UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington D.C. 20549 FORM
10-QSB x
  QUARTERLY REPORT PURSUANT TO
  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended: March 31, 2006ORo
  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.(Exact name of small business
  issuer as specified in its charter)  Delaware
  
  20-0428586(State or other
  jurisdiction of
  incorporation or organization)
  
  (I.R.S. Employer
  Identification No.)  8080
  Tristar Drive, Irving, Texas(Address of principal
  executive offices)  (214)
  596-2400(Issuers telephone
  number, including area code) Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act as of 1934 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 last 90 days. Yes x   No
o Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes o   No
x State
the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: As of May 13, 2006, 14,449,815
shares of the Companys common stock, par value $0.01 per share, were
outstanding. Transitional
Small Business Disclosure Format (check one) Yes o   No
x    TABLE
OF CONTENTS

AMERICAN
CARESOURCE HOLDINGS, INC.

FORM
10-QSB QUARTER ENDED MARCH 31, 2006

  Part
          I
      Financial
          Information
      
      3Item
          1.
      Financial
          Statements
      
      3Unaudited
          Consolidated Balance Sheets
      
      3Unaudited
          Consolidated Statements of Operations
      
      4Unaudited
          Statement of Stockholders Equity
      
      5Unaudited
          Consolidated Statements of Cash Flows
      
      6Unaudited
          Notes to Consolidated Financial Statements
      
      7Item
          2.
      Managements
          Discussion and Analysis or Plan of Operation
      
      13Item
          3.
      Controls
          and Procedures
      
      19Risk
          Factors
      
      20Part
          II
      Other
          Information
      
      25Item
          1.
      Legal
          Proceedings
      
      25Item
          2.
      Unregistered
          Sales of Equity Securities and Use of Proceeds
      
      25Item
          5.
      Other
          Information
      
      26Item
          6.
      Exhibits
      
      26Signatures
      
      302

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

AMERICAN CARESOURCE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)

  As
        ofMarch
        31,
        2006
    
    December
        31,
        2005ASSETSCurrent
        AssetsCash
        and Cash Equivalent
    
    $
    5,469,640
    
    $
    23,399Accounts
        Receivable
    
    
    1,312,636
    
    
    482,159Other
    
    
    21,022
    
    
    30,151Total
        Current Assets
    
    
    6,803,298
    
    
    535,709Net
        Property, Plant, and Equipment
    
    
    168,456
    
    
    175,608Intangible
        Assets
    
    
    1,868,006
    
    
    1,921,401Goodwill
    
    
    4,361,299
    
    
    4,361,299Total
        Assets
    
    $
    13,201,059
    
    $
    6,994,017LIABILITIES
        AND STOCKHOLDERS EQUITYCurrent
        LiabilitiesDue
        to Service Providers
    
    $
    1,043,267
    
    $
    386,217Accounts
        Payable and Accrued Liabilities
    
    
    446,130
    
    
    352,383Current
        Maturities of Long-Term Debt
    
    
    356,865
    
    
    20,231Total
        Current Liabilities
    
    
    1,846,262
    
    
    758,831Long-Term
        Debt
    
    
    54,401
    
    
    3,845,929Total
        Liabilities
    
    
    1,900,663
    
    
    4,604,760STOCKHOLDERS
        EQUITY:Common
        Stock-par value $0.01, 40,000,000 shares authorized and 14,434,815 and
        12,371,309 shares issued and outstanding as of March 31, 2006 and December
        31, 2005 respectively
    
    
    144,348
    
    
    123,713Preferred
        Stock-par value $0.01, 10,000,000 shares authorized and none outstanding
        as of March 31, 2006 and 2005
    
    
    0
    
    
    0Additional
        Paid in Capital
    
    
    16,839,240
    
    
    7,734,800Deferred
        Debt Issuance Cost
    
    
    (185,199
    )
    
    (231,500
    )Accumulated
        (Deficit)
    
    
    (5,497,993
    )
    
    (5,237,756
    )Total
        Stockholders Equity
    
    
    11,300,396
    
    
    2,389,257Total
        Liabilities and Equity
    
    $
    13,201,059
    
    $
    6,994,017See notes to unaudited consolidated financial
statements.

3

AMERICAN CARESOURCE
HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

  Three
          Months EndedMarch
          31,2006
      
      2005REVENUESNet
          Ancillary Health
      
      $
      2,432,232
      
      $
      1,208,862Patient
          Claims Processing
      
      
      32,149
      
      
      100,322Net
          Revenue
      
      
      2,464,381
      
      
      1,309,184Total
          Cost of Revenues
      
      
      2,045,474
      
      
      1,261,639Contribution
          Margin
      
      
      418,907
      
      
      47,545Selling,
          General, and Administrative Expense
      
      
      531,266
      
      
      455,079Depreciation
          and Amortization
      
      
      78,247
      
      
      76,512Total
          Operating Expenses
      
      
      609,513
      
      
      531,591Operating
          (Loss)
      
      
      (190,606
      )
      
      (484,046
      )Other
          Expenses:
      
      
      2,632
      
      
      Debt
          Issuance Cost
      
      
      46,301
      
      
      23,832Net
          Interest and Finance Cost
      
      
      20,699
      
      
      10,617Total
          Other Expenses
      
      
      69,631
      
      
      34,449Net
          (Loss) Before Income Tax
      
      
      (260,237
      )
      
      (518,495
      )Income
          Tax Expense
      
      
      
      
      
      Net
          (Loss)
      
      $
      (260,237
      )
      $
      (518,495
      )NET
          LOSS PER SHARE  BASIC AND DILUTED
      
      $
      (0.02
      )
      $
      (0.04
      )WEIGHTED
          AVERAGE COMMON SHARES
      
      
      13,278,649
      
      
      12,371,309See notes to unaudited consolidated financial
statements.

4

AMERICAN CARESOURCE HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
    FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND MARCH 31, 2005 (UNAUDITED)

Deferred

AccumShares

Amount

APIC

Debt

Deficit

TotalBalance December 31, 2004


10,091,899

$
100,919

$
7,180,948

$


$
(2,831,238
)
$
4,450,629Issue & Amortization of
Warrants








214,489


(190,657
)




23,832Net Loss














(518,496
)

(518,496
)Balance March 31, 2005


10,091,899

$
100,919

$
7,395,437

$
(190,657
)
$
(3,349,734
)
$
3,955,965Balance
          December 31, 2005


12,371,309

$
123,713

$
7,734,800

$
(231,500
)
$
(5,237,756
)
$
2,389,257Issue
          of 2,063,506 Common Stock Shares


2,063,506


20,635


9,082,210








9,102,845Option Compensation Expense








22,230








22,230Amortization of WarrantsAssociated with DeferredDebt











46,301





46,301Net Loss














(260,237
)

(260,237
)Balance March 31, 2006


14,434,815

$
144,348

$
16,839,240

$
(185,199
)
$
(5,497,993
)
$
11,300,3965

AMERICAN CARESOURCE HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three
        Months
    
    Three
        MonthsEnded
    
    EndedMarch
        31, 2006
    
    March
        31, 2005OPERATING
        ACTIVITIES:Net
        loss
    
    $
    (260,237
    )
    $
    (518,495
    )Adjustments
        to reconcile net loss to net cash used in operating activities:Stock
        Option Compensation Expense
    
    
    22,230
    
    
    Depreciation
        and amortization
    
    
    78,247
    
    
    76,512Compensation
        expense related to warrants
    
    
    46,301
    
    
    23,832Changes
        in operating assets and liabilities:Increase
        in (decrease) accounts receivable
    
    
    (830,477
    )
    
    (167,662
    )Increase
        in prepaid expenses and other current assets
    
    
    9,129
    
    
    (7,341
    )Increase
        (decrease) in accounts payable and accrued liabilities
    
    
    93,747
    
    
    (58,453
    )Increase
        in amounts payable to services providers
    
    
    657,050
    
    
    73,796Net
        cash used in operating activities
    
    
    (184,010
    )
    
    (577,812
    )INVESTING
        ACTIVITIES:Property
        and equipment additions
    
    
    (17,700
    )
    
    (41,211
    )Net
        cash used in investing activities
    
    
    (17,700
    )
    
    (41,211
    )FINANCING
        ACTIVITIES:Borrowings
        from Line of Credit
    
    
    200,000
    
    
    1,600,000Payment
        on line of credit or long term debt
    
    
    (3,654,894
    )
    
    (5,445
    )Net
        proceeds from the sale of capital stock
    
    
    9,102,845
    
    
    Net
        cash provided by financing activities
    
    $
    5,647,951
    
    $
    677,592NET
        INCREASE IN CASH AND CASH EQUIVALENTS
    
    $
    5,446,241
    
    $
    58,569CASH
        AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    23,399
    
    
    16,749CASH
        AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    5,469,640
    
    $
    75,318Supplemental
        disclosures cash flow informationCash
        paid for interest expense
    
    $
    88,805
    
    $
    10,172See notes to unaudited consolidated financial
statements.

6

AMERICAN
CARESOURCE HOLDINGS, INC. AND SUBSIDIARIES

Notes to
Unaudited Consolidated Financial Statements for the period ended March 31, 2006

Note 1. Summary of Significant Accounting Policies

  Description of business:
    American CareSource Holdings, Inc. and subsidiaries (the Company) a
    Delaware corporation. 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 administrator and preferred provider organizations. The Company currently
    has three subsidiaries: Ancillary Care Services, Ancillary Care Medicare,
    and Ancillary Care Workers Comp. These subsidiaries currently do not have
    any financial or other activity for the three months ended March 31, 2006 and March
    31, 2005.

  The accompanying unaudited
    condensed consolidated financial statements have been prepared in accordance
    with the interim reporting requirements of Form 10-QSB and Item 310(b) of
    Regulation S-B. Consequently, financial information and disclosures normally
    included in financial statements prepared annually in accordance with Generally
    Accepted Accounting Principals (GAAP) have been condensed or omitted. Readers
    of this report should therefore, refer to the consolidated financial statements
    and the notes included in our Annual Report on Form 10-KSB for the fiscal
    year ended December 31, 2005, filed with Securities and Exchange Commission
    on March 31, 2006.

  In the opinion of management,
    all adjustments (consisting of normal recurring adjustments) which are necessary
    to fairly present our financial position and our results of operations as
    of and for these periods have been made.

Our interim results of operations are not necessarily
indicative of results of operations that will be realized for the full fiscal
year.

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.

7

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

Leasehold
  improvements


5 yearsComputer equipment


3 - 5 yearsFurniture
  and fixtures


7 yearsSoftware


3 - 5 yearsThe 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
March 31, 2006.

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:

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.

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.

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.

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

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
the 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, 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 and as compensation to an outside investment bank for arranging equity
financing. The warrants issued in exchange for the guarantee were valued at
$376,646 as of the date of the grant using the fair value method. These deferred

8

debt issuance
costs are being amortized to expense over the life of the guarantee. The
Company also issued 159,952 warrants as compensation to an investment bank for
arranging a private placement during the quarter. The warrants were valued at $463,409
as of the date of the grant using the fair value method. This amount has been
offset against the capital raised.

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

Three Months Ended March 31, 2006

Three Months Ended March 31, 2005Accounts
  Receivable

Revenue

% of TotalRevenue

Accounts
  Receivable

Revenue

% of Total
  RevenueCustomer A

$
880,000

$
1,565,000



64
%

$


$




0
%Customer B


95,000


571,000



23
%


246,000


715,000



55
%Customer C


239,000


178,000



7
%


221,000


316,000



24
%Customer D


3,000


65,000



3
%


28,000


84,000



6
%Customer E


13,000


30,000



1
%


79,000


95,000



7
%$
1,230,000

$
2,409,000



98
%

$
575,000

$
1,210,000



92
%Stock-Based Compensation: We have one
stock-based compensation plan. The plan is administered by our compensation
committee of the Board of Directors, which selects persons eligible to receive
awards and determines the number of shares and/or options subject to each
award, the terms, conditions, performance measures, and other provisions of the
award. Readers should refer to Note 7 of our consolidated financial statements
in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005,
for additional information related to the stocked-based compensation plan.

Effective January
1, 2006, the Company adopted SFAS No. 123 (revised), share-Based Payment
(SFAS 123(R)) utilizing the modified prospective approach. Prior to the
adoption of SFAS 123(R) we accounted for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees (the intrinsic
value method), and accordingly, recognized no compensation expense for stock
option grants.

Under the
modified prospective approach, SFAS 123(R) applies to new awards and to awards
that were outstanding on January 1, 2006 that are subsequently modified,
repurchased or cancelled. Under the modified prospective approach, compensation
cost recognized in the first quarter of 2006 includes compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and compensation cost for all share-based
payments granted subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123(R). Prior periods
were not restated to reflect the impact of adopting the new standard.

As a result of
adopting SFAS 123(R) on January 1, 2006, our income before taxes, net income
and basic and diluted earnings per share for three months ended March 31, 2006,
were reduced by approximately $22,000 than if we had continued to account for stock-based
compensation under APB Opinion No. 25 for our stock option grants.

We may receive
a tax deduction for certain stock option exercises during the period the
options are exercised, generally for the excess of the price at which the
options are sold over the exercise prices of the options. Prior to adoption of
SFAS 123(R), we reported all tax benefits resulting from the exercise of stock
options as operating cash flows in our condensed consolidated statements of
cash flows. In accordance with SFAS 123(R), for the three months ended March
31, 2006, we revised our condensed consolidated statements of cashflow presentation
to report the tax benefits from the exercise of stock options as
financing cash flows. For the three months ended March 31, 2006, we are not
recording a current tax benefit.

Net cash
Proceeds from the exercise of stock options were $20,997 for the three months
ended March 31, 2006. There was no income tax benefit realized from stock
options exercised as the Company is in a loss position and has recorded a
valuation allowance related to any net deferred tax asset.

The following
table illustrates the effect on operating results and per share information had
the Company accounted for stock-based compensation in accordance with SFAS
123(R) for the three months ended March 31, 2005:

9

Net
          income:As
          reported
      
      $
      (518,495
      )Add:
          Stock-based employee compensation reported in net income, net of taxes
      
      
      Deduct:
          Stock-based employee compensation under the fair value method of all
          awards, net of taxes
      
      
      (34,698
      )Pro
          forma
      
      
      (553,193
      )Basic
          and diluted net income per share:As
          reported
      
      
      (0.04
      )Pro
          forma
      
      $
      (0.04
      )Stock Options

We use the
Black-Scholes option pricing model to estimate the fair value of stock-based
awards with the following weighted-average assumptions for the indicated
periods.
Three Months Ended
  March 31,2006

2005Dividend
  yield


0
%

0
%Expected
  volatility


110
%

60
%Risk-free
  interest rate


5
%

4
%Expected
  life of options (in years)


5


5Weighted-average
  grant-date fair value

$
4.54


0.19
The
assumptions above are based on multiple factors, including historical exercise
patterns of employees in relatively homogeneous groups with respect to exercise
and post-vesting employment termination behaviors, expected future exercising
patterns for these same homogeneous groups and the implied volatility of our
stock price.

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 March 31, 2006 and 2005. 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. 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.

Sale of Capital Shares:

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

10

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.

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 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. 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.

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 March 31, 2006 and December 31, 2005 was
none and $200,000, respectively. The line remains open for future use through
March 31, 2007, as needed.

11

Long-term debt consists of the following:

March 31, 2006

December 31, 2005Line of credit
  payable to Wells Fargo Bank, N.A. maturing March 2007


$
0



$
3,450,000Note payable,
  due in monthly installments of approximately $800 including interest at 7.0%,
  maturing in April 2009



26,898




28,820Note 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




336,277Capital lease
  obligations



48,091




51,063411,266




3,866,160Less current
  maturities



(356,865
)



(20,231
)Long-term debt,
  less current maturities


$
54,401



$
3,845,929Note 3. 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. The company
filed a Form S-8 registering 2,249,329 of the Stock Option Plan shares on April
7, 2006. 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:

Outstanding

Weighted-AverageOptions

Exercise
  PriceOptions
  outstanding at December 31, 2005

1,608,561



$
0.33Options granted
  during the quarter ended March 31, 2006

100,000



$
5.60Options
  forfeited by holders during the quarter ended March 31, 2006

(20
)


$
0.31Options
  exercised during the quarter ended March 31, 2006

(64,106
)


$
0.31Options
  outstanding at March 31, 2006.

1,644,445



$
0.65Options
  exercisable at March 31, 2006

568,676



$
0.34Options
  available for grant at March 31, 2006

540,778




12

The following table summarizes information concerning
outstanding and exercisable options at March 31, 2006:

Options
        Outstanding
    
    Options
        ExercisableRange
        of
        Exercise Price
    
    Number
        Outstanding
    
    WeightedAverage
        Remaining
        Contractual
        Life
    
    Weighted
        
        AverageExercise
        Price
    
    Number
        Exercisable
    
    Weighted
        Average
        Exercise 
        Price$0.31
        - $0.49
    
    1,544,445
    
    
    9.3
    
    
    
    $
    0.33
    
    
    565,898
    
    
    
    $
    0.32$5.60
    
    100,000
    
    
    9.9
    
    
    
    $
    5.60
    
    
    2,778
    
    
    
    $
    5.60American CareSource has warrants
          outstanding and exercisable for the purchase of 1,897,502 shares of
          common stock at March 31, 2006. American CareSource valued the warrants
          using the Black Scholes method. The weighted average exercise price
          at March 31, 2006 was $0.86.The total instrinsic value of options exercised during the quarter ended March 31, 2006, was $358,288.

A summary of the Companys nonvested shares as of March 31, 2006, and changes during the quarter ended
March 31, 2006, is presented below:

  Nonvested Shares
      
      Options
      
      
      Weighted-
          Average 
          Grant-DateFair
          ValueNonvested
          at January 1, 2006
      
      1,056,018
      
      
      
      $
      0.34Granted
      
      100,000
      
      
      
      
      5.60Vested
      
      (80,229
      )
      
      
      
      0.52Forfeited
      
      (20
      )
      
      
      
      0.31Nonvested
          at March 31, 2006
      
      1,075,769
      
      
      
      $
      0.81As a March 31, 2006, there was approximately $460,000 of total unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.2 years. The total fair value
of shares vested during the quarter ended March 31, 2006, was $28,992.


SPECIAL
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

  This
    filing contains many forward-looking statements that involve substantial risks
    and uncertainties. You can identify these statements by forward-looking words
    such as may, will, expect, 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 that it is important to communicate our future expectations to our
investors. However, we may be unable to accurately predict or control events in
the future. The factors listed in the section captioned Risk Factors, as well
as any other cautionary language in this filing, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of certain
of the events described in the Risk Factors section could seriously harm our
business.

Item 2.
Managements Discussion and Analysis or Plan of Operations

Managements
discussion and analysis provides a review of American CareSource Holdings
operating results for the quarter ended March 31, 2006 and its financial
condition at March 31, 2006. 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 quarterly report may include
    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 Securities Exchange Commission. In evaluating such statements,
    investors should specifically consider the various factors identified in this
    10-QSB, including the matters set forth under the caption Risk Factors
    which could cause actual results to differ materially from those indicated
    by such forward-looking statements. We disclaim any obligation to update information
    contained in any forward-looking statement.

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

13

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. Further, American CareSource Holdings was 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.

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

A
review of the quarter ending March 31, 2006 compared to March 31, 2005.

American
CareSource Holdings statement of operations for the quarters ended,

March
        31, 2006
    
    March
        31, 2005Net
        Revenue
    
    
    $
    2,464,381
    
    
    
    $
    1,309,184Cost
        of revenue
    
    
    
    2,045,474
    
    
    
    
    1,261,639Selling,
        general and administrative expense
    
    
    
    531,266
    
    
    
    
    455,079Depreciation
        and amortization
    
    
    
    78,247
    
    
    
    
    76,512Operational
        loss
    
    
    
    (190,606
    )
    
    
    
    (484,046
    )Financing
        costs & other
    
    
    
    (69,631
    )
    
    
    
    (34,449
    )14

Net loss


($
260,237
)


($
518,495
)Revenues
      
      March
          31, 2006
      
      March
          31, 2005Net
          Ancillary health
      
      2,432,232
      
      
      1,208,862Patient
        claims
      
      32,149
      
      
      100,322Net
          Revenues
      
      2,464,381
      
      
      1,309,184Revenues
of American CareSource Holdings are comprised of revenues from ancillary
service claims and processing of patient claims. Net Revenues increased to
$2,464,381 from $1,309,184 during the quarter ended March 31, 2006 as compared
to the quarter ended March 31, 2005, or 88%. The majority of the increase is a
result of a new client that was implemented in December 2005.

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.

The
revenues for the processing of patient claims for the quarter ended March 31,
2006 decreased to $32,149 as compared to $100,322for the quarter ended March 31, 2005. 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 revenue 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 revenue
    increased from $1,261,639 for the quarter ended March 31, 2005 to $2,045,434
    for the quarter ended March 31, 2006. The increase in these costs primarily
    reflects an increase in amounts paid to providers for service as a result
    of our revenue increase.

Selling,
general and administrative expense remained relatively constant at $531,266 for
the quarter ended March 31, 2006 as compared to $455,079 for the quarter ended
March 31, 2005. 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. The majority of the cost
increase is related to the increased cost of operating as a public company.

Amortization
and depreciation expense increased to $78,247 in quarter ended March 31, 2006
compared to $76,512 in quarter ended March 31, 2005. These expenses include
$53,395 of amortization of intangibles that includes $21,379 in amortization of
certain software development costs and $32,016 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 March 31, 2006, the
Companys analysis of its goodwill and related intangibles did not indicate any
impairment.

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.

15

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

  March
          31, 2006
      
      March
          31, 2005Debt
          Issuance Cost
      
      
      $
      (46,301
      )
      
      
      $
      (23,832
      )Finance
          Cost
      
      
      
      (2,632
      )
      
      
      
      Net
          Interest Expense
      
      
      
      (20,698
      )
      
      
      
      (10,617
      )Total
          revenues
      
      
      $
      (69,631
      )
      
      
      $
      (34,449
      )Interest
    expense increased to $20,698 for the quarter ended March 31, 2006 from $10,617
    for the quarter ended March 31, 2005, due primarily to the balance of the
    Companys line of credit and certain capitalized equipment leases. The
    increase in debt issuance cost is associated with the amortization cost of
    warrants and expenses related to the guarantees of the Companys Wells
    Fargo Line of credit.

Taxes

American
CareSource Holdings had no tax benefit in the quarter ended March 31, 2006 or
the quarter ended March 31, 2005 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 carry forwards. At this time, management is continuing to
record a full valuation allowance to reduce deferred tax benefit.

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 $260,237 for the quarter ended March
31, 2006 as compared to $518,495 for the quarter ended March 31, 2005. On a per
share basis, the Company lost $0.02 per share for the quarter ending March 31,
2006 and $0.04 per share for the quarter ended March 31, 2005.

Liquidity and
Capital Resources

  As
    of March 31, 2006, American CareSource Holdings had working capital of $4,957,036
    as compared to working capital deficit of ($223,122) at March 31, 2005. Since
    its inception, American CareSource Holdings has not generated positive cash
    flow from operation and has relied on external sources for its operational,
    working capital and capital expenditures needs.

  Since
    the acquisition by Patient Infosystems in December 2003, 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 $336,277 as of March
    31, 2006 and December 31, 2005, respectively.

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 (a portion of the warrants granted to Mr. Pappajohn in January
2005 and August 2005 were subsequently

16

gifted by Mr.
Pappajohn to certain individuals). 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.
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 (7.75% at March 31, 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 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. 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. A registration statement registering such shares for
resale was filed on April 7, 2006. On May 11, 2006, the Securities and Exchange
Commission declared effective this registration statement.

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 outstanding
principal retired by American CareSource Holdings was $3,650,000. 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, and available capital. 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 quarters ended March 31, 2006 and March 31, 2005. 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

17

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.

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:

  
      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.
      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.
      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.
      The
          Company is responsible to the service provider for processing the claim
          and managing the claim their adjustor processes.
      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 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 March 31, 2006 or March 31, 2005, or for the periods then ended.

Pending Accounting Pronouncements

18

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 material impact on the consolidated
financial statement, results of operations or liquidity of American CareSource
Holdings.

Item 3. 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 March 31, 2006.
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 Securites 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.

19

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 $5.5 million as
of March 31, 2006. Its predecessor never achieved profitability either.
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 has never earned profits. Based on American CareSource
Holdings current plans, and 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 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.

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

  American CareSource Holdings
    five largest customers account for approximately 92% of its revenues quarter
    ending March 31, 2005 and 98% of its revenue during the quarter ended March
    31, 2006. 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.

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.

20


  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 quarter ended March 31, 2006. 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:

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

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.

21

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.

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.

22

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.

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 May 11, 2006, American CareSource
Holdings has 14,434,815 shares of common stock outstanding. At May 11, 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 have been granted
and 1,629,445 options are outstanding as of May 11, 2006) under the American
CareSource Holdings, Inc. 2005 Stock Option Plan. If all of the outstanding
warrants are exercised and all options available under the American CareSource
Holdings, Inc. 2005 Stock Option Plan are issued and exercised, there will be
approximately 18,581,646 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 May 9,
2006, our officers, directors and principal stockholders (greater that 5%
stockholders) together control approximately 52.4% 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.

23

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 with the
Securities and Exchange Commission 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 Securities and Exchange Commission 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.

24

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings.

On
March 1, 2006, Dayton Area Health Plan and CareSource Management Group, Co.
Inc. (collectively DAHP), wrote a letter to American CareSource Holdings
informing American CareSource Holdings that it believed American CareSource
Holdings is infringing on 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.

On
April 24, 2006, Ancillary Care Management, Inc. (ACM) wrote a letter to
American CareSource Holdings informing American CareSource Holdings that it
believed that American CareSource Holdings wholly owned subsidiary Ancillary
Care Services is infringing on ACMs registered mark ANCILLARY CARE
MANAGEMENT. ACM has asked American CareSource Holdings and Ancillary Care
Services to cease and desist the use of the designations ANCILLARY CARE
SERVICES, ANCILLARY CARE or any other designations similar to ANCILLARY CARE
MANAGEMENT. American CareSource Holdings believes that the claim is without
merit and that its use is valid. However, 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.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

  American
    CareSource Holdings issued warrants to purchase a total of 1,737,550 shares
    of American CareSource Holdings common stock as compensation for certain debt
    guarantees by Mr. Pappajohn and Dr. Schaffer. 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 the 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 (a portion of the warrants
    granted to Mr. Pappajohn in January 2005 and August 2005 were subsequently
    gifted by Mr. Pappajohn to certain individuals). 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
October, 2005, Patient Infosystems sold 3,411,512 shares of its common stock
from which it received gross proceeds of approximately $12,000,000. 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 15, 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.

25

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. 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 15, 2005 distribution of American CareSource Holdings common stock.

  In
    March 2006 the Company completed a private placement 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. The Company paid $799,760 in commissions to
    Laidlaw and Company, the placement agent. 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. The Company also issued 159,952 warrants to the placement
    agent at an exercise price of $5.50 per share. These warrants were valued
    at $463,409 as of the date of the grant using the fair value method.

  Item
    5. Other Information.

American CareSource Holdings filed a Form S-8 registering 2,249,329 shares of its Employee Stock Option Plan on April
7, 2006.


  Additionally,
    on May 11, 2006 the Securities and Exchange Commission declared effective
    American CareSource Holdings Registration Statement on Form SB-2 covering
    4,292,280 shares of common stock for the resale of such shares from time to
    time by certain selling stockholders listed therein. Of such shares, (i) 1,859,310
    shares were issued pursuant to the distribution by dividend of American CareSource
    Holdings common stock by Patient Infosystems, Inc. to investors in its
    October 2005 private offering; (ii) 273,618 shares were issued pursuant to
    the distribution by dividend of shares of American CareSource Holdings
    common stock by Patient Infosystems, Inc. as payment of dividends in the October
    2005 dividend distribution of Patient Infosystems common stock to its
    Series C and Series D preferred stockholders of Patient Infosystems; and (iii)
    2,159,352 shares were issued by American CareSource Holdings, Inc. in its
    March 2006 private placement. Of the above amounts, 313,470 shares are issuable
    upon exercise of certain common stock purchase warrants issued as compensation
    to Laidlaw & Company (UK) Ltd. for acting as the placement agent in connection
    with the March 2006 private placement.

  Item
    6. Exhibits.

Exhibit #
  
  Description
  of Exhibits3.1(2)
  
  Certificate of Incorporation3.2(2)
  
  By-Laws3.3(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(10)
  
  Certificate of Incorporation of Ancillary Care
  Services  Group Health, Inc.3.7(10)
  
  Certificate of Incorporation of Ancillary Care
  Services  Medicare, Inc.3.8(10)
  
  Certificate of Incorporation of Ancillary Care
  Services  Workers Compensation, Inc.3.9(10)
  
  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.26

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.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.27

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(10)
  
  Form of Registration Rights Agreement used in March
  2006 private placement.10.29(10)
  
  Form of Subscription Agreement used in March 2006
  private placement.10.30(10)
  
  Amended and Restated Stock Purchase Warrant, dated
  March 30, 2006, by and among American CareSource Holdings, Inc. and John
  Pappajohn (amends Stock Purchase Warrant, dated January 27, 2005).10.31(10)
  
  Amended and Restated Stock Purchase Warrant, dated
  March 29, 2006, by and among American CareSource Holdings, Inc. and Derace L.
  Schaffer (amends Stock Purchase Warrant, dated January 27, 2005).10.31(10)
  
  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).10.32(10)
  
  Amended and 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).10.33(10)
  
  Amended and Restated Stock Purchase Warrant, dated
  March 30, 2006, by and among American CareSource Holdings, Inc. and Matthew
  P. Kinley (amends Stock Purchase Warrant, dated January 27, 2005).14.1(10)
  
  Code of Ethics31.1
  
  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.28

(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.(10)
  
  Previously filed with the Securities and Exchange
  Commission as an Exhibit to the Form 10-KSB filed March 31, 2006 and
  incorporated herein by reference.29

SIGNATURES

In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

American CareSource Holdings, Inc.Date: May
  15, 2006
  By:
  /s/ Wayne A.
  SchellhammerWayne A.
  SchellhammerChief
  Executive OfficerDate: May
  15, 2006
  By:
  /s/ David S.
  BooneDavid S.
  BooneChief
  Operating Officer andChief
  Financial OfficerDate: May
  15, 2006
  By:
  /s/ Steven
  M. PhillipsSteven M.
  PhillipsController
  and Chief Accounting Officer30