UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington
D.C. 20549




FORM
10-Q




x QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934.
 
 For the
quarterly period ended June 30, 2008
 
 OR
 
 oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934.
 
 Commission
File Number 1-33094
 
 AMERICAN
CARESOURCE HOLDINGS, INC.
 (Exact
name of registrant as specified in its charter)


DELAWARE
            
            20-0428568(State
      or other jurisdiction of

                  incorporation
      or organization)
            
            (I.R.S.
      employer

                  identification
      no.)




5429
LYNDON B. JOHNSON FREEWAY
 SUITE
700
 DALLAS,
TEXAS
 75240
 (Address
of principal executive offices)
 (Zip
code)
 
 (972)
308-6830
 (Registrant's
telephone number, including area code)
  Indicate
by check mark 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 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes xNo o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “accelerated filer”,” large
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
  Large
      Accelerated Filer o
                  Non-Accelerated
      Filer oAccelerated
      Filer o (do
      not check if a smaller reporting
company)
                  Smaller
      Reporting Company x
 
 Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.)  Yes oNo x
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:
 The
number of shares of common stock of registrant outstanding on August 14, 2008
was 15,093,171.
  
  TABLE OF
CONTENTS
 AMERICAN
CARESOURCE HOLDINGS, INC.
 FORM
10-Q
 FOR THE
QUARTER ENDED JUNE 30, 2008
 
 
 Part
      I
                Financial
      Information
                1Item
      1.
                Financial
      Statements
                1Consolidated
      Statements of Operations (unaudited)
                1Consolidated
      Balance Sheets
      (unaudited)
                2Consolidated
      Statements of Stockholders’ Equity (unaudited)
                3Consolidated
      Statements of Cash Flows (unaudited)
                4Notes
      to Unaudited Consolidated Financial Statements
                5Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                9Item
      4.
                Controls
      and
      Procedures
                13Part
      II
                Other
      Information
                14Item
      1A.
                Risk
      Factors
                14Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                14Item
      6.
                Exhibits
                14Signatures
                
                15
  
  PART
I. FINANCIAL INFORMATION
 
 ITEM 1.
Financial Statements
  AMERICAN
CARESOURCE HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
  Three
      months ended
                    
                    
                    Six
      months endedJune
      30,
                    
                    
                    June
      30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Net
      revenues
                    
                    $
                    13,012,528
                    
                    
                    $
                    4,008,288
                    
                    
                    $
                    24,518,203
                    
                    
                    $
                    6,274,857Cost
      of revenues
                    
                    
                    11,110,593
                    
                    
                    
                    3,478,292
                    
                    
                    
                    20,911,715
                    
                    
                    
                    5,579,935Contribution
      margin
                    
                    
                    1,901,935
                    
                    
                    
                    529,996
                    
                    
                    
                    3,606,488
                    
                    
                    
                    694,922Selling,
      general and administrative expenses
                    
                    
                    1,194,504
                    
                    
                    
                    1,209,740
                    
                    
                    
                    2,307,358
                    
                    
                    
                    1,911,272Depreciation
      and amortization
                    
                    
                    96,606
                    
                    
                    
                    83,642
                    
                    
                    
                    188,672
                    
                    
                    
                    161,715Total
      operating expenses
                    
                    
                    1,291,110
                    
                    
                    
                    1,293,382
                    
                    
                    
                    2,496,030
                    
                    
                    
                    2,072,987Operating
      income (loss)
                    
                    
                    610,825
                    
                    
                    
                    (763,386
                    )
                    
                    
                    1,110,458
                    
                    
                    
                    (1,378,065
                    )Interest
      income
                    
                    
                    (31,240
                    )
                    
                    
                    (49,758
                    )
                    
                    
                    (71,908
                    )
                    
                    
                    (103,632
                    )Interest
      expense
                    
                    
                    1,606
                    
                    
                    
                    2,488
                    
                    
                    
                    3,444
                    
                    
                    
                    6,449Debt
      issuance costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    46,300Total
      interest (income) expense, net
                    
                    
                    (29,634
                    )
                    
                    
                    (47,270
                    )
                    
                    
                    (68,464
                    )
                    
                    
                    (50,883
                    )Income
      (loss) before income taxes
                    
                    
                    640,459
                    
                    
                    
                    (716,116
                    )
                    
                    
                    1,178,922
                    
                    
                    
                    (1,327,182
                    )Income
      tax provision
                    
                    
                    19,019
                    
                    
                    
                    -
                    
                    
                    
                    36,064
                    
                    
                    
                    -Net
      income (loss)
                    
                    $
                    621,440
                    
                    
                    $
                    (716,116
                    )
                    
                    $
                    1,142,858
                    
                    
                    $
                    (1,327,182
                    )Earnings
      (loss) per common share:Basic
                    
                    $
                    0.04
                    
                    
                    $
                    (0.05
                    )
                    
                    $
                    0.08
                    
                    
                    $
                    (0.09
                    )Diluted
                    
                    $
                    0.04
                    
                    
                    $
                    (0.05
                    )
                    
                    $
                    0.07
                    
                    
                    $
                    (0.09
                    )Basic
      weighted average common shares outstanding
                    
                    
                    15,069,007
                    
                    
                    
                    14,492,863
                    
                    
                    
                    14,973,213
                    
                    
                    
                    14,489,806Diluted
      weighted average common sharesoutstanding
                    
                    
                    17,435,365
                    
                    
                    
                    14,492,863
                    
                    
                    
                    17,343,860
                    
                    
                    
                    14,489,806
 See
accompanying notes.
  1
  AMERICAN
CARESOURCE HOLDINGS, INC.
 CONSOLIDATED
BALANCE SHEETS
 June
      30,2008
                  
                  
                  December
      31,(Unaudited)
                  
                  
                  2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  6,077,395
                  
                  
                  $
                  4,272,498Accounts
      receivable, net
                  
                  
                  4,421,223
                  
                  
                  
                  3,651,203Prepaid
      expenses and other current assets
                  
                  
                  561,066
                  
                  
                  
                  403,559Deferred
      income taxes
                  
                  
                  5,886
                  
                  
                  
                  5,886Total
      current assets
                  
                  
                  11,065,570
                  
                  
                  
                  8,333,146Property
      and equipment, net
                  
                  
                  640,115
                  
                  
                  
                  332,450Other
      assets:Certificate
      of deposit, restricted
                  
                  
                  145,000
                  
                  
                  
                  145,000Deferred
      income taxes
                  
                  
                  255,731
                  
                  
                  
                  255,731Other
      non-current assets
                  
                  
                  200,739
                  
                  
                  
                  237,246Intangible
      assets, net
                  
                  
                  1,387,447
                  
                  
                  
                  1,494,238Goodwill
                  
                  
                  4,361,299
                  
                  
                  
                  4,361,299$
                  18,055,901
                  
                  
                  $
                  15,159,110LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Due
      to service providers
                  
                  $
                  4,225,359
                  
                  
                  $
                  3,344,278Accounts
      payable and accrued liabilities
                  
                  
                  1,605,439
                  
                  
                  
                  1,320,036Current
      maturities of long-term debt
                  
                  
                  57,718
                  
                  
                  
                  55,697Total
      current liabilities
                  
                  
                  5,888,516
                  
                  
                  
                  4,720,011Long-term
      debt
                  
                  
                  20,967
                  
                  
                  
                  50,348Commitments
      and contingenciesShareholders'
      equity:Preferred
      stock, $0.01 par value; 10,000,000 shares
      authorized,none
      issued
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, $0.01 par value; 40,000,000 shares
      authorized;15,087,855
      and 14,668,416 shares issued and outstanding in2008
      and 2007, respectively
                  
                  
                  150,879
                  
                  
                  
                  146,684Additional
      paid-in capital
                  
                  
                  18,224,494
                  
                  
                  
                  17,613,880Accumulated
      deficit
                  
                  
                  (6,228,955
                  )
                  
                  
                  (7,371,813
                  )Total
      shareholders' equity
                  
                  
                  12,146,418
                  
                  
                  
                  10,388,751$
                  18,055,901
                  
                  
                  $
                  15,159,110
  See
accompanying notes.
  2
  AMERICAN
CARESOURCE HOLDINGS, INC.
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
 (Unaudited)
 Additional
                  
                  
                  
                  
                  
                  TotalCommon
      Stock
                  
                  
                  Paid-in
                  
                  
                  Accumulated
                  
                  
                  Stockholders'Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  EquityBalance
      at December 31, 2007
                  
                  
                  14,668,416
                  
                  
                  $
                  146,684
                  
                  
                  $
                  17,613,880
                  
                  
                  $
                  (7,371,813
                  )
                  
                  $
                  10,388,751Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,142,858
                  
                  
                  
                  1,142,858Stock-based
      compensation expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  316,147
                  
                  
                  
                  -
                  
                  
                  
                  316,147Exercise
      of stock options
                  
                  
                  419,439
                  
                  
                  
                  4,195
                  
                  
                  
                  133,136
                  
                  
                  
                  -
                  
                  
                  
                  137,331Issuance
      of common stock warrants forpayment
      of client management fees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  161,331
                  
                  
                  
                  -
                  
                  
                  
                  161,331Balance
      at June 30, 2008
                  
                  
                  15,087,855
                  
                  
                  $
                  150,879
                  
                  
                  $
                  18,224,494
                  
                  
                  $
                  (6,228,955
                  )
                  
                  $
                  12,146,418
  See
accompanying notes.
  3
  AMERICAN
CARESOURCE HOLDINGS, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
  Six
      months ended June 30,2008
                  
                  
                  2007Cash
      flows from operating activities:Net
      income (loss)
                  
                  $
                  1,142,858
                  
                  
                  $
                  (1,327,182
                  )Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in) operations:Stock-based
      compensation expense
                  
                  
                  316,147
                  
                  
                  
                  206,032Depreciation
      and amortization
                  
                  
                  188,672
                  
                  
                  
                  161,715Amortization
      of debt issuance costs
                  
                  
                  -
                  
                  
                  
                  46,300Client
      management fee expense related to warrants
                  
                  
                  26,455
                  
                  
                  
                  8,812Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (770,020
                  )
                  
                  
                  (325,268
                  )Prepaid
      expenses and other assets
                  
                  
                  13,876
                  
                  
                  
                  (366,038
                  )Accounts
      payable and accrued liabilities
                  
                  
                  285,403
                  
                  
                  
                  370,967Due
      to service providers
                  
                  
                  881,081
                  
                  
                  
                  112,983Net
      cash provided by (used in) operating
      activities
                  
                  
                  2,084,472
                  
                  
                  
                  (1,111,679
                  )Cash
      flows from investing activities:Investment
      in software development costs
                  
                  
                  (284,085
                  )
                  
                  
                  -Additions
      to property and equipment
                  
                  
                  (105,461
                  )
                  
                  
                  (69,606
                  )Net
      cash used in investing activities
                  
                  
                  (389,546
                  )
                  
                  
                  (69,606
                  )Cash
      flows from financing activities:Payments
      on long-term debt
                  
                  
                  (27,360
                  )
                  
                  
                  (322,572
                  )Proceeds
      from exercise of stock options
                  
                  
                  137,331
                  
                  
                  
                  2,391Net
      cash provided by (used in) financing
      activities
                  
                  
                  109,971
                  
                  
                  
                  (320,181
                  )Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  1,804,897
                  
                  
                  
                  (1,501,466
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  4,272,498
                  
                  
                  
                  5,025,380Cash
      and cash equivalents at end of period
                  
                  $
                  6,077,395
                  
                  
                  $
                  3,523,914Supplemental
      cash flow information:Cash
      paid for interest
                  
                  $
                  3,444
                  
                  
                  $
                  25,310Supplemental
      non-cash financing activity:Warrants
      issued as payment of client management fees
                  
                  $
                  161,331
                  
                  
                  $
                  52,913
  See
accompanying notes.
  4
  American
CareSource Holdngs, Inc.
 Notes to
Condensed Financial Statements
 (Unaudited)
  (1)
                Description
      of Business and Basis of
Presentation
  American
CareSource Holdings, Inc., a Delaware corporation (the “Company,” “American
CareSource Holdings,” “ACS,” “we,” “our,” “us,” or the “Registrant”), 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.  American CareSource Holdings has one wholly
owned subsidiary, Ancillary Care Services, Inc. (“Care Services”).
  The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) interim reporting requirements of Form 10-Q and Rule 8-03
of Regulation S-X of the rules and regulations of the Securities and Exchange
Commission (“SEC”). Consequently, financial information and disclosures normally
included in financial statements prepared annually in accordance with GAAP have
been condensed or omitted.  Balance sheet amounts are as of June 30,
2008 and December 31, 2007 and operating result amounts are for the three months
and six months ended June 30, 2008 and 2007, and include all normal and
recurring adjustments that we consider necessary for the fair summarized
presentation of our financial position and operating results.  As
these are condensed financial statements, readers of this report should,
therefore, refer to the consolidated financial statements and the notes included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007,
filed with the SEC on March 31, 2008.
  In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131,
“Disclosures About Segments of an Enterprise and Related Information,” the
Company uses the “management approach” for reporting information about segments
in annual and interim financial statements.  The management approach
is based on the way the chief operating decision-maker organizes segments within
a company for making operating decisions and assessing
performance.  Reportable segments are based on products and services,
geography, legal structure, management structure and any other manner in which
management disaggregates a company.  Based on the “management
approach” model, the Company has determined that its business is comprised of a
single operating segment.
  Our
interim results of operations are not necessarily indicative of results of
operations that will be realized for the full fiscal year.
   (2)
                Revenue
      Recognition
 
 The
Company evaluates its 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
its contracted service provider network for
the following reasons:
  ·
                The
      Company negotiates a contract with the service provider and also
      negotiates separate contracts with the payor. Neither the service provider
      nor the payor can look through the Company and claim directly against the
      other party. Each service provider contracts with the Company only, and
      not with the payor.  Likewise, each payor contracts with the
      Company only, and not with the service provider.  Each party
      deals directly with the Company and does not deal directlywith each
  other.
  ·
                The
      Company determines through negotiations which service providers will be
      included inor excluded from the network to be offered to the
      client payor based on, among other things, priceand
access.
  ·
                The
      Company does not earn a fixed dollar amount per client transaction
      regardless of the amount billed to clients or earn a stated percentage of
      the amount billed to its clients.
  ·
                The
      Company is responsible to the service provider for processing claims and
      managing the claims its adjustors
process.
  5
  ·
                The
      Company sets prices to be settled with payors and separately negotiates
      the prices to be settled with the service
  providers.
  ·
                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 service
providers.
  When
claims are recorded gross, the payor’s payment to the 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 not have responsibility for collecting 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
revenues.
  The
Company records an allowance on all sales reported as gross to arrive at a net
revenue amount. Co-payments, deductibles and co-insurance can all affect the
collectability of each individual claim. While the Company is able to re-price a
claim and accurately estimate what should be paid for the service, the presence
of co-pays, deductibles and co-insurance can all affect the ultimate
collectability of the claim. In addition, the Company’s collection experience
with each payor varies.  The Company records an allowance against
gross revenue to better estimate collectability. This allowance is applied
specifically for each payor and is adjusted to reflect the Company’s collection
experience each quarter.
 
 During
the six months ended June 30, 2008, two ofthe Company’s customers comprised a significant portion of the Company’s
revenues.  The following is a summary of the approximate amounts of
the Company’s revenue and accounts receivable contributed by each of those
customers as of the dates presented:
  Six
      months ended June 30,2008
                  
                  
                  2007Accounts
                  
                  
                  
                  
                  
                  %
      of Total
                  
                  
                  Accounts
                  
                  
                  
                  
                  
                  %
      of Totalreceivable
                  
                  
                  Revenue
                  
                  
                  Revenues
                  
                  
                  receivable
                  
                  
                  Revenue
                  
                  
                  RevenuesCustomer
      A
                  
                  $
                  2,183,000
                  
                  
                  $
                  14,947,000
                  
                  
                  
                  61%
                  
                  
                  $
                  791,000
                  
                  
                  $
                  4,449,000
                  
                  
                  
                  71%Customer
      B
                  
                  
                  2,183,000
                  
                  
                  
                  9,040,000
                  
                  
                  
                  37%
                  
                  
                  
                  710,000
                  
                  
                  
                  998,000
                  
                  
                  
                  16%Others
                  
                  
                  55,000
                  
                  
                  
                  531,000
                  
                  
                  
                  2%
                  
                  
                  
                  159,000
                  
                  
                  
                  828,000
                  
                  
                  
                  13%$
                  4,421,000
                  
                  
                  $
                  24,518,000
                  
                  
                  
                  100%
                  
                  
                  $
                  1,660,000
                  
                  
                  $
                  6,275,000
                  
                  
                  
                  100%
  6
  (3)
                Earnings
      Per Share
 
 The
following table details the reconciliation of basic earnings per share to
diluted earnings per share:
 
 Three
      months ended
                  
                  
                  Six
      months endedJune
      30,
                  
                  
                  June
      30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Numerator
      for basic and diluted earnings per share:Net
      income (loss)
                  
                  $
                  621,440
                  
                  
                  $
                  (716,116
                  )
                  
                  $
                  1,142,858
                  
                  
                  $
                  (1,327,182
                  )Denominator:Weighted-average
      basic common shares outstanding
                  
                  
                  15,069,007
                  
                  
                  
                  14,492,863
                  
                  
                  
                  14,973,213
                  
                  
                  
                  14,489,806Assumed
      conversion of dilutive securities:Stock
      options
                  
                  
                  805,761
                  
                  
                  
                  -
                  
                  
                  
                  832,779
                  
                  
                  
                  -Warrants
                  
                  
                  1,560,597
                  
                  
                  
                  -
                  
                  
                  
                  1,537,868
                  
                  
                  
                  -Potentially
      dilutive common shares
                  
                  
                  2,366,358
                  
                  
                  
                  -
                  
                  
                  
                  2,370,647
                  
                  
                  
                  -Denominator
      for diluted earningsper
      share - Adjusted weighted - average shares
                  
                  
                  17,435,365
                  
                  
                  
                  14,492,863
                  
                  
                  
                  17,343,860
                  
                  
                  
                  14,489,806Earnings
      per common share:Basic
                  
                  $
                  0.04
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.08
                  
                  
                  $
                  (0.09
                  )Diluted
                  
                  $
                  0.04
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.07
                  
                  
                  $
                  (0.09
                  )
  (4)
                Long-Term
      Debt
 
 Long-term
debt consists of the following as of the dates presented:
 
 June
      30,
                  
                  
                  December
      31,2008
                  
                  
                  2007Notes
      payable to Capital One Bank, $135,000 dueSeptember
      2009, due in monthly installments ofapproximately
      $4,143, including interest at 6.5%
                  
                  $
                  59,470
                  
                  
                  $
                  81,939Capital
      lease obligations
                  
                  
                  19,215
                  
                  
                  
                  24,10678,685
                  
                  
                  
                  106,045Less
      current maturities
                  
                  
                  (57,718
                  )
                  
                  
                  (55,697
                  )Long-term
      debt, less current maturities
                  
                  $
                  20,967
                  
                  
                  $
                  50,348
 
 (5)
                Stock
      Warrants
 
 On July
2, 2007, the Company announced that it had signed an Ancillary Care Services
Network Access Agreement (“the agreement”) effective May 21, 2007 with a new
customer, Texas True Choice, Inc. (“TTC”).  As partial compensation
under the agreement, the Company issued to an affiliate of TTC, warrants to
purchase a total of 225,000 shares of the Company’s common stock at an exercise
price of $1.84, the closing price of our stock on May 21, 2007.  25%
of the shares vested on May 21, 2007 and May 21, 2008, and 25% vest on May 21 on
each of the two subsequent years.  As of June 30, 2008, 25%, or 56,250
warrants had vested.  According to the agreement, TTC must provide two
years notice in the event of termination.  Since the measurement date
for the third traunch of warrants had been reached as of June 30, 2008, we
recorded the fair value of 25% of the warrants, or 56,250 warrants, which were
recorded as other non-current assets and will be amortized over the related
contract period.  The total fair value of the warrants was $161,331,
which was recorded based on the Black-Scholes-Merton method.
  7
  (6)
                Recent
      Accounting Pronouncements
 
 In
December 2007, the Financial Accounting Standards Board issued SFAS No. 141(R)
“Business Combinations.”  SFAS No. 141(R) changes the accounting for
business combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition related transaction costs and the recognition of changes in the
acquirer’s income tax valuation allowance.  SFAS No. 141(R) is
effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited.   We are currently evaluating the impact of
the pending adoption of SFAS 141(R) on our financial statements.
  8
  FORWARD-LOOKING
STATEMENTS
 
 This
discussion includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. You can identify these statements by
forward-looking words such as “may,” “will,” “expect,” “intend”, “anticipate,”
“believe,” “estimate” and “continue” or similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future operating results or of our
financial condition or state other “forward-looking” information.
  We believe it is important to communicate to our stockholders and
potential investors not only the Company’s current condition, but management’s
forecasts about the Company’s future opportunities, performance and results,
including, for example, information with respect to potential margin expansion,
cash reserves and other financial items, and our strategies and
prospects.  However, forward-looking statements are based on current
expectations and assumptions and are subject to substantial risks and
uncertainties, including, but not limited to, risks of market acceptance of, or
preference for, the Company’s systems and services, competitive forces, the
impact of geopolitical events and changes in government regulations, general
economic conditions and economic factors in the country and the healthcare
industry, and other risk factors as may be listed from time to time in the
Company’s filings with the SEC. In evaluating such forward-looking statements,
investors should specifically consider the matters set forth under the caption
“Risk Factors” appearing in our Annual Report on Form 10-K for the year ended
December 31, 2007 which was filed with the SEC on March 31, 2008, as well as any
other cautionary language contained in this quarterly report, any of which could
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements.  Except to the extent required by
applicable securities laws and regulations, we disclaim any obligation to update
or revise information contained in any forward-looking statement contained
herein to reflect events or circumstances occurring after the date of this
quarterly report.
  ITEM
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
  GENERAL
 
 Management’s
discussion and analysis provides a review of the Company’s operating results for
the three and six months ended June 30, 2008 and its financial condition at June
30, 2008. The focus of this review is on the underlying business reasons for
significant changes and trends affecting the revenues, net income or loss and
financial condition of the Company. This review should be read in conjunction
with the accompanying unaudited consolidated financial statements and the
audited consolidated financial statements and the notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2007.
  OVERVIEW
  ACS
provides ancillary healthcare services through its proprietary network of
ancillary healthcare service providers for the benefit of its healthcare payor
clients.  Clients route
healthcare claims to ACS after service has been performed by providers who participatein the ACS network.ACS re-prices those claims according
to its contractual rate with the serviceprovider.  In the process of re-pricing the claim, ACS is paid
directly by the client or the insurer for the provider’sservice.  ACS then pays the
serviceprovider according to its
contractual rate.  ACS assumes the risk of generating positive margin,
the difference between the payment it receives for the service and the amount it
is obligated to pay the original serviceprovider or member of its proprietary network.
 
 The
Company recognizes revenues for ancillary healthcare services when services by
providers have been authorized and performed and collections from payors are
reasonably assured.  Cost of revenues for ancillary healthcare
services consist of amounts due to providers for providing patient services,
client administration fees paid to client payors to reimburse them for the cost
of implementing and managing claims submissions, and the Company’s related
direct labor and overhead of processing invoices, collections and payments. The
Company is not liable for costs incurred by independent contract service
providers until the Company receivespayment from the payors. The Company recognizes actual or estimated
liabilities to independent contract service providers as the related revenues
are recognized. The Company markets its products to insurance companies,
third-party administrators and preferred provider
organizations.  Although we have never reported a profit for a full
fiscal year, we realized positive net income of $506,953 during the second half
of 2007, which ended December 31, 2007.  Our improved performance
during this period was attributable to the addition of five new clients during
our fiscal year2007 and the expansion of
services performed for existing clients. The Company is seeking continuing
growth in the number of client payor and service provider relationships by
focusing on providing in-network services for its payors and aggressively
pursuing additional preferred provider organizations and third-party
administrators as its primary sales targets. The Company believes that this
strategy should increase the volume of claims the Company can adjudicate as well
as the volume of patients it can direct through its service provider network. No
assurances can be given that the Company can expand its service provider networkor payor relationships, nor that any such
expansion will result in an improvement in the results of operations of the
Company.
  9
  RECENT EVENTS
  On June 30, 2008, the Company announced that it signed
an agreement with Viant Holdings, Inc. (“Viant”) to provide ancillary care
services to the payor client base of an affiliate of Viant.  The
affiliate offers comprehensive healthcare management services and custom
healthcare cost containment solutions for clients across the United
States.
  
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
 
 Management’s discussion and analysis of our
financial condition and results of operations is based upon our condensed financial
statements.  These condensed financial statements have been prepared
following the requirements of accounting principles generally accepted in the
United States (“GAAP”) for interim periods and require us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities.  On an ongoing basis, we evaluate our estimates,
including those related to revenue recognition and amortization and potential
impairment of intangible assets and goodwill and stock-based compensation
expense.  As these are condensed financial statements, one should also
read expanded information about our critical accounting policies and estimates
provided in Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” under the heading
“Critical Accounting Policies,” included in ourAnnual Report on Form 10-K for the year ended
December 31, 2007. There have been no material changes to our critical
accounting policies and estimates from the information provided in our Form10-K for the year ended December 31,
2007.
 
 ANALYSIS
OF RESULTS OF OPERATIONS
 
 Revenues
 
 The
following table sets forth a comparison of our revenues for the periods
presented ending June 30:
 
 Second
      Quarter
                  
                  
                  Six
      MonthsChange
                  
                  
                  
                  
                  
                  
                  
                  
                  Change($
      in thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %Net
      revenues
                  
                  $
                  13,013
                  
                  
                  $
                  4,008
                  
                  
                  $
                  9,005
                  
                  
                  
                  225
                  %
                  
                  $
                  24,518
                  
                  
                  $
                  6,275
                  
                  
                  $
                  18,243
                  
                  
                  
                  291
                  %
  The
Company’s net revenues are generated from ancillary healthcare service claims.
For the three and six months ended June 30, 2008, approximately $5.9 million and
$12.1 million, respectively, of the increases in net revenues was due to the
addition of five new clients with which we entered into agreements in
2007.  In addition, revenue from established clients increased
approximately $3.1 million and $6.1 million, respectively, for the three and six
months ended June 30, 2008 compared to the corresponding prior year
periods.  Those increases were the result of expansion of services to
those existing clients.
 
 The
Company will continue to attempt to increase the number of client payors and
service provider relationships by focusing on providing in-network services for
its payors and aggressively pursuing preferred provider organizations and third
party administrators as its primary sales targets. The Company believes that
this strategy should increase the volume of claims the Company can adjudicate as
well as the volume of patients it can direct through its service provider
network. No assurances can be given that the Company can expand its service
provider networkor payor relationships,
nor that any such expansion will result in an improvement in the results of
operations of the Company.
  10
  Cost of Revenues and
Contribution Margins
 
 The
following table sets forth a comparison of the components of our cost of
revenues, for the periods presented ending June 30:
 
 Second
      Quarter
                  
                  
                  Six
      MonthsChange
                  
                  
                  
                  
                  
                  
                  
                  
                  Change($
      in thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %
 Provider
      payments
                  
                  $
                  9,555
                  
                  
                  $
                  2,793
                  
                  
                  $
                  6,762
                  
                  
                  
                  242%
                  
                  
                  $
                  17,946
                  
                  
                  $
                  4,337
                  
                  
                  $
                  13,609
                  
                  
                  
                  314%Administrative
      fees
                  
                  
                  751
                  
                  
                  
                  166
                  
                  
                  
                  585
                  
                  
                  
                  352%
                  
                  
                  
                  1,453
                  
                  
                  
                  253
                  
                  
                  
                  1,200
                  
                  
                  
                  474%Fixed
      costs
                  
                  
                  805
                  
                  
                  
                  519
                  
                  
                  
                  286
                  
                  
                  
                  55%
                  
                  
                  
                  1,513
                  
                  
                  
                  990
                  
                  
                  
                  523
                  
                  
                  
                  53%Total
      cost of revenues
                  
                  $
                  11,111
                  
                  
                  $
                  3,478
                  
                  
                  $
                  7,633
                  
                  
                  
                  219%
                  
                  
                  $
                  20,912
                  
                  
                  $
                  5,580
                  
                  
                  $
                  15,332
                  
                  
                  
                  275%
  Cost of
revenues is comprised of payments to our providers,
administration fees paid to our client payors for converting claims to
electronic data interchange and routing them to both the Company for processing
and to their payors for payment, and the fixed costs of our network development
and claims administration organizations.  For the three and six month
periods ended June 30, 2008, the increases in total cost of revenues compared to
the corresponding prior year periods,  reflect increased amounts paid
to providers for their services as a result of our increased revenues, and the
fluctuation in the mix of types of services provided by the
Company.  The increase in administration fees was due to the addition
of five new clients and expanded relationships with existing
clients.  Fixed costs increased due to increased costs and expenses
related to increased volume of claims processing.
 
 
 The
following table sets forth a comparison of contribution margin percentage for
the periods presented ending June 30:
  Second Quarter
                    
                    
                    Six MonthsChange
                    
                    
                    
                    
                    
                    
                    
                    
                    Change($ in thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    % pts
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    % ptsContribution margin
                    
                    
                    14.6%
                    
                    
                    
                    13.2%
                    
                    
                    
                    1.4%
                    
                    
                    
                    14.7%
                    
                    
                    
                    $11.1%
                    
                    
                    
                    3.6%
  Contribution
margin is calculated by dividing the difference between net revenues and total
costs of revenues by net revenues.  The increase in contribution
margin reflected in the above table is attributable primarily to the increase in
net revenues, offset by a variety of factors, including more aggressive pricing
by the Company, fluctuations in the mix of services provided by the Company, and
increased administration fees payable to clients.  The Company
anticipates that it will continue to experience margin expansion as the rate of
client volume increases over time as a result of leveraging its fixed cost
infrastructure.
 
 Selling,
General and Administrative Expenses
 
 The
following table sets forth a comparison of our selling,
general and administrative (“SG&A”) expenses for the periods presented
ending June 30:
 
 Second
      Quarter
                  
                  
                  Six
      MonthsChange
                  
                  
                  
                  
                  
                  
                  
                  
                  Change($
      in thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %
 Selling, general and administrative
      expenses
                  
                  $
                  1,195
                  
                  
                  $
                  1,210
                  
                  
                  $
                  (15
                  )
                  
                  
                  (1)%
                  
                  
                  $
                  2,307
                  
                  
                  $
                  1,911
                  
                  
                  $
                  396
                  
                  
                  
                  17%Percentage
      of total net revenues
                  
                  
                  9.2%
                  
                  
                  
                  30.2%
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9.4%
                  
                  
                  
                  30.5%
 
 Selling,
general and administrative (“SG&A”) expenses consist primarily of salaries
and related benefits, travel costs, sales commissions, sales materials, other
marketing related expenses, costs of corporate operations, finance and
accounting, human resources and other general operating expenses of the
Company.  The increase in SG&A reflected in the above table is
primarily related to increased professional expenses, specifically accounting,
legal and consulting fees, accrued bonuses related to improved operating results
compared to the prior year periods, increased stock-based compensation expense
and sales commissions commensurate with our increased sales.  Those
increases were offset by the effect of the severance costs incurred during the
three months ended June 30, 2007 related to our former Chief Executive Officer,
who resigned effective June 30, 2007.  Those costs were approximately
$330,000.
  11
  SG&A
expenses as a percentage of net revenues decreased over the prior year periods
as a result of the disproportionately greater increase in our net
revenues.
 
 Depreciation and
Amortization
 
 The
following table sets forth a comparison of depreciation and amortization for the
periods presented ending June 30:
 
 Second
      Quarter
                  
                  
                  Change
                  
                  
                  Six
      Months
                  
                  
                  Change($
      in thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  
                  %Depreciation
                  
                  $
                  44
                  
                  
                  $
                  31
                  
                  
                  $
                  13
                  
                  
                  
                  42%
                  
                  
                  $
                  83
                  
                  
                  $
                  56
                  
                  
                  $
                  27
                  
                  
                  
                  48
      %Amortization
                  
                  
                  53
                  
                  
                  
                  53
                  
                  
                  
                  -
                  
                  
                  
                  - %
                  
                  
                  
                  106
                  
                  
                  
                  106
                  
                  
                  
                  -
                  
                  
                  
                  - %Total
      Depreciation and amortization
                  
                  $
                  97
                  
                  
                  $
                  84
                  
                  
                  $
                  13
                  
                  
                  
                  15%
                  
                  
                  $
                  189
                  
                  
                  $
                  162
                  
                  
                  $
                  27
                  
                  
                  
                  17%
  Amortization
of intangibles consists of $21,000 of amortization of certain software
development costs and $32,000 in amortization of the capitalized value of
provider contracts that were acquired in
the2003 acquisition of American CareSource
Corporation’s assets by Patient Infosystems (now CareGuide, Inc.).
 
 Interest (Income) Expense,
net
 
 The
following table sets forth a comparison of the components of interest (income)
expense, net for the periods presented ending June 30:
 
 Second
      Quarter
                    
                    
                    Change
                    
                    
                    Six
      Months
                    
                    
                    Change($
      in thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    $
                    
                    
                    
                    %
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    $
                    
                    
                    
                    %
 Interest
      income
                    
                    $
                    (32
                    )
                    
                    $
                    (50
                    )
                    
                    $
                    18
                    
                    
                    
                    (36)%
                    
                    
                    $
                    (72
                    )
                    
                    $
                    (103
                    )
                    
                    $
                    31
                    
                    
                    
                    (30)%Interest
      expense
                    
                    
                    2
                    
                    
                    
                    3
                    
                    
                    
                    (1
                    )
                    
                    
                    (33)%
                    
                    
                    
                    4
                    
                    
                    
                    6
                    
                    
                    
                    (2
                    )
                    
                    
                    (33)%Debt
      issuance costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
      %
                    
                    
                    
                    -
                    
                    
                    
                    46
                    
                    
                    
                    (46
                    )
                    
                    
                    (100)%Total
      interest (income)expense, net
                    
                    $
                    (30
                    )
                    
                    $
                    (47
                    )
                    
                    $
                    17
                    
                    
                    
                    (36)%
                    
                    
                    $
                    (68
                    )
                    
                    $
                    (51
                    )
                    
                    $
                    (17
                    )
                    
                    
                    33
      %
  For the
six months ended June 30, 2008, interest (income) expense, net increased
compared to the prior year period due to the amortization of debt issuance costs
of $46,300, which was incurred during the
first quarter of 2007.  Those costs were fully amortized as of
December 31, 2007.
  Income Tax
Provision
 
 For the
three and six months ended June 30, 2008, a provision for income taxes of $19,019 and $36,064 was recorded, respectively, as
compared to no income tax provision being recorded in the prior year
periods.  The provision amounts for the aforementioned periods in 2008
represents our estimated margin tax liability in the State of
Texas.
  12
  FINANCIAL
CONDITION AND LIQUIDITY
  As of
June 30, 2008, the Company had a working capital surplus of $5.2 million as
compared to a working capital surplus of $3.6 million at December 31,
2007.  The increase in working capital is primarily the result of net
cash provided by operating activities of $2.1 million during the six months
ended June 30,2008.  That
increase was partially offset by capital expenditures of approximately $390,000
during the same period.
  For the
six months ended June 30, 2008, operating activities provided net cash of $2.1
million, the primary components of which were net income of $1.1 million,
adjusted for non-cash charges of share-based compensation expense of $316,147 and depreciation and amortization of
$188,672, and a net decrease in
operating assets and liabilities of $410,340.  Net operating assets and liabilities
declined due to the timing of collection of claims paid to us by our clients and
payments made by us to the service providers in our network and the accrual made
for performance related bonuses during the six months ended June 30,
2008.
 Investing
activities in the quarter endedJune 30, 2008 were comprised of investments in
software development costs of $284,085 and in property and equipment of $105,461.  The software development costs
relate primarily to enhancements to our internal reporting
capabilities.
  Financing
activities in the quarter endedJune 30, 2008produced cash of $109,971,
compared to cash used of $320,181 in the
corresponding period in
2007.  Cash generated in financing activities was primarily comprised
of proceeds of $137,331, from the exercise of employee stock options, $129,725 of which was received from the exercise
of 399,007 stock options by the former
Chief Executive Officer of the Company.  Those proceeds were offset by
payment made under capital leases of $27,360.
 
 During
the six months ended June 30, 2008, the
Company’s net income was $1.1 million and
cash flows from operating activities were $2.1 million.  Historically,
we have relied on external sources of capital, including indebtedness or issuance of equitysecurities.  We believe our current
cash balance ($6.1 million as of June 30, 2008) and expected future cash flows
from operations will be sufficient to meet our anticipated cash needs for
working capital, capital expenditures and other activities through the next
twelve months.  If operating cash flows are not sufficient to meet our
needs, we believe that credit or access to capital through issuance of equity
would be available to us.
  INFLATION
  Inflation
did not have a significant impact on the Company’s costs during the quarters
ended March 31, 2008 and March 31, 2007, respectively.  The Company
continues to monitor the impact of inflation in order to minimize its effects
through pricing strategies, productivity improvements and cost
reductions.
  OFF-BALANCE
SHEET ARRANGEMENTS
  The
Company does not have any material off-balance sheet arrangements at June 30,
2008 or June 30, 2007 or for the periods then ended.
  ITEM
4.  Evaluation of Disclosure Controls and Procedures
 
  Evaluation of Disclosure Controls and
Procedures. Our management, with the participation of our Chief Executive
Officerand Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures as of June
30, 2008.  Based upon this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) are effective for the
recording, processing, summarizing and reporting of the information that the
Company is required to disclose in the reports it files under the Exchange Act,
within the time periods specified in the SEC’s rules and forms.
  Changes in Internal Controls Over
Financial Reporting.  Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has concluded that there
were no changes in the Company’s internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended) during the quarter ended
June 30, 2008 that have materially affected the Company’s internal controls over
financial reporting or are reasonably likely to materially affect internal
controls over financial reporting, including any corrective actions with regard
to significant deficiencies and material weaknesses.
  13
  Part
II. OTHER INFORMATION
  ITEM
1A.  Risk Factors
 
 In
addition to the other information set forth in this report, one should carefully
consider the discussion of various risks and uncertainties contained in Part I,
“Item 1A. Risk Factors” in our 2007 Annual Report on Form 10-K.  We
believe those risk factors are the most relevant to our business and could cause
our results to differ materially from the forward-looking statements made by
us.  Please note, however, that those are not the only risk factors
facing us.  Additional risks that we do not consider material, or of
which we are not currently aware, may also have an adverse impact on
us.  Our business, financial condition and results of operations could
be seriously harmed if any of these risks or uncertainties actually occurs or
materializes.  In that event, the market price for our common stock
could decline, and our shareholders may lose all or part of their
investment.  During the first three months of 2008, there were no
material changes in the information regarding risk factors contained in our
Annual Report on Form 10-K for the year ended December 31, 2007.
 
 
 ITEM
4.  Submission of Matters to a Vote of Security Holders
 
 We held
our annual meeting of stockholders on May 20, 2008.  The results of
the matters voted on at the meeting are as follows:
 
 With
respect to the election of directors, shares were voted as follows:
  Number
      of
                
                Number
      of VotesNominee
                
                Votes
      For
                
                WithheldEdward
      B. Berger
                
                
                9,919,376
                
                
                
                539,883John
      W. Colloton
                
                
                10,397,259
                
                
                
                62,000Kenneth
      S. George
                
                
                10,397,259
                
                
                
                62,000John
      N. Hatsopoulos
                
                
                10,397,259
                
                
                
                62,000John
      Pappajohn
                
                
                9,919,334
                
                
                
                539,925Derace
      L. Schaffer, MD
                
                
                9,919,376
                
                
                
                539,883
  With
respect to the ratification of McGladrey & Pullen LLP as our independent
auditors for fiscal year 2008, votes were as follows:
 
 For
                Against
                Abstain10,418,758
                9,800
                30,701
 
 
 ITEM
6.   Exhibits
 
 Exhibit
      31.1
                Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002
 Exhibit
      31.2
                  Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002
 Exhibit
      32.1
                  Certifications
      Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002
  14
 SIGNATURES
 
 Pursuant
to the requirements 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/ David
      S. BooneDavid
      S. BoonePresident
      and Chief Executive Officer (principal executive officer and an authorized
      signatory)
 By:
                    /s/ Steven
      J. ArmondSteven
      J. ArmondChief
      Financial Officer (principal financial officer and an authorized
      signatory)
 By:
                  /s/ Matthew
      D. ThompsonMatthew
      D. ThompsonController
      (principal accounting officer and an authorized
  signatory)
 
 
 Date:
August 14, 2008
   15