10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2012

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-33094

AMERICAN CARESOURCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		20-0428568
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification no.)
	5429 LYNDON B. JOHNSON FREEWAY
	SUITE 850
	DALLAS, TEXAS
	75240
	(Address of principal executive offices)
	(Zip code)

(972) 308-6830

(Registrant’s telephone number, including area code)

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

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share	The NASDAQ Capital Market

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

None

Indicate by checkmark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933 (the “Securities Act”). Yes o No x

Indicate by checkmark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”). Yes o No x

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Non-accelerated filer o
Accelerated filer  o	Smaller Reporting Company x

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of the voting and nonvoting Common Stock held by non-affiliates of the Registrant was $6,581,236 computed by reference to the price at which the Common Stock was last sold on The NASDAQ Capital Market on the last business day of the Registrant’s most recently completed second fiscal quarter (June 29, 2012).

The number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding as of February 25, 2013 was 5,706,443.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement for the 2013 annual meeting of stockholders or the Registrant's annual report on Form 10-K/A, to be filed with the Securities and Exchange Commission not later than April 30, 2013, are incorporated by reference into Part III of this Form 10-K.

AMERICAN CARESOURCE HOLDINGS, INC.

FORM 10-K

TABLE OF CONTENTS

PART I
Item 1	Business	1
Item 1A	Risk Factors	11
Item 2	Properties	17
Item 3	Legal Proceedings	17
Item 4	Mine Safety Disclosures	17
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	18
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	19
Item 8	Financial Statements and Supplementary Data	31
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31
Item 9A	Controls and Procedures	31
Item 9B	Other Information	32
PART III
Item 10	Directors, Executive Officers, and Corporate Governance	33
Item 11	Executive Compensation	33
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13	Certain Relationships and Related Transactions, and Director Independence	34
Item 14	Principal Accounting Fees and Services	34
PART IV
Item 15	Exhibits and Financial Statement Schedules	35
Index to Financial Statements
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Statements of Operations		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Stockholders’ Equity		F-4
Consolidated Statements of Cash Flows		F-5
Notes to Consolidated Financial Statements		F-6

Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements can be identified by forward-looking words such as “may,” “will,” “expect,” “intend”, “anticipate,” “believe,” “estimate” and “continue” or similar words and discuss the Company’s plans, objectives and expectations for future operations, including its services, contain projections of the Company’s future operating results or financial condition, and discuss its expectations with respect to the growth in health care costs in the United States, the demand for ancillary benefits management services, and the Company’s competitive advantages, or contain other “forward-looking” information.

Such forward-looking statements are based on current information, assumptions and belief of management, and are not guarantees of future performance.  Substantial risks and uncertainties could cause actual results to differ materially from those indicated by such forward-looking statements, including, but not limited to, the Company’s inability to attract or maintain providers or clients or achieve its financial results, changes in national healthcare policy, federal or state regulation, and/or rates of reimbursement including without limitation the impact of the Patient Protection and Affordable Care Act, Health Care and Educational Affordability Reconciliation Act and medical loss ratio regulations, general economic conditions (including economic downturns and increases in unemployment), lower than anticipated demand for ancillary services, pricing, market acceptance/preference, the Company’s ability to integrate with its clients, the Company's ability to maintain a network of ancillary service providers that is adequate to generate significant claims volume, consolidation in the industry that may affect the Company’s key clients, changes in the business decisions by significant clients, increased competition from major carriers, implementation and performance difficulties, and other risk factors detailed from time to time in the Company’s periodic filings with the Securities and Exchange Commission, including in this annual report on Form 10-K for the year ended December 31, 2012.

Do not place undue reliance on these forward-looking statements, which speak only as of the date this document was prepared.  All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  Except to the extent required by applicable securities laws and regulations, the Company undertakes no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

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PART I

Item 1.                    Business.

Overview

American CareSource Holdings, Inc. (“ACS,” “Company,” the “Registrant,” “we,” “us,” or “our”) works to help its clients control healthcare costs by offering cost containment strategies, primarily through the utilization of a comprehensive national network of ancillary healthcare service providers.  The Company markets its services to a number of healthcare companies including third party administrators (“TPAs”), insurance companies, large self-funded organizations, various employer groups and preferred provider organizations ("PPOs").  The Company offers payors this solution by:

• lowering its payors’ ancillary care costs through its network of high quality, cost effective providers that the Company has under contract at more favorable terms than they could generally obtain on their own;

• providing payors with a comprehensive network of ancillary healthcare service providers that is tailored to each payor’s specific needs and is available to each payor’s members for covered services;

• providing payors with claims management, reporting and processing and payment services;

• performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor-specific provider networks; and

• credentialing network service providers for inclusion in the payor-specific provider networks.

The Company has assembled a network of ancillary healthcare service providers that supplement or support the care provided by hospitals and physicians and includes 31 service categories. We have a dedicated provider development function, whose primary responsibility is to contract with providers and strategically grow our network of ancillary service providers.

We secure contracts with ancillary service providers by offering them the following:

• inclusion in a nationwide network that provides exposure to our client payors and their aggregate member lives;

• an array of administrative and back-office services, such as collections and appeals;

• increased claims volume through various "soft steerage" mechanisms; and

• advocacy in the claims appeals process.

Because we have the ability to add new clients and increase the coverage and penetration of our network of ancillary service providers, we can grow revenue by increasing demand as well as increasing supply. New client relationships add new member lives that will seek ancillary services, while new service provider relationships create opportunities for new and existing member lives to receive additional incremental services.

The Company has experienced revenue declines over the past three years, primarily related to the declines in the business of its two largest clients, both of which are PPOs. Due to a variety of factors affecting the healthcare industry generally, the economy and for other reasons, revenue from each of our two largest clients continued to decline (with downturns in their own businesses) resulting in year-over-year quarterly declines in our revenue from those accounts; in aggregate, the two clients generated $56.7 million of revenue in 2008 compared to $13.6 million in 2012. Because of the significance of the revenue concentration from these two clients (approximately 98% in 2008), the declines of the business of these clients has had a significant negative impact on our operating results and cash position over the past three years, despite our new business development efforts. We expect revenue from one of these clients to discontinue during 2013 and, although we have entered into a new agreement with the other, we cannot be certain as to any level of continued revenue from such relationship. During the period from 2008 to 2012 (excluding the addition of any entities affiliated with either of our two largest clients), we added 34 new clients; those clients contributed $20.4 million of gross revenue in 2012.

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During 2012, the Company's focused on (1) adding new significant client contracts, (2) controlling the cost structure to limit operating losses, (3) preserving the cash balances for investments in the existing business model and/or other strategic initiatives, and (4) investigating and identifying strategic initiatives that the Company can execute in the short and long-term that will bring value to our stockholders, including but not limited to utilizing the network of ancillary service providers in arenas outside the commercial group health market, utilizing technology to enhance our offering and focusing on productizing the network to address specific client cost control issues or identify other business opportunities. Nevertheless, until we can replace a greater amount of the revenue than we have lost from our two largest clients, we will continue to experience operating losses and use our existing cash reserves for operating and investing activities.

ACS was incorporated under the laws of the State of Delaware on November 24, 2003 as a wholly-owned subsidiary of Patient Infosystems, Inc. (“Patient Infosystems”) in order to facilitate Patient Infosystems’ acquisition of substantially all of the assets of American CareSource Corporation.  American CareSource Corporation had been in operation since 1997.  The predecessor company to American CareSource Corporation, Physician’s Referral Network, had been in operation since 1995.  On December 23, 2005, the Company became an independent company when Patient Infosystems distributed by dividend to its stockholders substantially all of its shares of the Company. Ancillary Care Services, Inc. is a wholly owned subsidiary of the Company.

The Company’s principal executive offices are located at 5429 Lyndon B. Johnson Freeway, Suite 850, Dallas, TX 75240. Our Common Stock is listed on The NASDAQ Capital Market under the symbol “ANCI.” Our telephone number is (972) 308-6830.  Our Internet address is www.anci-care.com.

Services and Capabilities

Ancillary care services

Ancillary healthcare services include a broad array of services that supplement or support the care provided by hospitals and physicians, including the non-hospital, non-physician services associated with surgery centers, free-standing diagnostic imaging centers, home health and infusion, supply of durable medical equipment, orthotics and prosthetics, laboratory and other services.

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

·      Acupuncture	·      Occupational Therapy
·      Cardiac Monitoring	·      Orthotics and Prosthetics
·      Chiropractor	·      Pain Management
·      Diagnostic Imaging	·      Physical Therapy
·      Dialysis	·      Podiatry
·      Durable Medical Equipment	·      Rehabilitation: Outpatient
·      Genetic Testing	·      Rehabilitation: Inpatient
·      Hearing Aids	·      Sleep
·      Home Health	·      Skilled Nursing Facility
·      Hospice	·      Speech Therapy
·      Implantable Devices	·      Surgery Center
·      Infusion	·      Transportation
·      Laboratory	·      Urgent Care
·      Lithotripsy	·      Vision
·      Long-term Acute Care	·      Walk-in Clinics
·      Massage Therapy

The Company has agreements with approximately 4,800 ancillary healthcare service providers operating in approximately 34,500 sites nationwide.

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Provider Network

The Company views its ability to manage, organize and maintain its provider network and to recruit new providers as critical elements in its long-term success because its network is one of the most important reasons healthcare payors engage the Company.  The Company has agreements with its network of ancillary healthcare service providers for the purpose of meeting contractual obligations to its healthcare payors to make available a comprehensive and client-specific ancillary healthcare provider network.  The agreements define the scope of services to be provided to covered persons by each ancillary healthcare provider and the amounts to be charged for those services and are negotiated independently from the agreements reached with the Company’s client payors.  The terms of each agreement between the Company and ancillary healthcare service providers make it clear that the Company is solely obligated to the service provider under the contract between them and do not contemplate any contractual relationship between the service providers and the Company’s payors or permit the service providers to pursue claims directly against the Company’s payors.  

When providers initially enter the ACS provider network, the Company credentials them for inclusion in the credentialed ACS Network.  The Company also re-credentials its providers on a periodic basis.  From time to time, the Company reviews its provider relationships to determine whether any changes to the relationship are appropriate through sanction monitoring and other methods.  The Company believes that credentialing providers represents a valuable service to both its payors and the providers in the network, who would, in the absence of such service, be forced to undergo the credentialing process with respect to each payor with whom they enter into a service relationship.

During 2012 and 2011, we generated revenue from ancillary healthcare services as follows:

Category	2012		2011
Dialysis	24	%	24	%
Laboratory	17		18
Durable Medical Equipment	15		14
Infusion	13		10
Surgery Center	7		6
Diagnostic Imaging	6		9
Rehabilitation (outpatient & inpatient)	6		7
Long-term Acute Care/Skilled Nursing Facilities	3		2
Chiropractor	2		2
Orthotics and Prosthetics	2		2
Other	5		6
	100	%	100	%

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Our Model

The Company’s business model, illustrating the relationships among the persons involved, directly or indirectly, in the Company’s business and its generation of revenue and expenses is depicted below:

Payors route healthcare claims to us after service has been performed by participant providers in our network.  We process those claims and charge the payor according to its contractual rate for the services according to our contract with the payor.  In processing the claim, we are paid directly by the payor or the insurer for the service.  We then pay the provider of service according to its independently-negotiated contractual rate.  We assume the risk of generating positive margin, the difference between the payment we receive for the service and the amount we are obligated to pay the provider of service.

The Company may receive a claims submission from a payor either electronically or via a paper based claim.  As part of its relationship with the payors, the Company may pay an administrative fee to the payors for the modifications that may be required to the payor’s technology, systems and processes to create electronic connectivity with the Company, as well as for the aggregation of claims and the electronic transmission of those claims to us.

How We Deliver Services

Ancillary network analysis.  The Company performs an analysis of the available claims history from each client payor and develops a specific plan to meet each payor’s needs.  This analysis identifies service providers that are not already in our network.  We attempt to enter into agreements with such service providers to maximize discount levels and capture a significant volume of previously out-of-network claims. In addition, the analysis enables the Company to set a client fee schedule that will bring value through incremental savings on the ancillary service charges.

Ancillary custom network.   ACS customizes its network to meet the needs of each payor.  In particular, when a new payor joins and periodically for each existing payor, we review the payor’s “out-of-network” claims history through our network analysis service and develop a strategy to create a network that efficiently serves the payor’s needs.  This may involve adding additional service providers for a payor or removing service providers if we determine it is beneficial for them to be excluded from the client’s network.

Ancillary network management.  The Company manages ancillary service provider contracts, reimbursement and credentialing for its payors.  This not only provides administrative benefits to our payors, but reduces the burden on our contracted service providers who typically must supply credentialing documentation to payors and engage in contract negotiations with separate payors.

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Ancillary systems integration.  The Company has created a proprietary software system that enables us to manage many different customized accounts and includes the following modules:

• Provider network management

• Credentialing

• Data transfer management/electronic data interface

• Multi-level reimbursement management

• Posting, Explanation of Benefits, check, and e-funds processes

• Client service management

• Claims pricing

• Advanced data reporting

Ancillary reporting.  ACS offers a complete suite of reports to each payor on a monthly basis.  These reports cover contracting efforts and capture rates, client savings, volumes by service category and complete claims and utilization reports and other information of value to the client.

Ancillary healthcare claims management.  The Company can manage ancillary healthcare claims flow, both electronic and paper based, and integrate with a payor’s process electronically or through paper claims.  The Company has the capability of performing a number of customized processes that may add additional value for each payor.  As part of the claims management process, we manage the documentation requirements specific to each payor.  In the event claims are submitted to us by a payor without the complete required documentation, we will work with the payor and/or service provider to obtain the required documentation so that the claim will be accepted by the payor.  This service provides a labor cost savings to the payors and providers.

Ancillary claims collections management.  The Company facilitates an expedited claims collection process by ensuring receipt of the claim by the payor, providing information to the payor required for processing the claim, tracking the status of the claim throughout the process and maintaining a team of customer service representatives to resolve any issues that might delay the collections process.  The Company believes that the providers in its network are paid more effectively and efficiently than would otherwise be the case.

Ancillary data insights.  The Company has developed and continues to develop an extensive database of ancillary healthcare claims history.  The data provides insights into utilization and pricing across a wide variety of service categories, geographies, and service providers.  The Company has the ability to market this data as a value added service to its payors in the design of custom networks, and the development of ancillary healthcare management programs.

Business Strategy

The Company’s focus is strictly on the ancillary healthcare services market, a market that accounts for between 20-30% of total annual healthcare spending in the United States and was estimated at $574 billion (as derived from 2006 data published by the Center for Medicare and Medicaid Services, National Health Statistics Group, U.S. Department of Commerce and Bureau of Economic Analysis and Census).   Ancillary healthcare services are cost effective alternatives to physician and hospital-based services and ancillary providers offer services in 31 different categories, including those listed under “-- Services and Capabilities--Ancillary care services.”  While most efforts are placed on managing outcomes and reducing healthcare costs associated with patient care in hospitals and in physician offices, the ancillary healthcare service market is an often over-looked, but very important emerging segment of the overall United States healthcare system.  As more and more care is delivered in highly cost effective out-patient and ancillary care settings, the need for better organization and cost containment will only increase over the next several years.  

5

We believe that companies who understand the nuances of the ancillary healthcare market and develop the expertise to manage this de-centralized system of patient care, are able to capitalize on this market opportunity.  For example, contracting with ancillary healthcare service providers is difficult without a specific focus on the market.  This is due to the disparate nature of ancillary healthcare services and the fact that these services are offered by a wide array of providers, ranging from small independent practitioners to regional specialty practices, national providers and providers within hospital systems.  Since this market is so diverse, it has historically not been a focus of the major health plans and payors.  In addition, many health plans are conflicted because their existing hospital contracts may encourage the use of the hospital systems’ more expensive in-house ancillary services.  The Company believes that because it has developed a substantial network of providers, because it has established a sustainable advantage in this market by becoming an aggregator of these services for health plans, and because it has been retained by substantial payors, it can offer healthcare providers a substantial number of patients who are entitled to receive services from payors.  In addition, our "ancillary only" contracting focus allows us to be independent of any hospital relationships that may encourage retaining all ancillary services within the more expensive hospital setting.

Because the Company is solely focused on the nation-wide ancillary healthcare system designed specifically to help regional and mid-market payors across the country, expanding and maintaining a nation-wide, high-quality, multiple specialty ancillary provider network is a critical component of the Company’s strategy.  The Company has invested to develop its ancillary service provider network both proactively, across geographical and healthcare specialties, and reactively to address specific client needs.  While we have a national footprint of service providers, our intention is to focus on specific geographic markets where we can have a significant impact on a service provider’s patient load.  With market strength in specific geographic areas, the Company has been able to develop favorable rates with ancillary service providers and create an attractive product offering (healthcare cost savings) to regionally-based clients in those areas.

In order to enhance its ability to recruit and manage its network of providers, the Company offers a suite of value added services specifically designed to help ancillary care service providers lower their cost of doing business by assuming the responsibility for the most complex and costly interactions with payors.  The services include those listed under “-- Services and Capabilities--Ancillary care services.”   The Company believes that by becoming an indispensable business partner to the ancillary healthcare service provider community, it will continue to grow its ancillary healthcare service provider network and continue to derive favorable contracting terms from these service providers.

The Company seeks growth by increasing its client payor-base and service provider relationships by focusing on providing in-network services for its payors and aggressively pursuing TPAs, insurance companies, large self-funded organizations and employer groups. The Company continues to derive a substantial amount of its net revenues from its traditional PPO relationships, but we focus on TPAs and direct payors that represent self-insured employer groups.  According to research reported by the Employee Benefit Research Institute, as recently as 2011, approximately 59% of employees with health insurance were covered by a self-insured plan. Thus, the Company believes that there is a large market opportunity involved in providing a highly competitive ancillary care alternative to the standard service offered by the major national insurers in select regional markets across the country.  Due to the combination of our regionally specific networks of providers and the resulting contractual cost savings related to the competitive nature of each market we are able to assist ACS’ payors compete more effectively against the major national insurers in their local markets.

The Company aggregates the lives of its various clients into buying power that exceeds the market power of any one of its clients individually. During 2012, our relationships with TPAs and direct payors exposed us to approximately 1.0 million covered lives. While we are also exposed to additional covered lives through our PPO relationships (including our most significant client), because we do not have direct relationships with the individual payors, it is difficult to estimate the additional number of covered lives to which we have access. As a rapid aggregator of significant patient volume, the Company believes it will be able to continue to drive favorable contracting terms from the selected service providers in the ACS Network by directing patient volume to their practices and it will have the ability to negotiate exclusive contracts that will allow the Company to manage the full spectrum of a payor client’s ancillary healthcare benefit offerings.  The volume of collective lives we manage allows us to obtain more favorable pricing than our clients can generally obtain on their own. 

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Sales and Marketing

The Company markets its services to PPOs on an opportunistic basis, but primarily targets direct payors such as TPAs, insurance companies, large self-funded organizations and employer groups.  Currently, the Company utilizes both a new business sales organization of six senior sales professionals (four full-time employees and two sales consultants) as well as an account management team of two professionals to contract with new payor organizations and then maximize the revenue and margin potential of each new payor.  The new business sales team uses a variety of channels to reach potential clients including professional relationships, direct marketing efforts, attendance at industry-specific trade shows and conferences, and through strategic partnerships with market partners, independent brokers, and consultants.  The account management team is engaged with each new payor to help manage the implementation process.  In addition, an Account Manager is generally assigned to each new payor organization and is responsible for all aspects of the Company’s relationship with the entity including the expanded utilization of the Company’s services over time and the enhancement of the Company’s relationship with the payor.

Clients

The Company’s healthcare payor clients engage the Company to manage a comprehensive array of ancillary healthcare services that they and their payors have agreed to make available to their insureds or beneficiaries or for which they have agreed to provide insurance coverage.  The typical services the healthcare payors require the Company to provide include:

• providing a comprehensive network of ancillary healthcare services providers that is available to the payor’s covered persons for covered services;

• providing claims management, reporting, and processing and payment services;

• performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor-specific provider networks; and

• credentialing network service providers for inclusion in the payor-specific provider networks.

The terms of the agreement between the Company and the payors do not contemplate that the payors will have any relationship with the service providers and, in fact, prohibit payors from claiming directly against the service providers.  The agreements between the Company and the payors provide that it is the Company’s obligation to deliver or make available the agreed-upon services.  The Company is responsible irrespective of the existence or terms of any agreement the Company has with the service providers.  The terms of the Company-payor agreement provide that the Company is obligated to provide or arrange for the provision of all of the services covered by such agreement and the Company is responsible for ensuring that the contractual terms are met and such services are provided (whether the services are those performed directly by the Company, such as claims management, processing and payment service, network/needs analysis and credentialing, or those performed by a service provider contracted by the Company).

The Company’s most significant clients include HealthSmart Holdings (“HealthSmart”), which consists of HealthSmart and its affiliates.  For the years ended December 31, 2012 and 2011, ACS derived 31% and 34%, respectively, of its total net revenue from HealthSmart (including its affiliates). In addition, Viant Holdings Inc. ("Viant") (which includes the Company's legacy client Texas True Choice, Inc.) has historically contributed a significant amount of revenue to the Company. For the years ended December 31, 2012 and 2011, Viant contributed 8% and 20% of the Company's total net revenue, respectively.

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In late 2008, we entered into an amendment to our agreement with HealthSmart. The amendment extended the duration of the partnership between the Company and HealthSmart through December 31, 2012. In accordance with the amendment, we paid $1.0 million to HealthSmart for various integration services. In November 2009, HealthSmart completed a recapitalization with a private investment company and HealthSmart’s other lenders.  On December 31, 2012, the Company and HealthSmart entered into a three-year agreement to continue and expand the partnership between the two organizations. Under the agreement, the Company will enhance its network of ancillary service providers to address markets outside of the commercial group health space and it will utilize an administrative fee rate differential to encourage HealthSmart to add payors that will access the Company network of ancillary providers. As part of the agreement, the Company agreed to pay HealthSmart a monthly administrative services fee subject to an annual maximum of $4,000,000, to reimburse and to compensate HealthSmart for the work it is required to perform to support the Company’s program. The fee is based upon paid claims arising from the Company’s network of providers. Pursuant to the agreement, for services other than primary group health services, the Company will be compensated based on a percentage of the gross revenue actually collected by HealthSmart from its payors and clients for claims utilizing a Company discount through certain of the Company’s networks. The agreement is subject to an automatic two year renewal term. After this initial renewal term, the agreement will automatically renew for successive periods of one year unless earlier terminated by a party for breach or unless either party provides notice of non-renewal no less than ninety days prior to the expiration of the two year renewal term or any subsequent renewal term. However, although our relationship with HealthSmart will continue, our agreement does not provide that we are their exclusive ancillary care network and they could engage other ancillary care providers directly into their network. Accordingly, we cannot be certain of any level of continued volume from HealthSmart.As part of the new agreement, the agreement between the parties dated August 1, 2002, as amended through December 31, 2008, was terminated.

In March 2010, Viant was acquired by MultiPlan, Inc. ("MultiPlan"), a provider of PPO network and related transaction-based solutions. Subsequent to the business combination, our client began to migrate its payors and employer groups to network alternatives, negatively impacting claims volume from our client. While we have not received a formal termination notice from MultiPlan, the transition was completed as of December 31, 2012, which eliminates any revenue and claims volume from the client in 2013 and thereafter.

We have generated a significant portion of our net revenues from these two clients (39% in 2012 and 54% in 2011), but because of the nature of the relationships, we do not have the ability to competitively impact the relationships these organizations have with their clients, which are direct payors. Because we have secondary relationships with these payors and cannot have a competitive impact on the payors, we have determined that it is in our best interest to pursue clients that are direct payors, primarily TPAs. We believe we can impact relationships with direct payors through various competitive avenues, such as assisting them with more competitive pricing and plan design. Including 2010, we have added 23 new clients, of which 20 were direct payors and TPAs. While we experienced obstacles to acquiring new client accounts in 2011 and 2012, we believe that the ancillary savings and the reimbursement paid to clients for connectivity and maintaining electronic claims flow provide a solid value proposition to prospective clients.

Competition

The Company faces four types of direct competitors.

• The first group of competitors consists of larger, national health plans and insurers such as Aetna, Blue Cross/Blue Shield plans, Cigna, Humana, and United HealthCare.  These larger carriers offer nation-wide, standardized products and often compete on a local level based of the cost-effectiveness of their national contracts.

• The second group of competitors is our own payors.  Our payors have selected us based on our extensive network of service providers and cost-savings potential.  However, they may choose to develop their own network and contract directly with the providers instead of outsourcing ancillary management services to us in the future.

• The third group of competitors is more regionally-focused and consists of smaller regional PPOs, payors and community-based provider-owned networks.  These regional competitors are generally managing their own home-grown network of ancillary care providers and are more likely to offer customized products and services tailored to the needs of the local community.  These regional groups will often use their ownership and/or management of the full continuum of care in a local market to direct patients to the provider groups within their network.

• The fourth group of competitors focus on managing patients within a single ancillary specialty (e.g. dialysis, imaging or infusion), and offer comprehensive payor and provider services within their chosen ancillary category.

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Research and Development

The Company invests in its information technology infrastructure to enhance the capabilities of its databases, data retrieval tools, data exchange capabilities and claims processing engine.  In addition, the Company believes that its extensive claims database of ancillary healthcare services and costs is a strategic asset.  The Company’s capitalized development costs totaled approximately $419,000 and $611,000 during 2012 and 2011, respectively. The development expenses during those periods were related primarily to enhancements made to our internally developed claims management application. The enhancements allow the Company to develop and launch a variety of innovative products and services as well as gain competitive market advantage through faster and more accurate claims processing.

Government Regulation

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

Furthermore, federal and state laws govern the confidentiality of patient information through statutes and regulations that safeguard privacy rights.  The Company is subject to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which provides national standards for electronic health information transactions and the data elements used in such transactions, as well as privacy of medical records and data security.  ACS and its clients may be subject to federal and state laws and regulations that govern financial and other arrangements among healthcare providers.  Furthermore, the Company and its clients may be subject to federal and state laws and regulations governing the submission of false healthcare claims to the government and private payors, mail pharmacy 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.  Possible sanctions for violations of these laws and regulations include minimum civil penalties of between $5,000-$10,000 for each false claim and treble damages, as well as criminal penalties.

During 2010, President Obama signed the Patient Protection and Affordable Care Act (the "Affordable Care Act") and the Health Care and Educational Affordability Reconciliation Act legislating broad-based changes to the U.S. healthcare system. Among other things, the health reform legislation includes insurance industry reforms including, but not limited to guaranteed coverage requirements, elimination of pre-existing condition exclusions and annual and lifetime maximum limits, and restrictions on the extent to which policies can be rescinded; creation of new market mechanisms through the creation of health benefit exchanges; and creation of new and significant taxes on health insurers and, in some circumstances healthcare benefits.

Provisions of the health reform legislation become effective at various dates over the next several years.  The Department of Health and Human Services ("HHS"), the Department of Labor and the Treasury Department have yet to issue some of the necessary enabling regulations and guidance with respect to the health care reform legislation.

Due to the breadth and complexity of the health reform legislation, the scope of implementing regulations and interpretive guidance, in addition to regulations and guidance yet to be issued, and the phased-in nature of the implementation, it is difficult to predict the overall impact of the health reform legislation on our business over the coming years.  Possible adverse affects of the health reform legislation include reduced revenues, increased costs, exposure to expanded liability, and requirements for us to revise the ways in which we conduct business or risk of loss of business.  In addition, our results of operations, our financial position and cash flows could be materially adversely affected.

Section 1001 of the Affordable Care Act amended Title 27 of the Public Health Service Act of 1994, as amended (the "Public Health Service Act") to add, among other things, a new Section 2718, 'Bringing Down the Cost of Health Care Coverage.' This new provision requires health insurance issuers to publicly report “the ratio of the incurred loss (or incurred claims) plus the loss adjustment expense (or change in contract reserves) to earned premiums” and account for premium revenue related to reimbursement for clinical services, activities that improve health care quality, and all other non-claims costs. The law also requires issuers to provide annual rebates to their enrollees if their medical loss ratio ("MLR") does not meet specific targets. For issuers in the large group market, the MLR must be at least 85%, and for issuers in the small group and individual markets, the MLR must be at least 80%. The law also gives the National Association of Insurance Commissioners (“NAIC”), subject to certification of the Secretary of the HHS, authority to develop definitions and standards by which to determine compliance with the requirements in the new § 2718(a).

9

In December 2010, HHS published final MLR regulations and agency guidance, based upon the recommendations of the NAIC, implementing the new sections of the Public Health Service Act as mandated by the Affordable Care Act.  The new regulations apply to issuers offering group or individual health insurance coverage. Under the MLR regulations, an issuer's MLR is calculated as the ratio of (i) incurred claims plus expenditures for activities that improve health care quality to (ii) premium revenue.  The two key aspects to this calculation involve what comprises an 'incurred claim' and what qualifies as an 'expenditure for health care quality improvement.'

Incurred claims are reimbursement for clinical services, subject to specific deductions and exclusions.  Specifically, incurred claims represent the total of direct paid claims, unpaid claim reserves, change in contract reserves, reserves for contingent benefits, the claim portion of lawsuits and any experience rating refunds. Prescription drug rebates received by the issuer and overpayment recoveries from providers must be deducted from incurred claims.  Also, the following amounts are explicitly excluded and therefore may not be included in the calculation of incurred claims:  (i) amounts paid to third party vendors for secondary network savings; (ii) amounts paid to third party vendors for network development, administrative fees, claims processing, and utilization management; or (iii) amounts paid, including amounts paid to a provider, for professional or administrative services that do not represent compensation or reimbursement for covered services provided to an enrollee. The regulation permits that some amounts “may” be included in incurred claims - market stabilization payments, state subsidies based on stop-loss methodologies, and incentive and bonus payments made to providers.  The regulations themselves provide examples of specifically excluded amounts. With regard to amounts paid for network development (as noted in (ii) above), if an issuer contracts with a behavioral health, chiropractic network, or high technology radiology vendor, or a pharmacy benefit manager, and the vendor reimburses the provider at one amount but bills the issuer a higher amount to cover its network development, utilization management costs, and profits, then the amount that exceeds the reimbursement to the provider must not be included in incurred claims. With regard to administrative services (as noted in (iii) above), medical record copying costs, attorneys' fees, subrogation vendor fees, compensation to paraprofessionals, janitors, quality assurance analysts, administrative supervisors, secretaries to medical personnel and medical record clerks must not be included in incurred claims.

In order to properly classify what activities 'improve health care quality', the activity must be designed to improve health quality, increase the likelihood of desired health outcomes, be directed toward individual enrollees or incurred for the benefit of specific segments of enrollees, or be grounded in evidence based medicine. In addition, the activity must be primarily designed to improve health outcomes, prevent hospital readmissions, improve patient safety and reduce medical errors, implement, promote and increase wellness activities and/or enhance the use of health care data to improve quality.  The regulations also contain a list of 14 expenditures that are specifically excluded from 'improvement of health care quality' activities. Among these excluded expenditures are: (1) those that are designed primarily to control or contain costs; (2) activities that can be billed or allocated by a provider for care delivery and which are, therefore, reimbursed as clinical services; (3) expenditures related to establishing or maintaining a claims adjudication system, including costs directly related to upgrades in health information technology that are designed primarily or solely to improve claims payment capabilities or to meet regulatory requirements for processing claims (for example, costs of implementing new administrative simplification standards and code sets adopted pursuant to HIPAA including the new ICD-10 requirements); (4) all retrospective and concurrent utilization review; (5) costs of developing and executing provider contracts and fees associated with establishing or managing a provider network, including fees paid to a vendor for the same reason; (6) provider credentialing; (7) marketing expenses; (8) costs associated with calculating and administering individual enrollee or employee incentives; (9) portions of prospective utilization that does not meet the definition of activities that improve health quality; and (10) any function or activity not expressly included, unless otherwise approved by and within the discretion of the Secretary.

It is possible that a portion of the fees our existing and prospective payors are contractually required to pay us and that do not qualify as 'incurred claims' may not be included as expenditures for activities that improve health care quality. Such a determination may make it more difficult for us to retain existing clients and/or add new clients,because our clients' or prospective clients' MLR may otherwise not meet the specified targets. This may reduce our net revenues and profit margins.

The Company must continually adapt to new and changing regulations in the healthcare industry. If we fail to comply with these applicable laws, we may be subject to fines, civil penalties, or criminal prosecution.  If an enforcement action were to occur, our business and financial condition may be adversely affected.

Employees

As of February 25, 2013, the Company had 56 full-time employees and no part-time employees.

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Item 1A.                     Risk Factors.

The Company’s stockholders and any potential investor in the Company’s Common Stock should carefully review and consider each of the following risk factors, as well as all other information appearing in this Annual Report on Form 10-K, relating to investment in our Common Stock.  The Company’s business faces numerous risks and uncertainties, the most significant of which are described below.  If any of the following risks actually occur, the business, financial condition, results of operations or cash flows of the Company could be materially adversely affected, the market price of the Company’s Common Stock could decline significantly, and a stockholder could lose all or part of an investment in the Company’s Common Stock.

The Company has two clients which account for a substantial portion of its business. Revenue from one will likely stop by the end of 2013 and revenue from the other will likely continue to decline.

Our two largest clients, HealthSmart Preferred Care, Inc. (together with its affiliates, “HealthSmart”) and MultiPlan, Inc., formerly Viant Holdings, Inc., (together with its affiliates, “Viant”), accounted for an aggregate of approximately 39% of our net revenue during 2012; of which 31%was derived from HealthSmart.  In 2011, our two largest clients accounted for 54% of our net revenue, of which 34% was generated from HealthSmart. The loss of either one of these clients or significant declines in the level of use of our services by one or more of these clients (as would be the case, for example, if our clients decide to contract directly with ancillary healthcare service providers), without replacement by new business, would have a material adverse effect on the Company’s business and results of operations. Our 2012 revenue from HealthSmart and Viant declined by an aggregate of 49% from its 2011 level.

The client contract with Viant expired on May 20, 2012 but automatically renewed for a one-year period and renews for successive one-year periods unless either party delivers a written notice of non-renewal at least 90 days prior to expiration.  Since the Company has not received written notice of non-renewal, the contract term has been automatically extended through May 20, 2013. In addition, in March 2010, Viant was acquired by MultiPlan, Inc., a provider of PPO network and related transaction-based solutions. At this time, MultiPlan began methodically moving its payor client groups to its existing networks. Revenue from Viant has declined as its business has been integrated with its acquiror, which was complete at December 31, 2012. We don't expect significant revenue or claims volume from the account in 2013.

On December 31, 2012, the Company and HealthSmart entered into a three-year agreement to continue and expand the partnership between the two organizations. Under the agreement, the Company will enhance its network of ancillary service providers to address markets outside of the commercial group health space and it will utilize an administrative fee rate differential to encourage HealthSmart to add payors that will access the Company network of ancillary providers.However, although our relationship with HealthSmart will continue, our agreement does not provide that we are their exclusive ancillary care network and they could engage other ancillary care providers directly into their network. Accordingly, we cannot be certain of any level of continued volume from HealthSmart.As part of the new agreement, the agreement between the parties dated August 1, 2002, as amended through December 31, 2008, was terminated.

The Company’s failure to maintain the relationship with HealthSmart could have a material adverse effect on its business and results of operations.  Additionally, an adverse change in the financial condition of HealthSmart, including an adverse change as a result of a change in governmental or private reimbursement programs, could have a material adverse effect on our business and results of operations.

Recent and pending healthcare reforms could materially adversely affect our revenues, financial position and our results of operations.

The enactment and implementation of healthcare reforms at the federal or state level may affect certain aspects of our business, including contracting with ancillary healthcare service providers; administrative, technology or other costs; provider reimbursement methods and payment rates; premium rates; coverage determinations; mandated benefits; minimum medical expenditures; claim payments and processing; drug utilization and patient safety efforts; collection, use, disclosure, maintenance and disposal of individually identifiable health information; personal health records; consumer-driven health plans and health savings accounts and insurance market reforms; and government-sponsored programs.

During 2010, President Obama signed the Patient Protection and Affordable Care Act (the "Affordable Care Act") and the Health Care and Educational Affordability Reconciliation Act legislating broad-based changes to the U.S. healthcare system. Among other things, the health reform legislation includes insurance industry reforms including, but not limited to guaranteed coverage requirements, elimination of pre-existing condition exclusions and annual and lifetime maximum limits, and restrictions on the extent to which policies can be rescinded; creation of new market mechanisms through the creation of health benefit exchanges; and creation of new and significant taxes on health insurers and, in some circumstances healthcare benefits.

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In December 2010, HHS published final MLR regulations and agency guidance, based upon the recommendations of the NAIC, implementing the new sections of the Public Health Service Act as mandated by the Affordable Care Act.  The new regulations apply to issuers offering group or individual health insurance coverage. Under the MLR regulations, an issuer's MLR is calculated as the ratio of (i) incurred claims plus expenditures for activities that improve health care quality to (ii) premium revenue.  The two key aspects to this calculation involve what comprises an 'incurred claim' and what qualifies as an 'expenditure for health care quality improvement.'  It is possible that a portion of the fees our existing and prospective payors are contractually required to pay us and that do not qualify as 'incurred claims' may not be included as expenditures for activities that improve health care quality. Such a determination may make it more difficult for us to retain existing clients and/or add new clients,because our clients' or prospective clients' MLR may otherwise not meet the specified targets. This may reduce our net revenues and profit margins.

Other provisions of the health reform legislation become effective at various dates over the next several years.  The HHS, the Department of Labor and the Treasury Department have yet to issue some of the necessary enabling regulations and guidance with respect to the health care reform legislation. 

Due to the breadth and complexity of the health reform legislation, the scope of implementing regulations and interpretive guidance, in addition to regulations and guidance yet to be issued, and the phased-in nature of the implementation, it is difficult to predict the overall impact of the health reform legislation on our business over the coming years.  Possible adverse affects of the health reform legislation include reduced revenues, increased costs, exposure to expanded liability, and requirements for us to revise the ways in which we conduct business or risk of loss of business.  In addition, our results of operations, our financial position and cash flows could be materially adversely affected.

The Company has a history of losses.

With the exception of the three years from 2008 to 2010, the Company has incurred losses in each year of its existence. As of December 31, 2012, the Company has an accumulated deficit of approximately $11.3 million.  The Company will need to return to levels of claims volume and revenue as it had in 2008 through 2010 in order to return to profitability. With the decline in revenues from its two largest clients, and with less than equivalent increases from other clients, we cannot determine when or if the Company can return to profitability.  No assurances can be given that the Company's current operating volumes will not continue to decline in the future.  The Company’s 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. Management is exploring alternative strategies for either expanding our available services or identifying other business opportunities that could enhance our performance. Any such efforts could prove to be costly and may not necessarily lead to increased revenue or profitability.

The length of the current sales cycle may impede the Company's efforts to add new client accounts.

During 2010, the Company sold 13 new accounts, which accounted for $12.4 million or 35% of net revenue in 2012. During 2011 and 2012, our sales cycle lengthened and we sold only four and six new accounts, respectively. The sales cycle was negatively impacted by the competitive nature of negotiating with TPA's and direct payors, turnover in our sales and marketing function, the obtrusive nature of our implementation process and prospects' conflicting priorities, primarily related to technology compliance projects. Despite efforts to strategically improve our sales and marketing function, we can give no assurances that it will not continue to be a lengthy process to convert a sales prospect into a new client account and that our revenues will not continue to decline due to the lack of new client accounts.

The current state of the global economy may reduce our revenue and profitability and harm our growth prospects.

The Company's results have been impacted by the state of the economy during the past three years.  First, the unemployment rate has caused fewer people to participate in insurance programs with our clients.  Second, plan participants, seeking to spend less money, appear to be making less frequent use of some ancillary services.  Third, client consolidation within our industry has adversely affected our business.  Fourth, the uncertainty surrounding healthcare reform is negatively impacting healthcare spending patterns. To the extent that these trends continue, or become worse, we may receive less revenue and our profitability and growth could be adversely affected, depending on the extent of the declines.  Finally, as with any business, the deterioration of the financial condition or sale or change of control of our significant clients and/or providers could have a corresponding adverse effect on us.

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Large competitors in the healthcare industry could choose to compete with us, reducing our margins. Some of these potential competitors may be our current clients.

Traditional health insurance companies, specialty provider networks, and specialty healthcare services companies are potential competitors of the Company.  These entities include well-established companies that may have greater financial, marketing and technological resources than we have. Pricing pressure caused by competition has caused many of these companies to reduce the prices charged to clients for core services and to pass on to clients a larger portion of the formulary fees and related revenues received from service providers.  Increased price competition from such companies’ entry into the market could reduce our margins and have a material adverse effect on our financial condition and results of operations.  In fact, our clients could choose to establish their own network of ancillary care providers.  As a result, we would not only lose the benefit of revenue from such clients, but we could face additional competition in our market.

The Company is dependent upon payments from third party payors who may reduce rates of reimbursement.

The Company’s ability to achieve profitability depends 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, have resulted in reduced rates of reimbursement in recent years.  If continuing, these trends could adversely affect the Company’s results of operations unless it 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 the Company’s clients for the Company’s services provided through the Company, and consequently, the amount these clients would be willing to pay for the Company’s services. Also, under the MLR regulations included in the Affordable Care Act, it is possible that a portion of the fees our existing and prospective payors are contractually required to pay us and that do not qualify as 'incurred claims' may not be included as expenditures for activities that improve health care quality. Such a determination may make it more difficult for us to retain existing clients and/or add new clients,because our clients' or prospective clients' MLR may otherwise not meet the specified targets. This may reduce our net revenues and profit margins.

The Company is dependent upon its network of qualified providers and its provider agreements may be terminated at any time.

The development of a network of qualified providers is an essential component of our business strategy.   The typical form of agreement from ancillary healthcare providers provides that these agreements may be terminated at any time by either party with or without cause.  If these agreements are terminated, specifically with one of our significant provider relationships, such ancillary healthcare providers could enter into new agreements with our competitors which would have an adverse effect on our ability to continue our business as it is currently conducted.

For any given claim, the Company is subject to the risk of paying more to the provider than it receives from the payor.

The Company’s agreements with its payors, on the one hand, and the service providers, on the other, are negotiated separately.  The Company has complete discretion in negotiating both the prices it charges its payors and the financial terms of its agreements with the providers.  As a result, the Company’s profit is primarily a function of the spread between the prices it has agreed to pay the service providers and the prices the Company’s payors have agreed to pay the Company.  The Company bears the pricing/margin risk because it is responsible for providing the agreed-upon services to its payors, whether or not it is able to negotiate fees and other agreement terms with service providers that result in a positive margin for the Company.  For example, during 2012 and 2011, approximately 5.5% and 5.1%, respectively, of claims were “loss claims” (that is, where the amount paid by the Company to the provider exceeded the amount received by the Company from the corresponding payor for that particular claim) and these loss claims, in the aggregate, comprised approximately $392,000 and $512,000 in 2012 and 2011, respectively. There can be no assurances that the loss claim percentage will not be higher in future periods.  If a higher percentage of the Company’s claims resulted in a loss, its results of operations and financial position would be adversely affected.

An interruption of data processing capabilities and telecommunications could negatively impact the Company’s operating results.

Our business is dependent upon our ability to store, retrieve, process and manage data and to maintain and upgrade our data processing capabilities.  An 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 our business.

13

Changes in state and federal regulations could restrict our ability to conduct our business.

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

• Public Health Services Act, Patient Protection and Affordable Care Act and Health Care and Educational Affordability Reconciliation Act;

• healthcare fraud and abuse laws and regulations, which prohibit illegal referral and other payments;

• the 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;

• Medicare and Medicaid reimbursement regulations; and

• Health Insurance Portability and Accountability Act of 1996.

We believe we are operating our business in substantial compliance with all existing legal requirements material to the operation of our business. There are, however, significant uncertainties regarding the application of many of these legal requirements to our 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 our interpretation would prevail.

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

HIPAA provides safeguards to ensure the integrity and confidentiality of health information. Violation of the standards is punishable by fines and, in the case of wrongful disclosure of individually identifiable health information, fines or imprisonment, or both. Although we provide thorough training to our employees and we intend to comply with all applicable laws and regulations regarding medical information privacy, failure to do so could have an adverse effect on our business.

Limited barriers to entry into the ancillary healthcare services market could result in greater competition.

There are limited barriers to entering our market, meaning that it is relatively easy for other companies to replicate our business model and provide the same or similar services that we currently provide. Major benefit management companies and healthcare companies not presently offering ancillary healthcare services may decide to enter the market. These companies may have greater financial, marketing and other resources than are available to us.  Competition from other companies may have a material adverse effect on our financial condition and results of operations.

The Company may be unsuccessful in hiring and retaining skilled employees.

The future growth of our business depends on our ability to hire and retain skilled employees.  The Company may be unable to hire and retain the skilled employees needed to succeed in our business.  Qualified employees are in great demand throughout the healthcare industry. Our failure to attract and retain sufficient skilled employees may limit the rate at which our business can grow, which will result in harm to our financial performance.  

14

An inability to adequately protect our intellectual property could harm the Company’s competitive position.

We consider our methodologies, processes and know-how to be proprietary. We seek to protect our proprietary information through confidentiality agreements with our employees, as well as our clients and contracted service providers.  The Company’s policy is to have its employees enter into a confidentiality agreement at the time employment begins, with the confidentiality agreement containing provisions prohibiting the employee from disclosing our confidential information to anyone outside of the Company, requiring the employee to acknowledge, and, if requested, assist in confirming the Company’s ownership of new ideas, developments, discoveries or inventions conceived by the employee during his or her employment with the Company, and requiring the assignment by the employee to the Company of proprietary rights to such matters that are related to our business. There can be no assurance that the steps taken by the Company to protect its intellectual property will be successful. If the Company does not adequately protect its intellectual property, its competitors may be able to use its technologies and erode or negate the Company’s competitive advantage in the market.

Fluctuations in the number and types of claims processed by the Company could make it more difficult to predict the Company’s net revenues from quarter to quarter.

Monthly fluctuations in the number of claims we process and the types of claims we process will impact the quarterly and annual results of the Company.  Our margins vary depending on the type of ancillary healthcare service provided, the rates associated with those services and the overall mix of these claims, each of which will impact our profitability.  Consequently, it may be difficult to predict our net revenue from one quarter to another quarter.

Future sales of the Company’s Common Stock, or the perception that these sales may occur, could depress the price of the Company’s Common Stock. 

Sales of substantial amounts of our Common Stock, or the perception in the public that such sales may occur, could cause the market price of the Company’s Common Stock to decline.  This could also impair the Company’s ability to raise additional capital through the sale of equity securities.  As of February 25, 2013, the Company had 5,706,443 shares of its Common Stock outstanding.  The outstanding shares are either freely tradable without restriction or further registration under the Securities Act, unless the shares are held by one of our “affiliates” as such term is defined in Rule 144 of the Securities Act, or are “restricted shares” as that term is defined under the Securities Act, and may be sold from time to time pursuant to a registration statement which was declared effective on February 8, 2007 by the Securities and Exchange Commission (the “SEC”), or in reliance upon an exemption from registration available under the Securities Act.  At February 25, 2013, warrants to purchase 44,444 shares of Common Stock of the Company were outstanding, and options to purchase 792,628 shares of Common Stock of the Company had been granted and were outstanding under the Company’s Amended and Restated 2005 Stock Option Plan and the 2009 Equity Incentive Plan.  At February 25, 2013, restricted stock units (“RSUs”) relating to 4,440 shares of common stock were outstanding under our 2009 Equity Incentive Plan.  In addition, an aggregate of 493,788 shares of the Common Stock of the Company remain available for future grants of RSUs, options and other equity under the Company’s Amended and Restated 2005 Stock Option Plan and 2009 Equity Incentive Plan.  If all of the outstanding warrants are exercised, all options available under the Company’s Amended and Restated 2005 Stock Option Plan and 2009 Equity Incentive Plan are issued and exercised and all RSUs are converted, there will be approximately 7,041,743 shares of Common Stock of the Company outstanding.

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 February 25, 2013, our officers, directors and principal stockholders (greater than 5% stockholders) together control beneficially approximately 48.9% of the outstanding Common Stock of the Company.  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 of the Company’s Common Stock may delay or prevent a merger or acquisition resulting in a change in control of the Company 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 of our stockholders.

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We are subject to the listing requirements of the NASDAQ Capital Market and there can be no assurances that we will continue to satisfy these listing requirements.

Our common stock is listed on The NASDAQ Capital Market, and we are therefore subject to continued listing requirements, including requirements with respect to the market value of publicly-held shares and minimum bid price per share, among others, and requirements relating to board and audit committee independence.   If we fail to satisfy one or more of the requirements, we may be delisted from The NASDAQ Capital Market.  

If we are delisted from The NASDAQ Capital Market and we are not able to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or on the “pink sheets”. As a result, we could face significant adverse consequences including, among others,

• a limited availability of market quotations for our securities;

• a determination that our common stock is a "penny stock" which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

• a limited amount of news and analyst coverage for us; and

• a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.

On September 21, 2011, the Company received a letter from The NASDAQ Stock Market LLC (“NASDAQ”) stating that for 30 consecutive business days immediately preceding the date of the letter the Company's common stock did not maintain a minimum closing bid price of $1.00 per share (“Minimum Bid Price Requirement”) as required by NASDAQ Listing Rule 5550(a)(2). The Company was provided 180 calendar days, or until March 19, 2012, to regain compliance.

In a letter dated March 20, 2012, NASDAQ stated that although the Company had not regained compliance with the Minimum Bid Price Requirement by March 19, 2012, it is eligible for an additional 180-day compliance period, or until September 17, 2012, based on the Company meeting the continued listing requirements for market value of publicly held shares and all other applicable standards for initial listing on the NASDAQ Capital Market (except for the Minimum Bid Price Requirement) and having notified NASDAQ of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

At the Company's annual meeting of stockholders, held on June 11, 2012, the stockholders voted to amend the Company's certificate of incorporation for the purposes of effecting a reverse stock split and authorized its Board of Directors to determine, in its sole discretion, whether to effect the amendment, the timing of the amendment, and the specific ratio of the reverse stock split, provided that such ratio is 1-for-2, 1-for-2.5, 1-for-3, 1-for-3.5 or 1-for-4.  

On August 31, 2012 the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended (the “Amendment”) to effect a 1-for-3 reverse stock split (“reverse split”) of its common stock, par value $0.01 per share (the “Common Stock”), effective September 4, 2012 (the “Effective Day”). Because the Amendment did not result in a reduction in the number of authorized shares of Common Stock, its effect was to increase the number of shares of Common Stock available for issuance relative to the number of shares issued and outstanding.

On the Effective Day, every three shares of the Company's Common Stock issued and outstanding immediately prior to the Effective Day were automatically combined into one share of Common Stock. Stockholders that were left with a fraction of a share as a result of the reverse split received cash in lieu of the fractional share in an amount based on the closing sale price of the Common Stock on the business day immediately preceding the Effective Day as reported on the The Nasdaq Capital Market. In addition, any options, warrants and restricted stock units outstanding as of the Effective Day were adjusted accordingly. As a result of the reverse split, the Company had 5,706,443 shares of common stock issued and outstanding as of December 31, 2012.

On September 18, 2012, the Company received notification from NASDAQ that the Company was in compliance with the Minimum Bid Price Requirement. Nonetheless, there can be no assurances that we will continue to comply with these, or other, NASDAQ requirements. If we fail to so comply, our stock may be delisted.

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Item 2.                     Properties.

The Company occupies a total of 16,449 square feet of office space, all of which is leased.  The leased space comprises our principal executive offices, which is located at 5429 Lyndon B. Johnson Freeway, Suite 850, Dallas, TX 75240, pursuant to a lease that was due to expire on March 31, 2013, but has since then been extended through March 31, 2015.  Included in the 16,449 square feet are 7,100 square feet of space added to our original lease by means of an amendment to the lease executed in February 2009.  This amendment stipulated on February 1, 2010, the premises would increase by 2,254 square feet increasing our total office space to 18,703 square feet. Late in 2011, the Company agreed to a partial termination by which 2,254 square feet reverted back to the lessor. Additionally, in January 2013, the Company executed an extension of its existing lease agreement for a term of 24-months, expiring on March 31, 2015, and reduced the annual cost per square foot to $18.50. The Company does not own or lease any other real property and believes its offices are suitable to meet its current needs.

Item 3.                     Legal Proceedings.

None.

Item 4.                     Mine Safety Disclosures.

Not applicable.

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PART II

Item 5.                     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The Company’s Common Stock has traded on The NASDAQ Capital Market under the symbol ANCI since September 29, 2008.  Between October 19, 2006 and September 26, 2008, our stock traded on the American Stock Exchange (“Amex”) under the symbol XSI and between December 28, 2005 and October 19, 2006, public trading of our Common Stock occurred on the OTC Bulletin Board.

The following table sets forth, for the fiscal periods indicated, the range of the high and low sales prices for our Common Stock on NASDAQ from January 1, 2011 through December 31, 2012. For periods prior to September 4, 2012, sales prices have been adjusted to account for the 1-for-3 reverse split described below.

	High		Low
2012
Fourth Quarter Ended December 31	$	1.66	$	1.38
Third Quarter Ended September 30	2.10		1.41
Second Quarter Ended June 30	2.10		1.35
First Quarter Ended March 31	2.07		1.23
2011
Fourth Quarter Ended December 31	$	2.22	$	0.90
Third Quarter Ended September 30	4.65		1.35
Second Quarter Ended June 30	5.70		4.05
First Quarter Ended March 31	5.85		4.14

The closing price on NASDAQ for our Common Stock on February 25, 2013 was $1.87.

On September 21, 2011, the Company received a letter from The NASDAQ Stock Market LLC (“NASDAQ”) stating that for 30 consecutive business days immediately preceding the date of the letter the Company's common stock did not maintain a minimum closing bid price of $1.00 per share (“Minimum Bid Price Requirement”) as required by NASDAQ Listing Rule 5550(a)(2). The Company was provided 180 calendar days, or until March 19, 2012, to regain compliance.

In a letter dated March 20, 2012, NASDAQ stated that although the Company had not regained compliance with the Minimum Bid Price Requirement by March 19, 2012, it is eligible for an additional 180-day compliance period, or until September 17, 2012, based on the Company meeting the continued listing requirements for market value of publicly held shares and all other applicable standards for initial listing on the NASDAQ Capital Market (except for the Minimum Bid Price Requirement) and having notified NASDAQ of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

At the Company's annual meeting of stockholders, held on June 11, 2012, the stockholders voted to amend the Company's certificate of incorporation for the purposes of effecting a reverse stock split and authorized its Board of Directors to determine, in its sole discretion, whether to effect the amendment, the timing of the amendment, and the specific ratio of the reverse stock split, provided that such ratio is 1-for-2, 1-for-2.5, 1-for-3, 1-for-3.5 or 1-for-4.  

On August 31, 2012 the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended (the “Amendment”) to effect a 1-for-3 reverse stock split (“reverse split”) of its common stock, par value $0.01 per share (the “Common Stock”), effective September 4, 2012 (the “Effective Day”). Because the Amendment did not result in a reduction in the number of authorized shares of Common Stock, its effect was to increase the number of shares of Common Stock available for issuance relative to the number of shares issued and outstanding.

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On the Effective Day, every three shares of the Company's Common Stock issued and outstanding immediately prior to the Effective Day were automatically combined into one share of Common Stock. Stockholders that were left with a fraction of a share as a result of the reverse split received cash in lieu of the fractional share in an amount based on the closing sale price of the Common Stock on the business day immediately preceding the Effective Day as reported on the The Nasdaq Capital Market. In addition, any options, warrants and restricted stock units outstanding as of the Effective Day were adjusted accordingly. As a result of the reverse split, the Company had 5,706,443 shares of common stock issued and outstanding as of December 31, 2012.

On September 18, 2012, the Company received notification from NASDAQ that the Company was in compliance with the Minimum Bid Price Requirement. Nonetheless, there can be no assurances that we will continue to comply with these, or other, NASDAQ requirements. If we fail to so comply, our stock may be delisted.

Holders

As of February 25, 2013, in accordance with the records of our transfer agent, there were 158 record holders of ACS Common Stock. The number of record holders is based on the actual number of holders registered on the books of our transfer agent and does not reflect holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.

Dividends

We have not declared cash dividends on our Common Stock.  We intend to retain all earnings to finance future growth and do not anticipate that we will pay cash dividends for the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans and Sales of Unregistered Securities

The information required to be disclosed herein is incorporated by reference to "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

Repurchases of Securities

There were no repurchases of the Common Stock of the Company by or on behalf of the Company or any affiliated purchasers during the fourth quarter of the Company’s fiscal year ended December 31, 2012.

Item 7.                    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements, which present our results of operations for the twelve month periods ended December 31, 2012 and 2011 as well as our financial position at December 31, 2012 and 2011, contained elsewhere in this Annual Report on Form 10-K.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Special Note Regarding Forward Looking Statements” and “Risk Factors” sections of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Company Overview

American CareSource Holdings, Inc. (“ACS,” “Company,” the “Registrant,” “we,” “us,” or “our”) works to help its clients control healthcare costs by offering cost containment strategies, primarily through the utilization of a comprehensive national network of ancillary healthcare service providers.  The Company markets its services to a number of healthcare companies including third party administrators (“TPAs”), insurance companies, large self-funded organizations, various employer groups and preferred provider organizations ("PPOs").  The Company offers payors this solution by:

• lowering its payors’ ancillary care costs through its network of high quality, cost effective providers that the Company has under contract at more favorable terms than they could generally obtain on their own;

• providing payors with a comprehensive network of ancillary healthcare service providers that is tailored to each payor’s specific needs and is available to each payor’s members for covered services;

• providing payors with claims management, reporting and processing and payment services;

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• performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor-specific provider networks; and

• credentialing network service providers for inclusion in the payor-specific provider networks.

The Company has assembled a network of ancillary healthcare service providers that supplement or support the care provided by hospitals and physicians and includes 31 service categories. We have a dedicated provider development function, whose primary responsibility is to contract with providers and strategically grow our network of ancillary service providers.

We secure contracts with ancillary service providers by offering them the following:

• inclusion in a nationwide network that provides exposure to our client payors and their aggregate member lives;

• an array of administrative and back-office services, such as collections and appeals;

• increased claims volume through various "soft steerage" mechanisms; and

• advocacy in the claims appeals process.

Payors route healthcare claims to us after service has been performed by participant providers in our network.  We process those claims and charge the payor according to its contractual rate for the services according to our contract with the payor.  In processing the claim, we are paid directly by the payor or the insurer for the service.  We then pay the provider of service according to its independently-negotiated contractual rate.  We assume the risk of generating positive margin, the difference between the payment we receive for the service and the amount we are obligated to pay the provider of service.

The Company recognizes revenues for ancillary healthcare services when services by providers have been authorized and performed, the claim has been billed to the payor and collections from payors are reasonably assured.  Cost of revenues for ancillary healthcare services consist of amounts due to providers for providing ancillary health care services, client administration fees paid to our client payors to reimburse them for routing the claims to us for processing, and the Company’s related direct labor and overhead of processing invoices, collections and payments. The Company is not liable for costs incurred by independent contract service providers until payment is received by it from the payors. The Company recognizes actual or estimated liabilities to independent contract service providers as the related revenues are recognized.

The Company is seeking growth in the number of client payors and service provider relationships it secures by focusing on providing in-network services for its payors and aggressively pursuing additional TPAs, self-insured employers and other direct payors as its primary sales targets. The Company believes this strategy should increase the volume of claims the Company can process in addition to the expansion in the number of lives that are eligible to receive ancillary healthcare benefits.  No assurances can be given that the Company can expand its service provider or payor relationships, nor that any such expansion will result in an improvement in the results of operations of the Company.

In addition, under the medical loss ratio ("MLR") regulations included in the Affordable Care Act, it is possible that a portion of the fees our existing and prospective payors are contractually required to pay us and that do not qualify as 'incurred claims' may not be included as expenditures for activities that improve healthcare quality. Such a determination may make it more difficult for us to retain existing clients and/or add new clients,because our clients' or prospective clients' MLR may otherwise not meet the specified targets. This may reduce our net revenues and profit margins.

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Financial and Operational Overview

The Company has experienced revenue declines over the past three years, primarily related to the declines in the business of its two largest clients, both of which are PPOs. Due to a variety of factors affecting the healthcare industry generally, the economy and for other reasons, revenue from each of our two largest clients continued to decline (with downturns in their own businesses) resulting in year-over-year quarterly declines in our revenue from those accounts; in aggregate, the two clients generated $56.7 million of revenue in 2008 compared to $13.6 million in 2012. Because of the significance of the revenue concentration from these two clients (approximately 98% in 2008), the declines of the business of these clients has had a significant negative impact on our operating results and cash position over the past three years, despite our new business development efforts. We expect revenue from one of these clients to discontinue during 2013 and, although we have entered into a new agreement with the other, we cannot be certain as to any level of continued revenue from such relationship. During the period from 2008 to 2012 (excluding the addition of any entities affiliated with either of our two largest clients), we added 34 new clients; those clients contributed $20.4 million of gross revenue in 2012.

In 2010, we began focusing our sales efforts on TPAs, insurance companies, self-funded organizations, employer groups and direct payors, as we believe we can more competitively impact those relationships. TPAs, in their fiduciary capacity, assist their clients (primarily employer groups) with cost containment; the ancillary network solution we provide is a valuable component to add to a TPA's portfolio. There are approximately 500 TPAs nationwide, with approximately 20% of those being our target market. According to research reported by the Employee Benefit Research Institute, as recently as 2011, approximately 59% of employees with health insurance were covered by a self-insured plan. In light of changes in healthcare legislation and the size of the self-insured market, we believe that TPAs are an important element of that market, with needs that we can address, primarily from a cost containment standpoint.

We added 13 new clients in 2010, which generated approximately $5.9, $11.9, and $12.4 million of revenue in 2010 through 2012, respectively. While those accounts contribute an estimated $11-13 million of revenue annually, they have only partially offset the revenue declines from our significant legacy clients. During 2011, we signed only four new accounts. During 2012, we have signed six new accounts, of which, four are TPAs. The clients added in 2011 and 2012 made a combined revenue contribution of $2.0 million in 2012.

Early in 2012, we made investments in our sales function in an effort to expand sales distribution channels, improve sales processes, evaluate marketing opportunities and most importantly, increase our number of sales personnel, which was four at December 31, 2012, compared to 2.5 full-time employees during most of 2011. Additionally, we have engaged two sales consultants, each of whom has an extensive background in the healthcare industry. In connection with our efforts to diversify revenue and identify expanded business opportunities, during 2012, we invested $168,000 in a software solution intended to enhance delivery of the Company's network of ancillary service providers as part of a cost containment solution. The Company will make additional payments totaling approximately $122,000 during the first quarter of 2013 relating to such efforts.

The Company believes that it has a unique business model and offers a solid value proposition to our clients, as well as our providers, by delivering superior discounts through our network of contracted ancillary healthcare service providers. During 2012, the Company's focused on (1) adding new significant client contracts, (2) controlling the cost structure to limit operating losses, (3) preserving the cash balances for investments in the existing business model and/or other strategic initiatives, and (4) investigating and identifying strategic initiatives that the Company can execute in the short and long-term that will bring value to our stockholders, including but not limited to utilizing the network of ancillary service providers in arenas outside the commercial group health market, utilizing technology to enhance our offering and focusing on productizing the network to address specific client cost control issues or identify other business opportunities.Any such efforts could prove to be costly and may not necessarily lead to increased revenue or profitability. Nevertheless, until we can replace a greater amount of the revenue than we have lost from our two largest clients, we will continue to experience operating losses and use our existing cash reserves for operating and investing activities.

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Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

The following table sets forth a comparison of our results of operations for the following periods presented:

							Change
	2012			2011			$			%
Net revenue	$	34,902		$	48,906		$	(14,004	)	(28.6	)%
Variable costs:
Provider payments	25,660			37,588			11,928			31.7
Administrative fees	1,551			2,395			844			35.2
Total variable costs	27,211			39,983			12,772			31.9
Percent of net revenue	78.0		%	81.8		%
Variable flowthrough	7,691			8,923			(1,232		)	(13.8	)
Variable margin	22.0		%	18.2		%
Non-variable costs:
Claims administration	2,507			3,053			546			17.9
Provider development	1,073			1,352			279			20.6
Sales & marketing	2,139			1,287			(852		)	(66.2	)
Finance & administration	4,154			4,671			517			11.1
Total non-variable costs	9,873			10,363			490			4.7
Percent of net revenue	28.3		%	21.2		%
Loss before depreciation, amortization, and income taxes	(2,182		)	(1,440		)	(742		)	(51.5	)
Percent of net revenue	(6.3		)%	(2.9		)%
Goodwill impairment charge	—			4,361			4,361			100.0
Depreciation and amortization	878			792			(86		)	(10.9	)
Income tax provision	31			644			613			(95.2	)
Net loss	$	(3,091	)	$	(7,237	)	$	4,146		57.3	%

The following discussion compares the historical results of operations on a basis consistent with generally accepted accounting principles ("GAAP") for the years ended December 31, 2012 and 2011.

Net Revenues

The Company’s net revenues are generated from ancillary healthcare service claims.  Revenue is recognized when we bill our client payors for services performed and collection is reasonably assured. The Company estimates revenues using average historical collection rates.  When estimating collectibility, we assess the impact of items such as non-covered benefits, denied claims, deductibles and co-payments. Periodically, revenues and related estimates are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected. There are no assurances that actual cash collections will meet or exceed estimated cash collections.

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The following table sets forth a comparison of our net revenues and billed claims for the years ended December 31 (in thousands):

	Net Revenue											Billed Claims Volume
							Change							Change
(in thousands)	2012			2011			$			%		2012	2011	Claims		%
Legacy clients:
Material Client Relationship	$	10,704		$	16,584		$	(5,880	)	(35	)%	35	75	(40	)	(53	)%
MultiPlan, Inc. (formerly Viant, Inc.)	2,941			9,959			(7,018		)	(70	)	14	43	(29	)	(67	)
Principal Life Insurance Company	49			2,619			(2,570		)	(98	)	—	10	(10	)	(100	)
Other legacy clients	7,122			7,482			(360		)	(5	)	50	58	(8	)	(14	)
Sub-total	20,816			36,644			(15,828		)	(43	)	99	186	(87	)	(47	)
Clients implemented in 2010 - 2012	14,362			12,884			1,478			11		61	67	(6	)	(9	)
Total gross revenue	35,178			49,528			(14,350		)	(29	)	160	253	(93	)	(37	)
Provision for refunds	(276		)	(622		)	346			(56	)	—	—	—		nm
Net Revenue	$	34,902		$	48,906		$	(14,004	)	(29	)%	160	253	(93	)	(37	)%

Following is a discussion of the changes in net revenue generated by significant client/client groupings for the year ended December 31, 2012 as compared to 2011:

Material Client Relationship

We believe that the decline in billed claims volume from our relationship with our most significant client for the year ended December 31, 2012 is due to the following factors:

• The client continues to suffer attrition in its client base, as it continues to re-focus its business strategy resulting in declines in claims volume.

• Laboratory service claims from the client declined 67% for the year ended December 31, 2012, as compared to 2011. The declines in claim count resulted in estimated declines in revenue of approximately $944,000 in 2012, as compared to 2011.

• Early in 2012, we were informed by our client that it commenced a technology platform conversion, which disrupted the claims flow. That disruption negatively impacted our revenue, as we did not receive all claims related to specialty services provided, and the disruption caused claims data to be omitted which inhibited collectibility. Our revenue/collection estimates are lower for the year ended December 31, 2012, compared to the prior year periods.

• The client lost a significant employer group which accounted for approximately $535,000 of revenue to us during 2011. No revenue from the employer group was generated during 2012.

• Under our new contract, our client is free to use ancillary care providers from other networks, including its own.

The performance of the client account during 2012 was, and will continue to be, affected by attrition in its own client base, its internal strategic initiatives and further technology infrastructure changes. Despite the new agreement the Company and this client entered into on December 31, 2012, we cannot be certain of any level of continued volume from this client.

MultiPlan, Inc. (formerly Viant Holdings, Inc.)

The decline in net revenue and billed claims volume from our relationship with MultiPlan, Inc. ("MultiPlan") is due to the acquisition by MultiPlan of Viant Holdings, Inc. As part of that transition, MultiPlan is methodically moving its payors and employer groups to its existing networks. While we have not received a formal termination notice from MultiPlan, the transition was completed as of December 31, 2012, which eliminates any revenue and claims volume from the client in 2013 and thereafter.

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Principal Life Insurance Company

As was announced publicly in late-2010, Principal Life Insurance Company ("Principal") exited the health insurance business. During the course of 2011, Principal transitioned its existing members and groups, which resulted in revenue of $2.6 million to us in 2011. We did not generate meaningful revenue or claims volume from the account in 2012.

Other Legacy Clients

Our other legacy clients consist of 11 various relationships with PPOs, insurance companies and direct payors that were contracted between 2005 and 2009. Most of the accounts have matured and there are only limited opportunities for growth. Through our account management group, we maintain contact with these clients to determine if opportunities exist to serve the accounts and generate incremental revenue.

For the year ended December 31, 2012, revenue for this client group decreased 5% when compared to the prior year. This slight decrease was primarily a result of technology issues experienced in early 2012 by two of our clients, one of which has also suffered, and continues to suffer, attrition within its own client base. This decrease was partially offset by shifts in specialty billed mix throughout the year, which primarily impacted three of our clients within this group. These clients experienced substantial increases in billings for specialty services that historically carry higher collection rates. A change in patient and specialty mix, as well as benefit plan design changes, are factors that are not controlled by us. While there are limited opportunities for growth in these accounts, revenue is impacted most significantly by the mix of specialties utilized and the collection rates associated with those specialties, and the clients' ability to maintain their own book of business.

The 14% decline in billed claims volume for this client group for the year ended December 31, 2012, as compared to the prior year, is primarily attributable the client discussed above, which experienced technology issues earlier in the year, as well as attrition in its own client base throughout 2012.

Clients implemented in 2010 - 2012

The 13 clients implemented in 2010 consist of 12 TPAs and one PPO, and are the results of the initial stages of our focus on TPAs and direct payors which commenced in late-2009 and early-2010. Through our account management group, we work with these clients to determine ways in which we can bring value to the relationships and to add our network to incremental employer groups in order to maximize our revenue opportunity.

The 9% decline in billed claims volume for this client group for the year ended December 31, 2012, is primarily attributable to issues experienced by our only PPO client within this group. The client commenced utilization of a direct contract with a national laboratory services provider as an alternative to our laboratory services offering. Despite the negative impact on claims volume, we attempt to rectify the situation through pricing adjustments and renegotiations of contracts through our provider development group in order to recover the lost claims volume.

For the year ended December 31, 2012, revenue for this client group, as a whole, increased 11%, as compared to the same prior year period. The increase in revenue for this client group during 2012 is due to the following factors:

• Continuing our strategy to pursue TPAs and direct payors, we implemented six new clients during 2012, four of which were TPAs. These new clients contributed incremental revenue of approximately $900,000 for the year ended December 31, 2012.

• We implemented four new clients over the course of 2011, which contributed incremental revenue of $95,000 in 2012 compared to the prior year; and

• Several of our clients added employer groups that previously were not utilizing our network of ancillary providers. Those groups generated incremental revenue during 2012;

The growth in revenue for the year ended December 31, 2012 compared to the prior year was generated primarily from the accounts implemented in 2010, most of which are TPAs and direct payors. For the years ended December 31, 2012 and 2011, the accounts implemented in 2010 have generated revenue of approximately $12.4 million and $11.9 million, respectively.

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The following tables detail the change in revenue generated from different client types (includes all Company clients) for the years ended December 31:

	2012					2011					Change
($ in thousands)	Count	Revenue		% of revenue		Count	Revenue		% of revenue		$			%
TPAs *	27	$	17,379	49.4	%	24	$	16,003	32.3	%	$	1,376		9	%
PPOs	11	14,845		42.2		11	27,367		55.3		(12,522		)	(46	)
Direct/Insurance Companies	3	2,800		8.0		3	6,158		12.4		(3,358		)	(55	)
Other	2	154		0.4		—	—		—		154			nm
Gross revenue, before provision for refunds		$	35,178	100.0	%		$	49,528	100.0	%	$	(14,350	)	(29	)%

* This group includes a TPA controlled by our most significant client. The TPA generated revenue of approximately $1.3 million in both 2012 and 2011.

Variable Costs

Variable costs are comprised of payments to our providers and administrative fees paid to our clients for converting claims to electronic data interchange and routing them to both the Company for processing and to their payors for payment.  Payments to providers are the most significant variable cost and it consists of our payments for ancillary care services in accordance with contracts negotiated separately with providers for specific ancillary services.

The following tables set forth a comparison of the variable cost components of our cost of revenues, for the periods presented ended December 31:

									Change
($ in thousands)	2012		% of net revenue		2011		% of net revenue		$			%
Provider payments	$	25,660	73.5	%	$	37,588	76.9	%	$	(11,928	)	(32	)%
Administrative fees	1,551		4.4		2,395		4.9		(844		)	(35	)
Total variable costs	$	27,211	77.9	%	$	39,983	81.8	%	$	(12,772	)	(32	)%

Provider payments

The 32% decrease in provider payments in 2012 is consistent with the decline in revenue as discussed above. The decrease in provider payments as a percentage of net revenues compared to the same prior year period is primarily due to the following:

• A shift in mix from clients that generate lower margins (as a result of their mix of services), relative to other clients, primarily MultiPlan. MultiPlan generated approximately 8% of our net revenue in 2012, as compared to approximately 20% in 2011; and

• A shift in mix towards higher margin categories, such as laboratory services, durable medical equipment, infusion services and surgery centers, away from lower margin categories, such as dialysis services.

Administrative fees

Administrative fees paid to clients as a percent of net revenues declined to 4.4% in 2012 compared to 4.9% in 2011. The decrease is due to a change in mix from clients with higher administrative fees to clients with lower administrative fees.

Non-variable Costs

Non-variable costs are those that are not contingent on claims activity and are fixed in nature, but can be adjusted. They are comprised of such expenses as salaries and benefits, professional fees, consulting costs, non-cash equity compensation costs and travel and entertainment expenses. A significant driver of these costs are headcount, as payroll, commissions and related benefits (including non-cash equity compensation) accounted for approximately 59% of our non-variable cost structure during 2012. Our average headcount of full-time employees ("FTE's") was 56 and 58 at December 31, 2012 and 2011, respectively.

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Following is a discussion of the changes in non-variable costs and related drivers:

During 2012, two key departments were created: strategic development (classified as sales and marketing) and performance management (classified as finance and administration). The strategic development group is responsible for executing the strategic objectives as dictated by the Board of Directors and executive management, while performance management is responsible for measuring and monitoring the performance of the organization. Both groups were staffed solely from existing headcount. In addition, the Company continually monitors and adjusts the alignment of the organizational structure in an effort to optimize performance and maximize output.

Claims administration

Our claims administration function consists of our operations and information technology groups.  Our operations group is responsible for most aspects of claims management and processing, including billing and quality assurance. In addition, our operations group is responsible for credentialing contracted ancillary service providers.  Our information technology group is responsible for maintaining and enhancing the technological capabilities and applications of the claims management process.  

We adjust the headcount of our claims administration group consistent with the level of claims we process and bill. The following table sets forth a comparison of processed and billed claims for the following periods presented ended December 31 (in thousands):

			Change
(in thousands)	2012	2011	Claims		%
Processed	201	309	(108	)	(35	)%
Billed	160	253	(93	)	(37	)

Accordingly, we eliminated two positions within the claims administration function since December 31, 2011. Consulting costs related to these two groups also decreased by $113,000 in 2012 as compared to 2011. The decrease is primarily attributable to our information technology group, which spent significant development time on enhancements to our internally developed claims management application during 2011. The additional functionality and reporting capability was completed during the third quarter of 2011 and is now in production.

Currently, we process approximately 90% of our claims electronically, making our processes scalable. In the event that we add a significant number of new clients, we don't anticipate the need to make significant investments in our claims administration group.

Provider Development

Our provider development function is responsible for developing our network of ancillary healthcare service providers, which includes contracting with providers to be included in the network and maintaining a relationship with existing providers, all for the purpose of enhancing our ancillary service provider network for our client payors. We customize networks for our clients, thus as new client contracts are secured, our recruiting activities will increase. While we anticipate having the capacity to increase our activities with our existing headcount, it is possible that if a significant number of clients are added, we will increase headcount in our provider development function.

The 21% decrease in costs related to the provider development function during the year ended December 31, 2012 as compared to the year ended December 31, 2011 is a result of headcount reduction and lower overall benefit costs. Two positions were eliminated as a result of natural attrition. Additionally, the previous Vice President of Provider Development was chosen to lead the strategic development group effective October 1, 2012.

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Sales and Marketing

Our sales and marketing function consists of our sales and account management groups as well as our strategic development group. Our sales group is primarily responsible for securing new client contracts, while our account management group maintains our existing client relationships, as well as attempts to generate incremental growth from those relationships. The 66% increase in sales and marketing costs during 2012 as compared to 2011 is a result of the following:

• Increases of approximately $479,000 are for consulting costs related to (1) the engagement of a consulting firm to lead a major initiative to invest in and improve our sales and marketing function, (2) the engagement of strategic consultants to investigate other sales opportunities outside of the traditional commercial group health market and (3) increased marketing efforts.

• The addition of two sales resources to complement our external sales efforts as well as the creation of the strategic development group.

Finance and Administration

Our finance and administration function consists primarily of human resources, performance management, finance and accounting as well as our Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer.

For the year ended December 31, 2012, expenses decreased 11% due to a restructuring charge of $263,000 recorded in 2011 and a reduction in headcount in 2012. There were three additional positions in 2011 held by higher-salaried employees relative to other salaried employees in the function; therefore, the reduction in headcount significantly impacted the overall expenses for the year ended December 31, 2012. The decline in headcount is due to natural attrition, which is gradual reduction in the number of employees by natural or voluntary means. In addition, investor relations expense, bank service fees, recruiting costs and administrative dues decreased $192,000 as a result of utilizing lower cost consultants and vendors. However, the decreases discussed above were partially offset by $427,000 in professional fees incurred during 2012 related to various strategic initiatives and the review of the organization's structure and alignment.

Selling, General and Administrative Expenses

Following is a table showing the components of selling, general and administrative (“SG&A”) expenses as presented per the Statement of Operations for the periods presented ending December 31:

							Change
($ in thousands)	2012			2011			$			%
Sales and marketing	$	2,139		$	1,287		$	(852	)	(66	)%
Finance and administration	4,154			4,671			517			11
Selling, general and administrative expenses	$	6,293		$	5,958		$	(335	)	(6	)%
Percentage of total net revenues	18.0		%	12.2		%

SG&A expenses as a percentage of total net revenues increased during the year ended December 31, 2012 compared to the prior year, due primarily to the decline in net revenues compared to 2011, and incremental costs incurred related to sales and strategic opportunities.

Goodwill Impairment Charge

During 2011, the results of operations were impacted by a non-cash goodwill impairment charge of $4.4 million, which represented the entire balance of goodwill. A deferred tax benefit of $1.5 million was recognized as of December 31, 2011 as a result of the total amount of estimated impairment charge, but a valuation allowance was immediately provided.

The impairment was indicated as a result of the decline in the Company's stock price which the Company believes was caused by the continued declines in revenue and claims volume from the Company's two most significant clients and the expectation of significantly diminishing revenue from at least one of these clients. The impairment did not impact cash flows.

27

Income Tax Provision

For the years ended December 31, 2012 and 2011, we recorded an income tax provision of approximately $31,000 and $644,000, respectively.  The effective income tax rates for 2012 and 2011 were different from the statutory United States federal income tax rate of 34% due primarily to the establishment of a deferred income tax valuation allowance of approximately $2.8 million in 2011 and an increase in the allowance by approximately $845,000 in 2012.

Liquidity and Capital Resources

     As of December 31, 2012 the Company had working capital of $9.0 million compared to $11.3 million at December 31, 2011.  Our cash and cash equivalents balance decreased to $10.7 million as of December 31, 2012 compared to $11.3 million at December 31, 2011. We continued to experience a decline in claims volume and resulting revenue, resulting in a net loss during the year ended December 31, 2012 which expended cash despite cost containment measures implemented during the past 18 months. Following are the components of our cash flows for the year ended December 31, 2012:

	Year ended December 31, 2012
Loss before income taxes	$	(3,060	)
Depreciation and amortization	878
Non-cash stock-based compensation expense	408
Amortization of long-term client agreement	250
Capital expenditures (primarily software development costs)	(528		)
Other working capital changes	1,442
Decrease in cash for the year ended December 31, 2012	$	(610	)

We believe our current cash balance of $10.7 million as of December 31, 2012 will be sufficient to meet our anticipated cash needs for working capital, capital expenditures, strategic initiatives and other activities through the foreseeable future.  However, we expect a decline in our cash balance in the first quarter of 2013 due to the timing of payments to providers and receipts from payors at year-end. Our continuing losses will also continue to reduce our available cash. We have reduced our non-variable cost structure to preserve our existing cash balances for investments in the business model and/or other strategic initiatives. If operating cash flows are not sufficient to meet our needs, we believe that credit or access to capital through issuance of equity would be available to us. However, global economic uncertainty, exacerbated by the European debt crisis and lingering questions surrounding U.S. fiscal policy in the wake of the “fiscal cliff,” continues to make capital markets more volatile and is threatening to once again tighten the credit markets. As a result, there can be no assurances that we would be successful in obtaining sufficient financing on commercially reasonable terms or at all.  We do not have any lines of credit, credit facilities or outstanding bank indebtedness as of December 31, 2012.

Inflation

Inflation did not have a significant impact on the Company’s costs during the years ended December 31, 2012 and December 31, 2011, respectively.  The Company continues to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements at December 31, 2012 or December 31, 2011 or for the periods then ended.

28

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.

The Company’s significant accounting policies are described in the Notes to the Consolidated Financial Statements located elsewhere in this Annual Report on Form 10-K. 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 our management:

Revenue recognition.

The Company recognizes revenue on the services that it provides, which includes (i) providing payor clients with a comprehensive network of ancillary healthcare providers, (ii) providing claims management, reporting, processing and payment services, (iii) providing network/need analysis to assess the benefits to payor clients of adding additional/different service providers to the client-specific provider networks and (iv) providing credentialing of network services providers for inclusion in the client payor-specific provider networks.  Revenue is recognized when services are delivered, which occurs after processed claims are billed to the client payors and collections are reasonably assured.  The Company estimates revenues and costs of revenues using average historical collection rates and average historical margins earned on claims.  Periodically, revenues are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected.

The Company determines whether it is acting as a principal or agent in the fulfillment of the services rendered.  After careful evaluation of the key gross and net revenue recognition indicators, the Company acknowledges that while the determination of gross versus net reporting is highly judgmental in nature, the Company has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

Following are the key indicators that support the Company’s conclusion that it acts as a principal when settling claims for service providers through its contracted service provider network:

• The Company is the primary obligor in the arrangement. The Company has assessed its role as primary obligor as a strong indicator of gross reporting.  The Company believes that it is the primary obligor in its transactions because it is responsible for providing the services desired by its client payors.  The Company has distinct, separately negotiated contractual relationships with its client payors and with the ancillary health care providers in its networks.  The Company does not negotiate “on behalf of” its client payors and does not hold itself out as the agent of the client payors when negotiating the terms of the Company’s ancillary healthcare service provider agreements.  The Company’s agreements contractually prohibit client payors and service providers to enter into direct contractual relationships with one another.  The client payors have no control over the terms of the Company’s agreements with the service providers.  In executing transactions, the Company assumes key performance-related risks.  The client payors hold the Company responsible for fulfillment, as the provider, of all of the services the client payors are entitled to under their contracts; client payors do not look to the service providers for fulfillment.  In addition, the Company bears the pricing/margin risk as the principal in the transactions.  Because the contracts with the client payors and service providers are separately negotiated, the Company has complete discretion in negotiating both the prices it charges its client payors and the financial terms of its agreements with the service providers.  Since the Company’s profit is the spread between the amounts received from the client payors and the amount paid to the service providers, it bears significant pricing/margin risk.  There is no guaranteed mark-up payable to the Company on the amount the Company has contracted.  Thus, the Company bears the risk that amounts paid to the service provider will be greater than the amounts received from the client payors, resulting in a loss or negative claim.

• The Company has latitude in establishing pricing.  As stated above, the Company has complete latitude in negotiating the price to be paid to the Company by each client payor and the price to be paid to each contracted service provider.  This type of pricing latitude indicates that the Company has the risks and rewards normally attributed to a principal in the transactions.

29

• The Company changes the product or performs part of the services. The Company provides the benefits associated with the relationships it builds with the client payors and the services providers.  While the parties could deal with each other directly, the client payors would not have the benefit of the Company’s experience and expertise in assembling a comprehensive network of service providers, in claims management, reporting and processing and payment services, in performing network/needs analysis to assess the benefits to client payors of adding additional/different service providers to the client payor-specific provider networks, and in credentialing network service providers.

• The Company has complete discretion in supplier selection. The Company has complete discretion in supplier selection.  One of the key factors considered by client payors who engage the Company is to have the Company undertake the responsibility for identifying, qualifying, contracting with and managing the relationships with the ancillary healthcare service providers.  As part of the contractual arrangement between the Company and its client payors, the payors identify their obligations to their respective covered persons and then work with the Company to determine the types of ancillary healthcare services required in order for the payors to meet their obligations.  The Company may select the providers and contract with them to provide services at its discretion.

• The Company is involved in the determination of product or service specifications. The Company works with its client payors to determine the types of ancillary healthcare services required in order for the payors to meet their obligations to their respective covered persons.  In some respects, the Company is customizing the product through its efforts and ability to assemble a comprehensive network of providers for its payors that is tailored to each payor’s specific needs.  In addition, as part of its claims processing and payment services, the Company works with the client payors, on the one hand, and the providers, on the other, to set claims review, management and payment specifications.

• The supplier (and not the Company) has credit risk. The Company believes it has some level of credit risk, but that risk is mitigated because the Company does not remit payment to providers unless and until it has received payment from the relevant client payors following the Company’s processing of a claim.

• The amount that the Company earns is not fixed. The Company does not earn a fixed amount per transaction nor does it realize a per-person per-month charge for its services.

The Company has evaluated the other indicators of gross and net revenue recognition, including whether or not the Company has general inventory risk.  The Company does not have any general inventory risk, as its business is not related to the manufacture, purchase or delivery of goods and it does not purchase in advance any of the services to be provided by the ancillary healthcare service providers.  While the absence of this risk would be one indicator in support of net revenue reporting, as described in detail above, the Company has carefully evaluated all of the key gross and net revenue recognition indicators and has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

The Company records a provision for refunds based on an estimate of historical refund amounts. Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payments made to the ancillary service provider if the claim has been fully resolved. The evaluation is performed periodically and is based on historical data. We present revenue net of the provision for refunds on the consolidated statements of operations.

Intangible Assets.

Intangible assets consist of ancillary provider network and internally developed claims payment and billing software.  The software has been fully amortized using the straight-line method over its expected useful life of 5 years. The ancillary provider network is being amortized using the straight-line method over their expected useful lives of 15 years.  Experience to date is that approximately 2-8% annual turnover or attrition of provider contracts occurs each year.  The ancillary provider network is being accounted for on a pooled basis and the actual cancellation rates of provider contracts that were acquired are monitored for potential impairment or amortization adjustment, if warranted.  We have performed an impairment assessment based on projected future cash flows and determined no impairment exists as of December 31, 2012 and 2011.The cost of adding additional providers is considered an ongoing operating expense, and is captured on the Statement of Operations under "Claims administration and provider development".

30

Deferred Income Taxes.

Income taxes are accounted for under the asset and liability method.  Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences”.  The Company records the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the statements of operations).  The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled. The realization of the deferred tax assets, including net operating loss carryforwards, is subject to our ability to generate sufficient taxable income during the periods in which the temporary differences become realizable. In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason of any losses, our forecast of future taxable income, and the dates of which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. The estimates are based on our best judgment at the time made based on current and projected circumstances and conditions. Based on estimates impacted by such factors as revenue declines of our two most significant client accounts and the impact of operating results, we determined that a valuation allowance was appropriate. In 2011, a valuation allowance in the amount of $2.8 million was established against the net deferred tax assets with the exception of the Texas tax credit carryforward of approximately $232,000. The valuation allowance against the net deferred tax assets increased by approximately $845,000 to $3.6 million and the Texas tax credit carryforward was approximately $228,000 as of December 31, 2012.

Pending Accounting Pronouncements

None.

Item 8.                    Financial Statement and Supplementary Data.

The Company’s consolidated financial statements and supplementary data required to be filed pursuant to this Item 8 are located at the end of this Annual Report on Form 10-K, beginning on page F-1.

Item 9.                    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.                  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2012.  Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to the disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Management’s Annual Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting by the Company.  “Internal control over financial reporting“ is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

31

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – IntegratedFramework. Management reviewed the results of its assessment with the Audit Committee of the Company’s Board of Directors.  Based on this assessment, management believes that, as of December 31, 2012, the Company has maintained effective internal control over financial reporting.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has concluded there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's last fiscal quarter that have materially affected the Company’s internal control over financial reporting or are reasonably likely to materially affect internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 9B.                  Other Information

Not applicable

32

PART III

Item 10.                  Directors, Executive Officers and Corporate Governance

The information required by this Item 10 is incorporated herein by reference to the applicable information contained in the definitive proxy statement for our 2013 annual meeting of stockholders or our annual report on Form 10-K/A, which will be filed with the SEC not later than 120 days after our fiscal year endedDecember 31, 2012.

Item 11.                    Executive Compensation

The information required by this Item 11 is incorporated herein by reference to the applicable information contained in the definitive proxy statement for our 2013 annual meeting of stockholders or our annual report on Form 10-K/A, which will be filed with the SEC not later than 120 days after our fiscal year endedDecember 31, 2012.

Item 12.                    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table provides information with respect to the equity securities that are authorized for issuance under our equity compensation plans as of December 31, 2012:

Equity Compensation Plan Information at December 31, 2012
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (Column (a))	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans, excluding securities reflected in column (a)
Equity compensation plans approved by security holders	796,068	$	6.03	494,788
Equity compensation plans not approved by security holders	—	—		—
Total	796,068	$	6.03	494,788

In addition, warrants to purchase 44,444 shares of Common Stock of the Company were issued and outstanding as of December 31, 2012, as shown in the table below.  

	Shares of Common Stock issuable under outstanding warrants	Weighted-average exercise price of outstanding warrants
Series E (1)	44,444	$	1.50
Total Warrants Outstanding	44,444	$	1.50

(1) These warrants were granted to an employee on February 25, 2011 as incentive to achieve defined and agreed upon revenue targets generated by new clients within a five year term. The Company agreed to issue warrants to purchase 83,333 shares of common stock with an exercise price of $5.01. The agreement also obligates the Company to issue warrants to purchase up to an additional 166,666 shares of common stock (issued in 83,333 increments) upon the achievement of additional defined agreed upon revenue targets. On February 1, 2012, certain terms of the agreement were modified, including the revenue targets and the total number of shares under the initial and future warrants. The warrant issuance now allows for 44,444 shares to be purchased at an exercise price of $1.50, 22,222 of which vested immediately, and the remaining 22,222 shares vesting upon the achievement of certain revenue targets. The number of shares under the future warrant issuances was also reduced to 88,889 (issued in 44,444 increments) shares based upon the achievement of additional defined agreed upon revenue targets. In making the issuance of these warrants without registration under the Securities Act of 1933, as amended (the "Securities Act"), the Company relied upon the exemption from registration contained in Section 4(2) of the Securities Act.

Shares of common stock and common stock equivalents, along with earnings per share and other per share amounts, have been retroactively restated to reflect the 1-for-3 reverse stock split that occurred on September 4, 2012 for all periods presented.

The other information required by this Item 12 is incorporated herein by reference to the applicable information contained in the definitive proxy statement for our 2013 annual meeting of stockholders or the Registrant's annual report on Form 10-K/A, which will be filed with the SEC not later than 120 days after the Company’s fiscal year ended December 31, 2012.

33

Item 13.                    Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 is incorporated herein by reference to the applicable information contained in the definitive proxy statement for our 2013 annual meeting of stockholders or our annual report on Form 10-K/A, which will be filed with the SEC not later than 120 days after our fiscal year endedDecember 31, 2012.

Item 14.                    Principal Accounting Fees and Services

The information required by this Item 14 is incorporated herein by reference to the applicable information contained in the definitive proxy statement for our 2013 annual meeting of stockholders or our annual report on Form 10-K/A, which will be filed with the SEC not later than 120 days after our fiscal year endedDecember 31, 2012.

34

PART IV

Item 15.                  Exhibits and Financial Statement Schedules

(a)    The following documents are filed as part of this Annual Report on Form 10-K:

(1)    Financial Statements

The following financial statements are set forth in Item 8 hereof:

Document	Pages
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Statements of Operations for the Years Ended December 31, 2012 and 2011	F-2
Consolidated Balance Sheets as of December 31, 2012 and 2011	F-3
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2012 and 2011	F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011	F-5
Notes to Consolidated Financial Statements	F-6

(2)    Financial Statement Schedules    

None.

(3)    Exhibits 

Reference is made to the Exhibit Index at the end of this Annual Report on Form 10-K.

35

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

American CareSource Holdings, Inc.

We have audited the accompanying consolidated balance sheets of American CareSource Holdings, Inc. and Subsidiary as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American CareSource Holdings, Inc. and Subsidiary as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ McGladrey LLP

Des Moines, Iowa

March 4, 2013

F-1

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31

(amounts in thousands, except per share data)

	2012			2011
Net revenues	$	34,902		$	48,906
Cost of revenues:
Provider payments	25,660			37,588
Administrative fees	1,551			2,395
Claims administration and provider development	3,580			4,405
Total cost of revenues	30,791			44,388
Contribution margin	4,111			4,518
Selling, general and administrative expenses	6,293			5,958
Depreciation and amortization	878			792
Goodwill impairment charge	—			4,361
Total operating expenses	7,171			11,111
Loss before income taxes	(3,060		)	(6,593		)
Income tax provision	31			644
Net loss	$	(3,091	)	$	(7,237	)
Loss per basic and diluted common share	$	(0.54	)	$	(1.28	)
Basic and diluted weighted average common shares outstanding	5,707			5,668

See accompanying notes.

F-2

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

December 31

(amounts in thousands except per share amounts)

	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	10,705		$	11,315
Accounts receivable, net	2,432			4,317
Prepaid expenses and other current assets	290			559
Deferred income taxes	6			6
Total current assets	13,433			16,197
Property and equipment, net	1,593			1,829
Other assets:
Deferred income taxes	222			226
Other assets	16			16
Intangible assets, net	768			896
	$	16,032		$	19,164
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Due to service providers	$	3,100		$	3,678
Accounts payable and accrued liabilities	1,343			1,237
Total current liabilities	4,443			4,915
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 10,000 shares authorized none issued	—			—
Common stock, $0.01 par value; 40,000 shares authorized; 5,706 and 5,692 shares issued and outstanding in 2012 and 2011, respectively	57			57
Additional paid-in capital	22,845			22,414
Accumulated deficit	(11,313		)	(8,222		)
Total stockholders’ equity	11,589			14,249
	$	16,032		$	19,164

See accompanying notes.

F-3

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2012 and 2011

(amounts in thousands)

	Common Stock
	Shares	Amount		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance at December 31, 2010	5,641	$	56	$	21,715		$	(985	)	$	20,786
Net loss	—	—		—			(7,237		)	(7,237		)
Stock-based compensation expense	—	—		738			—			738
Issuance of common stock upon conversion of equity incentive awards, net of tax withholdings	51	1		(39		)	—			(38		)
Balance at December 31, 2011	5,692	57		22,414			(8,222		)	14,249
Net loss	—	—		—			(3,091		)	(3,091		)
Stock-based compensation expense	—	—		408			—			408
Issuance of common stock as equity incentive awards, net of tax withholdings	13	—		23			—			23
Issuance of common stock upon conversion of restricted stock units, net of tax withholdings	1	—		—			—			—
Balance at December 31, 2012	5,706	$	57	$	22,845		$	(11,313	)	$	11,589

See accompanying notes.

F-4

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31

(amounts in thousands)

	2012			2011
Cash flows from operating activities:
Net loss	$	(3,091	)	$	(7,237	)
Adjustments to reconcile net loss to net cash used in operations:
Non-cash stock-based compensation expense	408			738
Depreciation and amortization	878			792
Goodwill impairment charge	—			4,361
Amortization of long-term client agreement	250			250
Client administration fee expense related to warrants	—			67
Deferred income taxes	4			614
Loss on write-off of software development costs	14			—
Changes in operating assets and liabilities:
Accounts receivable	1,885			1,193
Prepaid expenses and other assets	27			(21		)
Accounts payable and accrued liabilities	129			(188		)
Due to service providers	(578		)	(3,040		)
Net cash used in operating activities	(74		)	(2,471		)
Cash flows from investing activities:
Investments in software development costs	(419		)	(611		)
Additions to property and equipment	(109		)	(58		)
Net cash used in investing activities	(528		)	(669		)
Cash flows from financing activities:
Payment of income tax withholdings on net exercise of equity incentives	(8		)	(57		)
Net cash used in financing activities	(8		)	(57		)
Net decrease in cash and cash equivalents	(610		)	(3,197		)
Cash and cash equivalents at beginning of period	11,315			14,512
Cash and cash equivalents at end of period	$	10,705		$	11,315
Supplemental cash flow information:
Cash paid for taxes, net of refunds received	$	49		$	52
Supplemental non-cash operating and financing activity:
Accrued bonus paid with equity incentives	$	23		$	—

See accompanying notes.

F-5

AMERICAN CARESOURCE HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

(Tables in thousands, except per share amounts)

1. Summary of Significant Accounting Policies

American CareSource Holdings, Inc. (“ACS,” “Company,” the “Registrant,” “we,” “us,” or “our”) works to help its clients control healthcare costs by offering cost containment strategies, primarily through the utilization of a comprehensive national network of ancillary healthcare service providers.  The Company markets its services to a number of healthcare companies including third party administrators (“TPAs”), insurance companies, large self-funded organizations, various employer groups and preferred provider organizations ("PPOs").  The Company offers payors this solution by:

• lowering its payors’ ancillary care costs through its network of high quality, cost effective providers that the Company has under contract at more favorable terms than they could generally obtain on their own;

• providing payors with a comprehensive network of ancillary healthcare service providers that is tailored to each payor’s specific needs and is available to each payor’s members for covered services;

• providing payors with claims management, reporting and processing and payment services;

• performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor-specific provider networks; and

• credentialing network service providers for inclusion in the payor-specific provider networks.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its one wholly-owned subsidiary, Ancillary Care Services, Inc.  All material intercompany accounts and transactions are eliminated in consolidation.  Certain prior year amounts have been reclassified within the consolidated statement of operations, consolidated balance sheet, and consolidated statement of cash flow to conform to the current year presentation.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include amounts in deposit accounts in excess of federally insured limits of $250,000.  The Company has not experienced any losses in such accounts.

Revenue Recognition

The Company recognizes revenue on the services that it provides, which includes (i) providing payor clients with a comprehensive network of ancillary healthcare providers, (ii) providing claims management, reporting, processing and payment services, (iii) providing network/need analysis to assess the benefits to payor clients of adding additional/different service providers to the client-specific provider networks and (iv) providing credentialing of network services providers for inclusion in the client payor-specific provider networks.  Revenue is recognized when services are delivered, which occurs after processed claims are billed to the client payors and collections are reasonably assured.  The Company estimates revenues and costs of revenues using average historical collection rates and average historical margins earned on claims.  Periodically, revenues are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected.

The Company determines whether it is acting as a principal or agent in the fulfillment of the services rendered.  After careful evaluation of the key gross and net revenue recognition indicators, the Company acknowledges that while the determination of gross versus net reporting is highly judgmental in nature, the Company has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

Following are the key indicators that support the Company’s conclusion that it acts as a principal when settling claims for service providers through its contracted service provider network:

• The Company is the primary obligor in the arrangement.  The Company has assessed its role as primary obligor as a strong indicator of gross reporting.  The Company believes that it is the primary obligor in its transactions because it is responsible for providing the services desired by its client payors.  The Company has distinct, separately negotiated contractual relationships with its client payors and with the ancillary health care providers in its networks.  The Company does not negotiate “on behalf of” its client payors and does not hold itself out as the agent of the client payors when negotiating the terms of the Company’s ancillary healthcare service provider agreements.  The Company’s agreements contractually prohibit client payors and service providers to enter into direct contractual relationships with one another.  The client payors have no control over the terms of the Company’s agreements with the service providers.  In executing transactions, the Company assumes key performance-related risks.  The client payors hold the Company responsible for fulfillment, as the provider, of all of the services the client payors are entitled to under their contracts; client payors do not look to the service providers for fulfillment.  In addition, the Company bears the pricing/margin risk as the principal in the transactions.  Because the contracts with the client payors and service providers are separately negotiated, the Company has complete discretion in negotiating both the prices it charges its client payors and the financial terms of its agreements with the service providers.  Since the Company’s profit is the spread between the amounts received from the client payors and the amount paid to the service providers, it bears significant pricing/margin risk.  There is no guaranteed mark-up payable to the Company on the amount the Company has contracted.  Thus, the Company bears the risk that amounts paid to the service provider will be greater than the amounts received from the client payors, resulting in a loss or negative claim.

• The Company has latitude in establishing pricing.  As stated above, the Company has complete latitude in negotiating the price to be paid to the Company by each client payor and the price to be paid to each contracted service provider.  This type of pricing latitude indicates that the Company has the risks and rewards normally attributed to a principal in the transactions.

• The Company changes the product or performs part of the services.  The Company provides the benefits associated with the relationships it builds with the client payors and the services providers.  While the parties could deal with each other directly, the client payors would not have the benefit of the Company’s experience and expertise in assembling a comprehensive network of service providers, in claims management, reporting and processing and payment services, in performing network/needs analysis to assess the benefits to client payors of adding additional/different service providers to the client payor-specific provider networks, and in credentialing network service providers.

• The Company has discretion in supplier selection.  The Company has complete discretion in supplier selection.  One of the key factors considered by client payors who engage the Company is to have the Company undertake the responsibility for identifying, qualifying, contracting with and managing the relationships with the ancillary healthcare service providers.  As part of the contractual arrangement between the Company and its client payors, the payors identify their obligations to their respective covered persons and then work with the Company to determine the types of ancillary healthcare services required in order for the payors to meet their obligations.  The Company may select the providers and contract with them to provide services at its discretion.

• The Company is involved in the determination of product or service specifications.  The Company works with its client payors to determine the types of ancillary healthcare services required in order for the payors to meet their obligations to their respective covered persons.  In some respects, the Company is customizing the product through its efforts and ability to assemble a comprehensive network of providers for its payors that is tailored to each payor’s specific needs.  In addition, as part of its claims processing and payment services, the Company works with the client payors, on the one hand, and the providers, on the other, to set claims review, management and payment specifications.

• The supplier (and not the Company) has credit risk.  The Company believes it has some level of credit risk, but that risk is mitigated because the Company does not remit payment to providers unless and until it has received payment from the relevant client payors following the Company’s processing of a claim.

• The amount that the Company earns is not fixed.  The Company does not earn a fixed amount per transaction nor does it realize a per-person per-month charge for its services.

The Company has evaluated the other indicators of gross and net revenue recognition, including whether or not the Company has general inventory risk.  The Company does not have any general inventory risk, as its business is not related to the manufacture, purchase or delivery of goods and it does not purchase in advance any of the services to be provided by the ancillary healthcare service providers.  While the absence of this risk would be one indicator in support of net revenue reporting, as described in detail above, the Company has carefully evaluated all of the key gross and net revenue recognition indicators and has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

If the Company were to report its revenues net of provider payments rather than on a gross reporting basis, for the years ended December 31, 2012 and 2011, its net revenues would have been $9.2 million and $11.3 million, respectively.

The Company records a provision for refunds based on an estimate of historical refund amounts. Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payments made to the ancillary service provider if the claim has been fully resolved. The evaluation is performed periodically and is based on historical data. We present revenue net of the provision for refunds on the consolidated statements of operations.

Provider Payments

Payments to providers is the largest component of our cost of revenues and it consists of our payments for ancillary care services in accordance with contracts negotiated with providers for specific ancillary services, separately from contracts negotiated with our clients.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.

Property and Equipment

Property and equipment are recorded at original cost and increased by the cost of any significant improvements subsequent to purchase.  The Company expenses repairs and maintenance as incurred.  Depreciation and amortization is calculated using the straight-line method over the shorter of the asset’s estimated useful life or the term of the lease in the case of leasehold improvements.  The Company capitalizes costs associated with software developed for internal use.  During 2012 and 2011, we capitalized approximately $419,000 and $611,000 of internally developed software costs, respectively.  

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences”.  The Company records the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the statements of operations).  The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled.  A valuation allowance is established to reduce deferred tax assets considered to be more likely than not that the deferred tax assets will not be realized.

Stock Compensation

The Company records all stock-based payments to employees in the consolidated financial statements based on their estimated fair values as of the measurement date of the respective awards.  Additional information about the Company’s stock-based payment plan is presented in Note 9.

Segment and Related Information

The Company uses the “management approach” for reporting information about segments in its annual and interim financial statements.  The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company.  Based on the “management approach” model, the Company determined that the business is comprised of a single operating segment.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities.  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. 

2. Reverse Stock Split

At the Company's annual meeting of stockholders, held on June 11, 2012, the stockholders voted to amend the Company's certificate of incorporation for the purpose of effecting a reverse stock split and authorized its Board of Directors to determine, in its sole discretion, whether to effect the amendment, the timing of the amendment, and the specific ratio of the reverse stock split, provided that such ratio is 1-for-2, 1-for-2.5, 1-for-3, 1-for-3.5 or 1-for-4.

On August 31, 2012 the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended (the “Amendment”) to effect a 1-for-3 reverse stock split (“reverse split”) of its common stock, par value $0.01 per share (the “Common Stock”), effective September 4, 2012 (the “Effective Day”). Because the Amendment did not result in a reduction in the number of authorized shares of Common Stock, its effect was to increase the number of shares of Common Stock available for issuance relative to the number of shares issued and outstanding. In addition, the par value per share of Common Stock remained $0.01, thus Common Stock and Additional Paid-In Capital were adjusted $114,000 to reflect the reverse split on the consolidated balance sheet.

On the Effective Day, every three shares of the Company's Common Stock issued and outstanding immediately prior to the Effective Day were automatically combined into one share of Common Stock. Stockholders that were left with a fraction of a share as a result of the reverse split received cash in lieu of the fractional share in an amount based on the closing sale price of the Common Stock on the business day immediately preceding the Effective Day as reported on the The Nasdaq Capital Market. The amount paid to stockholders was less than $1,000. In addition, any options, warrants and restricted stock units outstanding as of the Effective Day were adjusted accordingly. As a result of the reverse split, the Company had 5,706,439 shares of common stock issued and outstanding as of December 31, 2012.

Shares of common stock and common stock equivalents, along with earnings per share and other per share amounts, have been retroactively restated to reflect the 1-for-3 reverse stock split that occurred on September 4, 2012 for all periods presented throughout this report.

F-6

3. Concentration of Credit Risk

During the years ended December 31, 2012 and 2011, two of the Company's clients comprised a significant portion of the Company’s revenues. The following is a summary of the approximate amounts of the Company’s revenue and accounts receivable contributed by each of those clients as of the dates and for the periods presented (amounts in thousands):

	2012								2011
	Accounts Receivable			Revenue			% of Total Revenue		Accounts Receivable			Revenue			% of Total Revenue
Material Client Relationship	$	720		$	10,704		31	%	$	1,689		$	16,584		34	%
MultiPlan, Inc. (formerly Viant Holdings, Inc.)	22			2,941			8		853			9,959			20
Principal Life Insurance Company	26			49			—		95			2,619			5
Other legacy clients	815			7,122			20		1,008			7,482			16
Clients implemented in 2010 - 2012	1,156			14,362			42		909			12,884			26
Allowance for Uncollectable Receivables/Provision for Refunds	(307		)	(276		)	(1	)	(237		)	(622		)	(1	)
	$	2,432		$	34,902		100	%	$	4,317		$	48,906		100	%

Material Client Relationship includes five related entities and MultiPlan, Inc. includes two related entities, which are aggregated for this presentation.  

4. Allowance for Uncollectable Receivables and Refunds

The Company maintains an allowance for uncollectable receivables which primarily relates to payor refunds.  Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payment made to the ancillary service provider if the claim has been fully resolved. Co-payments, deductibles and co-insurance payments can also impact the collectability of claims.  While the Company is able to process a claim and estimate the cash it will receive from the payor for that claim, the presence of co-pays, deductibles and co-insurance payments can affect the ultimate collectability of the claim.  The Company records an allowance against revenue to better estimate collectability.   Provisions for refunds recorded, netted against receivables, were approximately $276,000 and $622,000 for the years ended December 31, 2012 and 2011, respectively. The allowance was approximately $307,000 and $237,000 at December 31, 2012 and 2011, respectively.

5. Property and Equipment

Property and equipment, net consists of the following:

	Useful Lives (years)	2012			2011
Software – internally developed	5	$	2,582		$	2,177
Software – purchased	3-5	614			592
Computer equipment	3-5	594			507
Furniture and fixtures	5	356			356
Leasehold improvements	7	205			205
		4,351			3,837
Accumulated depreciation and amortization		(2,758		)	(2,008		)
Property and equipment, net		$	1,593		$	1,829

The Company recognized depreciation expense of approximately $750,000 and $664,000 during 2012 and 2011, respectively. The depreciation amounts include approximately $437,000 and $330,000 of amortization of internally developed software during 2012 and 2011, respectively.

F-7

The Company capitalizes costs associated with internally developed software, developed for internal use only, during the application development stage. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality also are capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related expenses for employees who are directly associated with and devote time to the internal-use software project. Capitalization of such costs begins when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready for its intended purpose.

During the years ended December 31, 2012 and 2011, the Company capitalized costs related to enhancements to its internal information technology claims management applications. The applications were originally developed in 2005 and from time to time, the Company will enhance the functionality and reporting capabilities of the applications. The enhancements are typically developed by the Company's internal information technology group. Periodically, third-party consultants will be utilized to perform the development. For internal resources, the Company capitalizes salary and related benefits, while it capitalizes the cost of external consultants.

6. Income Taxes

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

	2012			2011
Computed “expected” tax provision	$	(1,040	)	$	(2,242	)
Increase in the valuation allowance for deferred tax assets	845			2,752
Short-fall on stock options, warrants, and RSUs	245			145
State taxes	25			25
Permanent items	10			—
Other	(54		)	(36		)
Total income tax provision	$	31		$	644

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

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

	2012			2011
Deferred tax assets:
Operating loss carryforward	$	1,919		$	872
Accounts receivable allowance	106			72
Warrants	—			202
Texas tax credit carryforward	228			232
Stock option compensation	1,306			1,206
Goodwill	723			843
Accrued expenses	121			195
Alternative Minimum Tax credit carryforwards	16			16
Total deferred tax assets	4,419			3,638
Deferred tax liabilities:
Property and equipment	(514		)	(570		)
Prepaid expense	(80		)	(84		)
Total deferred tax liabilities	(594		)	(654		)
Valuation allowance	(3,597		)	(2,752		)
Net deferred tax assets	$	228		$	232

F-8

In 2011, a valuation allowance in the amount of $2.8 million was established against the net deferred tax assets with the exception of the Texas tax credit carryforward of approximately $232,000. During the year ended December 31, 2012, the Company increased the valuation allowance by approximately $845,000, which was included in the income tax provision for the year ended December 31, 2012. Due to the nature and timing of the reversal of the deferred tax assets and liabilities, the valuation allowance was established against the net deferred tax assets with the exception of the Texas tax credit carryforward of approximately $228,000.

    As of December 31, 2012 and 2011, the net operating loss carryforwards were approximately $10.9 million and $7.9 million, which expire in 2025 through 2031. Included in the net operating loss carryforward is approximately $5.4 million which related to the excess tax benefits for stock options and warrants exercised which will result in a credit to additional paid in capital of approximately $1.9 million when the associated tax deduction results in a reduction in the income taxes payable.

The income tax provision shown on the statement of operations for the years ended December 31, 2012 and 2011 consisted of the following:

	2012		2011
Current	$	27	$	30
Deferred	4		614
	$	31	$	644

The Company has evaluated the accounting guidance for uncertainty in income taxes. Management has evaluated their material tax positions and determined no income tax effects with respect to the consolidated financial statements. The Company has identified the United States and Texas as major tax jurisdictions and is no longer subject to federal or state income tax examinations by tax authorities for years before 2007. During 2011 and the early part of 2012 the Company underwent an examination by tax authorities for its U.S. federal return for the year ended 2009. In August of 2012, the Company was notified that there were no changes proposed to the 2009 income tax return.

7. Goodwill Impairment and Intangible Assets

Goodwill

The Company initiated an interim goodwill impairment analysis as of September 30, 2011. The Company concluded that impairment indicators existed based upon, among other things, the decline in market capitalization, revenue declines of the Company's two most significant client accounts and operating results for the nine months ended September 30, 2011, which required the performance of an interim impairment test. As a result, the Company recognized a non-cash goodwill impairment charge of $4.4 million as of September 30, 2011, representing the entire balance of goodwill. The Company subsequently finalized its analysis with no change to the preliminary results. In addition, the Company also reviewed the carrying value of intangible assets, which is limited to our ancillary provider network and property and equipment, to determine if impairment exists. Based on this analysis, the Company concluded that no impairment of the ancillary provider network or property and equipment existed as of September 30, 2011. A deferred tax benefit of $1.5 million was recognized as of September 30, 2011 as a result of the total amount of estimated impairment charges, but a valuation allowance was immediately provided.

The impairment was indicated as a result of the decline in the Company's stock price which the Company believes was caused by the continued declines in revenue and claims volume from the Company's two most significant clients and the expectation of significantly diminishing revenue from at least one of these clients. The impairment did not impact cash flows.

Intangibles

The ancillary provider network is being amortized using the straight-line method over their expected useful lives of 15 years.  Experience to date is that approximately 2-8% annual turnover or attrition of provider contracts occurs each year.  The ancillary provider network is being accounted for on a pooled basis and the actual cancellation rates of provider contracts that were acquired are monitored for potential impairment or amortization adjustment, if warranted.  We have performed an impairment assessment based on projected future cash flows and determined no impairment exists as of December 31, 2012 and 2011.The cost of adding additional providers is considered an ongoing operating expense, and is captured on the Statement of Operations under "Claims administration and provider development".

F-9

The following is a summary of our intangible assets as of December 31 for the years presented: 

	2012			2011
Ancillary provider network	$	1,921		$	1,921
Software	428			428
	2,349			2,349
Accumulated amortization	(1,581		)	(1,453		)
Intangibles, net	$	768		$	896

The capitalized value of the ancillary provider network that was acquired in the 2003 acquisition of the assets of our predecessor, American CareSource Corporation by Patient Infosystems (now CareGuide, Inc.), our former parent corporation. Amortization expense was approximately $128,000 for each of the years ended December 31, 2012 and 2011.  Amortization expense is estimated at $128,000 per year through 2018.

8. Commitments and Contingencies

The Company leases office space under a non-cancelable lease agreement, which expires in March 2013. Additionally the Company leases certain equipment under non-cancelable lease agreements, which expire at various dates through May 2015.

At December 31, 2012 minimum annual lease payments for operating leases are approximately as follows:

	Operating Leases
2013	$	126
2014	32
2015	7
Total minimum lease payments	$	165

Expense related to operating leases was approximately $318,000 and $347,000 for the years ended December 31, 2012 and 2011, respectively.

In January 2013, the Company executed an extension of its existing lease agreement for a term of 24-months, expiring on March 31, 2015. In addition to the extension of the lease term, the annual cost per square foot was reduced to $18.50. Rent expense related to the lease extension will be $228,000 in 2013, $304,000 in 2014 and $76,000 in 2015, which is not included in the table above.

9. Stock-Based Compensation

Stock Options

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 2005 Stock Option Plan which (i) authorized options to purchase 749,776 shares 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 16,667 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.  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 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.

Over time this plan has been amended to increase the number of shares available to a total of 1,249,776 shares.

F-10

On May 19, 2009, the stockholders of the Company approved the 2009 Equity Incentive Plan (the “2009 Plan”).  The purpose of the 2009 Plan is (a) to allow selected employees and officers of the Company to acquire and increase equity ownership in the Company, which will strengthen their commitment to the success of the Company, and to attract new employees, officers and consultants, (b) to provide annual cash incentive compensation opportunities that are competitive with other peer corporations, (c) to optimize the profitability and growth of the Company through incentives that are consistent with the Company’s goals, (d) to provide grantees an incentive for individual excellence, (e) to promote teamwork and (f) to attract and retain highly-qualified persons to serve as non-employee directors.  The 2009 Plan allows for awards of non-qualified options, stock appreciation rights, restricted shares, performance units/shares, deferred stock, dividend equivalents and other stock-based awards up to 500,000 shares.  The term of the 2009 Plan is ten years and all non-qualified options will be valued at not less than 100% of the market value of the Company’s stock on the date of grant.

Shares of common stock reserved for future grants under the Stock Option Plan and the 2009 Plan (the “Plans”) were 494,788 and 546,956 at December 31, 2012 and 2011, respectively.

Compensation expense related to all equity awards, including non-qualified stock options, restricted stock units and warrants, that has been charged against income for the years ended December 31, 2012 and 2011 was approximately $408,000 and $738,000, respectively.

The awards granted to employees and non-employee directors become exercisable over periods of up to five years.  The fair value of each option award granted is estimated on the date of grant using the Black-Scholes-Merton valuation model that uses the assumptions noted in the following table.  Volatility is calculated using an analysis of historical volatility.  The Company believes that the historical volatility of the Company’s stock is the best method for estimating future volatility.  The expected lives of options are determined based on the Company’s historical share option exercise experience.  The Company believes the historical experience method is the best estimate of future exercise patterns currently available.  The risk-free interest rates are determined using the implied yield currently available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the options.  The expected dividend yields are based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. 

	2012			2011
Weighted average grant date fair value	$	1.01		$	1.89
Weighted average assumptions used
Expected volatility	77.7		%	66.9		%
Expected lives (years)	6.2			6.1
Risk free interest rate	1.0		%	1.6		%
Forfeiture rate	20.5		%	20.5		%
Dividend rate	—			—

A summary of stock option activity is as follows:

	Options (thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2010	866		$	6.72
Granted	93		3.09
Forfeited	(55	)	6.33
Cancelled	(78	)	8.82
Exercised	(87	)	1.11
Outstanding at December 31, 2011	739		6.72
Granted	100		1.49
Forfeited	(33	)	5.11
Cancelled	(14	)	10.65
Exercised	—		—
Outstanding at December 31, 2012	792		6.06
Exercisable at December 31, 2012	519		$	7.20

As of December 31, 2012, the weighted average remaining contractual life of the options outstanding was 6.4 years and the weighted average remaining contractual life of the outstanding exercisable options was 5.4 years.

F-11

The following table summarizes information concerning outstanding and exercisable options at December 31, 2012:

(in thousands)	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Outstanding Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
Under $1.00	58	2.3	$	0.93	58	$	0.93
$1.00 - $2.00	104	9.7	$	1.48	2	$	1.53
$2.01 - $3.00	50	8.6	$	2.19	21	$	2.19
$3.01 - $4.00	1	8.6	$	3.72	—	$	3.72
$4.01 - $5.00	116	7.8	$	4.31	59	$	4.31
$5.01 - $6.00	162	5.0	$	5.54	156	$	5.55
$6.01 - $7.00	119	7.2	$	6.13	49	$	6.15
Greater than $7.01	182	5.2	$	12.94	174	$	12.72

The total intrinsic value of options outstanding at December 31, 2012 and 2011 was approximately $30,000 and $21,000, respectively.  The total intrinsic value of the options that are exercisable at December 31, 2012 and 2011 was approximately $29,000 and $21,000, respectively. No options were exercised during the year ended December 31, 2012. The total intrinsic value of options exercised during the year ended December 31, 2011 was approximately $127,000.

Compensation expense related to non-qualified stock options charged to operations during 2012 was approximately $350,000. As of December 31, 2012, there was approximately $498,000 of total unrecognized compensation cost related to non-vested non-qualified stock options granted under the plan.  The cost is expected to be recognized over a weighted average period of 3.2 years.

Restricted Stock Units

Under the 2009 Plan, the Company issued restricted stock units (“RSUs”) to certain employees and the Board of Directors during the twelve months ended December 31, 2009.  As RSUs vest, they are convertible into shares of the Company’s common stock.  The RSUs are valued at the market price of the Company’s stock on the measurement date, which is the date of grant. Compensation expense is recognized ratably over the vesting period.  Our future estimated forfeiture rate on RSUs is 0% as the RSUs have been awarded primarily to members of our Board of Directors and members of senior management of the Company. No RSUs were issued during the twelve months ended December 31, 2012 and 2011.

A summary of RSU activity is as follows:

	RSUs		Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2010	29		$	21.21
Forfeited	(6	)	$	5.58
Converted to common stock	(17	)	$	11.61
Outstanding at December 31, 2011	6		$	21.45
Forfeited	—		$	—
Converted to common stock	(2	)	$	21.53
Outstanding at December 31, 2012	4		$	21.40
Vested and convertible to common stock at December 31, 2012	4		$	21.06

Compensation expense related to RSUs charged to operations during 2012 and 2011 was approximately $37,000 and $108,000, respectively. As of December 31, 2012, there was approximately $49,000 of total unrecognized compensation cost related to non-vested RSUs granted under the plan. The cost is expected to be recognized over a weighted average period of 1.3 years.

Shares of common stock and common stock equivalents, along with earnings per share and other per share amounts, have been retroactively restated to reflect the 1-for-3 reverse stock split that occurred on September 4, 2012 for all periods presented.

F-12

10. Stock Warrants

On July 2, 2007, the Company announced that it had signed an Ancillary Care Services Network Access Agreement (the “Ancillary Care Services Agreement”) effective as of May 21, 2007 (the “Effective Date”) with a new client, Texas True Choice, Inc. (“Texas True Choice”), a Texas-based preferred provider organization network, and certain subsidiaries of Texas True Choice. As partial compensation to Texas True Choice under the Ancillary Care Services Agreement, the Company issued to Corporate Health Plans of America, Inc., an affiliate of Texas True Choice, warrants to purchase a total of 75,000 shares of the Company’s common stock at an exercise price of $5.52, the closing price of the common stock of the Company as reported on the American Stock Exchange on the Effective Date. The Company valued the warrants when various measurement dates had been reached under the agreement.  Utilizing the Black-Scholes Merton valuation method, 37,500 warrants were valued at $2.82 in 2007, 18,750 warrants were valued at $8.61 at June 2008 and the remaining 18,750 were valued at $16.59 in June 2009.

These warrants vested 25% on the Effective Date, an additional 25% on each anniversary date of the Effective Date, and had an expiration date of May 20, 2012.

The Company entered into an agreement as of February 25, 2011 with an employee, whereby the Company agreed to issue warrants to purchase 83,333 shares of common stock with an exercise price of $5.01. The warrants have a term of 5 years and vest in increments over a time period of 2 years depending on the achievement of defined, agreed upon revenue targets generated by new clients. The agreement also obligates the Company to issue warrants to purchase up to an additional 166,666 shares of common stock (issued in 83,333 increments) pursuant to the achievement of additional defined agreed upon revenue targets. During the twelve months ended December 31, 2011, we did not recognize compensation costs associated with these warrants due to the low probability of vesting.

On February 1, 2012, certain terms of the agreement were modified, including the revenue targets and the total number of shares under the initial and future warrants. The warrants initially granted now cover 44,444 shares to be purchased at an exercise price of $1.50, 22,222 of which vested immediately, and the remaining 22,222 shares vesting upon the achievement of certain revenue targets. The number of shares underlying warrants to be issued under the agreement in the future was reduced to 88,889 shares (issued in 44,444 increments) based upon the achievement of additional defined agreed upon revenue targets.

During the twelve months ended December 31, 2012, we recognized compensation costs of approximately $21,000 associated with the initial vesting of 22,222 shares. Additional costs associated with the warrants will be recognized based on the probability that the revenue targets will be reached. That probability will be re-evaluated and updated based on current market conditions, on a quarterly basis, and compensation costs will be adjusted accordingly.

A summary of stock warrant activity is as follows:

	Outstanding Warrants (thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2010	108		$	8.88
Granted	83		$	5.01
Cancelled	(33	)	$	16.53
Outstanding at December 31, 2011	158		$	5.25
Granted	—		nm
Cancelled or expired	(114	)	$	4.15
Outstanding at December 31, 2012	44		$	1.50
Vested at December 31, 2012	22		$	1.50

Shares of common stock and common stock equivalents, along with earnings per share and other per share amounts, have been retroactively restated to reflect the 1-for-3 reverse stock split that occurred on September 4, 2012 for all periods presented.

F-13

11. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (or loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share reflects the potential dilution that could occur if options, warrants and restricted stock units to purchase common stock were exercised or converted. For purposes of this calculation, outstanding stock options, stock warrants and restricted stock units are considered common stock equivalents using the treasury stock method, and are the only such equivalents outstanding.  

For the year ended December 31, 2012, options to purchase approximately 792,000 shares of commons stock, warrants to purchase approximately 44,400 shares of common stock, and approximately 3,400 unvested restricted stock units were excluded from the calculation as their impact would be anti-dilutive.

12. Significant Agreements

The decline in net revenue and billed claims volume from our relationship with MultiPlan, Inc. ("MultiPlan") is due to the acquisition by MultiPlan of Viant Holdings, Inc. As part of that transition, MultiPlan is methodically moving its payors and employers groups to its existing networks. The transition commenced in mid-2010 and was complete at the end of 2012. We do not expect any significant revenue contributions from the account in the future.

On December 31, 2012, the Company entered into a Health Care Services Access Agreement (the “Agreement”) with HealthSmart Preferred Care II, L.P., HealthSmart Preferred Network II, Inc., and SelectNet Plus, Inc. (referred to hereinafter collectively as “HSPC”).

The purpose of the Agreement is, among other things, for HSPC to utilize the Company’s providers and active referral management in order to provide benefits for healthcare services to certain benefit plans and their plan participants for whom HSPC provides services. Pursuant to the Agreement, HSPC will provide claim consolidation and routing of claims to the Company generating reductions in various charges for healthcare services that are covered services provided to plan participants.

As part of the Agreement, the Company agreed to pay HSPC a monthly administrative services fee (the “Administrative Services Fee”) to reimburse and to compensate HSPC for the work that HSPC is required to perform to support the Company’s program. The Administrative Services Fee is based upon paid claims arising from the Company’s network of providers.

Pursuant to the Agreement, for services other than primary group health services, the Company will be compensated based on a percentage of the gross revenue actually collected by HSPC from its payors and clients for claims utilizing a Company discount through certain of the Company’s networks.

The Agreement is for a term of three years (the “Initial Term”), with one automatic two year renewal, unless the Agreement is terminated by a party if the other party breaches the Agreement and such breach has not been cured prior to the expiration of thirty days following the non-breaching party’s delivery of written notice specifying such breach to the breaching party or unless either party provides notice of non-renewal no less than ninety days prior to the expiration of the Initial Term. Following the automatic two year renewal term, the Agreement shall automatically renew for successive periods of one year unless earlier terminated by a party for breach or unless either party provides notice of non-renewal no less than ninety days prior to the expiration of the two year renewal term or any subsequent renewal term.

As part of the Agreement, the Provider Service Agreement by and between the Company and HSPC, dated August 1, 2002, as amended through December 20, 2008, is terminated.

13. Employee Benefit Plans

The Company provides a defined contribution plan for employees meeting minimum service requirements.  Employees can contribute up to 100% of their current compensation to the plan subject to certain statutory limitations.  The Company contributes up to a maximum of 3.5% of an employee’s compensation and plan participants are fully-vested in the Company’s contributions immediately.  The Company made contributions to the plan and charged operations approximately $107,000 and $120,000 during the years ended December 31, 2012 and 2011, respectively.

F-14

14. Quarterly Financial Information (unaudited)

The following table contains selected financial information from unaudited statements of operations for each quarter of 2012 and 2011.

	Quarters Ended
	2012												2011
	Dec. 31			Sept. 30			June 30			Mar. 31			Dec. 31		Sept. 30			June 30			Mar. 31
Net revenues	$	9,100		$	8,186		$	8,215		$	9,401		$	13,025	$	11,496		$	11,308		$	13,077
Contribution margin	1,334			805			864			1,108			1,590		722			779			1,427
Contribution margin %	14.7			9.8			10.5			11.8			12.2		6.3			6.9			10.9
Income (loss) before income taxes	(626		)	(1,071		)	(812		)	(551		)	150		(5,554		)	(965		)	(224		)
Net income (loss)	(629		)	(1,075		)	(829		)	(558		)	153		(6,523		)	(645		)	(222		)
Earnings (loss) per diluted share	(0.11		)	(0.19		)	(0.14		)	(0.10		)	0.03		(1.15		)	(0.12		)	(0.04		)
Shares used in computing diluted earnings (loss) per share	5,711			5,711			5,710			5,696			5,716		5,670			5,654			5,654

F-15

SIGNATURES

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

AMERICAN CARESOURCE HOLDINGS, INC.

By: /s/ Kenneth S. George	March 4, 2013
Kenneth S. George Chief Executive Officer	Date

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

By: /s/ Kenneth S. George	March 4, 2013
Kenneth S. George Chief Executive Officer (Principal Executive Officer) Chairman of the Board of Directors	Date

By: /s/ Matthew D. Thompson	March 4, 2013
Matthew D. Thompson Chief Financial Officer   (Principal Financial Officer and Principal Accounting Officer)	Date

By: /s/ William J. Simpson, Jr.	March 4, 2013
William J. Simpson, Jr. President and Chief Operating Officer   Director	Date

By: /s/ Sami S. Abbasi	March 4, 2013
Sami S. Abbasi Director	Date

By: /s/ Edward B. Berger	March 4, 2013
Edward B. Berger Director	Date

By: /s/ John N. Hatsopoulos	March 4, 2013
John N. Hatsopoulos Director	Date

By: /s/ Matthew P. Kinley	March 4, 2013
Matthew P. Kinley Director	Date

By: /s/ John Pappajohn	March 4, 2013
John Pappajohn Director	Date

By: /s/ Derace L. Schaffer	March 4, 2013
Derace L. Schaffer Director	Date

By: /s/ Richard W. Turner	March 4, 2013
Richard W. Turner, Ph.D. Director	Date

EXHIBIT INDEX

Exhibit #	Description of Exhibits
3.1(13)	Certificate of Incorporation of American CareSource Holdings, Inc., as amended
3.2(1)	By-Laws
4.1(2)	Specimen Stock Certificate
4.2(3)	Amended and Restated 2005 Stock Option Plan
4.3 (4)	2009 Equity Incentive Plan
10.08(6), *	Employment Letter dated January 29, 2008 between American CareSource Holdings, Inc. and Cornelia Outten
10.09(6), *	Employment Letter dated March 6, 2008 between American CareSource Holdings, Inc. and Rost Ginevich
10.10(7)	Form of Registration Rights Agreement used in March 2006 private placement
10.11(7)	Form of Subscription Agreement used in March 2006 private placement
10.17(8)	Lease dated June 14, 2006, between American CareSource Holdings, Inc. and TR LBJ Campus Partners, L.P.
10.18(9)	First Amendment to Office Lease, dated December 1, 2008, between American CareSource Holdings, Inc. and TR LBJ Campus Partners, L.P.
10.19(10), ***	Provider Services Agreement, dated as of August 1, 2002, by and among the Company, HealthSmart Holdings, Inc. and HealthSmart Preferred Care II, L.P, and Amendment No. 1, 2, 3 and 4 thereto, dated September 1, 2005, January 1, 2007, July 31, 2007 and December 20, 2008, respectively.
10.19A **, ***	Health Care Services Access Agreement, dated as of December 31, 2012, by and between American CareSource Holdings, Inc. and HealthSmart Preferred Care II, LP, HealthSmart Preferred Network II, Inc., and SelectNet Plus, Inc.
10.20(9), *	Employment Letter dated November 10, 2008 between American CareSource Holdings, Inc. and James T. Robinson
10.21(10), ***	Ancillary Care Services Network Access Agreement, dated as of July 2, 2007, by and between the Company and Texas True Choice, Inc. and its subsidiaries and Amendment dated December 31, 2009.
10.22(11), *	Letter Agreement dated December 24, 2009 by and between American CareSource Holdings, Inc. and James T. Robinson
10.24(12),*	Employment Agreement dated April 29, 2011 between American CareSource Holdings, Inc. and William J. Simpson, Jr.
10.25(12),*	Employment Agreement dated April 29, 2011 between American CareSource Holdings, Inc. and Matthew D. Thompson
14.1(7)	Code of Ethics

21.1⁽¹²⁾ Subsidiaries

23.1**	Consent of McGladrey LLP
31.1**	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**	Certification of the Chief Financial Officer 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.

* Designates a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(a)(3) of this report.

** Filed herewith

*** Certain confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

(1) 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.

(2) 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.

(3) Previously filed with the Securities and Exchange Commission as Exhibit B to the Proxy Statement for the 2009 Annual Meeting of Stockholders filed on April 20, 2009 and incorporated herein by reference.

(4) Previously filed with the Securities and Exchange Commission as Exhibit A to the Proxy Statement for the 2009 Annual Meeting of Stockholders filed on April 20, 2009 and incorporated herein by reference.

(5) Intentionally omitted.

(6) Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-K filed March 31, 2008 and incorporated herein by reference.

(7) 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.

(8) Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-QSB filed August 11, 2006 and incorporated herein by reference.

(9) Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-K filed March 31, 2009 and incorporated herein by reference.

(10) Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-Q/A filed July 8, 2011 and incorporated herein by reference.

(11) Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-K filed March, 26, 2010 and incorporated herein by reference.

(12) Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-K filed March 18, 2011 and incorporated herein by reference.

(13) Previously filed with the Securities and Exchange Commission as an exhibit to the Form 10-Q filed on November 9, 2012 and incorporated herein by reference.

EX-10.19A

HEALTH CARE SERVICES

ACCESS AGREEMENT

This Health Care Services Access Agreement (the “Agreement”), by and between American CareSource Holdings, Inc. d/b/a Ancillary Care Services, Inc. (“ACS”), and HealthSmart Preferred Care II, LP, HealthSmart Preferred Network II, Inc., and SelectNet Plus, Inc. (referred to hereinafter collectively as “HSPC”) is entered into as of this 31st day of December, 2012(the “Effective Date”).

WHEREAS, ACS is engaged in the business of developing, maintaining and providing access to providers engaged in health care services and in administrating comprehensive health care services for various types of medical benefit plans; and,

WHEREAS, HSPC desires to utilize the ACS Providers and ACS' active referral management services in order to provide benefits for health care services to Benefit Plans and their Plan Participants for whom HSPC provides services; and,

WHEREAS, HSPC shall provide claim consolidation and routing of claims to ACS to facilitate the automated repricing of claims by ACS, generating reductions in various charges for health care services that are Covered Services provided to Plan Participants; and,

WHEREAS, ACS manages all reimbursement-related communications on submitted ACS Provider claims; and

WHEREAS, the parties intend that neither party shall be deemed a “fiduciary” within the meaning of ERISA or any insurance law, and neither party shall have discretionary authority or final determinative capability.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the parties agree as follows:

1. DEFINITIONS

1.1“ACS Fee Schedule” means any fee schedule for health care services arranged and/or negotiated, directly or indirectly, by ACS, each of which establishes the maximum allowable payments that shall be made for health care services by HSPC Payors to ACS for health care services that are delivered to Plan Participants.

1.2“ACS Provider” means any provider of Covered Services that has agreed to participate in ACS' group of providers and is a party to an ACS Provider Agreement.

1.3“ACS Provider Agreement” means any agreement executed by ACS and an ACS Provider setting forth the terms in accordance with which such ACS Provider shall provide health care services for amounts set forth therein.

1.4“Affiliate” or “Affiliates” shall mean the current and future direct and indirect subsidiaries and affiliates of HealthSmart Preferred Care II, LP who perform preferred provider network and/or third party administration services. The current Affiliates of HealthSmart Preferred Care II, L.P. are identified on Exhibit B attached hereto.

1.5“Benefit Plan” means any type of health care benefit program provided to Plan Participants supplying such Plan Participants with funds to pay for health care services, sponsored and/or administered by Payor, and for whom HSPC provides services.

1.6“Clean Claim(s)” means a claim for services or supplies that can be processed in accordance with the terms of the applicable Benefit Plan's Plan Document without obtaining additional information from the ACS Provider or any other third party, which requests are to go through ACS. It is a claim which has no defect or impropriety. A defect or impropriety shall include a lack of required sustaining documentation as set forth and in accordance with the applicable Benefit Plan's Plan Document or a particular circumstance requiring special treatment which prevents timely payment from being made. A Clean Claim does not include claims under investigation for fraud or abuse, or claims under review for medical necessity, or under review to ensure they do not exceed the maximum amount payable in accordance with the terms of the applicable Benefit Plan, or any other matter that may prevent the charge(s) from being deemed covered expenses in accordance with the terms of the Benefit Plan's Plan Document.

1.7“Covered Services” means the care, treatments, services or supplies described in the applicable Benefit Plan's Plan Document, as eligible for payment or reimbursement from the Benefit Plan, as further defined to include those health care services included in Exhibit A attached hereto.

1.8“Existing Paid Claims Volume” is defined as the aggregate claims paid for Primary Group Health Services (measured by funds that are collected) each calendar month to ACS that was derived from HSPC and the Payors and clients identified on Schedule 1.8 for health care services provided by the ACS network. The parties agree that Schedule 1.8, attached hereto, is preliminary in nature. The parties agree, acting in good faith and no later than thirty (30) days following the Effective Date, to reconcile the participation status of those payors and/or clients identified by ACS in the Incremental Payor Listing delivered to HSPC via email on December 27, 2012 and to produce a final Schedule 1.8 which will replace the preliminary Schedule 1.8 upon mutual written agreement.

1.9“New Paid Claims Volume” is defined as the aggregate claims paid for Primary Group Health Services (measured by funds that are collected) each calendar month to ACS that was derived from HSPC and any Payors and clients not identified on Schedule 1.8 as of the date hereof for health care services provided by the ACS network.

1.10“Participant Expenses” means any amounts that are the responsibility of the Plan Participant or the appropriate responsible party to pay in accordance with such party's Benefit Plan, including, without limitation, co-payments, co-insurance, deductibles, and non-covered expenses.

1.11“Payor” means any insurance company, union, third party administrator, self-insured employer, government-sponsored entity, state or county municipality, employer association or coalition which, directly or indirectly under state or federal regulation or law, provides or arranges for the provision of Covered Services under any Benefit Plan. In addition to being an Affiliate of HSPC, HealthSmart Benefit Solutions, Inc. shall also be considered a Payor under this Agreement.

1.12“Plan Document” means the instrument or instruments that set forth and govern the duties of the Benefit Plan and HSPC; eligibility and benefit provisions of the Benefit Plan provide for the payment or reimbursement of Covered Services set forth therein.

1.13“Plan Participant” means any covered person under a Benefit Plan who is entitled to benefits for Covered Services.

1.14“Primary Group Health Services” means those health care services that ACS renders as part of primary PPO access with identification and steerage mechanisms under a Benefit Plan.For the avoidance of doubt, the parties acknowledge and agree that Primary Group Health Care Services shall only include those health care services provided by ACS in its primary group health line of business and shall not include any other line of business including, without limitation, secondary, workers compensation or auto medical.

2.REPRESENTATIONS AND OBLIGATIONS OF ACS

2.1ACS Providers.

a.Access to Providers and Credentialing. During the term of this Agreement, ACS shall maintain a credentialed network of health care providers and shall provide both Benefit Plans and Plan Participants access to the ACS Providers. ACS Providers shall be credentialed in accordance with standards set by the Utilization Review Accreditation Commission and ACS' own internal credentialing policies and procedures, which shall be provided to HSPC upon execution of this Agreement and thereafter upon request. Any modification to ACS' internal credentialing policies and procedures must be communicated to HSPC no less than ninety (90) days prior to the effective date of such change.

b.Provider Information. ACS shall deliver the names and demographics of each of the ACS Providers to HSPC on a weekly basis in a mutually agreed-upon electronic format. With respect to claims that reach the ACS tier in a particular Payor or client's individual network hierarchy, ACS Providers that also have entered into agreements with HSPC and/or a Benefit Plan shall provide Covered Services solely pursuant to such ACS Provider's ACS Provider Agreement.

c.Requested Negotiated Rates with Providers. ACS shall use its commercially reasonable efforts to recruit additional ACS Providers to meet the needs of HSPC when requested by HSPC in writing. If HSPC requests the deletion or suspension of an ACS Provider from the list of those ACS Providers providing Covered Services to Plan Participants, ACS shall immediately contact HSPC to determine the factual situation necessitating the change and shall work with HSPC to obtain a mutually-satisfactory solution. If the parties are unable to reach a mutually agreeable resolution within thirty (30) days following the initial request by HSPC, ACS shall remove such ACS Provider from the list of ACS Providers providing Covered Services to Plan Participants. Any such removal may be on a global or a Benefit Plan-specific basis.

2.2Claims Processing of Covered Services and Repricing.

a.Provider Claims Submission. ACS agrees to use commercially reasonable efforts to include provisions in its ACS Provider Agreements entered into from and after the date of this Agreement that require that ACS Providers submit claims for Covered Services provided to Plan Participants to the electronic or U.S. mail addresses established by HSPC or Payor within ninety (90) days of the date of service.

b.Reprice and Submit Repriced Claims. [***] ACS shall reprice such Clean Claim and submit the repriced Clean Claim for Covered Services with payment instructions for adjudication and payment based on the established ACS Fee Schedule. ACS represents and warrants that Clean Claims will be repriced accurately and completely according to the terms of the applicable ACS Fee Schedule.

c.Payment to ACS Providers. ACS shall pay the ACS Providers who provided the Covered Services in accordance with each such ACS Provider's ACS Provider Agreement. ACS shall provide an Explanation of Payment and/or Explanation of Benefit form to each such ACS Provider when payment is made, which shall allow the ACS Provider to collect any remaining allowable Participant Expenses and/or non-covered charges for the Covered Services. ACS shall pay to the ACS Providers a secondary repriced figure, determined by ACS in accordance with ACS' Provider Agreement with such ACS Provider, minus any applicable Participant Expenses, non-covered charges, or adjustments for coordination of benefits. Any amount differing between the repriced amount paid by Payor to ACS, and the secondary repriced amount paid by ACS to an ACS Provider, shall be deemed compensation to ACS for ACS' services. Payment of a claim will be deemed final and shall not be subject to appeal by an ACS Provider (1) year following the last date a payment is issued by Payor.

d.Deadlines. ACS shall maintain a current log of all of Clean Claims submitted by HSPC to ACS for repricing to ensure that the deadlines set forth in this Agreement are met. Failure by a party to abide by deadlines applicable hereunder, and subsequent losses resulting from said failure, will not result in liability or responsibility for damages to be levied against the other party unless such failure is caused or substantially contributed to by the actions of the other party.

e.Support HSPC's Education Efforts. Upon HSPC's written request, ACS will support HSPC's efforts to educate Plan Participants and stop-loss and reinsurance carriers regarding this Agreement, where applicable.

2.3Provider Relations. ACS shall provide provider relation services for ACS Providers for claims submitted to, or paid by, ACS to the ACS Provider, including toll-free telephone lines, to address any payment or claims review issues involving the payment of a claim under the ACS Provider Agreement. All HSPC inquires or appeals regarding ACS Providers will be addressed and resolved by ACS promptly.

2.4Assignment of Payment for Covered Services. Each ACS Provider Agreement shall allow for the assignment to ACS of the right to collect payment for Covered Services from HSPC or Payor.

2.5Reports. ACS shall make available to HSPC reports containing the data listed on Schedule 2.5 hereto no later than the tenth (10^th) day of each month, beginning in February 2013, regarding the amount of savings realized, payment activity, utilization data and such other information as shall be mutually agreed upon, in such format, electronic or hard copy as may be mutually-agreed by ACS and HSPC.

2.6Binding Effect. ACS is a corporation duly existing and in good standing under the laws of the State of Delaware. ACS represents and warrants that it holds, and throughout the term of this Agreement shall continue to hold, all licenses required by applicable law to conduct its current health care business. ACS further represents and warrants that it has the corporate authority and is duly authorized to enter into this Agreement and to bind its employees and agents to the terms of this Agreement. ACS will take all steps necessary to ensure that ACS Providers are aware of these terms, and will obtain from such ACS Providers assurances that they will abide by these terms, in accordance with this Agreement, the Benefit Plan, and applicable law(s). ACS shall provide written notice to HSPC within thirty (30) days following: (i) any formal proceeding, challenge or change concerning ACS' licensure; or (ii) receipt of any notice from any governmental authority of noncompliance with any applicable federal, state or local law or regulations that would affect the terms or services provided pursuant to this Agreement.

3.PROVIDER CONTRACTING

3.1Each party understands and acknowledges that the other party is in the business of providing health care services and, as such, may from time to time enter into contracts with providers currently under contract with the other party.

3.2HSPC delegates to ACS on a non-exclusive basis provider recruitment and contracting responsibility for those health care services listed in Exhibit A in those geographic regions identified in Schedule 3.2. During the term of this Agreement, ACS agrees to use its commercially reasonable efforts to expand the ACS network [***] in the geographic regions identified in Schedule 3.2 for purposes of enhancing its product offering to HSPC and HSPC's clients. HSPC shall provide ACS with an HSPC letterhead endorsement in a mutually agreed upon format to assist ACS in provider solicitation. Notwithstanding anything in this Agreement to the contrary, HSPC reserves the right to directly contract with any provider providing the health care services listed in Exhibit A within the geographic regions listed in Schedule 3.2 as determined by HSPC in its sole discretion.

3.3HSPC shall provide ACS with a quarterly claims file indicating all “white space” non-participating providers.

3.4Periodically at HSPC's discretion, HSPC may provide to ACS, in a format mutually agreed upon by the parties, a list of provider nominations. The list, at a minimum, shall contain the name, address, phone, specialty, and other relevant information sufficient to allow ACS to identify, locate and solicit the nominated provider. ACS shall, [***] following receipt of a provider nomination from HSPC, provide written confirmation to HSPC of its intent to recruit and contract with such provider. ACS shall thereafter use its commercially reasonable efforts to secure a contract with such nominated provider [***]. No later than the fifth (5th) day of each month, ACS shall provide HSPC with its monthly list of active provider solicitations, including, without limitation, the current status of negotiations, as well as the effective date of each completed agreement for HSPC nominated providers. Additionally, upon mutual written agreement, HSPC may engage ACS to conduct network development activities associated with those health care services identified in Exhibit A for additional geographic regions for a period of time to be determined by the parties. For the avoidance of doubt, nothing in this Section 3.4 shall prohibit HSPC from directly contracting with any provider in its sole discretion, regardless of such provider's nomination status with ACS. HSPC will use commercially reasonable efforts to notify ACS if it elects to solicit a direct contract from any HSPC-nominated provider or if HSPC subsequently acquires a direct contract with a HSPC-nominated provider by virtue of a merger or acquisition.

4. REPRESENTATIONS AND OBLIGATIONS OF HSPC

4.1Claims Processing of Covered Services.

a.Payee Status. HSPC shall accept change in “payment redirection” status of a claim from an ACS Provider to ACS. ACS shall indemnify, defend, and hold HSPC harmless for claims of any nature made by an ACS Provider claiming that such payment redirection is improper or unauthorized.

b.Claims Routing Services. HSPC shall use commercially reasonable efforts to collect, consolidate and transmit Clean Claims for Covered Services from ACS Providers in a mutually agreed upon format to ACS [***] of receipt of the Clean Claim for repricing. HSPC shall ensure that Payors provide an Explanation of Payment form or Explanation of Benefits form(s) for each claim paid pursuant to this Agreement to enable ACS to provide such information to the ACS Provider, including the amount of Participant Expense for each such claim. HSPC shall ensure that Payors prepare all Explanation of

Benefits forms for Plan Participants reflecting the benefit payment amounts paid to ACS for claims from ACS Providers, as well as remaining amounts that may be Participant Expenses, non-covered or ineligible charges, or adjustments for coordination of benefits.

[***] or otherwise as defined by state or federal law, following receipt by HSPC of repriced Clean Claims for Covered Services, Payors shall use commercially reasonable efforts to adjudicate and submit payment of repriced Clean Claims for Covered Services to ACS, utilizing ACS' Tax Identification Number (“TIN”) for payee purposes, along with any and all applicable Explanation of Payment or Explanation of Benefits. Upon the date that delivery of funds by Payor to ACS is achieved, claims shall be deemed “paid” by all parties.

ACS Providers will not be obligated to accept ACS repriced amounts, nor will ACS be held liable for an ACS Provider's refusal to accept ACS repriced amounts, if a Payor fails to issue funds to ACS as payment for repriced Clean Claims for Covered Services in accordance with the terms set forth herein.

Application of the discount made available through ACS Provider Agreements at all times remains subject to HSPC and/or Payor's compliance with the terms of the applicable ACS Provider Agreement, provided that HSPC has been advised of such terms in writing in advance. Failure to comply with the ACS Provider Agreement or to meet any contracted payment timeframe on a Clean Claim may result in the loss of the applicable discount for the claim in question. A copy of ACS' template ACS Provider Agreement shall be provided to HSPC upon execution of the Agreement.

The duties of HSPC are limited to those specifically set forth in this Agreement. HSPC does not determine Plan Participant eligibility, nor is HSPC responsible for the funding, payment, or adjudication of Plan Participant claims. HSPC does not exercise any control with respect to Benefit Plan assets, policies, practices, or procedures.

c.Network Position; Reporting. Subject to Payor or client written instruction to the contrary, for those HSPC Payors and clients accessing the ACS network on the Effective Date, HSPC agrees to use commercially reasonable efforts to maintain ACS' network positioning as of the Effective Date for the initial calendar year following the Effective Date. During the term of this Agreement, HSPC agrees to provide ACS, on a weekly basis, with a listing of all Payors and clients of HSPC accessing the ACS network. HSPC shall also provide to ACS, on a quarterly basis, a system-generated report indicating the tier position of ACS Providers for each HSPC Payor and client (the “Tiering Report”). HSPC shall provide ACS a crosswalk sufficient to allow ACS to identify its position indicated in the Tiering Report, as well as those codes which fall into the general categories of (i) client owned networks (typically associated with hospital or provider organization clients), (ii) direct, client-specific provider arrangements, (iii) client-specific Benefit Plan design components, (iv) the HSPC lab program, and (v) multi-state HSPC network provider arrangements. Additionally, during the term of this Agreement, HSPC agrees to provide ACS, on a weekly basis, with (i) a listing of any new Payors and clients of HSPC, including each new group name, group number, address, effective date, claim submission address, and a contact for benefit and eligibility information, and (ii) a listing of any Payors or clients who have terminated their relationship with HSPC. HSPC shall assure that all reports provided to ACS pursuant to this Section 4.1(c) are true and correct in all material respects as of the date of such report; provided, however, that HSPC shall not be required to independently verify the accuracy of information provided to HSPC by its Payors or clients. ACS shall have no liability or responsibility to HSPC or any other party for any action taken by ACS where such action is based upon or taken in reliance upon information reported to ACS by HSPC.

d.Notification. HSPC agrees to notify ACS if HSPC becomes aware that an applicable Benefit Plan or Plan Document is amended or changed in a way that may materially impact the performance of the provisions of this Agreement.

4.2Provider Information. For HSPC clients who access ACS, all ACS Providers for Covered Services shall be listed in all of the provider directories and resource materials for Plan Participants, regulatory authorities, and prospective participants and groups, including printed and on-line or electronically-accessed directories. HSPC agrees to update these listings with information provided by ACS at the same time that it routinely updates such listings for HSPC contracted providers, but no less frequently than monthly. Upon request, HSPC shall provide ACS with a Payor's applicable eligibility verification contact information and related information to allow ACS to comply with its ACS Provider Agreements.

4.3Licenses and Compliance with Law; Binding Effect. HSPC represents and warrants that it holds, and throughout the term of this Agreement shall continue to hold, all licenses required by applicable law to conduct its current health care business. HSPC further represents and warrants that it has the corporate authority and is duly authorized to enter into this Agreement and to bind its employees and agents to the terms of this Agreement. HSPC shall provide written notice to ACS within thirty (30) days following: (i) any formal proceeding, challenge or change concerning that party's licensure; or (ii) receipt of any notice from any governmental authority of noncompliance with any applicable federal, state or local law or regulations that would affect the terms or services provided pursuant to this Agreement.

4.4Use of Trademarks and Name. HSPC shall allow ACS to include HSPC's name on all Explanation of Payment or Explanation of Benefit forms sent to ACS Providers from ACS. Any correspondence sent by ACS to Plan Participants concerning payments to ACS Providers also may include such information. HSPC shall allow ACS to include HSPC's name on marketing materials, including, without limitation, client listings and provider notifications, provided that HSPC has been given a reasonable opportunity to any review such marketing materials and has consented in writing to ACS' use of HSPC's name in such marketing materials. Any other use by ACS of HSPC's trademarks, name and/or logo shall require the advance written approval of HSPC.

4.5Non-Exclusive Relationship. For the avoidance of doubt, the services selected by HSPC herein are accessed on a non-exclusive basis and without any commitment from HSPC as to volume or value of utilization. Notwithstanding the foregoing, HSPC acknowledges and agrees that both HSPC and its Affiliates shall, acting in good faith, use their commercially reasonable efforts to encourage their client Payors to engage ACS with respect to the provision of services contemplated by this Agreement.

4.6Transition of Acquired Business.On January 9, 2012, Wells Fargo Third Party Administrators, Inc. merged into HealthSmart Benefit Solutions, Inc., an Affiliate of HSPC. ACS and HSPC agree to establish an EDI connection on or before [***] which would allow the transition of certain network business associated with the former Wells Fargo Third Party Administrators, Inc. block of business to the ACS network. ACS understands and acknowledges that transition of said business to ACS is contingent upon factors other than the establishment of such EDI connection, and that this provision in no way constitutes a commitment or guarantee by HSPC of a particular volume or value of services associated with the former Wells Fargo Third Party Administrators, Inc. block of business.

5.PAYMENT FOR SERVICES AND COMPENSATION

5.1Payments. When a Payor has adjudicated the repriced ACS Provider claims for Plan Participants, Payor will use commercially reasonable efforts to remit all Benefit Plan payments, and applicable Explanation of Benefits to ACS for each such ACS Provider, provided that neither HSPC nor a Payor shall be liable to ACS for payments made directly to ACS Providers for any reason, including, without limitation, direct instruction by a client or by virtue of the operation of Payor's claims adjudication system. HSPC will use commercially reasonable efforts to educate Payors as to the ACS payment model outlined

above. HSPC will use commercially reasonable efforts to cause Payors to forward client payment to ACS at the repriced amount, less applicable Participant Expense, non-covered charges, or adjustments for coordination of benefits and after application of Plan provisions. HSPC will use commercially reasonable efforts to cause Payors to utilize ACS' TIN for all such payments, recognizing the assignment of the claim from the ACS Provider to ACS. Payments to ACS shall be accompanied by accurate benefit explanations and calculation of Participant Expenses that will allow ACS to make payment and to provide appropriate claims reconciliation information to ACS Providers. The parties may agree to electronic transfers of payments and payment information.

5.2Compensation to HSPC. ACS shall pay HSPC a monthly administrative services fee (the “Administrative Services Fee”) to reimburse and to compensate HSPC for the work that HSPC is required to perform to support ACS' program, including, but not limited to, marketing support, electronic claims conversion for the benefit of ACS' program, the transmission of claims to ACS, the receipt of claims from ACS, and the transmission and tracking of claims to HSPC and HSPC Payors. The Administrative Services Fee relates only to Existing Paid Claims Volume and New Paid Claims Volume arising from ACS's network of ACS Providers.

The portion of the Administrative Services Fee, calculated based on Existing Paid Claims Volume, will be [***]. The portion of the Administrative Services Fee, calculated based on New Paid Claims Volume, will be [***]. The Administrative Services Fee will be paid by ACS to HSPC on a monthly basis no later than the twentieth (20^th) day of each month. Each payment will be accompanied by a report outlining, in reasonable detail, ACS' calculation of the Administrative Services Fee, as well as Existing Paid Claims Volume and New Paid Claims Volume and claim detail for the month in question in a format mutually agreed upon between HSPC and ACS. If this arrangement is found in any way to violate any federal or state laws, rules or regulations, both parties agree that they will use their commercially reasonable efforts to negotiate a revision that is mutually acceptable.

The Administrative Services Fee shall not exceed [***] per annum.

5.3Compensation to ACS. HSPC and ACS acknowledge and agree that Schedule 5.3 attached hereto describes the compensation to be received by ACS for services other than Primary Group Health Services.

6.RECORDS, CONFIDENTIALITY AND HIPAA

6.1Maintenance and Accuracy of Records. Both parties agree to maintain appropriate financial and administrative records related to the services provided and the claims processed and paid under this Agreement and in accordance with applicable federal and state laws and regulations in an accurate and timely manner. All such records shall be maintained for a minimum of seven (7) years following the date of the making of the record.

6.2Audit. Once annually during the term of this Agreement and once during the year immediately following termination of this Agreement, each party shall be entitled, at a mutually agreeable time and date, but in any event upon no less than thirty (30) days prior written notice, to review, copy and audit such books and records of the other party (including, without limitation, ACS Provider Agreements, client agreements, and client set up in the system) to verify such party's compliance with the terms of this Agreement. Any such audit shall be limited to the current contract year and the contract year immediately preceding the current contract year. All audits shall take place during normal business office hours, and at the expense of the party performing such audit. The party being audited will bear any reasonable expense if the review or audit shows an [***] for the period audited. Undisputed underpayments shown by any

such audit shall be paid within thirty (30) days of completion of the audit. Should either party elect to engage a third party to perform any audit pursuant to this Section 6.2, such third party audit firm must be approved by both parties in writing prior to the initiation of such audit and the third party shall enter into a customary confidentiality and non-disclosure agreement prior to commencing work.

6.3Confidential Business Information. HSPC and ACS may, from time to time, receive confidential and proprietary business information, claim information, legal information or other information from the other party. HSPC and ACS agree that such information (including customer lists, business plans, rates, ACS lists of payments under ACS Provider Agreements, electronic claims processing systems, financial models and the financial provisions of this Agreement and related information which shall all be deemed confidential whether or not so marked) shall all be maintained in confidence and shall not be disclosed to any person or entity, or used for any purpose other than performance hereunder, except as authorized in writing by the party providing the information or as otherwise required by law. The foregoing notwithstanding, any information that (i) is or becomes available to the public other than as a result of a breach of the terms of this Agreement, (ii) was in the non-disclosing party's possession prior to any disclosure thereof by the other party pursuant to the terms of this Agreement, or (iii) is or becomes available on a non-confidential basis from a source other than the disclosing party shall not be considered confidential information under this Agreement. For the avoidance of doubt, the parties acknowledge and agree that each party shall be entitled to make any necessary filings with the SEC and any press releases or other public statements related thereto.

6.4Confidentiality of Records; HIPAA. ACS and HSPC shall safeguard the privacy of any health information that identifies a particular Plan Participant. ACS and HSPC shall abide by all federal and state laws regarding confidentiality and disclosure of medical records and other health and Plan Participant information. ACS recognizes that it may be considered to be a Business Associate of HSPC under the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and agrees to execute a Business Associate Agreement in substantially the form attached hereto as Exhibit C.

7.TERM AND TERMINATION

7.1Term; Renewal. This Agreement shall become effective as of the Effective Date and shall remain in effect thereafter for an initial period of three (3) years (the “Initial Term”). Following the Initial Term, this Agreement shall automatically renew for a period of two (2) years (the “First Renewal Term”), unless earlier terminated pursuant to the terms of this Section 7 or unless either party provides notice of non-renewal of this Agreement no less than ninety (90) days prior to the expiration of the Initial Term. Following the First Renewal Term, this Agreement shall automatically renew for successive periods of one (1) year (each, a “Renewal Term”), unless earlier terminated pursuant to the terms of this Section 7 or unless either party provides notice of non-renewal of this Agreement no less than ninety (90) days prior to the expiration of the First Renewal Term or any subsequent Renewal Term.

7.2Termination for Cause. Either party may terminate this Agreement if the other party breaches this Agreement and such breach has not been cured prior to the expiration of thirty (30) days following the non-breaching party's delivery of written notice specifying such breach to the breaching party.

8.MISCELLANEOUS

8.1Entire Agreement; Assignment. This Agreement (including all exhibits hereto) sets forth the entire agreement and understanding of the parties as to the subject matter hereof and supersedes all prior or contemporaneous understandings of any kind, whether written or oral. This Agreement may be not be assigned by either party without the express written consent of the other party, provided that either party shall, without the obligation to obtain the prior written consent of the other party, be entitled to assign this Agreement or all or any part of its rights or obligations hereunder to an affiliate of a party; or to the purchaser of all or substantially all of the assets or capital stock of a party or to an entity into which a party is merged, provided, further that no such assignment shall relieve the party from its obligations hereunder.

8.2Amendment. This Agreement, including the exhibits hereto, may be amended or modified at any time during the term by written agreement of the parties.

8.3Governing Law. This Agreement shall be construed in accordance with the laws of the State of Texas not including the choice of law rules thereof.

8.4Severability. If any part of this Agreement is held to be invalid, unenforceable, or illegal by a court of competent jurisdiction, such determination shall not affect any other provision of this Agreement, and this Agreement shall be construed as if the impermissible provision had never been contained herein, unless such construction would substantially deprive a party of benefits hereunder, in which case, either party may terminate this Agreement by giving 90 days advance notice of such termination.

8.5Relationship of the Parties. ACS and HSPC are at all times acting and performing as independent contractors under the terms of this Agreement. Neither party shall be considered a joint venturer of the other party. Neither party shall have any liability for the general debts or obligations of the other party, and each party shall hold the other party harmless from and against such general debts and obligations.

8.6Benefit. This Agreement shall be binding upon and inure to the benefit of each party and its respective successors and permitted assigns.

8.7Notice. All notices and communications under this Agreement shall be in writing and shall be deemed to have been duly given to a party (i) when delivered to such party if hand delivered, (ii) one (1) day after having been deposited for delivery with an overnight courier and addressed as follows:

If to HSPC: HealthSmart Preferred Care II, LP and HealthSmart Preferred Network II, Inc.

Attention: Legal Department

222 West Las Colinas Blvd, Suite 600N

Irving, TX 75039

[***]

If to ACS: Ancillary Care Services

Attention: Matthew Thompson

5429 Lyndon B Johnson Freeway, Suite 850

Dallas, TX 75240

[***]

8.8    Dispute Resolution; Arbitration. The Parties will attempt in good faith to resolve through negotiation any dispute, claim or controversy arising out of or related to this Agreement. Any Party may initiate negotiations by providing written notice in letter form to the other Party, setting forth the dispute and the relief requested. The recipient of such notice will respond in writing within thirty (30) days with a statement of its position on a recommended solution to the dispute. If the dispute is not resolved by this exchange of correspondence, then representatives of each Party with full settlement authority will meet to exchange relevant information and perspectives, and to attempt to resolve the dispute. If such dispute is not resolved by negotiation, the matter will be submitted to confidential, binding arbitration before a single arbitrator in accordance with the rules of the American Arbitration Association for commercial arbitration.  The arbitrator shall have no power to award any punitive damages or exemplary damages or to ignore or vary the terms of this Agreement and shall be bound by the laws of the State of Texas, without regard to provisions relating to the conflict of laws. Arbitration shall be conducted in Dallas, Texas. Each Party acknowledges that it is knowingly and voluntarily waiving its right to judicial action (except to enforce the decision of the arbitrator(s)) and to a trial by jury, and that all arbitration proceedings shall be exclusively between the two Parties to this Agreement.

The Parties hereto acknowledge and agree that the prevailing Party in any arbitration proceeding hereunder regarding the validity or enforceability of, or liability under, any provision of this Agreement shall be entitled to receive from the non-prevailing Party all costs associated therewith including, without limitation, reasonable and necessary attorneys fees.

8.9    Indemnification. Subject to the limitations contained herein, each party shall indemnify, defend, and hold the other harmless from all claims, losses, damages, judgments, liabilities, causes, expenses or obligations (including, but not limited to, reasonable attorney's fees and expenses) arising out of or resulting from the indemnitor's own gross negligence or other wrongful acts or omissions or that of any of its officers, shareholders, directors, agents, representatives, or employees acting within the scope of his or her employment. If any action, suit or other proceeding is commenced, or any claim or demand is asserted, relating to or in respect of which a party (an “Indemnitee”) demands indemnification pursuant to this Section (each a “Claim”), the Indemnitee shall, with reasonable promptness, notify the party from whom such indemnification is demanded (the “Indemnitor”) of such Claim. Such notice shall describe the nature of such Claim in reasonable detail and shall include such written information that the Indemnitee has received with regard to the Claim as may be reasonably necessary for the Indemnitor to evaluate such Claim. The Indemnitee's failure to give such notice to the Indemnitor shall not relieve the Indemnitor from any obligations under this Agreement, except to the extent such failure materially and substantially prejudices the defense of the action or proceeding by the Indemnitor.

Indemnitor shall have the right to control the defense of any action, suit or other proceeding brought by a third party that constitutes a Claim (each a “Third Party Claim”) with counsel approved by the Indemnitee, which approval shall not be unreasonably withheld, conditioned or delayed, all at the Indemnitor's sole cost and expense. The Indemnitor may not settle any such Third Party Claim without the Indemnitee's consent, which consent shall not be unreasonably withheld, conditioned or delayed (provided, however that Indemnitor shall not be required to consent to any admission of guilt or criminal wrongdoing as part of any settlement), and Indemnitee, at Indemnitee's sole cost and expense, may employ separate counsel and participate in the defense thereof. Indemnitee and Indemnitor shall reasonably cooperate with each other in connection with each Third Party Claim.

8.10    Survival. The Parties agree that Sections 6 and 8 shall survive termination of this Agreement.

8.11    Integration. The parties acknowledge that they have read this Agreement in its entirety and understand and agree to be bound by its terms and conditions. This Agreement constitutes a complete and exclusive statement of the understanding between the parties with respect to its subject matter. Any prior agreements, promises, negotiations or representations related to the subject matter hereof not expressly set forth in this Agreement are of no force and effect. By execution of this Agreement, the parties agree that the Provider Service Agreement, dated August 1, 2002 and as amended through December 20, 2008 by and between ACS and HSPC (the “Provider Service Agreement”) is terminated by mutual agreement of the parties.

8.12    Third Party Beneficiaries. ACS and HSPC specifically acknowledge and agree that no other parties shall be third party beneficiaries under this Agreement. The parties further agree that nothing under this Agreement shall impose upon ACS any obligation to any other party including, but not limited to, beneficiaries under any Benefit Plan, covered employees or their assignees.

8.13    Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

8.14    [***] Except as otherwise provided herein, each party [***] hereby [***] on or before the Effective Date and time of this Agreement, including, without limitation, [***].

It is expressly understood between the parties, that the respective [***] provided herein shall not extend to [***] under this Agreement or any prior Agreement. [***] shall be construed to [***] and neither party is assuming any associated obligation or responsibility.

[***] as set forth herein is made with the intent and understanding that it will be relied upon by the [***]. shall extend to and be binding upon the undersigned [***], and shall inure to the benefit of [***].

IN WITNESS WHEREOF, the parties have executed or caused this Agreement to be executed by their duly authorized representatives to be effective as first stated above.

“ACS”

ANCILLARY CARE SERVICES, INC.

5429 L.B.J. Freeway, Suite 700

Dallas, Texas 75240

BY: /s/ William J. Simpson, Jr.	DATE: 12-17-2012
NAME: William J. Simpson, Jr.
TITLE: President & COO

“HSPC”

HEALTHSMART PREFERRED CARE II, LP

HEALTHSMART PREFERRED NETWORK II, INC.

SELECTNET PLUS, INC.

222 W. Las Colinas Blvd, Suite 600N, Irving, Texas 75039

BY: /s/ William Demberckyj	DATE: 12-31-12
NAME: William Demberckyj
TITLE: CFO

Exhibit A

COVERED SERVICES FOR PLAN PARTICIPANTS

Health Care Services including, but not limited to, the following:

· Acupuncture

· Cardiac Monitoring

· Chiropractic

· Diagnostic Imaging

· Dialysis

· Durable Medical Equipment

· Genetic Testing

· Hearing Aids

· Home Health

· Hospice

· Infusion Services

· Implantable Devices

· Lab

· Lithotripsy

· Long Term Acute Care

· Massage Therapy

· Orthotics & Prosthetics

· Pain Management

· Physical Therapy

· Podiatry

· Rehabilitation-Inpatient

· Rehabilitation-Outpatient

· Skilled Nursing Facilities

· Sleep Diagnostic

· Surgery Center

· Transportation

· Urgent Care Center

· Vision

· Walk in Clinics

Exhibit B

Affiliate Entities

• HealthSmart Benefit Solutions, Inc.

Exhibit C

Form of Business Associate Agreement

SUBCONTRACTOR BUSINESS ASSOCIATE AGREEMENT

This Subcontractor Business Associate Agreement (the “BAA”) is entered into this ___ day of December, 2012 (“Effective Date”), by and between HealthSmart Preferred Care II, LP, HealthSmart Preferred Network II, Inc., and SelectNet Plus, Inc. (collectively referred to as “HealthSmart”) and American CareSource Holdings, Inc. d/b/a Ancillary Care Services, Inc. (the “Subcontractor”).

WHEREAS, the Parties hereto enter into this BAA in an effort to comply with: (i) the implementing regulations at 45 C.F.R. Parts 160, 162, and 164 for the Administrative Simplification provisions of Title II, Subtitle F of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) (i.e., the HIPAA Privacy Rule, the HIPAA Security Standards and the HIPAA Standards for Electronic Transactions), and (ii) the requirements of the Health Information Technology for Economic and Clinical Health Act, as incorporated in the American Recovery and Reinvestment Act of 2009 (“HITECH Act”) that are applicable to business associates, along with any guidance and/or regulations issued by the U.S. Department of Health and Human Services as of September 2009;

WHEREAS, the parties have entered into a separate agreement, whereby the Subcontractor is performing an activity or function for or on behalf of HealthSmart (the “Agreement”), and the Subcontractor may receive Protected Health Information, including Individually Identifiable Health Information, from HealthSmart as part of performing such activity or function;

WHEREAS, HealthSmart is a Business Associate of certain Covered Entities under HIPAA;

WHEREAS, Subcontractor, as a recipient of Protected Health Information from HealthSmart, may be deemed a Business Associate of HealthSmart under HIPAA;

NOW, THEREFORE, in consideration of the foregoing and the covenants herein contained, the Parties hereto agree as follows:

1.Definitions. The capitalized terms as used herein shall have the meanings as set forth under HIPAA or the HITECH Act, or as otherwise provided in this BAA.

2.Scope. HealthSmart may disclose Protected Health Information, including Individually Identifiable Health Information, to Subcontractor for the limited purpose of carrying out the services under the Agreement, and Subcontractor hereby agrees that its use and disclosure of such Protected Health Information, including its agents, employees and subcontractors, shall be subject to the terms and conditions contained herein. Therefore, use or disclosure of the Protected Health Information by Subcontractor (including, without limitation, its subcontractors, employees and agents) is limited to the same extent that HealthSmart's use or disclosure is limited by HIPAA as a Business Associate.

3.Disclosure of Protected Health Information. Subcontractor hereby agrees not to use or disclose the Protected Health Information in a manner that would violate HIPAA or this BAA if it were used or disclosed by HealthSmart as a Business Associate. Subcontractor further agrees not to disclose any Protected Health Information to any third party without the prior written permission of HealthSmart. The foregoing notwithstanding, Subcontractor shall be permitted to disclose Protected Health Information without the prior written permission of HealthSmart to its employees, agents, and subcontractors whose assigned duties reasonably require such disclosure and use, and then only to the extent necessary to enable such employees to reasonably perform their assigned duties consistent with this BAA and the Agreement pursuant to which the services are being performed. The Parties also agree to make reasonable efforts to limit use and disclosure of Protected Health Information to the minimum necessary to accomplish the intended purpose of the use or disclosure of such Protected Health Information.

4.Safeguards. Subcontractor acknowledges that it is required by HIPAA, and hereby agrees, to maintain appropriate safeguards as necessary to ensure that the Protected Health Information is not used or disclosed by it or its employees except in compliance with HIPAA, this BAA and any and all other applicable federal, state and local laws, rules and regulations. Subcontractor agrees to develop, document, implement, maintain and use appropriate administrative, technical, and physical safeguards to preserve the integrity, confidentiality and availability of, and to prevent non-permitted use or disclosure of, PHI created or received for or from HealthSmart. Subcontractor agrees that with respect to PHI, these safeguards shall meet the requirements of the HIPAA Security Standards which are applicable to Subcontractor. To comply with the HIPAA Security Standards for PHI, Subcontractor agrees that it shall:

(a)Implement administrative, physical and technical safeguards consist with (and as required by) the HIPAA Security Standards and the HITECH Act that reasonably protect the confidentiality, integrity, and availability of PHI that Subcontractor creates, receives, maintains, or transmits on behalf of HealthSmart or a Covered Entity. Subcontractor shall develop and implement policies and procedures that meet the Security Standards documentation requirements as required by the HITECH Act;

(b)Use commercially reasonable efforts to ensure that any agent, including any subcontractor, to whom it provides such PHI agrees to implement reasonable and appropriate safeguards to protect it;

(c)Report to HealthSmart Security Incidents, as such term is defined in the HITECH Act, of which Subcontractor becomes aware that result in the unauthorized access, use, disclosure, modification, or destruction of a Covered Entity's PHI (hereinafter referred to as “Successful Security Incidents”). Subcontractor shall report Successful Security Incidents to HealthSmart as specified in Paragraph 5;

(d)Take all reasonable steps to mitigate, to the extent practicable, any harmful effect that is known to Subcontractor resulting from a Security Incident;

(e)Upon request from HealthSmart or a Covered Entity, Subcontractor will provide access to and copies of documentation regarding Subcontractor's safeguards for PHI.

5.Breach of Privacy or Security Obligations.

(a)Subcontractor will notify and report to HealthSmart (in a manner and within the timeframes described below) any use or disclosure of PHI not permitted by this BAA, by applicable law, or permitted in writing by HealthSmart.

(b)Subcontractor will notify HealthSmart immediately but in no event less than 5 (five) business days following discovery of any Successful Security Incident or any “Breach” of “Unsecured Protected Health Information” as such terms are defined by the HITECH Act and any implementing regulations. Such notice shall include the following information:

(i)Those individuals whose Unsecured Protected Health Information has been, or is reasonably believed by Subcontractor to have been accessed, acquired or disclosed during the Breach;

(ii)The nature of the non-permitted access, use, or disclosure, including the date of the incident and the date of discovery;

(iii)The PHI accessed, used, or disclosed (e.g., name, social security number, date of birth);

(iv)What corrective action Subcontractor took or will take to prevent further non-permitted accesses, uses, or disclosures; and

(v)What Subcontractor did or will do to mitigate any deleterious effect of the non-permitted access, use or disclosure.

6.Term and Termination. This BAA will be effective as of the Effective Date above and will terminate when all of the PHI provided by HealthSmart to Subcontractor, or created or received by Subcontractor on behalf of HealthSmart, is, at HealthSmart's option, destroyed or returned to HealthSmart, or if infeasible to return or destroy the PHI, protections are extended to such information in accordance with Paragraphs 7 and 12. Upon HealthSmart's knowledge of a material breach by Subcontractor, HealthSmart shall: (i) provide an opportunity for Subcontractor to cure the breach or end the violation, and terminate this BAA and the Agreement if Subcontractor does not cure the breach or end the violation within the time specified in the notice; or (ii) immediately terminate this BAA and the Agreement if Subcontractor has breached a material term of this BAA and cure is not possible; or (iii) if neither termination nor cure is feasible, HealthSmart will report the violation to the Secretary of Health and Human Services.

7.Survival of Confidentiality. Subcontractor's obligation to protect the privacy and security of the PHI it created, maintained, or transmitted in connection with services to be provided under the Agreement and this BAA will be continuous and survive termination, cancellation, expiration, or other conclusion of this BAA or the Agreement. The obligation to maintain the confidentiality of the Protected Health Information shall survive the termination of this BAA.

8.Disclosure by Law or Court Order. Protected Health Information may be disclosed to the extent required by law or Court Order, or as permitted under HIPAA. Subcontractor agrees, to the extent reasonably practicable, to give HealthSmart advance written notice of such disclosure and to request confidential treatment of such disclosure from the recipient thereof as may be afforded by law.

9.Access to Internal Practices, Books and Records. To the extent required by HIPAA, Subcontractor shall, upon request, allow HealthSmart or the United States Department of Health and Human Services, and its duly authorized representatives, to access Subcontractor's internal practices and all agreements, books, documents, and records relating to the use and disclosure of Protected Health Information necessary to verify compliance with this BAA and HIPAA. If Subcontractor carries out any of its duties under the Agreement through an agreement between it and an individual or organization related to it, Subcontractor shall require that a clause be included in such agreement to the effect that the related organization will make available, upon written request of the Secretary of Health and Human Services, or any other duly authorized representatives, all agreements, books, documents, and records and internal practices of said related organization that are necessary to verify compliance with this BAA and HIPAA.

10.Subcontractors. In the event Subcontractor discloses Protected Health Information to any subcontractor or agent, Subcontractor shall require such subcontractor or agent to enter into a written agreement whereby such subcontractor or agent agrees to be bound by the same restrictions and conditions as contained in this BAA that apply to the Subcontractor with respect to use and disclosure of such Protected Health Information.

11.Open Communication Channels; Encryption. Subcontractor may not transmit Protected Health Information over the Internet or any other unsecure or open communication channel unless such information is encrypted or otherwise safeguarded using procedures no less stringent than those described in HIPAA, the HITECH Act, or any other applicable federal, state or local law or regulation. If Subcontractor stores, maintains or transmits Protected Health Information in encrypted form, Subcontractor shall, upon request, provide HealthSmart with the key or keys to decrypt such information.

12.Return of Protected Health Information. Immediately upon termination of this BAA or the Agreement for any reason, Subcontractor shall return to HealthSmart, or, at HealthSmart's direction, destroy, all Protected Health Information in the Subcontractor's possession maintained in any form and shall retain no copies of such Protected Health Information. Subcontractor shall also require its subcontractors, employees and agents to return or destroy, as directed by HealthSmart, all Protected Health Information in such subcontractor's, employee's or agent's possession maintained in any form immediately but in no event more than thirty (30) days following termination of the Agreement, retaining no copies thereof. Subcontractor shall remain bound by the provisions of this BAA, even after termination of the Agreement or this BAA, until such time as all Protected Health Information has been returned or otherwise destroyed as provided in this paragraph.

In the event the return or destruction, as the case may be, of Protected Health Information disclosed to Contractor by HealthSmart is not feasible, the terms of this BAA shall survive termination of this BAA and the Agreement and shall continue in full force and effect with respect to such Protected Health Information remaining in the possession of Subcontractor, including, without limitation, its subcontractors, agents and employees (the “Retained Information”). All further uses and disclosures of the Retained Information by Subcontractor or its subcontractors, agents or employees shall be limited to those purposes that make the return or destruction infeasible. At such time as the return or destruction of the Retained Information becomes feasible, Subcontractor shall immediately notify HealthSmart in writing and shall return or destroy such Retained Information as directed by HealthSmart.

13.Disclosures of PHI. Subcontractor agrees to document disclosures of PHI and information related to such disclosures as would be required for a Covered Entity to respond to a request by an individual for an accounting of disclosures of PHI in accordance with 45 C.F.R. 164.528. Subcontractor further agrees that it will provide an accounting of disclosures of PHI in accordance with 45 C.F.R. 164.528 directly to an Individual or HealthSmart within ten (10) business days of receiving a request.

14.Right to Protected Health Information. Subcontractor acknowledges and understands that an Individual has a right to inspect and obtain a copy of his or her Protected Health Information in a designated record set, and Subcontractor shall cooperate fully and timely with HealthSmart or the Individual, as required by HIPAA, in responding to any request made by any subject of such Protected Health Information to HealthSmart to inspect and/or copy such Protected Health Information in Subcontractor's possession.

15.Amendments and Corrections. Subcontractor shall incorporate any amendments or corrections to Protected Health Information in a designated record set disclosed to Subcontractor by HealthSmart when notified by HealthSmart that such Protected Health Information is inaccurate or incomplete.

16.Construction. This BAA shall be construed as broadly as necessary to implement and comply with HIPAA and the HITECH Act. The Parties agree that any ambiguity in this BAA shall be resolved in favor of a meaning that complies and is consistent with HIPAA and the HITECH Act.

17.Amendment. HealthSmart and Subcontractor agree to take such action as is necessary to amend this BAA from time to time in order to comply with the requirements of the Privacy Rule, Security Standards and/or the HITECH Act.

18.Liability for Penalties. Subcontractor will be responsible for any civil monetary penalties imposed on HealthSmart as a result of Subcontractor's negligent acts or omissions or the negligent acts or omissions of Subcontractor's agents, including subcontractors, which violate any provision of HIPAA or the HITECH Act.

IN WITNESS HEREOF, the parties have caused this BAA to be executed as of the date first written above.

HEALTHSMARTSUBCONTRACTOR

By: By:

Name: Name:

Title: Title:

Date: Date:

SCHEDULE 1.8

CURRENT HSPC PAYORS AND CLIENTS ACCESSING ACS

client_id client_name

[***] [***]

SCHEDULE 2.5

REPORTS

HealthSmart Entity Reports Consolidated All Entities By Entity Total for Existing Clients Total for New Clients	[***]	[***]	[***]	[***]	[***]	[***]	[***]
HealthSmart Collection Reports Consolidated All Entities by Service Top 10 Clients	[***]	[***]	[***]	[***]	[***]	[***]	[***]	[***]	[***]
HealthSmart Specialty Reports By Service Category By Entity by Service	[***]	[***]	[***]	[***]	[***]	[***]	[***]
HealthSmart Product Participation [***] [***] [***] [***]	[***]	[***]	[***]	[***]	[***]

DefinitionsFOR MONTHLY REPORTING

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

[***] [***]

SCHEDULE 3.2

GEOGRAPHIC SERVICE AREAS

• Washington

• Idaho

• Montana

• Utah

• Wyoming

• North Dakota

• South Dakota

• Minnesota

• Indiana

• Alabama

• Maine

• New Hampshire

• Vermont

• Pennsylvania

• Massachusetts

• Connecticut

• Rhode Island

• Hawaii

• Oregon

• Maryland

• Delaware

• Georgia

• Michigan

• New Jersey

• South Carolina

SCHEDULE 5.3

COMPENSATION TO ACS OTHER THAN FOR PRIMARY GROUP HEALTH SERVICES

For HSPC client access to ACS networks other than for Primary Group Health Services, ACS shall be compensated as follows:

ACS NetworkCompensation

1) [***] [***] of Collected Revenue

2) [***][***] of Collected Revenue

3) [***][***] of Collected Revenue

For purposes of this Schedule 5.3, “Collected Revenue” shall mean the amount of gross revenue actually collected by HSPC from its Payors and clients for claims utilizing an ACS discount through the applicable Networks referenced above.

HSPC shall remit payment of any compensation payable to ACS under this Schedule 5.3 on a monthly basis within thirty (30) days of HSPC's receipt of payment from the applicable Payor or client.

HSPC and ACS agree to establish one or more EDI connections for claims exchange to facilitate Payor access to the ACS networks identified above on or before [***]. Until the EDI connection is established, HSPC shall use commercially reasonable efforts to accurately reprice Clean Claims pursuant to the applicable ACS Fee Schedule provided by ACS. On or before the 5^th day of each month, ACS shall provide HSPC with an upload of ACS Provider demographic and rate information, including applicable reimbursement rates, in a format mutually agreed upon by the parties. HSPC shall be permitted to apply such rate information to eligible claims incurred by Benefit Plan participants in compliance with the terms of this Agreement. ACS agrees to provide to HSPC with all technical and other support reasonably requested by HSPC with respect to the operation and application of the demographic file. ACS shall assure that all demographic and rate information provided to HSPC for claim repricing is true and correct in all material respects as of the date the file is submitted to HSPC. HSPC shall have no liability or responsibility to ACS or any other party for any action of HSPC where such action is based upon or taken in reliance on demographic or rate information provided by ACS.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statement No. 333-133100 on Form S-3 and Nos. 333-133108, 333-143782, 333-159399 and 333-159400 on Form S-8 of American CareSource Holdings, Inc. of our report dated March 4, 2013 relating to our audit of the consolidated financial statements which appear in this Annual Report on Form 10-K of American CareSource Holdings, Inc for the year ended December 31, 2012.

/s/ McGladrey LLP

Des Moines, Iowa

March 4, 2013

EX-31.1

4

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

Under the Securities Exchange Act of 1934, As Amended

I, Kenneth S. George, Chief Executive Officer of American CareSource Holdings, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K of American CareSource Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated divisions, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's first quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Dated:	March 4, 2013	By: /s/ Kenneth S. George
		Kenneth S. George
		Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

Under the Securities Exchange Act of 1934, As Amended

I, Matthew D. Thompson, Chief Financial Officer of American CareSource Holdings, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K of American CareSource Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated divisions, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's first quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Dated:	March 4, 2013	By: /s/ Matthew D. Thompson
		Matthew D. Thompson
		Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Kenneth S. George, Chief Executive Officer of American CareSource Holdings, Inc. (the “Company”), and Matthew D. Thompson, Chief Financial Officer of the Company, each certify pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Annual Report on Form 10-K of the Company for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	March 4, 2013	By: /s/ Kenneth S. George
		Kenneth S. George
		Chief Executive Officer
Dated:	March 4, 2013	By: /s/ Matthew D. Thompson
		Matthew D. Thompson
		Chief Financial Officer

This certification is made solely for the purpose of 18 U.S.C Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

A signed original of this written statement required by Section 906 has been provided to American CareSource Holdings, Inc. and will be retained by American CareSource Holdings, Inc. and furnished to the Securities and Exchange Commission upon request.

XML

Goodwill and Intangible Assets (Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2011	Dec. 31, 2012	Dec. 31, 2011
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill impairment charge	$ 4,400	$ 0	$ 4,361
Deferred tax benefit, goodwill	$ 1,500	$ 723	$ 843

XML

Stock Warrants (Summary of Activity) (Details) (Stock warrants, USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Stock warrants
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding, beginning balance (in shares)	158	108
Granted (in shares)	0	83
Cancelled or expired (in shares)	(114)	(33)
Outstanding, ending balance (in shares)	44	158
Vested, ending balance (in shares)	22
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding, weighted-average exercise price, beginning balance	$ 5.25	$ 8.88
Granted, weighted-average exercise price		$ 5.01
Cancelled or expired, weighted-average exercise price	$ 4.15	$ 16.53
Outstanding, weighted-average exercise price, ending balance	$ 1.50	$ 5.25
Vested, weighted-average exercise price	$ 1.50

XML

Stock-Based Compensation (Restricted Stock Unit Activity) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Equity instruments other than options, weighted average grant date fair value
Weighted average grant date fair value, end of period	$ 1.01	$ 1.89
Restricted Stock Units
Equity instruments other than options, number of shares
Outstanding, beginning balance (in shares)	6	29
Forfeited	0	(6)
Converted to common stock	(2)	(17)
Outstanding, ending balance (in shares)	4	6
Vested and convertible to common stock	4
Equity instruments other than options, weighted average grant date fair value
Weighted average grant date fair value, beginning of period	$ 21.45	$ 21.21
Forfeited, weighted average grant date fair value	$ 0.00	$ 5.58
Converted to common stock, weighted average grant date fair value	$ 21.53	$ 11.61
Weighted average grant date fair value, end of period	$ 21.40	$ 21.45
Vested and convertible to common stock, weighted average grant date fair value	$ 21.06

XML

Allowance for Uncollectable Receivables and Refunds (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Receivables [Abstract]
Provision for refunds	$ 276	$ 622
Allowance for uncollectable receivables	$ 307	$ 237

XML

Goodwill and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Summary of Intangible Assets

The following is a summary of our intangible assets as of December 31 for the years presented: 

	2012			2011
Ancillary provider network	$	1,921		$	1,921
Software	428			428
	2,349			2,349
Accumulated amortization	(1,581		)	(1,453		)
Intangibles, net	$	768		$	896

XML

Significant Client Agreements (Details)	12 Months Ended
	Dec. 31, 2012
Concentration Risk [Line Items]
Initial term	3 years
Number of renewals	1
Renewal term	2 years
Resolution period following breach of contract	30 days
Without Breach of Contract
Concentration Risk [Line Items]
Renewal term	1 year
Written notice of contract termination period	90 days

XML

Stock-Based Compensation (Details) (USD $)	12 Months Ended		0 Months Ended		5 Months Ended	12 Months Ended	0 Months Ended	5 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	May 16, 2005 2005 Plan	Dec. 31, 2012 2005 Plan	May 19, 2009 2009 Plan	Dec. 31, 2012 Non-Qualified Stock Options	May 16, 2005 Non-Qualified Stock Options 2005 Plan	May 19, 2009 Non-Qualified Stock Options 2009 Plan	Dec. 31, 2012 Restricted Stock Units	Dec. 31, 2011 Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized			749,776	1,249,776
Shares approved for issuance					500,000		16,667
Expected term	6 years 2 months 12 days	6 years 1 month 6 days	10 years
Maximum contractual term					P10Y
Fair value of shares issued								$ 1.00
Stock reserved for future grants	494,788	546,956
Compensation expense	408,000	738,000				350,000			37,000	108,000
Award vesting period	5 years
Options outstanding, weighted average remaining contractual term	6 years 4 months 24 days
Options exercisable, weighted average remaining contractual term	5 years 4 months 24 days
Total intrinsic value of options outstanding	30,000	21,000
Total intrinsic value of options exercisable	29,000	21,000
Total intrinsic value of options exercised		127,000
Unrecognized compensation cost related to non-vested options						$ 498,000			$ 49,000
Total compensation cost recognition period						3 years 2 months 12 days			1 year 3 months 18 days
Forfeiture rate	20.50%	20.50%							0.00%
Equity instruments other than options, granted in peiord									0	0

XML

Income Taxes (Deferred Tax Assets and Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2011
Deferred Tax Assets
Operating loss carryforward	$ 1,919	$ 872
Accounts receivable allowance	106	72
Warrants	0	202
Texas tax credit carryforward	228	232
Stock option compensation	1,306	1,206
Goodwill	723	843	1,500
Accrued expenses	121	195
Alternative Minimum Tax credit carryforwards	16	16
Total deferred tax assets	4,419	3,638
Deferred Tax Liabilities
Property and equipment	(514)	(570)
Prepaid expense	(80)	(84)
Total deferred tax liabilities	(594)	(654)
Valuation allowance	(3,597)	(2,752)
Net deferred tax assets	$ 228	$ 232

XML

Quarterly Financial Information (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Quarterly Financial Information Disclosure [Abstract]
Net revenues	$ 9,100	$ 8,186	$ 8,215	$ 9,401	$ 13,025	$ 11,496	$ 11,308	$ 13,077	$ 34,902	$ 48,906
Contribution margin	1,334	805	864	1,108	1,590	722	779	1,427	4,111	4,518
Contribution margin %	14.70%	9.80%	10.50%	11.80%	12.20%	6.30%	6.90%	10.90%
Income (loss) before income taxes	(626)	(1,071)	(812)	(551)	150	(5,554)	(965)	(224)	(3,060)	(6,593)
Net income (loss)	$ (629)	$ (1,075)	$ (829)	$ (558)	$ 153	$ (6,523)	$ (645)	$ (222)	$ (3,091)	$ (7,237)
Earnings (loss) per diluted share	$ (0.11)	$ (0.19)	$ (0.14)	$ (0.10)	$ 0.03	$ (1.15)	$ (0.12)	$ (0.04)
Shares used in computing diluted earnings (loss) per share	5,711	5,711	5,710	5,696	5,716	5,670	5,654	5,654

XML

Stock Warrants (Details) (USD $)	0 Months Ended								12 Months Ended		0 Months Ended	12 Months Ended
	Sep. 04, 2012	Aug. 31, 2012	Feb. 25, 2011	Feb. 01, 2012	Jun. 02, 2007	Jun. 30, 2009 Stock warrants	Jun. 30, 2008 Stock warrants	Dec. 31, 2007 Stock warrants	Dec. 31, 2012 Vested immediately	Feb. 01, 2012 Vested immediately	Feb. 25, 2011 Vested upon acheivement of additional defined revenue targets	Dec. 31, 2012 Vested upon acheivement of additional defined revenue targets	Feb. 01, 2012 Vested upon acheivement of additional defined revenue targets	Feb. 01, 2012 Acheivement of additional defined revenue targets	Feb. 25, 2011 Acheivement of additional defined revenue targets
Class of Warrant or Right [Line Items]
Reverse stock split conversion ratio	0.3333	0.3333
Warrants issued			83,333	44,444	75,000					22,222			22,222	88,889	166,666
Exercise price (dollars per share)			5.01	1.50	5.52
Warrants outstanding						18,750	18,750	37,500
Warrants value (dollars per share)						$ 16.59	$ 8.61	$ 2.82
Vesting percentage									0.25			0.25
Award expiration period			5 years
Award vesting period											2 years
Incremental warrant issues														44,444	83,333
Compensation costs									$ 21,000

XML

Reverse Stock Split

12 Months Ended

Dec. 31, 2012

Reverse Stock Split [Abstract]

Reverse Stock Split

Reverse Stock Split

At the Company's annual meeting of stockholders, held on June 11, 2012, the stockholders voted to amend the Company's certificate of incorporation for the purpose of effecting a reverse stock split and authorized its Board of Directors to determine, in its sole discretion, whether to effect the amendment, the timing of the amendment, and the specific ratio of the reverse stock split, provided that such ratio is 1-for-2, 1-for-2.5, 1-for-3, 1-for-3.5 or 1-for-4.

On August 31, 2012 the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended (the “Amendment”) to effect a 1-for-3 reverse stock split (“reverse split”) of its common stock, par value $0.01 per share (the “Common Stock”), effective September 4, 2012 (the “Effective Day”). Because the Amendment did not result in a reduction in the number of authorized shares of Common Stock, its effect was to increase the number of shares of Common Stock available for issuance relative to the number of shares issued and outstanding. In addition, the par value per share of Common Stock remained $0.01, thus Common Stock and Additional Paid-In Capital were adjusted $114,000 to reflect the reverse split on the consolidated balance sheet.

On the Effective Day, every three shares of the Company's Common Stock issued and outstanding immediately prior to the Effective Day were automatically combined into one share of Common Stock. Stockholders that were left with a fraction of a share as a result of the reverse split received cash in lieu of the fractional share in an amount based on the closing sale price of the Common Stock on the business day immediately preceding the Effective Day as reported on the The Nasdaq Capital Market. The amount paid to stockholders was less than $1,000. In addition, any options, warrants and restricted stock units outstanding as of the Effective Day were adjusted accordingly. As a result of the reverse split, the Company had 5,706,439 shares of common stock issued and outstanding as of December 31, 2012.

Shares of common stock and common stock equivalents, along with earnings per share and other per share amounts, have been retroactively restated to reflect the 1-for-3 reverse stock split that occurred on September 4, 2012 for all periods presented throughout this report.

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Stock-Based Compensation (Fair Value Assumptions) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Weighted average grant date fair value	$ 1.01	$ 1.89
Expected volatility	77.70%	66.90%
Expected lives (years)	6 years 2 months 12 days	6 years 1 month 6 days
Risk free interest rate	1.00%	1.60%
Forfeiture rate	20.50%	20.50%
Dividend rate	0.00%	0.00%

XML

Quarterly Financial Information (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

The following table contains selected financial information from unaudited statements of operations for each quarter of 2012 and 2011.

	Quarters Ended
	2012												2011
	Dec. 31			Sept. 30			June 30			Mar. 31			Dec. 31		Sept. 30			June 30			Mar. 31
Net revenues	$	9,100		$	8,186		$	8,215		$	9,401		$	13,025	$	11,496		$	11,308		$	13,077
Contribution margin	1,334			805			864			1,108			1,590		722			779			1,427
Contribution margin %	14.7			9.8			10.5			11.8			12.2		6.3			6.9			10.9
Income (loss) before income taxes	(626		)	(1,071		)	(812		)	(551		)	150		(5,554		)	(965		)	(224		)
Net income (loss)	(629		)	(1,075		)	(829		)	(558		)	153		(6,523		)	(645		)	(222		)
Earnings (loss) per diluted share	(0.11		)	(0.19		)	(0.14		)	(0.10		)	0.03		(1.15		)	(0.12		)	(0.04		)
Shares used in computing diluted earnings (loss) per share	5,711			5,711			5,710			5,696			5,716		5,670			5,654			5,654

XML

Stock Warrants (Tables)

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Stock Warrant Activity

A summary of stock warrant activity is as follows:

	Outstanding Warrants (thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2010	108		$	8.88
Granted	83		$	5.01
Cancelled	(33	)	$	16.53
Outstanding at December 31, 2011	158		$	5.25
Granted	—		nm
Cancelled or expired	(114	)	$	4.15
Outstanding at December 31, 2012	44		$	1.50
Vested at December 31, 2012	22		$	1.50

XML

Stock-Based Compensation (Option Activity) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Beginning balance, outstanding	739	866
Granted	100	93
Forfeited	(33)	(55)
Cancelled	(14)	(78)
Exercised	0	(87)
Ending balance, outstanding	792	739
Ending balance, exercisable	519
Outstanding, weighted average exercise price, beginning balance	$ 6.72	$ 6.72
Granted, weighted-average exercise price	$ 1.49	$ 3.09
Forfeited, weighted average exercise price	$ 5.11	$ 6.33
Cancelled, weighted average exercise price	$ 10.65	$ 8.82
Exercised, weighted average exercise price	$ 0.00	$ 1.11
Outstanding, weighted average exercise price, ending balance	$ 6.06	$ 6.72
Exercisable, weighted average exercise price	$ 7.20

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Summary of Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Accounting Policies [Abstract]
Revenues, net of provider payment	$ 9,200,000	$ 11,300,000
Payments for Software	$ 419,000	$ 611,000

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Reverse Stock Split (Details) (USD $)	0 Months Ended		12 Months Ended		0 Months Ended
	Sep. 04, 2012	Aug. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Jun. 11, 2012 Reverse Stock Split Ratio, 1-for-2	Jun. 11, 2012 Reverse Stock Split Ratio, 1-for-2.5	Jun. 11, 2012 Reverse Stock Split Ratio, 1-for-3	Jun. 11, 2012 Reverse Stock Split Ratio, 1-for-3.5	Jun. 11, 2012 Reverse Stock Split Ratio, 1-for-4	Dec. 31, 2012 Immediately prior to reverse split	Dec. 31, 2012 Immediately after reverse split
Class of Stock [Line Items]
Common stock, par value (in dollars per share)			$ 0.01	$ 0.01						$ 0.01	$ 0.01
Common Stock and Additional Paid-In Capital adjustment to reflect reverse split			$ 114,000
Reverse stock split conversion ratio	0.3333	0.3333			0.5000	0.4000	0.3333	0.2857	0.2500
Aggregate amount paid to stockholders	$ 1,000
Common Stock, shares outstanding			5,706,439	5,692,000

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Concentration of Credit Risk

12 Months Ended

Dec. 31, 2012

Risks and Uncertainties [Abstract]

Concentration of Credit Risk

Concentration of Credit Risk

During the years ended December 31, 2012 and 2011, two of the Company's clients comprised a significant portion of the Company’s revenues. The following is a summary of the approximate amounts of the Company’s revenue and accounts receivable contributed by each of those clients as of the dates and for the periods presented (amounts in thousands):

	2012								2011
	Accounts Receivable			Revenue			% of Total Revenue		Accounts Receivable			Revenue			% of Total Revenue
Material Client Relationship	$	720		$	10,704		31	%	$	1,689		$	16,584		34	%
MultiPlan, Inc. (formerly Viant Holdings, Inc.)	22			2,941			8		853			9,959			20
Principal Life Insurance Company	26			49			—		95			2,619			5
Other legacy clients	815			7,122			20		1,008			7,482			16
Clients implemented in 2010 - 2012	1,156			14,362			42		909			12,884			26
Allowance for Uncollectable Receivables/Provision for Refunds	(307		)	(276		)	(1	)	(237		)	(622		)	(1	)
	$	2,432		$	34,902		100	%	$	4,317		$	48,906		100	%

Material Client Relationship includes five related entities and MultiPlan, Inc. includes two related entities, which are aggregated for this presentation.

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Concentration of Credit Risk (Revenue and Accounts Receivable) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Concentration Risk [Line Items]
Number of signifcant customers									2,000	2
Allowance for uncollectable receivables	$ (307)				$ (237)				$ (307)	$ (237)
Accounts Receivable, Net	2,432				4,317				2,432	4,317
Provision for refunds									(276)	(622)
Revenue, Net	9,100	8,186	8,215	9,401	13,025	11,496	11,308	13,077	34,902	48,906
Sales Revenue
Concentration Risk [Line Items]
% of Total Revenue									100.00%	100.00%
Sales Revenue | Provision for refunds
Concentration Risk [Line Items]
% of Total Revenue									(1.00%)	(1.00%)
Customer Concentration Risk | Material Client Relationship
Concentration Risk [Line Items]
Accounts Receivable, Gross	720				1,689				720	1,689
Revenue, Gross									10,704	16,584
Customer Concentration Risk | MultiPlan, Inc.
Concentration Risk [Line Items]
Accounts Receivable, Gross	22				853				22	853
Revenue, Gross									2,941	9,959
Customer Concentration Risk | Principal Life Insurance Company
Concentration Risk [Line Items]
Accounts Receivable, Gross	26				95				26	95
Revenue, Gross									49	2,619
Customer Concentration Risk | Other legacy clients
Concentration Risk [Line Items]
Accounts Receivable, Gross	815				1,008				815	1,008
Revenue, Gross									7,122	7,482
Customer Concentration Risk | Clients Implemented in 2010 - 2012
Concentration Risk [Line Items]
Accounts Receivable, Gross	1,156				909				1,156	909
Revenue, Gross									$ 14,362	$ 12,884
Customer Concentration Risk | Sales Revenue | Material Client Relationship
Concentration Risk [Line Items]
% of Total Revenue									31.00%	34.00%
Customer Concentration Risk | Sales Revenue | MultiPlan, Inc.
Concentration Risk [Line Items]
% of Total Revenue									8.00%	20.00%
Customer Concentration Risk | Sales Revenue | Principal Life Insurance Company
Concentration Risk [Line Items]
% of Total Revenue									0.00%	5.00%
Customer Concentration Risk | Sales Revenue | Other legacy clients
Concentration Risk [Line Items]
% of Total Revenue									20.00%	16.00%
Customer Concentration Risk | Sales Revenue | Clients Implemented in 2010 - 2012
Concentration Risk [Line Items]
% of Total Revenue									42.00%	26.00%

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Goodwill and Intangible Assets (Summary of Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 2,349	$ 2,349
Accumulated amortization	(1,581)	(1,453)
Intangible assets, net	768	896
Ancillary provider network
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	1,921	1,921
Amortization expense	128	128
Useful life	15 years
Future amortization expense, 2013	128
Future amortization expense, 2014	128
Future amortization expense, 2015	128
Future amortization expense, 2016	128
Future amortization expense, 2017	128
Future amortization expense, 2018	128
Ancillary provider network | Minimum
Finite-Lived Intangible Assets [Line Items]
Rate of attrition	2.00%
Ancillary provider network | Maximum
Finite-Lived Intangible Assets [Line Items]
Rate of attrition	8.00%
Software
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 428	$ 428

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Net revenues	$ 34,902	$ 48,906
Cost of revenues
Provider payments	25,660	37,588
Administrative fees	1,551	2,395
Claims administration and provider development	3,580	4,405
Total cost of revenues	30,791	44,388
Contribution margin	4,111	4,518
Selling, general and administrative expenses	6,293	5,958
Depreciation and amortization	878	792
Goodwill impairment charge	0	4,361
Total operating expenses	7,171	11,111
Loss before income taxes	(3,060)	(6,593)
Income tax provision	31	644
Net loss	$ (3,091)	$ (7,237)
Loss per basic and diluted common share	$ (0.54)	$ (1.28)
Basic and diluted weighted average common shares outstanding	5,707	5,668

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Stock-Based Compensation (Schedule of Exercise Prices) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Under $1.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, upper range limit	$ 1.00
Number of outstanding options	58
Outstanding options, weighted average outstanding contractual term	2 years 3 months 18 days
Outstanding options, weighted average exercise price	$ 0.93
Number of exercisable options	58
Exercisable options, weighted average exercise price	$ 0.93
$1.00 - $2.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 1.00
Exercise price range, upper range limit	$ 2.00
Number of outstanding options	104
Outstanding options, weighted average outstanding contractual term	9 years 8 months 12 days
Outstanding options, weighted average exercise price	$ 1.48
Number of exercisable options	2
Exercisable options, weighted average exercise price	$ 1.53
$2.01 - $3.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 2.01
Exercise price range, upper range limit	$ 3.00
Number of outstanding options	50
Outstanding options, weighted average outstanding contractual term	8 years 7 months 6 days
Outstanding options, weighted average exercise price	$ 2.19
Number of exercisable options	21
Exercisable options, weighted average exercise price	$ 2.19
$3.01 -$4.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 3.01
Exercise price range, upper range limit	$ 4.00
Number of outstanding options	1
Outstanding options, weighted average outstanding contractual term	8 years 7 months 6 days
Outstanding options, weighted average exercise price	$ 3.72
Number of exercisable options	0
Exercisable options, weighted average exercise price	$ 3.72
$4.01 - $5.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 4.01
Exercise price range, upper range limit	$ 5.00
Number of outstanding options	116
Outstanding options, weighted average outstanding contractual term	7 years 9 months 18 days
Outstanding options, weighted average exercise price	$ 4.31
Number of exercisable options	59
Exercisable options, weighted average exercise price	$ 4.31
$5.01 - $6.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 5.01
Exercise price range, upper range limit	$ 6.00
Number of outstanding options	162
Outstanding options, weighted average outstanding contractual term	5 years
Outstanding options, weighted average exercise price	$ 5.54
Number of exercisable options	156
Exercisable options, weighted average exercise price	$ 5.55
$6.01 - $7.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 6.01
Exercise price range, upper range limit	$ 7.00
Number of outstanding options	119
Outstanding options, weighted average outstanding contractual term	7 years 2 months 12 days
Outstanding options, weighted average exercise price	$ 6.13
Number of exercisable options	49
Exercisable options, weighted average exercise price	$ 6.15
Greater than $7.01
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit	$ 7.01
Number of outstanding options	182
Outstanding options, weighted average outstanding contractual term	5 years 2 months 12 days
Outstanding options, weighted average exercise price	$ 12.94
Number of exercisable options	174
Exercisable options, weighted average exercise price	$ 12.72

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net loss	$ (3,091)	$ (7,237)
Adjustments to reconcile net loss to net cash used in operations:
Non-cash stock-based compensation expense	408	738
Depreciation and amortization	878	792
Goodwill impairment charge	0	4,361
Amortization of long-term client agreement	250	250
Client administration fee expense related to warrants	0	67
Deferred income taxes	4	614
Loss on write-off of software development costs	14	0
Changes in operating assets and liabilities:
Accounts receivable	1,885	1,193
Prepaid expenses and other assets	27	(21)
Accounts payable and accrued liabilities	129	(188)
Due to service providers	(578)	(3,040)
Net cash used in operating activities	(74)	(2,471)
Cash flows from investing activities:
Investments in software development costs	(419)	(611)
Additions to property and equipment	(109)	(58)
Net cash used in investing activities	(528)	(669)
Cash flows from financing activities:
Payment of income tax withholdings on net exercise of equity incentives	(8)	(57)
Net cash used in financing activities	(8)	(57)
Net decrease in cash and cash equivalents	(610)	(3,197)
Cash and cash equivalents at beginning of period	11,315	14,512
Cash and cash equivalents at end of period	10,705	11,315
Supplemental cash flow information:
Cash paid for taxes, net of refunds received	49	52
Supplemental non-cash operating and financing activity:
Accrued bonus paid with equity incentives	$ 23	$ 0

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Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Operating Loss Carryforwards [Line Items]
Valuation allowance	$ 3,597,000	$ 2,752,000
U.S. federal income tax rate	34.00%
Increase in the valuation allowance for deferred tax assets	845,000	2,752,000
Net deferred tax assets	228,000	232,000
Net operating loss carryforwards	10,900,000	7,900,000
Expected adjustments to additional paid in capital	1,900,000
Excess Tax Benefits on Stock Options and Warrants Exercised
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	5,400,000
Texas
Operating Loss Carryforwards [Line Items]
Valuation allowance		$ 232,000

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Concentration of Credit Risk (Tables)

12 Months Ended

Dec. 31, 2012

Revenue Recognition [Abstract]

Summary of Revenues and Accounts Receivable Contributed by Client

The following is a summary of the approximate amounts of the Company’s revenue and accounts receivable contributed by each of those clients as of the dates and for the periods presented (amounts in thousands):

	2012								2011
	Accounts Receivable			Revenue			% of Total Revenue		Accounts Receivable			Revenue			% of Total Revenue
Material Client Relationship	$	720		$	10,704		31	%	$	1,689		$	16,584		34	%
MultiPlan, Inc. (formerly Viant Holdings, Inc.)	22			2,941			8		853			9,959			20
Principal Life Insurance Company	26			49			—		95			2,619			5
Other legacy clients	815			7,122			20		1,008			7,482			16
Clients implemented in 2010 - 2012	1,156			14,362			42		909			12,884			26
Allowance for Uncollectable Receivables/Provision for Refunds	(307		)	(276		)	(1	)	(237		)	(622		)	(1	)
	$	2,432		$	34,902		100	%	$	4,317		$	48,906		100	%

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Income Taxes (Income Tax Reconciliation) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Computed “expected” tax provision	$ (1,040)	$ (2,242)
Increase in the valuation allowance for deferred tax assets	845	2,752
Short-fall on stock options, warrants, and RSUs	245	145
State taxes	25	25
Permanent items	10	0
Other	(54)	(36)
Total income tax provision	$ 31	$ 644

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Effective income tax rate reconciliation

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

	2012			2011
Computed “expected” tax provision	$	(1,040	)	$	(2,242	)
Increase in the valuation allowance for deferred tax assets	845			2,752
Short-fall on stock options, warrants, and RSUs	245			145
State taxes	25			25
Permanent items	10			—
Other	(54		)	(36		)
Total income tax provision	$	31		$	644

Schedule of deferred tax assets and liabilities

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

	2012			2011
Deferred tax assets:
Operating loss carryforward	$	1,919		$	872
Accounts receivable allowance	106			72
Warrants	—			202
Texas tax credit carryforward	228			232
Stock option compensation	1,306			1,206
Goodwill	723			843
Accrued expenses	121			195
Alternative Minimum Tax credit carryforwards	16			16
Total deferred tax assets	4,419			3,638
Deferred tax liabilities:
Property and equipment	(514		)	(570		)
Prepaid expense	(80		)	(84		)
Total deferred tax liabilities	(594		)	(654		)
Valuation allowance	(3,597		)	(2,752		)
Net deferred tax assets	$	228		$	232

Components of income tax expense (benefit)

The income tax provision shown on the statement of operations for the years ended December 31, 2012 and 2011 consisted of the following:

	2012		2011
Current	$	27	$	30
Deferred	4		614
	$	31	$	644

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

American CareSource Holdings, Inc. (“ACS,” “Company,” the “Registrant,” “we,” “us,” or “our”) works to help its clients control healthcare costs by offering cost containment strategies, primarily through the utilization of a comprehensive national network of ancillary healthcare service providers.  The Company markets its services to a number of healthcare companies including third party administrators (“TPAs”), insurance companies, large self-funded organizations, various employer groups and preferred provider organizations ("PPOs").  The Company offers payors this solution by:

• lowering its payors’ ancillary care costs through its network of high quality, cost effective providers that the Company has under contract at more favorable terms than they could generally obtain on their own;

• providing payors with a comprehensive network of ancillary healthcare service providers that is tailored to each payor’s specific needs and is available to each payor’s members for covered services;

• providing payors with claims management, reporting and processing and payment services;

• performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor-specific provider networks; and

• credentialing network service providers for inclusion in the payor-specific provider networks.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its one wholly-owned subsidiary, Ancillary Care Services, Inc.  All material intercompany accounts and transactions are eliminated in consolidation.  Certain prior year amounts have been reclassified within the consolidated statement of operations, consolidated balance sheet, and consolidated statement of cash flow to conform to the current year presentation.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include amounts in deposit accounts in excess of federally insured limits of $250,000.  The Company has not experienced any losses in such accounts.

Revenue Recognition

The Company recognizes revenue on the services that it provides, which includes (i) providing payor clients with a comprehensive network of ancillary healthcare providers, (ii) providing claims management, reporting, processing and payment services, (iii) providing network/need analysis to assess the benefits to payor clients of adding additional/different service providers to the client-specific provider networks and (iv) providing credentialing of network services providers for inclusion in the client payor-specific provider networks.  Revenue is recognized when services are delivered, which occurs after processed claims are billed to the client payors and collections are reasonably assured.  The Company estimates revenues and costs of revenues using average historical collection rates and average historical margins earned on claims.  Periodically, revenues are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected.

The Company determines whether it is acting as a principal or agent in the fulfillment of the services rendered.  After careful evaluation of the key gross and net revenue recognition indicators, the Company acknowledges that while the determination of gross versus net reporting is highly judgmental in nature, the Company has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

Following are the key indicators that support the Company’s conclusion that it acts as a principal when settling claims for service providers through its contracted service provider network:

• The Company is the primary obligor in the arrangement.  The Company has assessed its role as primary obligor as a strong indicator of gross reporting.  The Company believes that it is the primary obligor in its transactions because it is responsible for providing the services desired by its client payors.  The Company has distinct, separately negotiated contractual relationships with its client payors and with the ancillary health care providers in its networks.  The Company does not negotiate “on behalf of” its client payors and does not hold itself out as the agent of the client payors when negotiating the terms of the Company’s ancillary healthcare service provider agreements.  The Company’s agreements contractually prohibit client payors and service providers to enter into direct contractual relationships with one another.  The client payors have no control over the terms of the Company’s agreements with the service providers.  In executing transactions, the Company assumes key performance-related risks.  The client payors hold the Company responsible for fulfillment, as the provider, of all of the services the client payors are entitled to under their contracts; client payors do not look to the service providers for fulfillment.  In addition, the Company bears the pricing/margin risk as the principal in the transactions.  Because the contracts with the client payors and service providers are separately negotiated, the Company has complete discretion in negotiating both the prices it charges its client payors and the financial terms of its agreements with the service providers.  Since the Company’s profit is the spread between the amounts received from the client payors and the amount paid to the service providers, it bears significant pricing/margin risk.  There is no guaranteed mark-up payable to the Company on the amount the Company has contracted.  Thus, the Company bears the risk that amounts paid to the service provider will be greater than the amounts received from the client payors, resulting in a loss or negative claim.

• The Company has latitude in establishing pricing.  As stated above, the Company has complete latitude in negotiating the price to be paid to the Company by each client payor and the price to be paid to each contracted service provider.  This type of pricing latitude indicates that the Company has the risks and rewards normally attributed to a principal in the transactions.

• The Company changes the product or performs part of the services.  The Company provides the benefits associated with the relationships it builds with the client payors and the services providers.  While the parties could deal with each other directly, the client payors would not have the benefit of the Company’s experience and expertise in assembling a comprehensive network of service providers, in claims management, reporting and processing and payment services, in performing network/needs analysis to assess the benefits to client payors of adding additional/different service providers to the client payor-specific provider networks, and in credentialing network service providers.

• The Company has discretion in supplier selection.  The Company has complete discretion in supplier selection.  One of the key factors considered by client payors who engage the Company is to have the Company undertake the responsibility for identifying, qualifying, contracting with and managing the relationships with the ancillary healthcare service providers.  As part of the contractual arrangement between the Company and its client payors, the payors identify their obligations to their respective covered persons and then work with the Company to determine the types of ancillary healthcare services required in order for the payors to meet their obligations.  The Company may select the providers and contract with them to provide services at its discretion.

• The Company is involved in the determination of product or service specifications.  The Company works with its client payors to determine the types of ancillary healthcare services required in order for the payors to meet their obligations to their respective covered persons.  In some respects, the Company is customizing the product through its efforts and ability to assemble a comprehensive network of providers for its payors that is tailored to each payor’s specific needs.  In addition, as part of its claims processing and payment services, the Company works with the client payors, on the one hand, and the providers, on the other, to set claims review, management and payment specifications.

• The supplier (and not the Company) has credit risk.  The Company believes it has some level of credit risk, but that risk is mitigated because the Company does not remit payment to providers unless and until it has received payment from the relevant client payors following the Company’s processing of a claim.

• The amount that the Company earns is not fixed.  The Company does not earn a fixed amount per transaction nor does it realize a per-person per-month charge for its services.

The Company has evaluated the other indicators of gross and net revenue recognition, including whether or not the Company has general inventory risk.  The Company does not have any general inventory risk, as its business is not related to the manufacture, purchase or delivery of goods and it does not purchase in advance any of the services to be provided by the ancillary healthcare service providers.  While the absence of this risk would be one indicator in support of net revenue reporting, as described in detail above, the Company has carefully evaluated all of the key gross and net revenue recognition indicators and has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

If the Company were to report its revenues net of provider payments rather than on a gross reporting basis, for the years ended December 31, 2012 and 2011, its net revenues would have been $9.2 million and $11.3 million, respectively.

The Company records a provision for refunds based on an estimate of historical refund amounts. Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payments made to the ancillary service provider if the claim has been fully resolved. The evaluation is performed periodically and is based on historical data. We present revenue net of the provision for refunds on the consolidated statements of operations.

Provider Payments

Payments to providers is the largest component of our cost of revenues and it consists of our payments for ancillary care services in accordance with contracts negotiated with providers for specific ancillary services, separately from contracts negotiated with our clients.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.

Property and Equipment

Property and equipment are recorded at original cost and increased by the cost of any significant improvements subsequent to purchase.  The Company expenses repairs and maintenance as incurred.  Depreciation and amortization is calculated using the straight-line method over the shorter of the asset’s estimated useful life or the term of the lease in the case of leasehold improvements.  The Company capitalizes costs associated with software developed for internal use.  During 2012 and 2011, we capitalized approximately $419,000 and $611,000 of internally developed software costs, respectively.  

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences”.  The Company records the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the statements of operations).  The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled.  A valuation allowance is established to reduce deferred tax assets considered to be more likely than not that the deferred tax assets will not be realized.

Stock Compensation

The Company records all stock-based payments to employees in the consolidated financial statements based on their estimated fair values as of the measurement date of the respective awards.  Additional information about the Company’s stock-based payment plan is presented in Note 9.

Segment and Related Information

The Company uses the “management approach” for reporting information about segments in its annual and interim financial statements.  The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company.  Based on the “management approach” model, the Company determined that the business is comprised of a single operating segment.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities.  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.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 10,705	$ 11,315
Accounts receivable, net	2,432	4,317
Prepaid expenses and other current assets	290	559
Deferred income taxes	6	6
Total current assets	13,433	16,197
Property and equipment, net	1,593	1,829
Other assets:
Deferred income taxes	222	226
Other assets	16	16
Intangible assets, net	768	896
Total assets	16,032	19,164
Current liabilities:
Due to service providers	3,100	3,678
Accounts payable and accrued liabilities	1,343	1,237
Total current liabilities	4,443	4,915
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; 10,000 shares authorized, none issued	0	0
Common stock, $0.01 par value; 40,000 shares authorized; 5,706 and 5,692 shares issued and outstanding in 2012 and 2011, respectively	57	57
Additional paid-in capital	22,845	22,414
Accumulated deficit	(11,313)	(8,222)
Total stockholders' equity	11,589	14,249
Total liabilities and stockholders' equity	$ 16,032	$ 19,164

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Earnings (Loss) Per Share

12 Months Ended

Dec. 31, 2012

Earnings Per Share [Abstract]

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (or loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share reflects the potential dilution that could occur if options, warrants and restricted stock units to purchase common stock were exercised or converted. For purposes of this calculation, outstanding stock options, stock warrants and restricted stock units are considered common stock equivalents using the treasury stock method, and are the only such equivalents outstanding.  

For the year ended December 31, 2012, options to purchase approximately 792,000 shares of commons stock, warrants to purchase approximately 44,400 shares of common stock, and approximately 3,400 unvested restricted stock units were excluded from the calculation as their impact would be anti-dilutive.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Feb. 25, 2013	Jun. 29, 2012
Entity Information [Line Items]
Entity Registrant Name	American CareSource Holdings, Inc.
Entity Central Index Key	0001316645
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		5,706,443
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 6,581,236

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Significant Client Agreements

12 Months Ended

Dec. 31, 2012

Risks and Uncertainties [Abstract]

Significant Agreements

Significant Agreements

The decline in net revenue and billed claims volume from our relationship with MultiPlan, Inc. ("MultiPlan") is due to the acquisition by MultiPlan of Viant Holdings, Inc. As part of that transition, MultiPlan is methodically moving its payors and employers groups to its existing networks. The transition commenced in mid-2010 and was complete at the end of 2012. We do not expect any significant revenue contributions from the account in the future.

On December 31, 2012, the Company entered into a Health Care Services Access Agreement (the “Agreement”) with HealthSmart Preferred Care II, L.P., HealthSmart Preferred Network II, Inc., and SelectNet Plus, Inc. (referred to hereinafter collectively as “HSPC”).

The purpose of the Agreement is, among other things, for HSPC to utilize the Company’s providers and active referral management in order to provide benefits for healthcare services to certain benefit plans and their plan participants for whom HSPC provides services. Pursuant to the Agreement, HSPC will provide claim consolidation and routing of claims to the Company generating reductions in various charges for healthcare services that are covered services provided to plan participants.

As part of the Agreement, the Company agreed to pay HSPC a monthly administrative services fee (the “Administrative Services Fee”) to reimburse and to compensate HSPC for the work that HSPC is required to perform to support the Company’s program. The Administrative Services Fee is based upon paid claims arising from the Company’s network of providers.

Pursuant to the Agreement, for services other than primary group health services, the Company will be compensated based on a percentage of the gross revenue actually collected by HSPC from its payors and clients for claims utilizing a Company discount through certain of the Company’s networks.

The Agreement is for a term of three years (the “Initial Term”), with one automatic two year renewal, unless the Agreement is terminated by a party if the other party breaches the Agreement and such breach has not been cured prior to the expiration of thirty days following the non-breaching party’s delivery of written notice specifying such breach to the breaching party or unless either party provides notice of non-renewal no less than ninety days prior to the expiration of the Initial Term. Following the automatic two year renewal term, the Agreement shall automatically renew for successive periods of one year unless earlier terminated by a party for breach or unless either party provides notice of non-renewal no less than ninety days prior to the expiration of the two year renewal term or any subsequent renewal term.

As part of the Agreement, the Provider Service Agreement by and between the Company and HSPC, dated August 1, 2002, as amended through December 20, 2008, is terminated.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Shareholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	5,706,000	5,692,000
Common Stock, shares outstanding	5,706,439	5,692,000

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	2012			2011
Computed “expected” tax provision	$	(1,040	)	$	(2,242	)
Increase in the valuation allowance for deferred tax assets	845			2,752
Short-fall on stock options, warrants, and RSUs	245			145
State taxes	25			25
Permanent items	10			—
Other	(54		)	(36		)
Total income tax provision	$	31		$	644

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

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

	2012			2011
Deferred tax assets:
Operating loss carryforward	$	1,919		$	872
Accounts receivable allowance	106			72
Warrants	—			202
Texas tax credit carryforward	228			232
Stock option compensation	1,306			1,206
Goodwill	723			843
Accrued expenses	121			195
Alternative Minimum Tax credit carryforwards	16			16
Total deferred tax assets	4,419			3,638
Deferred tax liabilities:
Property and equipment	(514		)	(570		)
Prepaid expense	(80		)	(84		)
Total deferred tax liabilities	(594		)	(654		)
Valuation allowance	(3,597		)	(2,752		)
Net deferred tax assets	$	228		$	232

In 2011, a valuation allowance in the amount of $2.8 million was established against the net deferred tax assets with the exception of the Texas tax credit carryforward of approximately $232,000. During the year ended December 31, 2012, the Company increased the valuation allowance by approximately $845,000, which was included in the income tax provision for the year ended December 31, 2012. Due to the nature and timing of the reversal of the deferred tax assets and liabilities, the valuation allowance was established against the net deferred tax assets with the exception of the Texas tax credit carryforward of approximately $228,000.

    As of December 31, 2012 and 2011, the net operating loss carryforwards were approximately $10.9 million and $7.9 million, which expire in 2025 through 2031. Included in the net operating loss carryforward is approximately $5.4 million which related to the excess tax benefits for stock options and warrants exercised which will result in a credit to additional paid in capital of approximately $1.9 million when the associated tax deduction results in a reduction in the income taxes payable.

The income tax provision shown on the statement of operations for the years ended December 31, 2012 and 2011 consisted of the following:

	2012		2011
Current	$	27	$	30
Deferred	4		614
	$	31	$	644

The Company has evaluated the accounting guidance for uncertainty in income taxes. Management has evaluated their material tax positions and determined no income tax effects with respect to the consolidated financial statements. The Company has identified the United States and Texas as major tax jurisdictions and is no longer subject to federal or state income tax examinations by tax authorities for years before 2007. During 2011 and the early part of 2012 the Company underwent an examination by tax authorities for its U.S. federal return for the year ended 2009. In August of 2012, the Company was notified that there were no changes proposed to the 2009 income tax return.

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Property and Equipment

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment, net consists of the following:

	Useful Lives (years)	2012			2011
Software – internally developed	5	$	2,582		$	2,177
Software – purchased	3-5	614			592
Computer equipment	3-5	594			507
Furniture and fixtures	5	356			356
Leasehold improvements	7	205			205
		4,351			3,837
Accumulated depreciation and amortization		(2,758		)	(2,008		)
Property and equipment, net		$	1,593		$	1,829

The Company recognized depreciation expense of approximately $750,000 and $664,000 during 2012 and 2011, respectively. The depreciation amounts include approximately $437,000 and $330,000 of amortization of internally developed software during 2012 and 2011, respectively.

The Company capitalizes costs associated with internally developed software, developed for internal use only, during the application development stage. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality also are capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related expenses for employees who are directly associated with and devote time to the internal-use software project. Capitalization of such costs begins when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready for its intended purpose.

During the years ended December 31, 2012 and 2011, the Company capitalized costs related to enhancements to its internal information technology claims management applications. The applications were originally developed in 2005 and from time to time, the Company will enhance the functionality and reporting capabilities of the applications. The enhancements are typically developed by the Company's internal information technology group. Periodically, third-party consultants will be utilized to perform the development. For internal resources, the Company capitalizes salary and related benefits, while it capitalizes the cost of external consultants.

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment, net consists of the following:

	Useful Lives (years)	2012			2011
Software – internally developed	5	$	2,582		$	2,177
Software – purchased	3-5	614			592
Computer equipment	3-5	594			507
Furniture and fixtures	5	356			356
Leasehold improvements	7	205			205
		4,351			3,837
Accumulated depreciation and amortization		(2,758		)	(2,008		)
Property and equipment, net		$	1,593		$	1,829

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

Employee Benefit Plans

The Company provides a defined contribution plan for employees meeting minimum service requirements.  Employees can contribute up to 100% of their current compensation to the plan subject to certain statutory limitations.  The Company contributes up to a maximum of 3.5% of an employee’s compensation and plan participants are fully-vested in the Company’s contributions immediately.  The Company made contributions to the plan and charged operations approximately $107,000 and $120,000 during the years ended December 31, 2012 and 2011, respectively.

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Stock Options

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 2005 Stock Option Plan which (i) authorized options to purchase 749,776 shares 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 16,667 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.  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 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.

Over time this plan has been amended to increase the number of shares available to a total of 1,249,776 shares.

On May 19, 2009, the stockholders of the Company approved the 2009 Equity Incentive Plan (the “2009 Plan”).  The purpose of the 2009 Plan is (a) to allow selected employees and officers of the Company to acquire and increase equity ownership in the Company, which will strengthen their commitment to the success of the Company, and to attract new employees, officers and consultants, (b) to provide annual cash incentive compensation opportunities that are competitive with other peer corporations, (c) to optimize the profitability and growth of the Company through incentives that are consistent with the Company’s goals, (d) to provide grantees an incentive for individual excellence, (e) to promote teamwork and (f) to attract and retain highly-qualified persons to serve as non-employee directors.  The 2009 Plan allows for awards of non-qualified options, stock appreciation rights, restricted shares, performance units/shares, deferred stock, dividend equivalents and other stock-based awards up to 500,000 shares.  The term of the 2009 Plan is ten years and all non-qualified options will be valued at not less than 100% of the market value of the Company’s stock on the date of grant.

Shares of common stock reserved for future grants under the Stock Option Plan and the 2009 Plan (the “Plans”) were 494,788 and 546,956 at December 31, 2012 and 2011, respectively.

Compensation expense related to all equity awards, including non-qualified stock options, restricted stock units and warrants, that has been charged against income for the years ended December 31, 2012 and 2011 was approximately $408,000 and $738,000, respectively.

The awards granted to employees and non-employee directors become exercisable over periods of up to five years.  The fair value of each option award granted is estimated on the date of grant using the Black-Scholes-Merton valuation model that uses the assumptions noted in the following table.  Volatility is calculated using an analysis of historical volatility.  The Company believes that the historical volatility of the Company’s stock is the best method for estimating future volatility.  The expected lives of options are determined based on the Company’s historical share option exercise experience.  The Company believes the historical experience method is the best estimate of future exercise patterns currently available.  The risk-free interest rates are determined using the implied yield currently available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the options.  The expected dividend yields are based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. 

	2012			2011
Weighted average grant date fair value	$	1.01		$	1.89
Weighted average assumptions used
Expected volatility	77.7		%	66.9		%
Expected lives (years)	6.2			6.1
Risk free interest rate	1.0		%	1.6		%
Forfeiture rate	20.5		%	20.5		%
Dividend rate	—			—

A summary of stock option activity is as follows:

	Options (thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2010	866		$	6.72
Granted	93		3.09
Forfeited	(55	)	6.33
Cancelled	(78	)	8.82
Exercised	(87	)	1.11
Outstanding at December 31, 2011	739		6.72
Granted	100		1.49
Forfeited	(33	)	5.11
Cancelled	(14	)	10.65
Exercised	—		—
Outstanding at December 31, 2012	792		6.06
Exercisable at December 31, 2012	519		$	7.20

As of December 31, 2012, the weighted average remaining contractual life of the options outstanding was 6.4 years and the weighted average remaining contractual life of the outstanding exercisable options was 5.4 years.

The following table summarizes information concerning outstanding and exercisable options at December 31, 2012:

(in thousands)	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Outstanding Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
Under $1.00	58	2.3	$	0.93	58	$	0.93
$1.00 - $2.00	104	9.7	$	1.48	2	$	1.53
$2.01 - $3.00	50	8.6	$	2.19	21	$	2.19
$3.01 - $4.00	1	8.6	$	3.72	—	$	3.72
$4.01 - $5.00	116	7.8	$	4.31	59	$	4.31
$5.01 - $6.00	162	5.0	$	5.54	156	$	5.55
$6.01 - $7.00	119	7.2	$	6.13	49	$	6.15
Greater than $7.01	182	5.2	$	12.94	174	$	12.72

The total intrinsic value of options outstanding at December 31, 2012 and 2011 was approximately $30,000 and $21,000, respectively.  The total intrinsic value of the options that are exercisable at December 31, 2012 and 2011 was approximately $29,000 and $21,000, respectively. No options were exercised during the year ended December 31, 2012. The total intrinsic value of options exercised during the year ended December 31, 2011 was approximately $127,000.

Compensation expense related to non-qualified stock options charged to operations during 2012 was approximately $350,000. As of December 31, 2012, there was approximately $498,000 of total unrecognized compensation cost related to non-vested non-qualified stock options granted under the plan.  The cost is expected to be recognized over a weighted average period of 3.2 years.

Restricted Stock Units

Under the 2009 Plan, the Company issued restricted stock units (“RSUs”) to certain employees and the Board of Directors during the twelve months ended December 31, 2009.  As RSUs vest, they are convertible into shares of the Company’s common stock.  The RSUs are valued at the market price of the Company’s stock on the measurement date, which is the date of grant. Compensation expense is recognized ratably over the vesting period.  Our future estimated forfeiture rate on RSUs is 0% as the RSUs have been awarded primarily to members of our Board of Directors and members of senior management of the Company. No RSUs were issued during the twelve months ended December 31, 2012 and 2011.

A summary of RSU activity is as follows:

	RSUs		Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2010	29		$	21.21
Forfeited	(6	)	$	5.58
Converted to common stock	(17	)	$	11.61
Outstanding at December 31, 2011	6		$	21.45
Forfeited	—		$	—
Converted to common stock	(2	)	$	21.53
Outstanding at December 31, 2012	4		$	21.40
Vested and convertible to common stock at December 31, 2012	4		$	21.06

Compensation expense related to RSUs charged to operations during 2012 and 2011 was approximately $37,000 and $108,000, respectively. As of December 31, 2012, there was approximately $49,000 of total unrecognized compensation cost related to non-vested RSUs granted under the plan. The cost is expected to be recognized over a weighted average period of 1.3 years.

Shares of common stock and common stock equivalents, along with earnings per share and other per share amounts, have been retroactively restated to reflect the 1-for-3 reverse stock split that occurred on September 4, 2012 for all periods presented.

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Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill Impairment and Intangible Assets

Goodwill

The Company initiated an interim goodwill impairment analysis as of September 30, 2011. The Company concluded that impairment indicators existed based upon, among other things, the decline in market capitalization, revenue declines of the Company's two most significant client accounts and operating results for the nine months ended September 30, 2011, which required the performance of an interim impairment test. As a result, the Company recognized a non-cash goodwill impairment charge of $4.4 million as of September 30, 2011, representing the entire balance of goodwill. The Company subsequently finalized its analysis with no change to the preliminary results. In addition, the Company also reviewed the carrying value of intangible assets, which is limited to our ancillary provider network and property and equipment, to determine if impairment exists. Based on this analysis, the Company concluded that no impairment of the ancillary provider network or property and equipment existed as of September 30, 2011. A deferred tax benefit of $1.5 million was recognized as of September 30, 2011 as a result of the total amount of estimated impairment charges, but a valuation allowance was immediately provided.

The impairment was indicated as a result of the decline in the Company's stock price which the Company believes was caused by the continued declines in revenue and claims volume from the Company's two most significant clients and the expectation of significantly diminishing revenue from at least one of these clients. The impairment did not impact cash flows.

Intangibles

The ancillary provider network is being amortized using the straight-line method over their expected useful lives of 15 years.  Experience to date is that approximately 2-8% annual turnover or attrition of provider contracts occurs each year.  The ancillary provider network is being accounted for on a pooled basis and the actual cancellation rates of provider contracts that were acquired are monitored for potential impairment or amortization adjustment, if warranted.  We have performed an impairment assessment based on projected future cash flows and determined no impairment exists as of December 31, 2012 and 2011.The cost of adding additional providers is considered an ongoing operating expense, and is captured on the Statement of Operations under "Claims administration and provider development".

The following is a summary of our intangible assets as of December 31 for the years presented: 

	2012			2011
Ancillary provider network	$	1,921		$	1,921
Software	428			428
	2,349			2,349
Accumulated amortization	(1,581		)	(1,453		)
Intangibles, net	$	768		$	896

The capitalized value of the ancillary provider network that was acquired in the 2003 acquisition of the assets of our predecessor, American CareSource Corporation by Patient Infosystems (now CareGuide, Inc.), our former parent corporation. Amortization expense was approximately $128,000 for each of the years ended December 31, 2012 and 2011.  Amortization expense is estimated at $128,000 per year through 2018.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

The Company leases office space under a non-cancelable lease agreement, which expires in March 2013. Additionally the Company leases certain equipment under non-cancelable lease agreements, which expire at various dates through May 2015.

At December 31, 2012 minimum annual lease payments for operating leases are approximately as follows:

	Operating Leases
2013	$	126
2014	32
2015	7
Total minimum lease payments	$	165

Expense related to operating leases was approximately $318,000 and $347,000 for the years ended December 31, 2012 and 2011, respectively.

In January 2013, the Company executed an extension of its existing lease agreement for a term of 24-months, expiring on March 31, 2015. In addition to the extension of the lease term, the annual cost per square foot was reduced to $18.50. Rent expense related to the lease extension will be $228,000 in 2013, $304,000 in 2014 and $76,000 in 2015, which is not included in the table above.

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Stock Warrants

12 Months Ended

Dec. 31, 2012

Warrants [Abstract]

Warrants

Stock Warrants

On July 2, 2007, the Company announced that it had signed an Ancillary Care Services Network Access Agreement (the “Ancillary Care Services Agreement”) effective as of May 21, 2007 (the “Effective Date”) with a new client, Texas True Choice, Inc. (“Texas True Choice”), a Texas-based preferred provider organization network, and certain subsidiaries of Texas True Choice. As partial compensation to Texas True Choice under the Ancillary Care Services Agreement, the Company issued to Corporate Health Plans of America, Inc., an affiliate of Texas True Choice, warrants to purchase a total of 75,000 shares of the Company’s common stock at an exercise price of $5.52, the closing price of the common stock of the Company as reported on the American Stock Exchange on the Effective Date. The Company valued the warrants when various measurement dates had been reached under the agreement.  Utilizing the Black-Scholes Merton valuation method, 37,500 warrants were valued at $2.82 in 2007, 18,750 warrants were valued at $8.61 at June 2008 and the remaining 18,750 were valued at $16.59 in June 2009.

These warrants vested 25% on the Effective Date, an additional 25% on each anniversary date of the Effective Date, and had an expiration date of May 20, 2012.

The Company entered into an agreement as of February 25, 2011 with an employee, whereby the Company agreed to issue warrants to purchase 83,333 shares of common stock with an exercise price of $5.01. The warrants have a term of 5 years and vest in increments over a time period of 2 years depending on the achievement of defined, agreed upon revenue targets generated by new clients. The agreement also obligates the Company to issue warrants to purchase up to an additional 166,666 shares of common stock (issued in 83,333 increments) pursuant to the achievement of additional defined agreed upon revenue targets. During the twelve months ended December 31, 2011, we did not recognize compensation costs associated with these warrants due to the low probability of vesting.

On February 1, 2012, certain terms of the agreement were modified, including the revenue targets and the total number of shares under the initial and future warrants. The warrants initially granted now cover 44,444 shares to be purchased at an exercise price of $1.50, 22,222 of which vested immediately, and the remaining 22,222 shares vesting upon the achievement of certain revenue targets. The number of shares underlying warrants to be issued under the agreement in the future was reduced to 88,889 shares (issued in 44,444 increments) based upon the achievement of additional defined agreed upon revenue targets.

During the twelve months ended December 31, 2012, we recognized compensation costs of approximately $21,000 associated with the initial vesting of 22,222 shares. Additional costs associated with the warrants will be recognized based on the probability that the revenue targets will be reached. That probability will be re-evaluated and updated based on current market conditions, on a quarterly basis, and compensation costs will be adjusted accordingly.

A summary of stock warrant activity is as follows:

	Outstanding Warrants (thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2010	108		$	8.88
Granted	83		$	5.01
Cancelled	(33	)	$	16.53
Outstanding at December 31, 2011	158		$	5.25
Granted	—		nm
Cancelled or expired	(114	)	$	4.15
Outstanding at December 31, 2012	44		$	1.50
Vested at December 31, 2012	22		$	1.50

Shares of common stock and common stock equivalents, along with earnings per share and other per share amounts, have been retroactively restated to reflect the 1-for-3 reverse stock split that occurred on September 4, 2012 for all periods presented.

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 4,351	$ 3,837
Accumulated depreciation and amortization	(2,758)	(2,008)
Property and equipment, net	1,593	1,829
Depreciation	750	664
Software - internally development
Property, Plant and Equipment [Line Items]
Useful Lives (years)	5 years
Property and equipment, gross	2,582	2,177
Amortization of capitalized software	437	330
Software - purchased
Property, Plant and Equipment [Line Items]
Property and equipment, gross	614	592
Computer equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	594	507
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Useful Lives (years)	5 years
Property and equipment, gross	356	356
Leasehold improvements
Property, Plant and Equipment [Line Items]
Useful Lives (years)	7 years
Property and equipment, gross	$ 205	$ 205
Minimum | Software - purchased
Property, Plant and Equipment [Line Items]
Useful Lives (years)	3 years
Minimum | Computer equipment
Property, Plant and Equipment [Line Items]
Useful Lives (years)	3 years
Maximum | Software - purchased
Property, Plant and Equipment [Line Items]
Useful Lives (years)	5 years
Maximum | Computer equipment
Property, Plant and Equipment [Line Items]
Useful Lives (years)	5 years

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Employee Benefit Plans (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Maximum annual employee contribution, as a percentage	100.00%
Employer matching contribution, as a percentage	3.50%
Contribution cost recognized	$ 107,000	$ 120,000

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its one wholly-owned subsidiary, Ancillary Care Services, Inc.  All material intercompany accounts and transactions are eliminated in consolidation.  Certain prior year amounts have been reclassified within the consolidated statement of operations, consolidated balance sheet, and consolidated statement of cash flow to conform to the current year presentation.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include amounts in deposit accounts in excess of federally insured limits of $250,000.  The Company has not experienced any losses in such accounts.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue on the services that it provides, which includes (i) providing payor clients with a comprehensive network of ancillary healthcare providers, (ii) providing claims management, reporting, processing and payment services, (iii) providing network/need analysis to assess the benefits to payor clients of adding additional/different service providers to the client-specific provider networks and (iv) providing credentialing of network services providers for inclusion in the client payor-specific provider networks.  Revenue is recognized when services are delivered, which occurs after processed claims are billed to the client payors and collections are reasonably assured.  The Company estimates revenues and costs of revenues using average historical collection rates and average historical margins earned on claims.  Periodically, revenues are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected.

The Company determines whether it is acting as a principal or agent in the fulfillment of the services rendered.  After careful evaluation of the key gross and net revenue recognition indicators, the Company acknowledges that while the determination of gross versus net reporting is highly judgmental in nature, the Company has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

Following are the key indicators that support the Company’s conclusion that it acts as a principal when settling claims for service providers through its contracted service provider network:

• The Company is the primary obligor in the arrangement.  The Company has assessed its role as primary obligor as a strong indicator of gross reporting.  The Company believes that it is the primary obligor in its transactions because it is responsible for providing the services desired by its client payors.  The Company has distinct, separately negotiated contractual relationships with its client payors and with the ancillary health care providers in its networks.  The Company does not negotiate “on behalf of” its client payors and does not hold itself out as the agent of the client payors when negotiating the terms of the Company’s ancillary healthcare service provider agreements.  The Company’s agreements contractually prohibit client payors and service providers to enter into direct contractual relationships with one another.  The client payors have no control over the terms of the Company’s agreements with the service providers.  In executing transactions, the Company assumes key performance-related risks.  The client payors hold the Company responsible for fulfillment, as the provider, of all of the services the client payors are entitled to under their contracts; client payors do not look to the service providers for fulfillment.  In addition, the Company bears the pricing/margin risk as the principal in the transactions.  Because the contracts with the client payors and service providers are separately negotiated, the Company has complete discretion in negotiating both the prices it charges its client payors and the financial terms of its agreements with the service providers.  Since the Company’s profit is the spread between the amounts received from the client payors and the amount paid to the service providers, it bears significant pricing/margin risk.  There is no guaranteed mark-up payable to the Company on the amount the Company has contracted.  Thus, the Company bears the risk that amounts paid to the service provider will be greater than the amounts received from the client payors, resulting in a loss or negative claim.

• The Company has latitude in establishing pricing.  As stated above, the Company has complete latitude in negotiating the price to be paid to the Company by each client payor and the price to be paid to each contracted service provider.  This type of pricing latitude indicates that the Company has the risks and rewards normally attributed to a principal in the transactions.

• The Company changes the product or performs part of the services.  The Company provides the benefits associated with the relationships it builds with the client payors and the services providers.  While the parties could deal with each other directly, the client payors would not have the benefit of the Company’s experience and expertise in assembling a comprehensive network of service providers, in claims management, reporting and processing and payment services, in performing network/needs analysis to assess the benefits to client payors of adding additional/different service providers to the client payor-specific provider networks, and in credentialing network service providers.

• The Company has discretion in supplier selection.  The Company has complete discretion in supplier selection.  One of the key factors considered by client payors who engage the Company is to have the Company undertake the responsibility for identifying, qualifying, contracting with and managing the relationships with the ancillary healthcare service providers.  As part of the contractual arrangement between the Company and its client payors, the payors identify their obligations to their respective covered persons and then work with the Company to determine the types of ancillary healthcare services required in order for the payors to meet their obligations.  The Company may select the providers and contract with them to provide services at its discretion.

• The Company is involved in the determination of product or service specifications.  The Company works with its client payors to determine the types of ancillary healthcare services required in order for the payors to meet their obligations to their respective covered persons.  In some respects, the Company is customizing the product through its efforts and ability to assemble a comprehensive network of providers for its payors that is tailored to each payor’s specific needs.  In addition, as part of its claims processing and payment services, the Company works with the client payors, on the one hand, and the providers, on the other, to set claims review, management and payment specifications.

• The supplier (and not the Company) has credit risk.  The Company believes it has some level of credit risk, but that risk is mitigated because the Company does not remit payment to providers unless and until it has received payment from the relevant client payors following the Company’s processing of a claim.

• The amount that the Company earns is not fixed.  The Company does not earn a fixed amount per transaction nor does it realize a per-person per-month charge for its services.

The Company has evaluated the other indicators of gross and net revenue recognition, including whether or not the Company has general inventory risk.  The Company does not have any general inventory risk, as its business is not related to the manufacture, purchase or delivery of goods and it does not purchase in advance any of the services to be provided by the ancillary healthcare service providers.  While the absence of this risk would be one indicator in support of net revenue reporting, as described in detail above, the Company has carefully evaluated all of the key gross and net revenue recognition indicators and has concluded that its circumstances are most consistent with those key indicators that support gross revenue reporting.

If the Company were to report its revenues net of provider payments rather than on a gross reporting basis, for the years ended December 31, 2012 and 2011, its net revenues would have been $9.2 million and $11.3 million, respectively.

The Company records a provision for refunds based on an estimate of historical refund amounts. Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payments made to the ancillary service provider if the claim has been fully resolved. The evaluation is performed periodically and is based on historical data. We present revenue net of the provision for refunds on the consolidated statements of operations.

Provider Payments

Provider Payments

Payments to providers is the largest component of our cost of revenues and it consists of our payments for ancillary care services in accordance with contracts negotiated with providers for specific ancillary services, separately from contracts negotiated with our clients.

Use of Estimates

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.

Property and Equipment

Property and Equipment

Property and equipment are recorded at original cost and increased by the cost of any significant improvements subsequent to purchase.  The Company expenses repairs and maintenance as incurred.  Depreciation and amortization is calculated using the straight-line method over the shorter of the asset’s estimated useful life or the term of the lease in the case of leasehold improvements.  The Company capitalizes costs associated with software developed for internal use.

Research and Development

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences”.  The Company records the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the statements of operations).  The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled.  A valuation allowance is established to reduce deferred tax assets considered to be more likely than not that the deferred tax assets will not be realized.

Stock Compensation

Stock Compensation

The Company records all stock-based payments to employees in the consolidated financial statements based on their estimated fair values as of the measurement date of the respective awards.  Additional information about the Company’s stock-based payment plan is presented in Note 9.

Segment and Related Information

Segment and Related Information

The Company uses the “management approach” for reporting information about segments in its annual and interim financial statements.  The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company.  Based on the “management approach” model, the Company determined that the business is comprised of a single operating segment.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities.  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. 

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Annual Lease Payments for Operating Leases

At December 31, 2012 minimum annual lease payments for operating leases are approximately as follows:

	Operating Leases
2013	$	126
2014	32
2015	7
Total minimum lease payments	$	165

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Earnings (Loss) Per Share (Details)	12 Months Ended
	Dec. 31, 2012
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from calculation of earnings per share	792,000
Stock warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from calculation of earnings per share	44,400
Restricted Stock Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from calculation of earnings per share	3,400

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Feb. 28, 2013 Subsequent Event
Operating Leased Assets [Line Items]
2013	$ 126		$ 228
2014	32		304
2015	7		76
Total minimum lease payments	165
Operating lease expense	$ 318	$ 347
Extension of lease term			24 months
Cost per square foot			18.50

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Consolidated Statement of Stockholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit
Balance at Dec. 31, 2010	$ 20,786	$ 56	$ 21,715	$ (985)
Balance, shares at Dec. 31, 2010		5,641,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(7,237)	0	0	(7,237)
Stock-based compensation expense	738	0	738	0
Issuance of common stock upon conversion of restricted stock units, net of tax withholdings	(38)	1	(39)	0
Issuance of common stock upon conversion of restricted stock units, net of tax withholdings, shares		51,000
Balance at Dec. 31, 2011	14,249	57	22,414	(8,222)
Balance, shares at Dec. 31, 2011	5,692,000	5,692,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(3,091)	0	0	(3,091)
Stock-based compensation expense	408	0	408	0
Issuance of common stock as equity incentive awards, net of tax withholdings	23	0	23	0
Issuance of common stock as equity incentive awards, net of tax withholdings, shares		13,000
Issuance of common stock upon conversion of restricted stock units, net of tax withholdings	0	0	0	0
Issuance of common stock upon conversion of restricted stock units, net of tax withholdings, shares		1,000
Balance at Dec. 31, 2012	$ 11,589
Balance, shares at Dec. 31, 2012	5,706,439

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Allowance for Uncollectable Receivables and Refunds

12 Months Ended

Dec. 31, 2012

Receivables [Abstract]

Allowance for Uncollectable Receivables and Refunds

Allowance for Uncollectable Receivables and Refunds

The Company maintains an allowance for uncollectable receivables which primarily relates to payor refunds.  Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payment made to the ancillary service provider if the claim has been fully resolved. Co-payments, deductibles and co-insurance payments can also impact the collectability of claims.  While the Company is able to process a claim and estimate the cash it will receive from the payor for that claim, the presence of co-pays, deductibles and co-insurance payments can affect the ultimate collectability of the claim.  The Company records an allowance against revenue to better estimate collectability.   Provisions for refunds recorded, netted against receivables, were approximately $276,000 and $622,000 for the years ended December 31, 2012 and 2011, respectively. The allowance was approximately $307,000 and $237,000 at December 31, 2012 and 2011, respectively.

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of valuation assumptions

	2012			2011
Weighted average grant date fair value	$	1.01		$	1.89
Weighted average assumptions used
Expected volatility	77.7		%	66.9		%
Expected lives (years)	6.2			6.1
Risk free interest rate	1.0		%	1.6		%
Forfeiture rate	20.5		%	20.5		%
Dividend rate	—			—

Summary of stock option activity

A summary of stock option activity is as follows:

	Options (thousands)		Weighted-Average Exercise Price
Outstanding at December 31, 2010	866		$	6.72
Granted	93		3.09
Forfeited	(55	)	6.33
Cancelled	(78	)	8.82
Exercised	(87	)	1.11
Outstanding at December 31, 2011	739		6.72
Granted	100		1.49
Forfeited	(33	)	5.11
Cancelled	(14	)	10.65
Exercised	—		—
Outstanding at December 31, 2012	792		6.06
Exercisable at December 31, 2012	519		$	7.20

Summary of outstanding and exercisable options

The following table summarizes information concerning outstanding and exercisable options at December 31, 2012:

(in thousands)	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Outstanding Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
Under $1.00	58	2.3	$	0.93	58	$	0.93
$1.00 - $2.00	104	9.7	$	1.48	2	$	1.53
$2.01 - $3.00	50	8.6	$	2.19	21	$	2.19
$3.01 - $4.00	1	8.6	$	3.72	—	$	3.72
$4.01 - $5.00	116	7.8	$	4.31	59	$	4.31
$5.01 - $6.00	162	5.0	$	5.54	156	$	5.55
$6.01 - $7.00	119	7.2	$	6.13	49	$	6.15
Greater than $7.01	182	5.2	$	12.94	174	$	12.72

Summary of restricted stock options activity

A summary of RSU activity is as follows:

	RSUs		Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2010	29		$	21.21
Forfeited	(6	)	$	5.58
Converted to common stock	(17	)	$	11.61
Outstanding at December 31, 2011	6		$	21.45
Forfeited	—		$	—
Converted to common stock	(2	)	$	21.53
Outstanding at December 31, 2012	4		$	21.40
Vested and convertible to common stock at December 31, 2012	4		$	21.06

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Income Taxes (Income Tax Provision) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Current income tax provision (benefit)	$ 27	$ 30
Deferred income tax provision (benefit)	4	614
Total income tax provision	$ 31	$ 644

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Quarterly Financial Information

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information

Quarterly Financial Information (unaudited)

The following table contains selected financial information from unaudited statements of operations for each quarter of 2012 and 2011.

	Quarters Ended
	2012												2011
	Dec. 31			Sept. 30			June 30			Mar. 31			Dec. 31		Sept. 30			June 30			Mar. 31
Net revenues	$	9,100		$	8,186		$	8,215		$	9,401		$	13,025	$	11,496		$	11,308		$	13,077
Contribution margin	1,334			805			864			1,108			1,590		722			779			1,427
Contribution margin %	14.7			9.8			10.5			11.8			12.2		6.3			6.9			10.9
Income (loss) before income taxes	(626		)	(1,071		)	(812		)	(551		)	150		(5,554		)	(965		)	(224		)
Net income (loss)	(629		)	(1,075		)	(829		)	(558		)	153		(6,523		)	(645		)	(222		)
Earnings (loss) per diluted share	(0.11		)	(0.19		)	(0.14		)	(0.10		)	0.03		(1.15		)	(0.12		)	(0.04		)
Shares used in computing diluted earnings (loss) per share	5,711			5,711			5,710			5,696			5,716		5,670			5,654			5,654