America Service Group Announces Business Update.

BRENTWOOD, Tenn. -- America Service Group Inc. (NASDAQ:ASGR) announced today a business update related to new contract selections, contract expirations and full-year 2005 guidance.

New Contract Selections

The Company's operating subsidiary, Prison Health Services, Inc. (PHS), has been selected by Shasta County, California, to begin contract negotiations to provide comprehensive healthcare services to its average daily population of approximately 500 inmates beginning July 1, 2005. The provision of services is subject to the negotiation of a final contract. Although no assurance can be given as to whether this contract will be successfully negotiated or as to its terms, the Company currently expects the contract to be completed shortly.

The Company's operating subsidiary, Secure Pharmacy Plus, LLC (SPP), has added a new pharmacy client in Spokane County, Washington. SPP is providing pharmacy services to an average daily population of approximately 1,100 inmates effective May 16, 2005.

Annual revenues under the two new PHS and SPP contracts are expected to be approximately $2.5 million.

Contract Expirations

PHS has received formal notice that it will not be re-awarded the Idaho Department of Correction contract effective July 12, 2005. Based on information provided to all proposers by the State of Idaho Department of Administration, Division of Purchasing, an industry competitor significantly underbid PHS. The Department of Correction's decision to award was based on per diem rates offered by proposers for a "Total Risk Option." PHS has incurred losses year-to-date on the current full-risk contract with the Idaho Department of Correction, due to expire July 11, 2005.

Additionally, PHS has received notification that it was significantly underbid by an industry competitor and will not be re-awarded the Guilford County, North Carolina, contract effective July 1, 2005. PHS has incurred losses year-to-date on the current contract with Guilford County, due to expire June 30, 2005.

2005 Guidance

The Company expects that the financial results generated from new contract awards subsequent to the end of the first quarter, discussed in this and previous press releases, will more than offset any financial impact of the contract expirations noted above. As such, the Company is maintaining its previous guidance for full-year 2005 results. Consistent with past practice, the Company's guidance for full-year 2005 results reflects only those contracts either currently in operation or that the Company is in contract negotiations to begin later in the year. The Company's guidance does not consider any additional potential new business awards. The Company currently expects 2005 earnings to be in a range of $1.42 to $1.53 per diluted share on expected diluted shares outstanding of approximately 11.25 million. Total Revenues from continuing and discontinued operations are expected to be in a range of $660 million to $700 million in 2005, dependent primarily upon the level of aggregate cap revenues realized during the year. Pre-tax income from continuing and discontinued operations is expected to be in a range of $26.6 million to $28.6 million in 2005. The Company expects its effective tax rate to be approximately 40% for 2005. Depreciation, amortization and net interest expense is expected to be approximately $5.4 million in 2005. The Company expects an increase in cash on hand to approximately $30 million by December 31, 2005, assuming days sales outstanding in accounts receivable are reduced to approximately 40 days.

America Service Group Inc., based in Brentwood, Tennessee, is the leading provider of correctional healthcare services in the United States. America Service Group Inc., through its subsidiaries, provides a wide range of healthcare and pharmacy programs to government agencies for the medical care of inmates.

The most directly comparable GAAP measures for the guidance provided by the Company are: Healthcare Revenues; Income from Continuing Operations Before Income Taxes; Depreciation and Amortization; and Interest, each of which will only include results from continuing contracts. Because it is not possible to reliably forecast discontinued operations, reconciliation of the Company's guidance to the most directly comparable GAAP measure is not practicable to be estimated on a forward-looking basis.

This press release may contain "forward-looking" statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including the Company's beliefs and expectations of future performance, the effects of any stock split 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. As such, they involve risk and uncertainty that actual results may differ materially from those projected in the forward-looking statements including, without limitation, risks related to the following: the Company's ability to retain existing client contracts and obtain new contracts; whether or not government agencies continue to privatize correctional healthcare services; the possible effect of adverse publicity on the Company's business; 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 and injuries in excess of amounts covered under contracts or insurance coverage; the outcome of pending litigation; and the Company's dependence on key personnel. A discussion of these important factors and assumptions regarding the statements and risks involved 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.