizes revenues for ancillary services
when services by providers have been authorized and performed and collections
from payors are reasonably assured. Patient claims revenues are recognized by
American CareSource Holdings as services are provided. Cost of revenues for
ancillary services consist of expenses due to providers for providing patient
services and American CareSource Holdings' related direct labor and overhead of
processing invoices, collections and payments. American CareSource Holdings is
not liable for costs incurred by independent contract service providers until
payment is received by American CareSource Holdings from the payors. American
CareSource Holdings recognizes actual or estimated liabilities to independent
contract service providers as the related revenues are recognized. Patient claim
costs of revenue consist of amounts due the providers as well as American
CareSource Holdings' direct labor and overhead to administer the patient claims.


                                      -15-
<PAGE>

      American CareSource Holdings has never operated at a profit, and will
require significant growth in either claims volume from existing contracts, new
contracts or both in order to generate sufficient operational margin to become
profitable. No assurances can be given that sufficient sources of new revenue
will be identified and other sources of capital may have to be secured by
American CareSource Holdings to support these operations. If American CareSource
Holdings in unable to generate enough working capital either from its own
operations or through the sale of its equity securities, American CareSource
Holdings may be required to curtail or cease operations.

Results of Operations

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

American CareSource Holdings segment statement of operations for the years ended
December 31,

                                                     2005               2004

Revenue                                           $4,417,446         $6,037,324
                                                --------------------------------
Cost of goods                                      4,407,290          5,840,589
Selling, general and administrative                1,804,793          1,913,976
Goodwill impairment                                        -            802,105
Depreciation and amortization                        310,915            295,802
                                                --------------------------------
Operational loss                                  (2,105,552)        (2,815,148)
Financing costs & other                             (300,966)           (16,090)
                                                --------------------------------
Net loss                                         ($2,406,518)       ($2,831,238)
                                                ================================

                                               Fiscal year ended
                                                  December 31

      Revenues                           2005                    2004
      --------                           ----                    ----

      Ancillary health               $ 4,219,133             $ 5,512,927
      Patient claims                     198,313                 524,397
                                     -----------------------------------
      Total revenues                 $ 4,417,446             $ 6,037,324

      Revenues of American CareSource Holdings are comprised of revenues from
ancillary service claims and processing of patient claims. Revenues decreased to
$4,417,446 from $6,037,324 during the fiscal year ended December 31, 2005 and
2004, respectively, or 27%.

      Ancillary health claims revenue for the fiscal year ended December 31,
2005 decreased to $4,219,133 as compared to $5,512,927 for the fiscal year ended
December 31, 2004. This decrease is attributable to the cancellation of
contracts by major clients and to the reduction of revenue from certain
providers in American CareSource Holdings' ancillary health provider network.
Pinnacol Assurance ("Pinnacol") notified American CareSource Holdings on
December 19, 2003 of its intent to terminate its contract with American
CareSource Holdings effective March 18, 2004, and was winding down through the
first quarter and into the second quarter of 2004. Revenue from Pinnacol
decreased from $563,042 for 2004 to $0 for 2005.


                                      -16-
<PAGE>

      American CareSource Holdings expects to see growth in the number of client
and payor relationships due to a shift in strategy focusing on providing
in-network services for its payors rather than out of network services in an
effort to capture more claim activity. This should increase the volume of claims
the company can adjudicate as well as the volume of patients it can direct
through its network. No assurances can be given that American CareSource
Holdings can expand its provider or payor relationships, nor that any such
expansion will result in an improvement in the results of operations of American
CareSource Holdings. In December 2005, the Company implemented a major client
that has not yet contributed significant revenue.

      The revenues for the processing of patient claims for the fiscal year
ended December 31, 2005 decreased to $198,313 as compared to $524,397 for the
fiscal year ended December 31, 2004. American CareSource Holdings does not
expect to increase its revenues from claims processing as it is shifting its
focus to the ancillary health business.

      Costs and Expenses

      Cost of sales includes salaries and related benefits, services provided by
third parties and our providers, and other expenses associated with the
development of American CareSource Holdings' ancillary health programs. Cost of
sales decreased from $5,840,589 for the fiscal year ended December 31, 2004 to
$4,407,290 for the fiscal year ended December 31, 2005 The decrease in these
costs primarily reflects reductions in fixed costs due to the decreased support
required for decreased revenues.

      Selling, general and administrative, and marketing expense remained
relatively constant at $1,804,793 for the fiscal year ended December 31, 2005 as
compared to $1,913,976 for the fiscal year ended December 31, 2004. These costs
consist primarily of salaries, related benefits and travel costs, sales
materials, other marketing related expenses, costs of corporate operations,
finance and accounting, human resources and other general operating expenses of
American CareSource Holdings.

      Amortization and depreciation expense increased to $310,915 in 2005
compared to $295,802 in 2004. These expenses include $213,582 of amortization of
intangibles that includes $85,516 in amortization of certain software
development costs and $128,066 in amortization of the capitalized value of
provider contracts that were acquired as part of the acquisition of American
CareSource assets by Patient Infosystems.

      The on-going value of these acquired contracts are re-evaluated each
quarter to test for any potential impairment to this asset. As of December 31,
2005, the Company's analysis of its goodwill and related intangibles did not
indicate any impairment. As part of its annual goodwill impairment test, the
Company obtained an independent valuation of its assets during the fourth
quarter of 2004. The valuation resulted in an $802,105 impairment charge.

      It is anticipated that American CareSource Holdings will need to invest
heavily in the sales and marketing process in future periods, and intends to do
so as funds are available. To the extent that American CareSource Holdings has
limited funds available for sales and marketing, or cannot leverage its
marketing partnerships adequately, it will likely be unable to invest in the
necessary marketing activities to generate substantially greater sales. American
CareSource Holdings anticipates that its general and administrative costs will
increase as it loses some of the administrative synergy it had with Patient
Infosystems and it will be required to meet the obligations of a separate public
reporting company.

      Other Income/Expense is comprised of financing costs, interest, expenses
and other expenses. The totals are as follows for the fiscal years ended
December 31:

                                                  2005            2004
                                             ---------------------------

      Interest expense                        ($300,966)        (12,349)
      Other (expense) income                         --          (3,741)
                                             ---------------------------
      Total revenues                          ($300,966)       ($16,090)

      Interest expense increased from $12,349 for the fiscal year ended December
31, 2004 to $300,966 for the fiscal year ended December 31, 2005. The increase
relates to interest expense associated with the company's Wells Fargo Line of
credit, debt issuance, cost amortization and certain capitalized equipment
leases.


                                      -17-
<PAGE>

      Taxes

      American CareSource Holdings had no tax benefit in 2005 or 2004 due, in
part, to recording a full valuation allowance to reduce its deferred tax assets.
American CareSource Holdings' deferred tax assets consist primarily of the tax
benefit associated with its net operating loss carryforwards.

      Management of American CareSource Holdings has evaluated the available
evidence about future taxable income and other possible sources of realization
of deferred tax assets. The valuation allowance reduces deferred tax assets to
zero, which represents management's best estimate of the amount of such deferred
tax assets that more likely than not will be realized.

      Loss

      American CareSource Holdings reported a net loss of $2.4 million for the
year ended December 31, 2005 as compared to $2.8 million for the year ended
December 31, 2004.

      Goodwill impairment analysis

      The company evaluated its annual impairment assessment of its goodwill and
related intangible value at December 31, 2005. As part of its annual goodwill
impairment test, the Company obtained an independent valuation of its assets and
there was no indication of impairment in 2005. During the fourth quarter of
2004, Patient Infosystems completed its annual impairment assessment of goodwill
related to its acquisition of American CareSource Corporation and that valuation
resulted in impairment loss of $802,105.

      Liquidity and Capital Resources

      At December 31, 2005, American CareSource Holdings had a working capital
deficit of $223,122 as compared to $1,938,108 at December 31, 2004. Since its
inception, American CareSource Holdings has not generated positive cash flow and
has relied on external sources for its operational, working capital and capital
expenditures needs.

      Since the acquisition, American CareSource Holdings had received funding
of $3,201,288 from Patient Infosystems in the form of equity contributions and
intercompany loans. The balance due to Patient Infosystems for the intercompany
loan was $336,277 and $1,651,536 as of December 31, 2005 and 2004, respectively.

      In December 2004, American CareSource Holdings entered into a credit
agreement with Wells Fargo Bank, N.A. establishing a line of credit of $300,000
guaranteed by Mr. Pappajohn, a director of American CareSource Holdings. Mr.
Pappajohn did not receive any remuneration in connection therewith.

      On January 28, 2005, American CareSource Holdings amended its credit
agreement with Wells Fargo Bank, N.A. extending the line of credit to
$3,000,000, the line was subsequently increased to $4,000,000 as of August 9,
2005. Mr. Pappajohn and Dr. Schaffer, directors of American CareSource Holdings
guaranteed such increases in the credit line. As compensation for Mr.
Pappajohn's and Dr. Schaffer's guarantees for the initial extension of credit,
American CareSource Holdings issued warrants to purchase an aggregate of
1,096,491 shares to Mr. Pappajohn and Dr. Schaffer at an exercise price of $0.40
which was equal to the per share fair market value of American CareSource
Holdings common stock established by American CareSource Holdings' Board of
Directors based upon an independent appraisal. The value of the warrants was
separately estimated at $0.20 per share or $214,489 based on the Black-Scholes
valuation. In connection with the August increase in the credit line, American
CareSource Holdings issued additional warrants to purchase an aggregate of
576,953 shares as compensation for the guarantee extension by Mr. Pappajohn and
Dr. Schaffer. Mr. Pappajohn received warrants to purchase 432,715 shares of
common stock and Dr. Schaffer received warrants to purchase 144,238 shares of
common stock. In addition, American CareSource Holdings issued warrants to
purchase 64,106 shares as compensation to Matthew Kinley, who also guaranteed
the increased credit line. Matthew Kinley is an employee of a company owned by
Mr. Pappajohn. These warrants have an exercise price of $0.49 based on current
fair value and an estimated fair value of $0.28 per share or $162,157.

      On December 28, 2005, American CareSource Holdings again amended its
credit agreement with Wells Fargo Bank, N.A. extending the line of credit to
$5,000,000. Mr. Pappajohn guaranteed such increases in the credit line.


                                      -18-
<PAGE>

Additional warrants may be issued in the future to Mr. Pappajohn for his
guarantee; however, no warrants have presently been issued to Mr. Pappajohn. The
line of credit bears interest at the bank's prime index rate (7.25% at January
19, 2006) and has a scheduled expiration date of March 31, 2007. The principal
and unpaid interest on such line of credit is payable in a single payment due in
full on March 31, 2007.

      In March 2006, American CareSource Holdings completed a private placement
of securities from which it received gross proceeds of approximately $10.0
million. A portion of the proceeds from this transaction was used to re-pay the
existing credit line with Wells Fargo Bank N.A. The transaction consisted of a
sale to accredited investors of approximately two million shares of common
stock. The Company relied upon the exemption from registration provided under
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder. The private placement was only made available to "accredited
investors" as defined in Rule 501 of Regulation D. Laidlaw & Company (UK) Ltd.
acted as the placement agent in connection with the private placement. American
CareSource Holdings paid an 8% fee to the placement agent and issued warrants to
purchase up to 159,952 shares of common stock with an exercise price of $5.50,
in connection with the financing in addition to other costs. Additionally,
American CareSource Holdings granted the accredited investors certain
registration rights pursuant to registration rights agreement, in connection
with this transaction. The registration rights agreement requires the Company to
file a registration statement following the final closing of our private
placement covering the resale of all shares included therein, as well as the
shares underlying the placement agents warrants. If the registration statement
is not effective before June 29, 2006, being the 120th day following the final
closing date, the Company will be subject to a penalty of 1.0% per month
($100,000 per month) of the aggregate purchase price for each month that the
registration statement is not effective. This penalty would be in effect for 20
months following the expiration of the 120 day period and would be a maximum of
20% or approximately $2 million.

      A portion of the proceeds from the March 2006 transaction was used to
re-pay the full balance of the Wells Fargo Bank, N.A. credit line. The remainder
of the proceeds will be used to fund working capital and other general corporate
purposes. Although, American Caresource Holdings, paid in full all obligations
outstanding under its credit agreement with Wells Fargo Bank, N.A, the line of
credit remains fully available to American CareSource Holdings if needed. If
there are any future drawings under the line of credit, American CareSource
Holdings believes it will be able to satisfy its cash requirements based on its
current customer base and anticipated timing of new accounts, its existing
service agreements, available capital and this extended line of credit.
Therefore, American CareSource Holdings does not anticipate the need to raise
additional funds in the next twelve months.

Inflation

      Inflation did not have a significant impact on American CareSource
Holdings' costs during the fiscal years ended December 31, 2005 and 2004.
American CareSource Holdings continues to monitor the impact of inflation in
order to minimize its effects through pricing strategies, productivity
improvements and cost reductions.

Critical Accounting Policies

      Critical accounting policies are those that require application of
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.

      American CareSource Holdings' significant accounting policies are
described in Note 1 to the Financial Statements. Not all of these significant
accounting policies require management to make difficult, subjective or complex
judgments or estimates. However, the following accounting policies are deemed to
be critical by American CareSource Holdings' management.

      Use of Estimates. In preparing the financial statements, American
CareSource Holdings uses estimates in determining the economic useful lives and
possible impairments of its assets, provisions for doubtful accounts, tax
valuation allowances and various other recorded or disclosed amounts. Estimates
require management to use its judgment. While American CareSource Holdings
believes that its estimates for these matters are reasonable, if the actual
amount is significantly different than the estimated amount, its assets,
liabilities or results of operations may be overstated or understated.

      Intangible Assets. The value of American CareSource Holdings' intangible
assets was derived from the allocation of the purchase price from the December
31, 2003 acquisition of the assets of American CareSource Corporation by Patient
Infosystems. The allocation of purchase price was based on an independent
appraisal of the acquired assets. The amounts assigned to each asset are being
amortized on a straight line basis over the expected life of the asset, 5 years
for software and 15 years for the provider contracts. The provider contracts do
not have a specified contract period. Our experience to date demonstrates
attrition of less than 2% per year, implying a greater than twenty year life,
however we believe that 15 years represents a more realistic estimate.
Accordingly, American CareSource Holdings has elected to amortize the value of
these contracts over 15 years. The on going value of these acquired contracts
are re-evaluated each quarter using the discounted cashflow method to test for
any potential impairment to this asset that would result from either reduced
cash flows or a shorter than anticipated useful life. The contracts are
accounted for as a pool of contracts. There will be no additions to the
capitalized amounts that were established at the time of the acquisition, the
cost of adding additional providers is considered an ongoing operating expense.


                                      -19-
<PAGE>

      Impairment of Long-Lived Assets. American CareSource Holdings records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
future cash flows estimated to be generated by those assets are less than the
carrying amount of those assets. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If the asset is considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. If the actual
value is significantly less than the estimated value, American CareSource
Holdings assets may be overstated.

      Revenue recognition. The Company evaluates their service provider
contracts using the indicators of EITF No. 99-19 "Reporting Gross Revenue as a
Principal vs. Net as an Agent" (EITF 99-19) to determine whether the Company is
acting as a principal or an agent in the fulfillment of services to be rendered.

Revenues are recorded gross when services by providers have been authorized and
performed and collections from third party payors are reasonably assured. The
Company acts as principal under EITF 99-19 when settling claims for service
providers through their contracted service provider network for the following
reasons:

      o     The Company negotiates a contract with the service provider and also
            negotiates contracts with payors. Neither the service provider nor
            the payor can look through the Company and claim directly against
            the other party. Both contracts with these parties are separate and
            each only contracts with the Company. Each party deals directly with
            the Company and does not deal with each other directly.

      o     The Company determines through negotiations which payor will be
            included or excluded in the network to be offered to the service
            provider, based on price, access, etc.

      o     The Company does not earn a fixed dollar amount per customer
            transaction regardless of the amount billed to customers or earn a
            stated percentage of the amount billed to its customers.

      o     The Company is responsible to the service provider for processing
            the claim and managing the claim their adjustor processes.

      o     The Company sets prices to be settled with payors and separately
            negotiates the prices to be settled with the service providers.

      o     The Company may realize a positive or negative margin represented by
            the difference between the negotiated fees received from the payor
            and the negotiated amount paid to the service providers.

When claims are recorded gross, the payor's payment to be Company is recorded as
revenue and the Company's payment to the service provider is recorded as cost of
revenue in the statement of operations. The Company does, however, record
revenue on a net basis when an agency relationship exists. When the Company
receives a fee for claims processing and there are no financial risks to the
Company, then only the claims processing fee is recorded as revenue.

The Company does not have responsibility to collect co-payments to be made or
co-insurance claims to be received. Accordingly, co-payments or co-insurance
claims collected are not recorded as either revenue or cost of sales.

Off-balance sheet arrangements

      American CareSource Holdings does not have any material off-balance sheet
arrangements at December 31, 2005 or December 31, 2004, or for the periods then
ended.

Pending Accounting Pronouncements

      The Financial Accounting Standards Board has issued Statement No.
123(Revised), "Share-Based Payment" (FAS 123(R)). This Statement establishes
standards for accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based upon the fair value of the entity's equity instruments, or that may be


                                      -20-
<PAGE>

settled by the issuance of those equity instruments. Statement No. 123(R) covers
a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. FAS 123(R) replaces existing requirements under
FASB Statement No. 123, Accounting for Stock-Based Compensation, and eliminates
the ability to account for share based compensation transactions using APB
Option No. 25, Accounting for Stock Issued to Employees. Management believes the
impact on the financial statements will be similar to the disclosures made by
the footnote to the financial statements, showing the proforma effect on
earnings and earnings per share of expensing the value of stock options granted.

      In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets-an amendment of APB Opinion No. 29" ("SFAS No. 153"), addressing the
measurement of exchanges of nonmonetary assets. SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar
production assets in APB Opinion No. 29 "Accounting for Nonmonetary Exchanges,"
and replaces it with an exception for exchanges that do not have commercial
substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005 with earlier application
permitted. American CareSource Holdings does not expect adoption of the
provisions of SFAS No. 153 to have a material impact on the consolidated
financial statement, results of operations or liquidity of American CareSource
Holdings.

Item 7. Financial Statements and Supplemental Data.

      The following financial statements and schedules are filed at the end of
this annual report, beginning on page F-1. Other schedules are omitted because
they are not required or are not applicable or the required information is shown
in the consolidated financial statements or notes thereto.

      Index to Financial Statements                                         Page

      Independent Auditors' Report                                          F-1
      Consolidated Balance Sheets                                           F-2
      Consolidated Statements of Operations                                 F-3
      Consolidated Statements of Stockholders' (Deficit) Equity             F-4
      Consolidated Statements of Cash Flows                                 F-5
      Notes to Consolidated Financial Statements                            F-6

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

      None.

Item 8A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

      Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2005. Based upon this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures (as defined in Rules 130-15(e) and
15(d)-15(e) under the Securities and Exchange Act of 1934) are effective for the
recording, processing, summarizing and reporting the information that American
CareSource Holdings is required to disclose in the reports it files under the
Securities Exchange Act of 1934, within the time periods specified in the SEC's
rules and forms.

Changes in Internal Controls

      There were no significant changes in American CareSource Holdings'
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Item 8B. Other Information

      None

Item 9. Directors and Executive Officers of the Registrant.

      The names, ages and positions of our current directors and executive
officers are as follows:


                                      -21-
<PAGE>

         Name                  Age                           Position
         ----                  ---                           --------

Wayne A. Schellhammer          53     President, Chief Executive Officer,
                                      Chairman and Director

Derace L. Schaffer, MD         57     Director

John Pappajohn                 77     Director

Kenneth S. George              54     Director

John W. Colloton               74     Director

Edward B. Berger               76     Director

David S. Boone                 45     Chief Operating Officer, Chief Financial
                                        Officer

Steven M. Phillips             39     Controller, Principal Accounting Officer

      There are no familial relationships among our directors and/or officers.
Directors hold office until the next annual meeting of our stockholders or until
their respective successors have been elected and qualified.

Wayne A. Schellhammer, 53. Mr. Schellhammer has served as President and Chief
Executive Officer since October of 2004 and Director since November 2004. Mr.
Schellhammer was appointed the Chairman of American CareSource Holdings in
August 2005. He also serves as a director of Healthcare Acquisition Corp., a
public company. He brings to this position over 30 years of health care
experience. Before joining American CareSource Holdings, Mr. Schellhammer was a
Senior Executive with the Iowa Health System serving as President and Chief
Executive Officer of several internal companies as well as Vice President of
Payer Contracting starting in January 1999. The Iowa Health System is a hospital
and physician company providing services through 11 hospitals and 450 employed
physicians. From 1996 through 1998, Mr. Schellhammer was a senior resource
person in the Chicago office of KPMG Consulting, Health Care Group for payer and
providers. Mr. Schellhammer is a graduate of the University of Minnesota.

Derace L. Schaffer, M.D., 57. Dr. Schaffer has been a Director of American
CareSource Holdings since November 2004 and Chairman until August 2005. Dr.
Schaffer is a founder of Radiologix, Inc., a public company. Dr. Schaffer has
served as the Chairman and Chief Executive Officer of the IDE Group, P.C., one
of the radiology practices with which Radiologix has a contractual relationship.
In 2004, Dr. Schaffer accepted a position as a professor at the Weill Medical
College of Cornell University. Prior to 2004, Dr. Schaffer served as a Clinical
Professor of Radiology at the University of Rochester School of Medicine. Dr.
Schaffer is also Chief Executive Officer and President of the Lan Group, a
venture capital firm. Dr. Schaffer is a founder and director of Patient
Infosystems, Cardsystems, Inc. and Healthcare Acquisition Corp. Dr. Schaffer is
also a director of Allion Healthcare, Inc. Dr. Schaffer is a board certified
radiologist. He received his postgraduate radiology training at the Harvard
Medical School and Massachusetts General Hospital, where he served as Chief
Resident. Dr. Schaffer is a member of Alpha Omega Alpha, the national medical
honor society.

John Pappajohn, 77. Mr. Pappajohn has been a Director of American CareSource
Holdings since November 2004. Since 1969, Mr. Pappajohn has been the sole owner
of Pappajohn Capital Resources, a venture capital firm and President of Equity
Dynamics, Inc., a financial consulting firm, both located in Des Moines, Iowa.
He serves as a director for the following public companies: Allion Healthcare,
Inc., Healthcare Acquisition Corp., MC Informatics, Inc., Patient Infosystems
and Pace Health Management Systems, Inc.

Kenneth S. George, 54. Mr. George became one of our directors in January 2004.
Mr. George recently finished two terms as a State Representative in the Texas
House of Representatives. From 1996 until 2001, he was General Partner of
Riverside Acquisitions L.L.C. and was active in commercial real estate,
financial and land transactions. From 1994 through 1995 Mr. George was Chairman
and Chief Executive Officer of Ameristat, Inc., a private ambulance service
provider. From 1988 until 1994, he was Chairman and Chief Executive Officer of
EPIC Healthcare Group, an owner of 36 suburban/rural acute care hospitals with
15,000 employees and $1.4 billion in revenues. Mr. George currently serves on
the Board of Directors of Percis Inc. and Sonny Bryan's Smokehouse, Inc. Mr.
George has an M.B.A. from the University of Texas at Austin and a B.A. from
Washington and Lee University.


                                      -22-
<PAGE>

John W. Colloton, 74. Mr. Colloton has served as one of our directors since
2004. He is currently Director Emeritus of the University of Iowa Hospitals and
Clinics, serves as the lead director of Wellmark, Inc. (Iowa-South Dakota Blue
Cross & Blue Shield) and serves as a director of Allion Healthcare, Inc., a
public company. From 1989 to 2003, Mr. Colloton served as a director of Baxter
International Inc. and from 1997 to 2002, he served as a director of Radiologix,
Inc. From 1971 to 1993, Mr. Colloton served as a director of the University of
Iowa Hospitals and Clinics, and from 1993 through the year 2000, he served as
Vice President of the University of Iowa for Statewide Health Services. Mr.
Colloton received his B.A. in business administration from Loras College and
holds a masters degree in hospital administration from the University of Iowa.

Edward B. Berger, 76. Mr. Berger has served as one of our directors since March
2006. Mr. Berger is currently Chairman and Chief Executive Officer of Equity
Acquisitions Incorporated, a position he has held since January 2004, Chairman
of the Board of Directors of Southwest Business Systems, Director and Chairman
of the Audit Committee of CardSystems Solutions and Director of Compass Bank of
Tucson, Arizona and a director of Healthcare Acquisition Corp. Mr. Berger has
been admitted to practice law by the U.S. Supreme Court, New York Bar, Arizona
Bar, District of Columbia Bar, U.S. District Court-Arizona and the U.S. Court of
Appeals 9th Circuit. Mr. Berger is currently an Adjunct Professor in Political
Science at Pima Community College and is the Chairman of the MBA Advisory
Council at the University of Arizona. Mr. Berger received a Juris Doctor in Law
from New York Law School and a Masters Degree in Education as well as a B.A. in
History and English from the University of Arizona.

David S. Boone, 45. Mr. Boone has been the Chief Financial Officer since June,
2005 and the Chief Operating Officer since December, 2005. Prior to joining
American CareSource Holdings, from 2001 through 2005, Mr. Boone served as senior
vice president of finance for Belo Corporation, a NYSE listed media company.
From 2000 to 2001 Mr. Boone was vice president of corporate development for
Safeway Corporation in Pleasanton, California. Prior to joining Safeway
Corporation, from 1999 to 2000, Mr. Boone served as vice president, Chief
Financial Officer and secretary of Intira Corporation, which filed a petition in
U.S. Bankruptcy Court in Wilmington, Delaware in August, 2001, seeking
bankruptcy protection under chapter 11 of Title 11 of the U.S.Code. In addition,
Mr. Boone held several executive positions with Frito-Lay, Inc. between 1992 and
1999, including finance director/CFO Direct Division and vice president/business
development. Before joining Frito-Lay, Inc., Mr. Boone served as a consultant
for the Boston Consulting Group from 1988 to 1990 and later joined Kraft General
Foods in 1990 as director of sales strategy and finance. Mr. Boone holds a
Bachelor of Science degree in accountancy from the University of Illinois and an
MBA from the Harvard Graduate School of Business Administration. He also is a
Certified Public Accountant.

Steven M. Phillips, 39. Mr. Phillips has been with American CareSource Holdings
since January 2003, serving as Controller and Principal Accounting Officer since
April 2004. From 2002 until joining American CareSource Holdings, Mr. Phillips
acted as a consultant to Baylor Healthcare System in accounting and financial
systems integration for new acquisitions. From 2000 until 2002, he served as
Controller of PopMail Network, an Internet and e-mail marketing company. From
1998 to 2000, Mr. Phillips served in several accounting and regulatory roles at
Citizens Communications, the ninth largest local exchange carrier
telecommunications company in the US. He has held several other accounting and
financial management positions. Mr. Phillips earned a BA from the University of
Oklahoma and an MBA from Texas Christian University and is licensed as a
Certified Public Accountant by the State of New Mexico.

                                 AUDIT COMMITTEE

      The Audit Committee, periodically reviews American CareSource Holdings'
auditing practices and procedures, and makes recommendations to management or to
the Board of Directors as to any changes to such practices and procedures deemed
necessary from time to time to comply with applicable auditing rules,
regulations and practices. Additionally, the Audit Committee reviews all Form
10-KSB Annual and 10-QSB interim reports and recommends independent auditors for
American CareSource Holdings to be elected by the stockholders. Although this
committee did not meet during the fiscal year ended 2005, the Audit Committee
held its first meeting on March 7, 2006,

      The Audit Committee consists of Kenneth George (Chairman), Edward Berger
and John Colloton. Each of these directors serves as the Audit Committee's
"independent" directors, as that term is used in Item 7(d)(3)(iv) of Schedule
14A under the Securities Exchange Act of 1934. The Board has designated Kenneth
George as the "audit committee financial expert" as defined by Item 401(e) of
Regulation S-B under the Securities Exchange Act of 1934.


                                      -23-
<PAGE>

      The Audit Committee meets with American CareSource Holdings' independent
auditors quarterly and reviews the scope of the audit performed by American
CareSource Holdings' independent auditors. Additionally, the Audit Committee,
together with American CareSource Holdings' independent auditors, review
American CareSource Holdings' accounting principles and internal accounting
controls.

                          COMPLIANCE WITH SECTION 16(A)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
American CareSource Holdings' executive officers and directors, and persons who
own more than 10% of a registered class of American CareSource Holdings' equity
securities (who are referred to as "Reporting Persons"), to file reports of
ownership and changes in ownership with the SEC. Reporting Persons are required
by SEC regulations to furnish us with copies of all Section 16(a) forms they
file. Based on a review of the copies of reports furnished to American
CareSource Holdings, American CareSource Holdings believes that during the year
ended December 31, 2005 all filing requirements applicable to its officers,
directors and ten percent beneficial owners were met.

                                 CODE OF ETHICS

      The Board of Directors of American CareSource Holdings has adopted a code
of ethics (attached hereto as Exhibit 14.1) which defines the ethical principles
which govern the conduct of all senior officers. Such senior officers include
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
and Principal Accounting Officer.

Item 10. Executive Compensation.

      The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to American CareSource
Holdings and its subsidiary for each of the fiscal years ended December 31, 2005
for those persons who were at December 31, 2005, (i) the Chief Executive Officer
and (ii) the other executive officers of American CareSource Holdings who
received compensation in excess of $100,000 during the fiscal year ended
December 31, 2005 (the "named executive officers"). Neither named executive
received any compensation in 2004.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                      Long-Term
                                                                                                    Compensation
                                                                                                  Awards Securities
                                                       Annual Compensation                           Underlying
        Name and Principal Position              Year         Salary                Bonus            Options (#)
<S>                                              <C>       <C>                       <C>               <C>
Wayne A. Schellhammer, President and Chief       2005      $250,000(1)               N/A               787,265
Executive Officer

David S. Boone, Vice President, Chief            2005         $200,000               N/A               202,440
Operating Officer, Chief Financial Officer
</TABLE>

      (1) Compensation for Mr. Schellhammer includes a $30,000 relocation
allowance.

      No stock options were exercised by the Chief Executive Officer or the
named executive officers of American CareSource Holdings during 2005.

      The following table sets forth certain information regarding unexercised
options held by the Chief Executive Officer and the named executive officers of
American CareSource Holdings at December 31, 2005. The table does not give
effect to grants of options that occurred after December 31, 2005. For
additional information with respect to these grants, see "Stock Option Plan".


                                      -24-
<PAGE>

                     Aggregated Option Exercises during 2005
                     and Option Values on December 31, 2005

<TABLE>
<CAPTION>
                            Number of Securities Underlying                     Value of Unexercised
                                 Unexercised Options at                       In-the-Money Options at
                                  December 31, 2005(#)                          December 31, 2005(1)
                           -------------------------------------    ---------------------------------------------
Name                       Exercisable          Unexercisable          Exercisable            Unexercisable
----                       -----------          -------------          -----------            -------------
<S>                            <C>                 <C>                <C>                     <C>
Wayne A. Schellhammer          278,628             508,637            $1,446,940              $2,639,400

David S. Boone                  87,915             114,524               453,202                 587,142
</TABLE>

(1)   Calculated based upon $5.47 market value of the underlying securities as
      of December 31, 2005.

<TABLE>
<CAPTION>
                                Number of           % of Total
                               Securities          Options/SARs             Exercise
                               Underlying           Granted to               or Base
                              Options/SARs         Employees in               Price             Expiration
Name                           Granted (#)         Fiscal Year               ($/Sh)                Date
----                           -----------         -----------               ------                ----
<S>                              <C>                   <C>                    <C>                  <C>
Wayne A. Schellhammer            787,265               45%                    $0.32                2015
David S. Boone                   202,440               12%                    $0.33                2015
</TABLE>


                                      -25-
<PAGE>

                             2005 Stock Option Plan

      General

      On January 17, 2005, the Board of Directors adopted the 2005 Stock Option
Plan of ACS (the "2005 Plan").

      The purpose of the 2005 Plan is to enable us to attract, retain, motivate
and provide additional incentive to our directors, officers, employees
consultants and advisors, whose contributions are essential to our growth and
success by enabling them to participate in the our long-term growth through
ownership of our stock.

Summary of the 2005 Plan

      The 2005 Plan is administered by our board of directors. Our board of
directors may delegate the administration of the 2005 Plan to any committee,
subcommittee or person charged with the administration of the Plan. For purposes
of the following discussion, the term "Administrator" means the Board of
Directors or the committee to whom it delegates its authority as provided above.
The Administrator has the authority, subject to the terms of the 2005 Plan, to
determine the individuals to whom options will be granted, the times at which
options will be granted and the terms and conditions of the options.

      Eligibility. Options may be granted to our key employees, consultants,
advisors and directors. Options intended to qualify as incentive stock options
("ISOs") may only be granted to key employees while actually employed by us.
Non-employee directors, consultants and advisors are not entitled to receive
ISOs under the 2005 Plan.

      Option Price. The option price for ISOs generally will be 100% of the fair
market value of ACS common stock on the date the option is granted; however, if
the participant in the 2005 Plan owns more than 10% of the combined voting power
of ACS and any subsidiary or parent corporation, the option price will be not
less than 110% of the fair market value of ACS common stock on the date of
grant. The fair market value of ACS common stock first becoming subject to
exercise as incentive stock option by an optionee who is an employee during any
given calendar year may not exceed $100,000. The option price for non-qualified
stock options (as defined below) will be determined by the Administrator and may
be less than, equal to or greater than the fair market value of ACS common stock
on the date of grant. Fair market value for purposes of the 2005 Plan is the
closing market price of ACS common stock as reported on the market determined by
the Board to be the primary market for the common stock on the date of grant
(currently, the OTCBB). In the event ACS common stock is not traded on a
recognized market at the time of grant, the Administrator will determine fair
market value.

      Duration of Options. Each stock option will terminate on the date fixed by
the Administrator, which will not be more than ten years after the date of
grant. If the participant in the 2005 Plan owns more than 10% of the combined
voting power of ACS and any subsidiary or parent corporation, and an incentive
stock option is granted to such participant, the option will terminate on the
date fixed by the Administrator, which will not be more than five years after
the date of grant.

      Vesting. Options become exercisable when they have vested. The
Administrator will specify the relevant vesting provisions at the time of the
grant.

      Exercise Period. The exercise period for options granted under the 2005
Plan may not exceed 10 years from the date of grant.

      Payment. The Administrator will determine whether exercise of options will
be settled in whole or in part in cash, common stock or other securities of ACS
or other property.

      Shares That May Be Issued under the 2005 Plan. A maximum of 2,249,329
shares of ACS common stock, which number may be adjusted as described below, are
available for issuance pursuant to the exercise of stock options granted under
the 2005 Plan. If any stock option terminates or is canceled for any reason
without having been exercised in full, the shares of stock not issued will then
become available for additional grants of options. The number of shares
available under the 2005 Plan is subject to adjustment in the event of any stock
split, stock dividend, recapitalization, spin-off or other similar action.

      Estimate of Benefits. As of December 31, 2005, options to purchase
1,608,738 shares of common stock have been granted and are outstanding under the
plan. The strike price of the options ranges from $.31 to $.49.


                                      -26-
<PAGE>

      Number of Options Outstanding. As of December 31, 2005, options to acquire
1,608,738 shares of Common Stock are outstanding to employees and directors of
American CareSource Holdings. The following table sets forth information
regarding the number of options outstanding and the exercise price of these
options.

              Number of Options
                Outstanding at
              December 31, 2005                           Exercise Price

                   1,467,031                                  $0.31
                     141,707                                  $0.49

      Of these options, 552,720 of the options granted before December 31, 2005
were fully vested. A total of 1,517,735 were granted on May 16, 2005, 146,143 of
which vested immediately. 260,922 granted to directors in consideration for
their service vest as to 33% on the first anniversary and 33% on each subsequent
anniversary. The remaining options and all other options granted under the Plan
vest as to 25% of the option grant on the first anniversary of the grant, and
25% on each subsequent anniversary.

      Termination of and Amendments to the 2005 Plan. The Board of Directors may
amend the 2005 Plan from time to time, except that no amendment will be made
without stockholder approval if such approval is necessary to comply with
applicable law. No options may be granted under the 2005 Plan after 2015.

Item 11. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters.

      The following table sets forth certain information regarding the
beneficial ownership of the shares of American CareSource Holdings' common stock
as of March 31, 2006, (i) by each person American CareSource Holdings knows to
be the beneficial owner of 5% or more of the outstanding shares of Common Stock,
(ii) the Chief Executive Officer and each named executive officer listed in the
Summary Compensation Table below, (iii) each director and nominee for director
of American CareSource Holdings and (iv) all executive officers and directors of
American CareSource Holdings as a group. As of March 31, 2006, there were
outstanding 14,370,709 shares of Common Stock, and 1,897,502 warrants
convertible into common stock and 552,720 exercisable options convertible into
common stock.

                                     Number of Shares
                                      of Common Stock       Percentage of Common
           Name and Address       Beneficially Owned (1)         Stock Owned

John Pappajohn (2)                     5,156,061                    33.6%

Derace L. Schaffer (3)                   940,488                     6.4%

Wayne A. Schellhammer (4)                322,951                     2.2%

Kenneth George (5)                        17,182                        *

John Colloton (6)                          7,810                        *

Edward B. Berger (7)                      82,528                        *

David Boone (8)                           99,787                        *

Steven M. Phillips (9)                     3,515                        *

All Officers and Directors as          6,630,322                    40.8%
a group (8 persons)(10)

Principal Life Insurance               1,891,065                    13.2%
801 Grand Avenue
Des Moines, IA 50392


                                      -27-
<PAGE>

----------
* less than 1%

(1)   Beneficial ownership is determined in accordance with Rule 13d-3(a) of the
      Securities Exchange Act of 1934 and generally includes voting or
      investment power with respect to securities. Except as indicated by
      footnotes and subject to community property laws, where applicable, the
      person named above has sole voting and investment power with respect to
      all shares of the common stock shown as beneficially owned by him or her.

(2)   Includes warrants to purchase 653,668 shares of American CareSource
      Holdings' common stock exercisable any time before January 27, 2010 and
      additional warrants to purchase 320,248 shares of American CareSource
      Holdings' common stock exercisable any time before August 15, 2010.
      Includes 17,182 vested stock options for common stock issuable upon
      exercise. Excludes an aggregate of 281,167 shares subject to warrants
      assigned by Mr. Pappajohn to persons not affiliated with American
      CareSource Holdings, with respect to which he is not the beneficial owner.
      Mr. Pappajohn is a member of the Board of Directors and a principal
      stockholder of Patient Infosystems, Inc. Mr. Pappajohn's ownership as
      reported herein does not include the shares owned by Patient Infosystems.

(3)   Includes warrants to purchase 274,123 shares of American CareSource
      Holdings' common stock exercisable any time before January 27, 2010 and
      additional warrants to purchase 144,238 shares of American CareSource
      Holdings' common stock exercisable any time before August 15, 2010.
      Includes 17,182 vested stock options for common stock issuable upon
      exercise. Dr. Schaffer is a member of the Board of Directors and a
      principal stockholder of Patient Infosystems, Inc. Dr. Schaffer's
      ownership as reported herein does not include the shares owned by Patient
      Infosystems.

(4)   As of March 31, 2006, Mr. Schellhammer has 322,951 vested stock options of
      American CareSource Holdings' common stock issuable upon exercise.

(5)   As of March 31, 2006, Mr. George has 17,182 vested stock options of
      American CareSource Holdings' common stock issuable upon exercise.

(6)   As of March 31, 2006, Mr. Colloton has 7,810 vested stock options of
      American CareSource Holdings' common stock issuable upon the exercise.

(7)   Includes 79,750 shares of American CareSource Holdings' common stock
      beneficially owned by Mr. Berger of which 49,988 shares are owned by Mr.
      Berger and 29,762 shares are owned by Tucson Traditions LLC, a company
      owned by Mr. Berger. In addition, as of March 31, 2006, Mr. Berger has 2,
      778 shares of common stock issuable upon the exercise of stock options.

(8)   As of March 31, 2006, Mr. Boone has 99,787 vested stock options of
      American CareSource Holdings' common stock issuable upon exercise.

(9)   As of March 31, 2006, Mr. Phillips has 3,515 vested stock options of
      American CareSource Holdings' common stock issuable upon exercise.

(10)  Includes 1,392,278 of warrants and 488,387 of vested stock options.


                                      -28-
<PAGE>

Item 12. Certain Relationships and Related Transactions.

Relationship with Patient Infosystems

      Mr. Pappajohn and Dr. Schaffer, in addition to being members of the Board
of Directors of American CareSource Holdings, are also members of the Board of
Directors and significant stockholders of Patient Infosystems and American
CareSource Holdings. In addition, Edward Berger, a Director of American
CareSource Holdings, is a current stockholder of Patient Infosystems and had
previously served as a member of the Board of Directors, Audit Committee and
Finance Committee of Patient Infosystems.

      Patient Infosystems provided American CareSource Holdings services for a
limited transition period for no fee, pursuant to a Transitional Services
Agreement, in such areas as personnel and employee benefits. Patient Infosystems
provided American CareSource Holdings substantially the same level of service
and use at substantially the same degree of care as American CareSource
Holdings' personnel provided. The parties terminated the Transitional Services
Agreements as of September 1, 2005.

      In October 2005, Patient Infosystems sold, in a private placement to
accredited investors, 3,411,512 shares of its common stock from which it
received gross proceeds of approximately $12,000,000. In connection with this
transaction, Patient Infosystems granted investors certain registration rights
pursuant to a registration rights agreement. The purchasers of the shares of
common stock of Patient Infosystems received shares of common stock of American
CareSource Holdings as a result of the dividend declared and paid in connection
with the distribution of American CareSource Holdings' stock which took place
December 23, 2005. However, the American CareSource Holdings shares issued to
such investors were restricted securities and issued pursuant to exemptions from
registration under the Securities Act.

      Also, in October 2005, Patient Infosystems issued 547,244 shares of common
stock valued at $3.44 per share and paid $17,351 in cash to the holder of
Patient Infosystems preferred stock in lieu of accrued dividends which it is
obligated to pay upon conversion of such preferred stock into common stock as
required under the terms of the merger agreement by and between Patient
Infosystems and CareGuide. The holder of these shares received shares of
American CareSource Holdings' common stock as a result of the December 23, 2005
dividend distribution. Such American CareSource Holdings' shares were restricted
and issued pursuant to exemptions from the registration requirements under the
Securities Act. Both Mr. Pappajohn and Mr. Schaffer had been issued shares of
common stock respectively in lieu of the cash dividend that was payable to each
of them.

      On December 23, 2005, Patient Infosystems distributed by dividend
approximately 12,071,309 of its shares of common stock of American CareSource
Holdings, of which 10,091,899 shares of common stock were distributed pursuant
to a registration statement on Form SB-2. Patient Infosystems did not receive
any proceeds from the distribution of the shares to its stockholders.
Approximately 300,000 shares were retained by Patient Infosystems. Of the
300,000 American CareSource Holdings' shares, 146,482 shares were registered
under the aforementioned registration statement and 153,518 are restricted
shares. Immediately following the distribution, American CareSource Holdings
became an independent public company. Subsequent to the distribution, Patient
Infosystems, Inc. sold 88,525 shares that were discussed above.

Related Transactions Involving the Wells Fargo Bank N.A. Line of Credit

      On December 1, 2004, American Caresource Holdings entered into a Credit
Agreement with Well Fargo Bank, N.A., which created a secured credit facility of
$300,000 until July 31, 2006. Mr. Pappajohn, a director of the both American
CareSource Holdings and Patient Infosystems, guaranteed this credit facility.
There was no compensation to Mr. Pappajohn related to this guarantee.

      On January 28, 2005, American CareSource Holdings amended its credit
agreement with Wells Fargo Bank, N.A. extending the line of credit to
$3,000,000, which line was increased to $4,000,000 as of August 9, 2005. Mr.
Pappajohn and Dr. Schaffer, directors of American CareSource Holdings guaranteed
such increases in the credit line. As compensation for Mr. Pappajohn's and Dr.
Schaffer's guarantees for the initial extension of credit, American CareSource
Holdings issued warrants to purchase an aggregate of 1,096,491 shares to Mr.
Pappajohn and Dr. Schaffer at an exercise price of $0.40 equal to the per share
fair market value of American CareSource Holdings common stock established by
American CareSource Holdings' Board of Directors based upon an independent
appraisal. The value of the warrants was separately estimated at $0.20 per share
or $214,489 based on the Black-Scholes valuation of the call option associated
with a five year warrant. In connection with the August increase in the credit
line, American CareSource Holdings issued additional warrants to purchase an


                                      -29-
<PAGE>

aggregate of 576,953 shares as compensation for the guarantee extension by Mr.
Pappajohn and Dr. Schaffer. Mr. Pappajohn received warrants to purchase 432,715
shares of common stock and Dr. Schaffer received warrants to purchase 144,238
shares of common stock. In addition, American CareSource Holdings issued
warrants to purchase 64,106 shares as compensation to Matthew Kinley, who also
guaranteed the increased credit line. Matthew Kinley is an employee of a company
owned by Mr. Pappajohn. These warrants have an exercise price of $0.49 based on
current fair value.

      On December 28, 2005, American CareSource Holdings again amended its
credit agreement with Wells Fargo Bank, N.A. extending the line of credit to
$5,000,000. Mr. Pappajohn guaranteed such increases in the credit line.
Additional warrants may be issued in the future to Mr. Pappajohn for his
guarantee; however, no warrants have presently been issued to Mr. Pappajohn. The
line of credit bears interest at the bank's prime index rate (7.25% at January
19, 2006) and has a scheduled expiration date of March 31, 2007. The principal
and unpaid interest on such line of credit is payable in a single payment due in
full on March 31, 2007.

      In March 2006 the Company completed the closing of a private placement
sale of its common stock. The offering raised approximately $10.0 million at a
price of $5.00 per share. In connection with such private placement, the Company
relied upon the exemption from registration provided under Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder. The net
proceeds from the transaction was approximately $9.1 million. A portion of the
proceeds from this transaction was used to re-pay the full balance of the Wells
Fargo Bank, N.A. credit line. The remainder of the proceeds will be used to fund
working capital and other general corporate purposes. Although American
Caresource Holdings paid in full all obligations outstanding under its credit
agreement with Wells Fargo Bank, N.A, the line of credit remains fully available
to American CareSource Holdings if needed.

Item 13. Exhibits

Exhibit #      Description of Exhibits

3.1(2)         Certificate of Incorporation

3.2(2)         By-Laws

3.3(4)         Amendment to the Certificate of Incorporation, dated May 25,
               2005.

3.4(4)         Amendment to the Certificate of Incorporation, dated June 2,
               2005.

3.5(7)         Amendment to the Certificate of Incorporation, dated November 14,
               2005.

3.6            Certificate of Incorporation of Ancillary Care Services-Group
               Health, Inc.

3.7            Certificate of Incorporation of Ancillary Care Services-Medicare,
               Inc.

3.8            Certificate of Incorporation of Ancillary Care Services-Worker's
               Compensation, Inc.

3.9            Certificate of Incorporation of Ancillary Care Services, Inc.

4.1(2)         2005 Stock Option Plan.

4.2(3)         Specimen Stock Certificate.

10.01(3)       Employment Agreement, dated October 11, 2004 between the
               Registrant and Wayne A. Schellhammer.

10.02(3)       Employment Agreement, dated May 1, 2005, between the Registrant
               and David Boone.

10.03(2)       Commercial Lease, dated July 1, 1998, between Today Tristar, L.P.
               and American CareSource Corporation, as amended.

10.04(2)       Lease, dated July 1, 2002, between Madison Square Park, LLC and
               American CareSource Corporation.

10.05(2)       Credit Agreement, dated December 1, 2004, between Well Fargos
               Bank, National Association and American Caresource Holdings, Inc.

10.06(2)       Security Agreement, dated December 1, 2004, between Well Fargo
               Bank, National Association and American Caresource Holdings, Inc.

10.07(2)       First Addendum to Credit Agreement dated February 2, 2005 between
               Well Fargo Bank, National Association and American Caresource
               Holdings, Inc.


                                      -30-
<PAGE>

10.08(3)       Guaranty, dated January 26, 2005, by and among Wells Fargo Bank,
               National Association, American CareSource Holdings, Inc. and
               Derace L. Schaffer.

10.09(3)       Guaranty, dated January 26, 2005, by and among Wells Fargo Bank,
               National Association, American CareSource Holdings, Inc. and John
               Pappajohn.

10.10(3)       Stock Purchase Warrant, dated January 27, 2005, by and among
               American CareSource Holdings, Inc. and Derace L. Schaffer.

10.11(8)       Corrected Stock Purchase Warrant, dated January 27, 2005, by and
               among American CareSource Holdings, Inc. and John Pappajohn.

10.12(3)       Transitional Services Agreement, by and between Patient
               Infosystems, Inc. and American CareSource Holdings, Inc.

10.13(6)       Second Addendum to Credit Agreement dated August 9, 2005 between
               Wells Fargo Bank, National Association and American CareSource
               Holdings, Inc.

10.14(5)       Consent to Second Addendum to Credit Agreement, Ratification of
               Guaranty and Waiver of Claims, dated August 9, 2005 from John
               Pappajohn.

10.15(5)       Consent to Second Addendum to Credit Agreement, Ratification of
               Guaranty and Waiver of Claims, dated August 9, 2005 from Derace
               L. Schaffer.

10.16(5)       Consent to Second Addendum to Credit Agreement, Ratification of
               Guaranty and Waiver of Claims, dated August 9, 2005 from Matthew
               P. Kinley.

10.17(5)       Guaranty, dated August 9, 2005, by and among Wells Fargo Bank,
               National Association, American CareSource Holdings, Inc. and John
               Pappajohn.

10.18(5)       Guaranty, dated August 9, 2005, by and among Wells Fargo Bank,
               National Association, American CareSource Holdings, Inc. and
               Derace L. Schaffer.

10.19(5)       Guaranty, dated August 9, 2005, by and among Wells Fargo Bank,
               National Association, American CareSource Holdings, Inc. and
               Matthew P. Kinley.

10.20(5)       Guarantors' Letter, dated August 9, 2005 by and among Wells Fargo
               Bank, National Association, John Pappajohn, Derace L. Schaffer
               and Matthew P. Kinley.

10.21(5)       Creditor Agreement, dated August 26, 2005 among American
               CareSource Holdings, Inc., John Pappajohn, Derace L. Schaffer and
               Matthew P. Kinley.

10.22(5)       Stock Purchase Warrant, dated August 15, 2005, by and among
               American CareSource Holdings, Inc. and John Pappajohn.

10.23(5)       Stock Purchase Warrant, dated August 15, 2005, by and among
               American CareSource Holdings, Inc. and Derace L. Schaffer.

10.24(5)       Stock Purchase Warrant, dated August 15, 2005, by and among
               American CareSource Holdings, Inc. and Matthew P. Kinley.

10.25(9)       Third Addendum to the Credit Agreement, dated December 28, 2005,
               by and between Wells Fargo Bank, National Association and
               American CareSource Holdings, Inc.

10.26(9)       Consent to Third Addendum to Credit Agreement, Ratification of
               Guaranty and Waiver of Claims, dated December 28, 2005 from John
               Pappajohn.

10.27(9)       Guaranty, dated December 28, 2005, by and among Wells Fargo Bank,
               National Association, American CareSource Holdings, Inc. and John
               Pappajohn.

10.28          Form of Registration Rights Agreement from March 2006 private
               placement.

10.29          Form of Subscription Agreement from March 2006 private placement.

10.30          Amended and Restated Stock Purchase Warrant, dated March 29, 2006
               by and between American CareSource Holdings, Inc. and John
               Pappajohn. (amends Stock Purchase Warrant, dated January 27,
               2005)

10.31          Amended and Restated Stock Purchase Warrant, dated March 29, 2006
               by and between American CareSource Holdings, Inc. and Derace
               Schaffer. (amends Stock Purchase Warrant, dated January 27, 2005)

10.32          Amended and Restated Stock Purchase Warrant, dated March 29,
               2006, by and among American CareSource Holdings, Inc. and John
               Pappajohn. (amends Stock Purchase Warrant, dated August 15, 2005)

10.33          Amended & Restated Stock Purchase Warrant, dated March 29, 2006,
               by and among American CareSource Holdings, Inc. and Derace L.
               Schaffer. (amends Stock Purchase Warrant, dated August 15, 2005)


                                      -31-
<PAGE>

10.34          Amended & Restated Stock Purchase Warrant, dated March 29, 2006,
               by and among American CareSource Holdings, Inc. and Matthew P.
               Kinley. (amends Stock Purchase Warrant, dated August 15, 2005)

14.1           Code of Ethics

31.1           Certification of the Chief Executive Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

31.2           Certification of the Chief Financial Officer and Chief Operating
               Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
               2002.

31.3           Certification of the Principal Accounting Officer and Controller
               pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1           Certification pursuant to Section 906 of the Sarbanes-Oxley Act
               of 2002.

(1)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Form SB-2 filed on February 14, 2005 and incorporated herein by
      reference.

(2)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to Amendment No. 1 to the Form SB-2 filed May 13, 2005 and incorporated
      herein by reference.

(3)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to Amendment No. 2 to the Form SB-2 filed June 15, 2005 and incorporated
      herein by reference.

(4)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to Amendment No. 5 to the Form SB-2 filed August 12, 2005 and incorporated
      herein by reference.

(5)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to Amendment No. 6 to the Form SB-2 filed September 14, 2005 and
      incorporated herein by reference.

(6)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to Amendment No. 7 to the Form SB-2 filed September 30, 2005 and
      incorporated herein by reference.

(7)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to Amendment No. 8 to the Form SB-2 filed November 18, 2005 and
      incorporated herein by reference.

(8)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to Amendment No. 9 to the Form SB-2 filed December 5, 2005 and
      incorporated herein by reference.

(9)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Form 8-K/A filed January 13, 2006 and incorporated herein by
      reference.

Item 14. Principal Accountant Fees and Services.

Relationship with Independent Auditors

      Audit services performed by McGladrey & Pullen LLP for the fiscal years
2005 and 2004, respectively, consisted of the examination of American CareSource
Holdings' financial statements, services related to filings with the Securities
and Exchange Commission ("SEC"), audits, quarterly reviews and tax services.

Audit Fees

      The aggregate audit fees billed by McGladrey & Pullen, LLP for
professional services rendered in connection with the audit of American
CareSources' annual audit for the year ended December 31, 2005, the review of
American CareSources' quarterly financial statements for the quarters ended
March 31, 2005, June 30, 2005 and September 30, 2005 and review of reports filed
by American CareSource holdings during the period reported were approximately
$101,000 as compared to $80,000 for the same respective periods of 2004.


                                      -32-
<PAGE>

Tax Fees

      The aggregate fees billed by RSM McGladrey, Inc. an entity associated with
McGladrey & Pullen LLP, for professional services rendered related to taxes of
American CareSource Holdings for the year ended December 31, 2005 were
approximately $18,000 as compared to $5,500 for the year ended December 31,
2004.

All Other Fees

      There were no other fees billed by McGladrey & Pullen LLP or RSM
McGladrey, Inc. for the years ended December 31, 2005 and 2004.

      The Audit Committee considers at least annually whether the provision of
non-audit services by McGladrey & Pullen LLP is compatible with maintaining
auditor independence.

Pre-Approval of Audit and Permissible Non-Audit Services

      The Audit Committee pre-approves all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. The Audit
Committee has adopted a policy for the pre-approval of services provided by the
independent auditors. Under the policy, pre-approval is generally provided for
up to one year and any pre-approval is detailed as to the particular service or
category of services and is subject to a specific budget. In addition, the Audit
Committee may pre-approve particular services on a case-by-case basis. For each
proposed service, the independent auditor is required to provide detailed
back-up documentation at the time of approval. All audit and permissible
non-audit services provided by McGladrey & Pullen LLP to American CareSource
Holdings for the fiscal years ended 2005 and 2004 were approved by the Audit
Committee.


                                      -33-
<PAGE>

                                 SIGNATURE PAGE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

AMERICAN CARESOURCE HOLDINGS, INC.


By: /s/ Wayne A. Schellhammer                                     March 31, 2006
    ------------------------------------------------              --------------
    Wayne A. Schellhammer                                         Date
    President, Chief Executive Officer Chairman
    and Director
    (Principal Executive Officer)

Pursuant to the requirements the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


By: /s/ Wayne A. Schellhammer                                     March 31, 2006
    ------------------------------------------------              --------------
    Wayne S. Schellhammer                                         Date
    President, Chief Executive Officer Chairman
    and Director
    (Principal Executive Officer)


By: /s/ David S. Boone                                            March 31, 2006
    ------------------------------------------------              --------------
    David S. Boone                                                Date
    Chief Operating Officer, Chief Financial Officer


By: /s/ Steven M. Phillips                                        March 31, 2006
    ------------------------------------------------              --------------
    Steven M. Phillips                                            Date
    Controller, Principal Accounting Officer


By: /s/ Kenneth S. George                                         March 31, 2006
    ------------------------------------------------              --------------
    Kenneth S. George                                             Date
    Director


By: /s/ Derace L. Schaffer                                        March 31, 2006
    ------------------------------------------------              --------------
    Derace L. Schaffer                                            Date
    Director


By: /s/ John Pappajohn                                            March 31, 2006
    ------------------------------------------------              --------------
    John Pappajohn                                                Date
    Director


By: /s/ Edward Berger                                             March 31, 2006
    ------------------------------------------------              --------------
    Edward Berger                                                 Date
    Director


By: /s/ John W. Colloton                                          March 31, 2006
    ------------------------------------------------              --------------
    John W. Colloton                                              Date
    Director


                                      -34-
<PAGE>

McGladrey & Pullen
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
American CareSource Holdings, Inc.

We have audited the accompanying balance sheets of American CareSource Holdings,
Inc. as of December 31, 2005 and 2004, and the related statements of operations,
cash flows and stockholders' equity for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American CareSource Holdings,
Inc. as of December 31, 2005 and 2004, and the results of its operations and its
cash flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.


/s/ McGladrey & Pullen, LLP

McGladrey & Pullen, LLP
Des Moines, Iowa
March 4, 2006


                                      F-1
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                             2005            2004
                                                                             ----            ----
<S>                                                                      <C>             <C>
ASSETS

CURRENT ASSETS
Cash                                                                     $    23,399     $    16,749
Accounts receivable                                                          482,159         460,691
Prepaid and other current assets                                              30,151          12,795
                                                                         ---------------------------

Total current assets                                                         535,709         490,235

NET PROPERTY AND EQUIPMENT                                                   175,608         111,780

NET INTANGIBLE ASSETS                                                      1,921,401       2,134,983

GOODWILL                                                                   4,361,299       4,361,299
                                                                         ---------------------------

                                                                         $ 6,994,017     $ 7,098,297
                                                                         ===========================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Due to service providers                                                 $   386,217     $   369,553
Accounts payable and other accrued liabilities                               352,383         385,899
Payable to Patient Infosystems, Inc.                                              --       1,651,536

Current maturities of long-term debt                                          20,231          21,355
                                                                         ---------------------------

Total current liabilities                                                    758,831       2,428,343
                                                                         ---------------------------

LONG-TERM DEBT, including $336,277 due to Patient
Infosystems, Inc. at December 31, 2005 less current maturities             3,845,929         219,325
                                                                         ---------------------------

STOCKHOLDER'S EQUITY

Common stock, par value $0.01, 40,000,000 shares authorized and
12,371,309 issued and outstanding as of December 31, 2005 and 2004           123,713         123,713
Preferred stock, par value .01, 10,000,000 shares authorized and none
outstanding as of December 31, 2005 and 2004
Additional paid-in-capital                                                 7,734,800       7,158,154
Deferred debt issuance cost                                                 (231,500)             --
Accumulated (deficit)                                                     (5,237,756)     (2,831,238)
                                                                         ---------------------------

Total stockholders' equity                                                 2,389,257       4,450,629
                                                                         ---------------------------

                                                                         $ 6,994,017     $ 7,098,297
                                                                         ===========================
</TABLE>

See Notes to Financial Statements


                                      F-2
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------

                                                       2005             2004
                                                       ----             ----

Revenues:
Ancillary health                                  $  4,219,133     $  5,512,927
Patient claims processing                              198,313          524,397
                                                  -----------------------------

Total revenues                                       4,417,446        6,037,324

Total costs of revenues                              4,407,290        5,840,589
                                                  -----------------------------

Contribution margin                                     10,156          196,735
                                                  -----------------------------

Selling, general and administrative expense          1,804,793        1,913,976
Impairment of goodwill                                      --          802,105
Depreciation and amortization                          310,915          295,802
                                                  -----------------------------

Total operating expenses                             2,115,708        3,011,883
                                                  -----------------------------

Operating (loss)                                    (2,105,552)      (2,815,148)
                                                  -----------------------------

Other expenses:

Interest expense                                       146,492           12,349
Debt issuance cost                                     154,474               --
Other                                                       --            3,741
                                                  -----------------------------

Total other expenses                                   300,966           16,090
                                                  -----------------------------

Net (loss) before income tax                        (2,406,518)      (2,831,238)
Income tax expense                                          --               --
                                                  -----------------------------

Net (Loss)                                        $ (2,406,518)    $ (2,831,238)
                                                  =============================

Net (Loss) per share - basic and diluted          $      (0.19)    $      (0.23)
Weighted Average Shares Outstanding                 12,371,309       12,371,309
                                                  =============================

See Notes to Financial Statements.


                                      F-3
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                Additional      Deferred
                                                                  Paid-In          Debt         Accumulated
                                     Shares         Amount        Capital      Issuance Cost     (Deficit)          Total
                                     ------         ------        -------      -------------     ---------          -----
<S>                                <C>           <C>            <C>             <C>             <C>             <C>
Balance, December 31, 2003                100    $         1    $ 5,732,115     $        --     $        --     $ 5,732,116
     Former parent contributions           --             --      1,549,751              --              --       1,549,751
     Effect of stock splits        12,371,209        123,712       (123,712)             --              --              --
     Net (loss)                            --             --             --              --      (2,831,238)     (2,831,238)
                                  -----------------------------------------------------------------------------------------

Balance, December 31, 2004         12,371,309        123,713      7,158,154              --      (2,831,238)    $ 4,450,629
     Issuance and amortization
     of warrants, net                      --             --        376,646        (231,500)             --         145,146
     Stock option compensation             --             --        200,000              --              --         200,000
     Net (loss)                            --             --             --              --      (2,406,518)     (2,406,518)
                                  -----------------------------------------------------------------------------------------

Balance, December 31, 2005         12,371,309    $   123,713    $ 7,734,800     $  (231,500)    $(5,237,756)    $ 2,389,257
                                  =========================================================================================
</TABLE>

See Notes to Financial Statements.


                                      F-4
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   2005            2004
                                                                   ----            ----
<S>                                                            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)                                                     $(2,406,518)    $(2,831,238)

Adjustments to reconcile net loss to net cash
      (used in) operating activities
        Depreciation and amortization                              310,915         295,802
        Goodwill impairment                                             --         802,105
        Stock option compensation                                  200,000
        Gain on disposal of assets                                  (6,729)             --
        Amortization of debt issuance costs                        145,146              --
        Changes in operating assets and liabilities
          Accounts receivable                                      (21,468)         25,744
          Prepaid and other assets                                 (17,356)          3,147
          Due to service providers                                  16,664        (340,429)
          Accounts payable and other accrued liabilities            33,516        (748,426)
                                                               ---------------------------
Net cash used in operating activities                           (1,812,862)     (2,793,295)
                                                               ---------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment                                (126,487)        (44,995)
Proceeds from sales of equipment                                    31,656           3,475
Acquisition costs                                                       --         (68,093)
                                                               ---------------------------
Net cash used in investing activities                              (94,831)       (109,613)
                                                               ---------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net                                3,250,000         200,000
Proceeds from long term debt                                        33,727              --
Payments on long term debt                                         (54,125)       (293,732)
Change in excess of outstanding checks over bank balance                --        (189,608)
Former parent contributions                                             --       1,549,751
Net (payments to) advances from former parent                   (1,315,259)      1,651,536
                                                               ---------------------------
Net cash provided by financing activities                        1,914,343       2,917,947
                                                               ---------------------------

Net increase in cash                                                 6,650          15,039

Cash at beginning of year                                           16,749           1,710
                                                               ---------------------------
Cash at end of year                                            $    23,399     $    16,749
                                                               ===========================

SUPPLEMENTAL CASH FLOW INFORMATION, cash paid for interest     $   145,499     $    21,483

SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING AND FINANCIAL
ACTIVITIES
     Warrants issued for debt guarantees                           376,646              --
     Stock option compensation                                     200,000
     Advances from former parent converted to
       long-term debt                                              336,227              --
     Acquisition of equipment through capital leases                59,601              --

</TABLE>

See Notes to Financial Statements


                                      F-5
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1. Summary of Significant Accounting Policies

Description of business: The outstanding securities of American Caresource
Holdings, Inc. (the "Company") a Delaware corporation was distributed by
dividend to the stockholders of Patient Infosystems, Inc. ("Patient
Infosystems") on December 23, 2005. Public trading of the company's stock
commenced on December 28, 2005 under the symbol ACSH.OB on the Over the Counter
Bulletin Board Market ("OTC Bulletin Board"). The Company was originally formed
as Physician's Referral Network in 1995 and merged into Health Data Solution,
Inc. in October 1997. At the time of such merger, Healthdata Solutions changed
its name to American CareSource Corporation. It was acquired by Patient
Infosystems on December 31, 2003. It is in the business of delivering ancillary
healthcare services for employment groups through its national network of
ancillary care providers. The company markets its products to insurance
companies, third party administrators, and preferred provider organizations.

On December 19, 2005, the Company filed with the Securities and Exchange
Commission a prospectus that relates to the distribution by dividend to all the
stockholders of Patient Infosystems of 12,071,309 shares. Of these 12,071,309
shares, the distribution of 10,091,899 shares were registered. Patient
Infosystems retained 300,000 shares of American CareSource stock. At December
31, 2005 12,371,309 shares of the Company's common stock were outstanding.

Use of estimates in the preparation of financial statements: The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.

Accounts receivable: Accounts receivable are reported at amounts expected to be
received from third party payors and other customers.

Because of the nature of the Company's business, all receivable amounts are
expected to be collected. Hence, the Company does not have an allowance for
doubtful accounts.

Fair value of financial instruments: The Company's financial instruments consist
primarily of cash, accounts receivable, accounts payable, accrued expenses, a
line of credit and long-term debt. The fair value of instruments is determined
by reference to various market data and other valuation techniques, as
appropriate. Unless otherwise disclosed, the fair value of short-term financial
instruments approximates their recorded values due to the short-term nature of
the instruments. Based on the borrowing rates currently available to the Company
for bank loans with similar terms and average maturities, the fair value of
long-term debt approximates its carrying value.

Property and equipment: Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is
computed over the estimated useful lives of the assets using the straight-line
method for financial reporting purposes and on the straight-line and accelerated
methods for tax purposes. Leasehold improvements are amortized using the
straight-line method over their estimated useful lives or the lease term,
whichever is shorter. Ordinary maintenance and repairs are charged to
operations. Expenditures that extend the physical or economic life of property
and equipment are capitalized.

The estimated useful lives of property and equipment are as follows:

Leasehold improvements                                                 5 years
Computer equipment                                                   3 - 5 years
Furniture and fixtures                                                 7 years
Software                                                             3 - 5 years

The Company periodically reviews the carrying value of its long-lived assets for
possible impairment. In management's opinion, there is no impairment of such
assets at December 31, 2005 and 2004.

Revenue recognition: The Company evaluates their service provider contracts
using the indicators of EITF No. 99-19 "Reporting Gross Revenue as a Principal
vs. Net as an Agent" (EITF 99-19) to determine whether the Company is acting as
a principal or an agent in the fulfillment of services to be rendered.


                                      F-6
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Revenues are recorded gross when services by providers have been authorized and
performed and collections from third party payors are reasonably assured. The
Company acts as principal under EITF 99-19 when settling claims for service
providers through their contracted service provider network for the following
reasons:

      o     The Company negotiates a contract with the service provider and also
            negotiates contracts with payors. Neither the service provider nor
            the payor can look through the Company and claim directly against
            the other party. Both contracts with these parties are separate and
            each only contracts with the Company. Each party deals directly with
            the Company and does not deal with each other directly.

      o     The Company determines through negotiations which payor will be
            included or excluded in the network to be offered to the service
            provider, based on price, access, etc.

      o     The Company does not earn a fixed dollar amount per customer
            transaction regardless of the amount billed to customers or earn a
            stated percentage of the amount billed to its customers.

      o     The Company is responsible to the service provider for processing
            the claim and managing the claim their adjustor processes.

      o     The Company sets prices to be settled with payors and separately
            negotiates the prices to be settled with the service providers.

      o     The Company may realize a positive or negative margin represented by
            the difference between the negotiated fees received from the payor
            and the negotiated amount paid to the service providers.

When claims are recorded gross, the payor's payment to be Company is recorded as
revenue and the Company's payment to the service provider is recorded as cost of
revenue in the statement of operations. The Company does, however, record
revenue on a net basis when an agency relationship exists. When the Company
receives a fee for claims processing and there are no financial risks to the
Company, then only the claims processing fee is recorded as revenue.

The Company does not have responsibility to collect co-payments to be made or
co-insurance claims to be received. Accordingly, co-payments or co-insurance
claims collected are not recorded as either revenue or cost of sales.

Costs of revenues: Costs of ancillary health revenues consist of expenses due to
providers for providing employee (patient) services and the related direct labor
and overhead of providing such services. The Company is not liable for costs
incurred by independent contract service providers until payment is received by
the Company from the payors. The Company recognizes actual or estimated
liabilities to independent contract service providers as related revenues are
recognized.

Costs of patient claims revenues consist of direct labor and overhead to
administer the patient claims.

Issuance of Warrants: The Company has issued warrants to stockholders and
directors in exchange for a guarantee of Company debt. The warrants were valued
at $376,646 as of the date of the grant using the fair value method. These
deferred debt issuance costs are being amortized to expense over the life of the
guarantee.

Concentration of revenues: The Company has four customers that compromise the
following approximate amounts of the of the Company's revenue and accounts
receivable:


                                      F-7
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                      Twelve Months Ended December 31, 2005              Twelve Months Ended December 31, 2004
                      -------------------------------------              -------------------------------------

                    Accounts                        % of Total          Accounts                      % of Total
                   Receivable       Revenue          Revenue           Receivable       Revenue        Revenue
                   ----------       -------          -------           ----------       -------        -------
<S>                 <C>            <C>                   <C>            <C>           <C>                  <C>
Customer A          140,000        2,520,000             57%            $ 180,000     $ 2,400,000          40%
Customer B          190,000          810,000             18               160,000       1,720,000          28
Customer C           20,000          340,000              8                40,000         640,000          11
Customer D           20,000          320,000              7                30,000         170,000           3
                 ---------------------------------------------------------------------------------------------
                    370,000        3,990,000             90%            $ 410,000     $ 4,930,000          82%
                 =============================================================================================
</TABLE>

Stock-Based Compensation: The Company accounts for stock-based compensation in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation". As
permitted by SFAS No. 123, the Company continues to measure compensation for
such plans using the intrinsic value based method of accounting, prescribed by
Accounting Principles Board ("APB"), Opinion No. 25, "Accounting for Stock
Issued to Employees." Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the date of grant
for awards consistent with the provisions of SFAS No. 123, the Company's net
loss and net loss per share would have been increased to the pro forma amounts
indicated below:

                                                       Twelve Months Ended
                                                           December 31,
                                                           ------------
                                                       2005             2004
                                                  ------------------------------

Net loss attributable to common
stockholders - as reported                        $ (2,406,518)    $ (2,831,238)

Stock compensation expense included in                 200,000               (0)
determination of net income

Stock compensation expense under SFAS No. 123         (253,817)              (0)

Net loss - pro forma                                (2,460,335)      (2,831,238)

Net loss per share - basic
and diluted - as reported                         $      (0.19)    $      (0.23)

Net loss per share - basic
and diluted - pro forma                           $      (0.20)    $      (0.23)

Weighted average common shares                      12,371,309       12,371,309

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model using an expected life of 5 years, assumed
risk-free interest rates of 4.0%, assumed dividend yield of zero and a
volatility factor of 60%. The weighted average grant date for value of options
issued during the year ended December 31, 2005 was $0.20 per share. For purposes
of pro forma disclosure, the estimated fair value of each option is amortized to
expense over such option's vesting period.

Intangible assets: The Company's intangible assets result from the allocation of
the purchase price from the December 31, 2003 acquisition of the assets of
American Caresource Corporation by Patient Infosystems. The allocation was based
on an independent appraisal of the acquired assets. The only significant
intangible assets other than goodwill that were identified in these appraisals
were the provider contracts and internally developed claims payment and billing
software. Each of these items is being amortized using the straight line method
over its expected useful life, 5 years for the software and 15 years for the
provider contracts.

As of the acquisition date, there were approximately 1,700 provider sites under
contract with American CareSource. As of December 31, 2005, the Company has
approximately 2,400 providers representing our 20,000 provider sites under
contract. Our experience to date is that we have less than 2% annual turnover or
attrition of these providers. The provider contracts are being accounted for on
a pooled basis and the actual cancellation rates of these contracts that were
acquired will be monitored for potential impairment or amortization adjustment,
if warranted. The Company tested for potential impairment each quarter by
re-evaluating the projected cashflows the Company expects to generate from these
contracts. As of December 31, 2005, there is no impairment of this intangible
asset. The cost of adding additional providers is considered an ongoing
operating expense.

The following is a summary of the intangible assets as of December 31, 2005 and
2004:


                                      F-8
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                      2005             2004
                                -----------------------------------------------
                                Gross Carrying    Accumulated      Accumulated
                                     Amount       Amortization     Amortization
                                -----------------------------------------------
Software                          $  427,581       $  171,032       $   85,516
Provider Contracts                 1,920,984          256,132          128,066
                                -----------------------------------------------
                                  $2,348,565       $  427,164       $  213,582
                                ===============================================

Amortization expense was approximately 214,000 for each of the years ended
December 31, 2005 and 2004.

Estimated aggregated amortization expenses for the next five years are as
follows:

                                                                     Estimated
                                                                   Amortization
                                                                      Expense
                                                                  -------------

Year ending December 31:
     2006                                                         $     214,000
     2007                                                               214,000
     2008                                                               214,000
     2009                                                               128,000
     2010                                                               128,000
                                                                  -------------
                                                                  $     898,000
                                                                  =============

Goodwill: The following is a summary of activity of goodwill as of December 31,
2004:

Balance, December 31, 2003                                         $ 6,981,876
    Acquisition costs                                                   68,093
    Final valuation adjustments                                     (1,886,565)
                                                                   -----------
    Adjusted balance, December 31, 2003                              5,163,404
    Impairment loss, December 31, 2004                                (802,105)
                                                                   -----------
Balance, December 31, 2004 and 2005                                $ 4,361,299
                                                                   ===========

The goodwill is tested annually for impairment and was last tested as of
December 31, 2005. Based on an independent valuation, no impairment was
recognized during 2005. Based on the independent valuation done as of December
31, 2004, a goodwill impairment loss of $802,105 was recognized. The fair value
was estimated using the expected present value of future cash flows.

Research and development: Research and development costs are expensed as
incurred.

Earnings per common share: Basic earnings per share is computed by dividing net
loss by the weighted average number of shares outstanding during each of the
periods. Diluted earnings per share is the same amount because all outstanding
stock options have been excluded from the calculation of diluted earnings per
share since they are anti-dilutive.

The calculations for the basic and diluted loss per share were based upon loss
attributable to common stockholders and a weighted average number of common
shares outstanding for the periods ended December 31, 2005 and 2004. Amounts
presented for share and per share data are shown after giving effect to the
stock splits effected June 2, 2005 and November 14, 2005 as described in the
following paragraph.

Stock split and change to authorized shares: On May 25, 2005, the Company
amended its Certificate of Incorporation increasing the number of authorized
common shares to 40,000,000 shares and authorizing 10,000,000 preferred shares.


                                      F-9
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

On June 2, 2005, the Company effected a 110,000 for one stock split on the
common shares outstanding at the time. On November 14, 2005, the Company
effected a 1.1246645 for one stock split on the common shares outstanding at the
time. After the stock splits, the Company had 12,371,309 shares outstanding.
Amounts presented for share and per share data are shown after giving effect to
the stock splits.

Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for all the effects of changes in tax laws and rates on the date of
enactment. Prior to December 16, 2005, the Company filed consolidated tax
returns with Patient Infosystems. The Company recorded its tax expense using the
separate company method.

New accounting pronouncements: In December 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 123 (Revised), Share-Based Payment (FAS 123(R)), establishing accounting
standards for transactions in which an entity exchanges its equity instruments
for goods or services. SFAS No. 123(R) also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that are based on
the fair value of the entity's equity instruments, or that may be settled by the
issuance of those equity instruments. SFAS No. 123(R) covers a wide range of
share-based compensation arrangements, including share options, restricted share
plans, performance-based stock awards, stock appreciation rights and employee
stock purchase plans. SFAS 123(R) replaces existing requirements under SFAS No.
123, Accounting for Stock-Based Compensation, and eliminates the ability to
account for share-based compensation transactions using APB Opinion No. 25. The
provisions of SFAS 123(R) are effective for Patient Infosystems on January 1,
2006. Management believes the impact on the financial statements will be similar
to the disclosures made by the footnote to the financial statements, showing the
proforma effect on earnings and earnings per share of expensing the value of
stock options granted.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets-an amendment of APB Opinion No. 29 (SFAS No. 153), addressing the
measurement of exchanges of nonmonetary assets. SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar
production assets in APB Opinion No. 29, Accounting for Nonmonetary Exchanges
and replaces it with an exception for exchanges that do not have commercial
substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005 with earlier application
permitted.

The Company does not expect adoption of the provisions of SFAS No. 153 to have a
material impact on the consolidated financial statement, results of operations
or liquidity of Patient Infosystems.

Note 2. Initial Formation of American Caresource Holdings, Inc.

On December 31, 2003, the Parent Company, Patient Infosystems, acquired
substantially all the assets and liabilities of American CareSource Corporation
for a total purchase price of $5,800,209. Simultaneously, Patient Infosystems
contributed the assets and liabilities acquired to its wholly owned subsidiary,
American Caresource Holdings, Inc. American Caresource Holdings, Inc. was
incorporated on November 24, 2003. The purchase consideration included (a)
1,100,000 shares of common stock valued at $1,848,000; (b) $3,679,499 of notes
and accrued interest owed to Patient Infosystems by American CareSource
Corporation that was extinguished by the business combination and (c) $272,710
of direct expenses associated with the acquisition. The common stock, issued in
the transaction was valued at $1.68 per share based upon the measurement date
for this transaction of April 14, 2003, which is the date the terms of the
proposed transaction were agreed upon and announced to the public.

During 2004, the Company completed its valuation for the allocation of
identifiable intangible assets and goodwill. As a result of the valuation,
$1,886,565 was allocated from goodwill to identifiable intangible assets. In
addition, $68,093 of additional expenses were incurred during 2004 and added to
goodwill. After giving effect to these items, information related to the assets
and liabilities contributed to American Caresource Holdings is as follows:


                                      F-10
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Purchase price                                                      $ 5,800,209
                                                                    ===========

Purchase allocation:
Current assets                                                      $   504,087
Property and equipment                                                  152,480
Identifiable intangible assets                                        2,348,565
Current liabilities                                                  (2,033,915)
Long-term debt                                                         (334,412)
Goodwill                                                              5,163,404
                                                                    -----------
                                                                    $ 5,800,209
                                                                    ===========

Note 3. Property and Equipment

Property and equipment consist of the following:

                                                          2005           2004
                                                          ----           ----

Computer equipment                                     $ 211,388      $ 126,083
Software                                                  80,779         26,361
Furniture and fixtures                                    22,272         19,887
Leasehold improvements                                    18,811         18,811
                                                       ------------------------
                                                         333,250        191,142
Less accumulated depreciation and amortization          (157,642)       (79,362)
                                                       ------------------------
                                                       $ 175,608      $ 111,780
                                                       ========================

Included in property and equipment are capitalized leases as follows:

                                                         2005            2004
                                                         ----            ----

Computer Equipment                                     $ 59,601        $ 57,643
Less accumulated amortization                           (14,900)        (23,527)
                                                       ------------------------
                                                       $ 44,701        $ 34,116
                                                       ========================

Note 4. Line of Credit and Long-Term Debt

In December 2004, American CareSource Holdings entered into a credit agreement
with Wells Fargo Bank, N.A. establishing a line of credit of $300,000 guaranteed
by Mr. Pappajohn, a director of American CareSource Holdings. Mr. Pappajohn did
not receive any remuneration in connection therewith. On January 28, 2005,
American CareSource Holdings amended its credit agreement with Wells Fargo Bank,
N.A. extending the line of credit to $3,000,000, the line was subsequently
increased to $4,000,000 as of August 9, 2005. Mr. Pappajohn and Dr. Schaffer,
directors of American CareSource Holdings guaranteed such increases in the
credit line. As compensation for Mr. Pappajohn's and Dr. Schaffer's guarantees
for the initial extension of credit, American CareSource Holdings issued
warrants to purchase an aggregate of 1,096,491 shares to Mr. Pappajohn and Dr.
Schaffer at an exercise price of $0.40 which was equal to the per share fair
market value of American CareSource Holdings common stock established by
American CareSource Holdings' Board of Directors based upon an independent
appraisal.

In connection with the August increase in the credit line, American CareSource
Holdings issued additional warrants to purchase an aggregate of 576,953 shares
as compensation for the guarantee extension by Mr. Pappajohn and Dr. Schaffer.
Mr. Pappajohn received warrants to purchase 432,715 shares of common stock and
Dr. Schaffer received warrants to purchase 144,238 shares of common stock. In
addition, American CareSource Holdings issued warrants to purchase 64,106 shares
as compensation to Matthew Kinley, who also guaranteed the increased credit
line. Matthew Kinley is an employee of a company owned by Mr. Pappajohn. These
warrants were issued at a strike price of $0.49 based on current fair value of
the stock.


                                      F-11
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

In December 2005, American CareSource Holdings entered into a credit agreement
with Wells Fargo Bank, N.A. increasing the line of credit to $5,000,000 and
extending the maturity of the line to March 31, 2007, which was guaranteed by
Mr. Pappajohn, a director of American CareSource Holdings. Mr. Pappajohn did not
receive any remuneration in connection with the increase in the line or the
extension of the maturity date. The line of credit bears interest at the bank's
prime index rate. The outstanding principal owed by American CareSource Holdings
as of December 31, 2005 and 2004 was $3,450,000 and $200,000, respectively. The
principal and unpaid interest on such line of credit is payable in a single
payment due in full on March 31, 2007.

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                             2005            2004
                                                                             ----            ----
<S>                                                                      <C>             <C>
Line of credit payable to Wells Fargo Bank, N.A. maturing March 2007     $ 3,450,000     $   200,000

Note payable, due in monthly installments of approximately $800
     including interest at 7.0%, maturing in April 2009                       28,820              --

Note payable to Patient Infosystems, Inc. due February 2007 including
     interest at 6%.  Payable to Patient Infosystems, Inc. was
     converted to note at time distribution to stockholders
                                                                             336,277              --

Capital lease obligations                                                     51,063          40,680
                                                                         ---------------------------
                                                                           3,866,160         240,680
Less current maturities                                                      (20,231)        (21,355)
                                                                         ---------------------------
Long-term debt, less current maturities                                  $ 3,845,929     $   219,325
                                                                         ===========================
</TABLE>

Approximate scheduled payments in each of the next five years and thereafter on
the debt and capital lease obligations are as follows:

Year ending December 31:
     2006                                                         $    20,000
     2007                                                           3,808,000
     2008                                                              21,000
     2009                                                              14,000
     2010                                                               3,000
                                                                  ===========
                                                                  $ 3,866,000

Note 5. Income Taxes

There was no income tax expense for the years ended December 31, 2005 and 2004.

Income tax expense for the years ended December 31 differed from the U.S.
federal income tax rate of 34% as a result of approximately the following:

<TABLE>
<CAPTION>
                                                                  2005           2004
                                                               ---------       ---------
<S>                                                            <C>             <C>
Computed "expected" tax benefit                                $(818,000)      $(963,000)
Change in the valuation allowance for deferred tax assets        495,000         962,000
Net operating losses lost in spin-out                            315,000
Other                                                              8,000           1,000
                                                               ---------       ---------
Total income tax expense                                       $      --       $      --
                                                               =========       =========
</TABLE>

Differences between financial accounting principles and tax laws cause
differences between the bases of certain assets and liabilities for financial
reporting purposes and tax purposes.

The tax effects of these differences, to the extent they are temporary, are
recorded as deferred tax assets and liabilities under SFAS 109 and consisted of
the following components:


                                      F-12
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                      2005              2004
                                                  -----------       -----------

Deferred tax assets:

Operating loss carryforward                       $ 1,294,000       $   753,000
Goodwill                                               39,000           156,000
Accrued vacation /compensation/other                   37,000            36,000
Debt issuance costs                                    57,000                --
Fixed assets                                           30,000            17,000
                                                  -----------       -----------
                                                    1,457,000           962,000
Valuation allowance                                (1,457,000)         (962,000)
                                                  -----------       -----------
                                                  $        --       $        --
                                                  ===========       ===========

The valuation allowance increased $495,000 and $962,000 during the year ended
December 31, 2005 and 2004, respectively.

The Company has a net operating loss carryforward of approximately $3,805,000
which expires in 2024 and 2025.

Note 6. Commitments and Contingencies

Operating leases: The Company leases certain equipment and office space under
noncancelable lease agreements, which expire at various dates through December
2012.

At December 31, 2005 minimum annual lease payments for operating and capital
leases are approximately as follows:

                                    Capital Leases   Operating Leases   Total
                                    --------------   ----------------   -----

2006                                     17,000            209,000      226,000
2007                                     17,000            205,000      222,000
2008                                     13,000             93,000      106,000
2009                                     12,000             20,000       32,000
2010                                      3,000             20,000       23,000
Thereafter                                   --             41,000       41,000
                                    -------------------------------------------

Total minimum lease payments             62,000            588,000      650,000
Less amount representing interest       (11,000)               ---      (11,000)
                                    -------------------------------------------
                                        $51,000           $588,000     $639,000
                                    ===========================================

Rent expense related to operating leases was approximately $202,000 and $222,000
for the years ended December 31, 2005 and 2004, respectively.

Employment agreements: The Company has executed employment agreements with two
employees effective through various dates from June 2006 to October 2006,
providing for minimum annual salaries and incentives.

Contingencies: The Company is party to certain complaints arising from certain
former employees. Management believes that the ultimate resolution of these
complaints will not have a material adverse effect on the financial condition,
results of operations or liquidity of the Company.

Note 7. Stock Options and Warrants

American CareSource Holdings, Inc. has an Employee Stock Option Plan (the "Stock
Option Plan") for the benefit of certain employees, non-employee directors, and
key advisors. On May 16, 2005, the stockholders approved the Stock Option Plan
which (i) authorized 2,249,329 (split adjusted ) options and (ii) established
the class of eligible participants to include employees, nominees to the Board
of Directors of American CareSource Holdings and consultants engaged by American
CareSource Holdings, limited to 50,000 the number of shares of Common Stock
underlying the one-time grant of a Non-Qualified Option to which non-employee
directors or non-employee nominees of the Board of Directors may be entitled.


                                      F-13
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The company intends to file a Form S-8 registering 2,249,329 of the Stock Option
Plan shares. Stock options granted under the Stock Option Plan may be of two
types: (1) incentive stock options and (2) nonqualified stock options. The
option price of such grants shall be determined by a Committee of the Board of
Directors (the "Committee"), but shall not be less than the estimated fair
market value of the common stock at the date the option is granted. The
Committee shall fix the terms of the grants with no option term lasting longer
than ten years. The ability to exercise such options shall be determined by the
Committee when the options are granted.

A summary of stock option activity follows:

<TABLE>
<CAPTION>
                                                                   Outstanding    Weighted-Average
                                                                     Options       Exercise Price
<S>                                                                 <C>                 <C>
      Options outstanding at December 31, 2004                             --           $  --

      Options granted during the year ended December 31, 2005       1,659,442           $0.33

      Options forfeited by holders during the year
        ended December 31, 2005                                       (50,704)          $0.31

      Options exercised during the year ended December 31, 2005            --              --

      Options outstanding at December 31, 2005                      1,608,738           $0.33

      Options exercisable at December 31, 2005                        552,720           $0.31

     Options available for grant at December 31, 2005                 640,591
</TABLE>

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2005:

<TABLE>
<CAPTION>
                                             Options Outstanding                           Options Exercisable
                              -------------------------------------------------         -------------------------
                                                      Weighted
                                                      Average          Weighted                          Weighted
                                                     Remaining          Average                           Average
           Range of             Number              Contractual        Exercise            Number        Exercise
        Exercise Price        Outstanding               Life             Price          Exercisable        Price
<S>                            <C>                      <C>             <C>                <C>             <C>
        $0.31 - $0.49          1,608,738                9.6             $ 0.33             552,720         $0.31
</TABLE>

American CareSource has warrants outstanding and exercisable for the purchase of
1,737,550 shares of common stock at December 31, 2005. American CareSource
valued the warrants using the Black Scholes method. The weighted average
exercise price at December 31, 2005 was $0.43.


                                      F-14
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 8. Related Party

American CareSource Holdings reimbursed a Director, John Pappajohn,
approximately $20,000 for business related expenses. In 2004 and 2005, American
CareSource Holdings reimbursed Patient Infosystems for employee related benefit
premium costs.


                                      F-15
<PAGE>

AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 9. Subsequent Event

In March 2006, American CareSource Holdings completed a private placement of
securities from which it received gross proceeds of approximately $10.0 million.
A portion of the proceeds from this transaction was used to payoff the existing
credit line with Wells Fargo Bank N.A. American CareSource Holdings paid an 8%
fee to the placement agent and issued warrants to purchase up to 159,952 shares
of common stock with an exercise price of $5.50, in connection with the
financing in addition to other costs.


                                      F-16