8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):
May 9, 2007 (May 3, 2007)

America Service Group Inc.

(Exact name of registrant as specified in its charter)

Delaware	0-23340	51-0332317
(State or other	(Commission	(IRS Employer
jurisdiction of incorporation)	File Number)	Identification Number)

105 Westpark Drive, Suite 200, Brentwood, Tennessee	37027
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (615) 373-3100

Not applicable
(Former Name or Former Address, if Changed Since Last Report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

     o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.01. Completion of Acquisition or Disposition of Assets.

     On May 3, 2007, Secure Pharmacy Plus, LLC (“SPP”), an indirect subsidiary of America Service Group Inc. (the “Company”) closed on the sale, at net book value, of certain of its assets, including certain inventory, equipment and contract rights associated with its pharmaceutical distribution business, to Maxor National Pharmacy Services Corporation (“Maxor”) for approximately $3.8 million, which consisted of approximately $1.9 million in inventory and approximately $2.0 million in fixed assets, offset by approximately $0.1 million of liabilities for accrued vacation assumed by Maxor. The sale was effective April 30, 2007. Prison Health Services, Inc. (“PHS”), the Company’s primary operating subsidiary and parent of SPP, was also a guarantor of certain of the obligations of SPP in connection with the sale of certain of SPP’s assets as mentioned above. Additionally, as a condition to the closing, Maxor and PHS entered into a long-term pharmacy services agreement, pursuant to which Maxor became the provider of pharmaceuticals and medical supplies to PHS, except in certain specified situations, including when a PHS client elects or requires PHS to utilize another pharmacy service provider.

Item 8.01. Other Events.

     On May 3, 2007, the Company issued a press release announcing the closing of the sale of certain assets of SPP to Maxor. A copy of the press release is attached hereto as Exhibit 99.1.

Item 9.01. Financial Statements and Exhibits.

(b) Proforma Financial Information.

The unaudited pro forma condensed consolidated balance sheet as of March 31, 2007, the unaudited pro forma condensed consolidated statements of continuing operations for the quarter ended March 31, 2007 and for the year ended December 31, 2006, and the notes to the unaudited pro forma condensed consolidated financial statements are included as Exhibit 99.2 to this Current Report on Form 8-K and incorporated by reference herein.

(d) Exhibits.

2.1	Asset Purchase Agreement, dated as of April 12, 2007, by and among Maxor National Pharmacy Services Corporation, Secure Pharmacy Plus, LLC and Prison Health Services, Inc., as guarantor (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 18, 2007).
99.1	Press Release dated May 3, 2007.
99.2	Pro forma financial information as of and for the quarter ended March 31, 2007 and for the year ended December 31, 2006.

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	AMERICA SERVICE GROUP INC.
Date: May 9, 2007	By:	/s/ Michael W. Taylor
		Michael W. Taylor
		Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number		Description of Exhibits
	2.1	Asset Purchase Agreement, dated as of April 12, 2007, by and among Maxor National Pharmacy Services Corporation, Secure Pharmacy Plus, LLC and Prison Health Services, Inc., as guarantor (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 18, 2007).
	99.1	Press release dated May 3, 2007.
	99.2	Pro forma financial information as of and for the quarter ended March 31, 2007 and for the year ended December 31, 2006.

EX-99.1

Exhibit 99.1

Contact:	Michael Catalano	Michael W. Taylor
	Chairman, President and	Senior Vice President and
	Chief Executive Officer	Chief Financial Officer
	(615) 373-3100	(615) 373-3100

AMERICA SERVICE GROUP ANNOUNCES CLOSING OF
THE SALE OF CERTAIN ASSETS OF SECURE PHARMACY PLUS

Pharmacy Services Agreement Commences

BRENTWOOD, Tennessee (May 3, 2007) — America Service Group Inc. (NASDAQ:ASGR) announced that it closed today on the sale of certain assets, at net book value, of its indirect subsidiary, Secure Pharmacy Plus, LLC (SPP), to Maxor National Pharmacy Services Corporation (Maxor) for approximately $3.8 million, net of liabilities for accrued vacation assumed by Maxor. Additionally, Maxor and Prison Health Services, Inc (PHS), the Company’s primary operating subsidiary, have entered into a long-term pharmacy services agreement pursuant to which Maxor has become the provider of pharmaceuticals and medical supplies to PHS.

The sale of certain assets of SPP to Maxor was effective April 30, 2007, and the pharmacy services agreement commenced effective May 1, 2007.

America Service Group Inc., based in Brentwood, Tennessee, is a leading provider of correctional healthcare services in the United States. America Service Group Inc., through its subsidiaries, provides a wide range of healthcare programs to government agencies for the medical care of inmates. More information about America Service Group Inc. can be found on the Company’s website at www.asgr.com or www.prisonhealthmedia.com.

Cautionary Statement
This press release contains “forward-looking” statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements in this release that are not historical facts, including statements about the Company’s or management’s beliefs and expectations, constitute forward-looking statements and may be indicated by words or phrases such as “anticipate,” “estimate,” “plans,” “expects,” “projects,” “should,” “will,” “believes” or “intends” and similar words and phrases. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following:

• the risk that government or municipal entities (including the Company’s government and municipal customers) may bring enforcement actions against, seek additional refunds from, or impose penalties on, the Company or its subsidiaries as a result of the matters investigated by the Audit Committee or the previous restatement of the Company’s financial results;

• the risks arising from shareholder litigation as a result of the matters investigated by the Audit Committee or the previous restatement of the Company’s financial results;

• risks associated with the possibility that the Company may be unable to satisfy covenants or obtain a waiver, amendment of other curative document, in the event it is unable to satisfy covenants, under its credit facility;

• risks arising from potential weaknesses or deficiencies in the Company’s internal control over financial reporting;

• risks arising from the possibility that the Company may be unable to collect accounts receivable or that accounts receivable collection may be delayed;

• the Company’s ability to retain existing client contracts and obtain new contracts at acceptable pricing levels;

• whether or not government agencies continue to privatize correctional healthcare services;

• the possible effect of adverse publicity regarding the Company’s business;

• the Company’s ability to comply with government regulations and/or orders of judicial authorities;

• increased competition for new contracts and renewals of existing contracts;

• the Company’s ability to execute its expansion strategies;

• the Company’s ability to limit its exposure for catastrophic illnesses, injuries or medical malpractice claims in excess of amounts covered under contracts or insurance coverage;

• the Company’s ability to maintain and continually develop information technology and clinical systems;

• the outcome or adverse development of pending litigation, including professional liability litigation;

• risks arising from the possibility that the acquirer of certain assets of Secure Pharmacy Plus cannot provide pharmaceuticals or related services at either a cost or service level sufficient to allow the Company to meet its contractual obligations with its customers without negatively impacting financial performance;

• the Company’s dependence on key management and clinical personnel; and

• the Company’s determination whether and/or ability to continue to repurchase shares under the stock repurchase program.

A discussion of important factors and assumptions regarding certain statements and risks involved in an investment in the Company is contained in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. These forward-looking statements are made as of the date of this release. The Company assumes no obligations to update or revise them or provide reasons why actual results may differ.

-END-

105 Westpark Drive     -      Suite 200      -      Brentwood, TN 37027      -      615-373-3100      -      Fax 615-376-9862

EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following unaudited pro forma condensed consolidated balance sheet as of March 31, 2007 and the unaudited pro forma condensed consolidated statements of continuing operations for the year ended December 31, 2006 and the quarter ended March 31, 2007 are based on the historical financial statements of America Service Group Inc. (the “Company”) after giving effect to the Company’s disposition of certain assets, including certain inventory, equipment and contract rights associated with its pharmaceutical distribution business, of its indirect subsidiary, Secure Pharmacy Plus, LLC (“SPP”) and after applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements as if such disposition had occurred as of March 31, 2007, for pro forma balance sheet purposes and as of January 1, 2006, for pro forma income statement purposes.

     The unaudited pro forma condensed consolidated financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had the Company disposed of SPP’s aforementioned assets during the specified periods. The unaudited pro forma condensed consolidated financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the Company’s historical consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2006 and in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 filed with the Securities and Exchange Commission.

AMERICA SERVICE GROUP INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2007
(shown in 000’s except share and per share amounts)

			Pro Forma
	Historical		Adjustments				Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	7,898	$	4,066		A	$	11,964
Accounts receivable, net		76,257		(90	)	B		76,167
Inventories		5,984		(2,041	)	C		3,943
Prepaid expenses and other current assets		13,295		(39	)	D		13,256
Current deferred tax assets		9,427		—				9,427
Total current assets		112,861		1,896				114,757
Property and equipment, net		7,011		(2,017	)	E		4,994
Goodwill, net		40,772		—				40,772
Contracts, net		5,131		—				5,131
Other intangibles, net		557		—				557
Other assets		7,323		—				7,323
Total assets	$	173,655	$	(121	)		$	173,534
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,505	$	—			$	22,505
Accrued medical claims liability		28,748		—				28,748
Accrued expenses		38,247		(121	)	F		38,126
Deferred revenue		10,730		—				10,730
Revolving credit facility		10,000		—				10,000
Total current liabilities		110,230		(121	)			110,109
Noncurrent portion of accrued expenses		19,597		—				19,597
Noncurrent deferred tax liabilities		2,030		—				2,030
Total liabilities		131,857		(121	)			131,736
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized at March 31, 2007; no shares issued or outstanding		—		—				—
Common stock, $0.01 par value, 20,000,000 shares authorized at March 31, 2007; 9,553,410 shares issued and outstanding at March 31, 2007		95		—				95
Additional paid-in capital		41,086		—				41,086
Retained earnings		617		—				617
Total stockholders’ equity		41,798		—				41,798
Total liabilities and stockholders’ equity	$	173,655	$	(121	)		$	173,534

The accompanying notes to unaudited pro forma condensed consolidated financial statements
are an integral part of these financial statements.

AMERICA SERVICE GROUP INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2007
(shown in 000’s except share and per share amounts)

			Pro Forma
	Historical		Adjustments				Pro Forma
Healthcare revenues	$	145,655	$	(2,686	)	A	$	142,969
Healthcare expenses		134,188		(2,913	)	B		131,275
Gross margin		11,467		227				11,694
Selling, general and administrative expenses		7,330		—				7,330
Audit Committee investigation and related expenses		14		—				14
Depreciation and amortization		1,051		(183	)	D		868
Income from operations		3,072		410				3,482
Interest, net		362		—				362
Income from continuing operations before income tax provision		2,710		410				3,120
Income tax provision		1,116		169		E		1,285
Income from continuing operations	$	1,594	$	241			$	1,835
Net income from continuing operations per common share — basic	$	0.16					$	0.18
Net income from continuing operations per common share — diluted	$	0.16					$	0.18
Weighted average common shares outstanding:
Basic		9,945,304						9,945,304
Diluted		10,032,668						10,032,668

The accompanying notes to unaudited pro forma condensed consolidated financial statements
are an integral part of these financial statements.

AMERICA SERVICE GROUP INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(shown in 000’s except share and per share amounts)

				Pro Forma
	Historical			Adjustments				Pro Forma
Healthcare revenues	$	569,409		$	(17,172	)	A	$	552,237
Healthcare expenses		530,236			(19,297	)	B		510,939
Gross margin		39,173			2,125				41,298
Selling, general and administrative expenses		25,019			—				25,019
Audit Committee investigation and related expenses		5,307			—				5,307
Impairment of goodwill		3,041			(3,041	)	C		—
Depreciation and amortization		4,129			(751	)	D		3,378
Income from operations		1,677			5,917				7,594
Interest, net		1,932			—				1,932
Income (loss) from continuing operations before income tax provision		(255	)		5,917				5,662
Income tax provision		437			2,408		E		2,845
Income (loss) from continuing operations	$	(692	)	$	3,509			$	2,817
Net income (loss) from continuing operations per common share — basic	$	(0.07	)					$	0.27
Net income (loss) from continuing operations per common share — diluted	$	(0.07	)					$	0.27
Weighted average common shares outstanding:
Basic		10,511,395							10,511,395
Diluted		10,511,395							10,614,075

The accompanying notes to unaudited pro forma condensed consolidated financial statements
are an integral part of these financial statements.

AMERICA SERVICE GROUP INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

Balance Sheet:

A.	Pro forma adjustment to give effect to the cash received for the disposition of certain assets, at book value, of SPP.
B.	Pro forma adjustment to give effect to the disposition of certain SPP accounts receivable, at book value. Accounts receivable represents amounts due from SPP vendors, such as vendor rebates. SPP customer accounts receivable outstanding were not sold in the transaction.
C.	Pro forma adjustment to give effect to the disposition of SPP inventory, at book value.
D.	Pro forma adjustment to give effect to the disposition of certain SPP prepaid expenses, at book value. Prepaid expense represents amounts paid by SPP which will benefit Maxor following the transaction, such as prepaid rent.
E.	Pro forma adjustment to give effect to the disposition of SPP fixed assets, at book value.
F.	Pro forma adjustment to give effect to the assumption by Maxor of SPP’s accrued vacation liability. No other liabilities were assumed by Maxor in the transaction.

Statements of Operations:

A.	Pro forma adjustment to give effect to the disposition of the Company’s pharmaceutical distribution services segment as a result of the sale of certain SPP assets. As such, all of SPP’s external revenue was assumed to be disposed.
B.	Pro forma adjustment to give effect to the disposition of the Company’s pharmaceutical distribution services segment as a result of the sale of certain SPP assets. As such, all of the expense related to SPP’s external revenue was assumed to be disposed.
C.	Pro forma adjustment to give effect to the elimination of the impairment of SPP’s goodwill.
D.	Pro forma adjustment to give effect to the disposition of SPP’s fixed assets.
E.	To record the income tax impact on the pro forma adjustments at the effective tax rate. The income tax effects of the pro forma adjustments assume an effective income tax rate of 41.3% and 40.7% for the quarter ended March 31, 2007 and year ended December 31, 2006, respectively.