UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-30099

Alliance HealthCard, Inc.

(Exact name of registrant as specified in its charter)

GEORGIA (State or other jurisdiction of incorporation or organization)		58-2445301 (I.R.S. Employer Identification No.)

900 36^th Avenue, Suite 105, Norman, OK 73072
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (405) 579-8525

3500 Parkway Lane, Suite 720, Norcross, Georgia 30092
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 o No þ

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the Registrant’s common stock as of the latest practicable date was:

Class		Outstanding at August 13, 2009
Common Stock, $.001 par value		21,633,705

 

 

INDEX

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2009 and September 30, 2008			3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2009 and 2008			4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2009 and 2008			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27
Item 4T. Controls and Procedures			27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3. Defaults Upon Senior Securities			35
Item 4. Submission of Matters to a Vote of Security Holders			35
Item 5. Other Information			35
Item 6. Exhibits			35
Signatures			35
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Alliance HealthCard, Inc.

						September 30,
						2008
		June 30,				(Derived From
		2009				Audited
		(Unaudited)				Statements)
Assets
Current assets:
Cash and cash equivalents		$	4,357,984			$	3,012,683
Restricted cash			499,136				156,935
Accounts receivable, net			4,000,077				2,486,938
Advanced agency commissions, net			6,890,619				—
Prepaid expenses			57,995				31,372
Total current assets			15,805,811				5,687,928
Furniture and equipment, net			410,175				165,020
Goodwill			4,198,783				2,534,152
Other intangible assets, net			4,228,024				1,708,883
Deferred income taxes and other			2,000,738				427,604
Total assets		$	26,643,531			$	10,523,587
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	762,067			$	927,101
Income taxes payable			487,532				—
Accrued salaries and benefits			186,873				161,732
Accrued commissions			867,674				—
Unearned commissions			6,202,812				—
Claims liability			1,155,500				462,596
Deferred revenue			1,067,078				843,868
Current portion notes payable			2,166,840				2,289,663
Liability for unrecognized tax benefit			166,000				166,000
Other accrued liabilities			2,939,234				1,468,349
Total current liabilities			16,001,610				6,319,309
Long term liabilities:
Notes payable, net of discount and current portion shown above			448,420				931,581
Total liabilities			16,450,030				7,250,890
Stockholders’ equity:
Common stock, $.001 par value; 100,000,000 shares authorized; 21,633,705 and 14,833,127, shares issued and outstanding at June 30, 2009 and September 30, 2008, respectively			21,633				14,833
Additional paid-in-capital			11,574,922				6,808,721
Retained deficit			( 1,403,054	)			(3,550,857	)
Total stockholders’ equity			10,193,501				3,272,697
Total liabilities and stockholders’ equity		$	26,643,531			$	10,523,587

See the accompanying notes to the condensed consolidated financial statements.

Alliance HealthCard, Inc.

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Net revenues		$	13,959,723			$	5,366,253			$	25,513,887			$	15,421,698
Direct costs			9,810,677				2,871,701				16,785,449				8,296,110
Gross profit			4,149,046				2,494,552				8,728,438				7,125,588
Marketing and sales expenses			573,321				306,552				1,169,800				934,330
General and administrative expenses			2,042,799				755,997				3,868,891				2,328,592
Depreciation and amortization			276,180				138,222				554,087				412,502
Operating income			1,256,746				1,293,781				3,135,660				3,450,164
Other income (expense):
Other income			346,775				—				346,775				163,951
Interest income			3,707				19,477				11,466				44,844
Interest (expense)			(47,111	)			(54,733	)			(141,479	)			(167,458	)
Total other income (expense):			303,371				(35,256	)			216,762				41,337
Income before income taxes			1,560,117				1,258,525				3,352,422				3,491,501
Deferred income tax benefit			—				—				(175,000	)			—
Income taxes			697,652				728,272				1,379,619				1,596,493
Net income		$	862,465			$	530,253			$	2,147,803			$	1,895,008
Per share data:
Basic		$	0.04			$	0.04			$	0.13			$	0.13
Diluted		$	0.04			$	0.04			$	0.13			$	0.12
Basic weighted average shares outstanding			21,633,705				14,833,127				16,528,614				14,760,056
Basic weighted diluted average shares outstanding			21,636,384				15,123,908				16,533,690				15,250,551

See the accompanying notes to the condensed consolidated financial statements.

Alliance HealthCard, Inc.

		Nine Months Ended
		June 30,
		2009				2008
Cash flows from operating activities
Net income		$	2,147,803			$	1,895,008
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax benefit			(175,000	)			13,272
Depreciation and amortization			554,087				412,502
Amortization of loan discount to interest expense			115,927				120,149
Allowances for commissions and other doubtful accounts			82,033				—
Stock option expenses			13,000				18,470
Change in operating assets and liabilities:
Receivables			(120,391	)			(322,665	)
Advanced agency commissions			(49,089	)			—
Prepaid expenses and other assets			(19,307	)			1,811
Accounts payable			(597,511	)			(214,072	)
Income taxes payable			371,385
Accrued salaries and benefits			25,141				20,387
Accrued commissions			282,693				—
Unearned commissions			63,431				—
Deferred revenue			(42,343	)			(52,909	)
Claims and other accrued liabilities			207,788				720,104
Net cash provided by operating activities			2,859,647				2,612,057
Cash flows from investing activities
Cash received from acquisition			450,213				—
Increase in restricted short-term investments			673				—
Investment in LLC			(100,000	)			—
Purchase of equipment			(29,381	)			(77,097	)
Net cash provided by (used in) investing activities			321,505				(77,097	)
Cash flows from financing activities
Repayments of long term debt			(1,835,851	)			(1,736,130	)
Repayment of line of credit			—				(149,980	)
Stock options exercised			—				112,870
Net cash (used in) financing activities			(1,835,851	)			(1,773,240	)
Net increase (decrease) in cash			1,345,301				761,720
Cash at beginning of period			3,012,683				2,274,411
Cash at end of period		$	4,357,984			$	3,036,131

See the accompanying notes to the condensed consolidated financial statements.

ALLIANCE HEALTHCARD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009 AND 2008

(UNAUDITED)

NOTE 1 — NATURE OF BUSINESS

Alliance HealthCard, Inc. (the “Company”) develops and distributes consumer membership plans and consumer driven healthcare programs.

The Company’s operations are currently organized under three business segments:

•

Wholesale Plans — plan offerings are customized membership marketing plans primarily offered at rent-to-own retail stores.

•

Retail Plans — plan offerings are primarily healthcare savings plans. These plans are not insurance, but allow members access to a variety of healthcare networks to obtain discounts from usual and customary fees.

•

Insurance Marketing Division — markets individual major medical health insurance and other insurance products through a national network of independent agents.

NOTE 2 — BASIS OF PRESENTATION

The following unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest shareholders’ annual report on Form 10K.

All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by Regulation S-X, Rule 10-01. All such adjustments made during the nine months ended June 30, 2009 and 2008 are of a normal, recurring nature.

We have evaluated subsequent events through the date the consolidated condensed financial statements were issued on August 14, 2009.

RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS

In September 2006, Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies other accounting pronouncements that require or permit fair value measurements. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS 157 are effective for the fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 on October 1, 2008 without a material impact on our consolidated financial statements.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities that permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on October 1, 2008 without a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which replaces FASB Statement No. 141 (“SFAS 141R”). SFAS 141R established principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree, and the goodwill acquired. SFAS 141R also established disclosure requirements that enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008 (the Company’s 2010 fiscal year). SFAS 141R will have an effect on the Company’s consolidated financial statements for any business combinations that it may consummate during the Company’s fiscal 2010 and thereafter.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principle that identifies the sources of generally accepted accounting principles in the United States. SFAS162 is effective 60 days following the United States Securities and Exchange Commission’s approval of Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of “Present fairly in conformity with generally accepted accounting principles”. SFAS 162 became effective on November 15, 2008. The adoption of SFAS 162 did not have a material effect on the Company’s reported financial position or results of operations.

In April 2009, the FASB issued Staff Position No. 107-1 which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This Staff Position also amends APB 28 to require those disclosures in summarized financial reporting at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009. The adoption of FSP 107-1 as of June 30, 2009 did not have a material effect on the Company’s future reported financial position or results of operations.

In April 2009, FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP SFAS 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. FSP SFAS 157-4 requires an entity to base its conclusions about whether a transaction was not orderly on the weight of the evidence. FSP SFAS 157-4 also amended SFAS 157, Fair Value Measurements, to expand certain disclosure requirements. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, and fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and shall be applied prospectively. Adoption of this FSP SFAS 157-4 as of June 30, 2009 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2, FAS 124-2, and EITF 99-20-2”). FSP FAS 115-2, FAS 124-2, and EITF 99-20-2 provide additional guidance to provide greater clarity about the credit and noncredit component of an- other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. This FSP applies to debt securities. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Adoption of these standards is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2009, the FASB issued SFAS 165, Subsequent Events. SFAS 165 provides guidance on management’s assessment of subsequent events. SFAS 165 clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date “through the date that the financial statements are issued or are available to be issued”. Management must perform its assessment for both interim and annual financial reporting periods and disclose the date through which an entity has evaluated subsequent events and the basis for that date. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The Company has included this disclosure in this filing (see note 2).

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 , which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008 (the Company’s 2010 fiscal year). The adoption of SFAS 160 is not expected to have a material effect on the Company’s future reported financial position or results of operations.

In March 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” as an amendment to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 161 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of SFAS 161 is not expected to have a material effect on the Company’s future reported financial position or results of operations.

In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts, an Interpretation of FASB Statement No. 60 (“SFAS 163”). The scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance) contracts, as described in SFAS 163, issued by enterprises included within the scope of FASB Statement 60. Accordingly, SFAS 163 does not apply to financial guarantee contracts issued by enterprises excluded from the scope of FASB Statement 60 or to some insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). SFAS 163 also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The adoption of FAS 163 is not expected to have a material effect on the Company’s future reported financial position or results of operations. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and all interim periods within those fiscal years.

In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles. SFAS 168 establishes the FASB Accounting Standards Codification TM (Codification) as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS 162. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Adoption of SFAS 168 is not expected to have a material impact on the Company’s financial statements.

NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES

Accounts Receivable and Credit Policies

Accounts receivable are recorded net of the allowance for doubtful accounts established to provide for losses on uncollectible accounts based on management’s estimates and historical collection experience. The allowance for doubtful accounts was $159,452 and $5,632 respectively at June 30, 2009 and September 30, 2008. We recorded bad debt expense of $12,034 for the quarter ended June 30, 2009.

Advanced Agent Commissions

For our Insurance Marketing division, the allowance for doubtful recoveries is determined based primarily upon estimates of the future commissions expected to be earned by the insurance agents to whom advances are outstanding and, where applicable, the agents responsible for the management of those agents. The allowance for doubtful recoveries was $1,501,860 at June 30, 2009. If estimates of the future commissions to be earned are less than insurance agents’ outstanding balance, an allowance for doubtful recoveries is established. The Company recognized bad debt expense on advanced agent commissions of $70,000 during the quarter ended at June 30, 2009.

The allowance for doubtful recoveries reflects significant judgment regarding the estimates used in the determination of the allowance. Accordingly, subsequent actual results may differ from the assumptions and estimates incorporated into the analysis at June 30, 2009.

Revenue Recognition

The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition, corrected copy” which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and, (4) collectability is reasonably assured.

Our revenue recognition varies based on source.

Wholesale and Retail Plans — membership fees are paid to the Company on a weekly, monthly or annual basis and fees paid in advance are recorded as deferred revenue and recognized monthly over the applicable membership term.

Insurance Marketing — revenue reflects commissions and fees reported to us by insurance companies for policies sold by the division’s agents. Commissions and fees collected are recognized as earned on a monthly basis until such time as the underlying contract is reported to the division as terminated. Revenue also includes interest income earned on commissions advanced to the division’s agents.

Unearned commissions comprise commission advances received from insurance carriers but not yet earned. Additionally, enrollment fees received are recorded as deferred revenue and amortized over the expected weighted average life of the policies sold which currently approximates eighteen months. Deferred revenue is reported net of related policy acquisition costs, principally lead and marketing credits, which are capitalized and amortized over the same weighted average life, to the extent such deferred costs do not exceed the related gross deferred revenue. Any excess costs are expensed as incurred.

Commission Expense

Commission expense is based on the applicable rates applied to membership revenues billed, or insurance commissions collected, and are recognized as incurred on a monthly basis until such time as the underlying program member or insurance policy is terminated.

The Insurance Marketing division advances agent commissions, up to nine months, for certain insurance programs. Collection of the commissions advanced (plus accrued interest) is accomplished by withholding amounts earned by the agent on the policy upon which the advance was made. In the event of early termination of the underlying policy, the division seeks to recover the unpaid advance balance by withholding advanced and earned commissions on other policies sold by the agent. The division also has the contractual right to pursue other sources of recovery, including recovery from the agents managing the agent to whom advances were made.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash on deposit or cash investments purchased with original maturities of three months or less.

Restricted Short-Term Investments

Restricted short term investments represent investments with original maturities of one year or less pledged to obtain bonds for regulatory licenses and processing and collection arrangements for credit card and automated clearing house payments.

Investment in LLC

In accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, the Company follows the cost method for all investments in non controlled entities. The cost method requires the investment to be recorded at cost plus any related guaranteed debt or other contingency. Any earnings are recorded in the period received.

NOTE 4 — MERGERS AND ACQUISITIONS

On April 1, 2009, the Company completed its acquisition of Access Plans USA, Inc., (“Access Plans”). Access Plans markets health insurance and develops and distributes consumer driven discount plans on a variety of health related services such as medical, dental, pharmacy and vision care and manages its own proprietary dental and vision networks.

The Company issued 6,800,578 shares of its common stock in exchange for the outstanding common stock of Access Plans USA.

The allocation of the acquisition cost between assets acquired, liabilities assumed and intangibles has been performed and recorded using estimates based on the best information available at the time of allocation. For example, a significant estimate relates to the collectability of advanced agency commissions and therefore the allocation presented herein may change during the allocation period as more precise information becomes available. The allocation period is defined by SFAS 141 as a period not to exceed one year from the consummation of a business combination. The following table presents the initial allocation of the acquisition costs to the fair values of the assets acquired and the liabilities assumed:

Current assets		$	9,086,216
Property and equipment			289,000
Other assets			1,345,254
Intangible assets			3,000,000
Goodwill			1,664,631
Total assets acquired			15,385,101
Current liabilities assumed			9,887,746
Long-term liabilities assumed			728,855
Total liabilities assumed			10,616,601
Net assets acquired		$	4,768,500

The following un-audited pro forma consolidated results of operations have been prepared as if the acquisition of Access Plans USA, Inc. had occurred on October 1, 2008.

		Nine Months
		Ended June 30,
Statement of Operations Data:
Total revenue		$	24,428,743
Operating income			(1,219,335	)
Net income			(1,164,697	)
Diluted earnings per share		$	(0.07	)
Weighted average number of diluted common shares outstanding			16,533,690

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

The Company accounts for recorded goodwill and other intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). In accordance with SFAS 142, the Company does not amortize goodwill. Management evaluates goodwill for impairment for each reporting period. If considered impaired goodwill will be written down to fair value and a corresponding impairment loss recognized. The Company has recorded $3,000,000 for intangible assets and $1,664,631 for goodwill in connection with the acquisition consummated on April 1, 2009.

NOTE 5 — GOODWILL AND INTANGIBLE ASSETS

The Company accounts for acquisitions of businesses in accordance with SFAS No. 141, Business Combinations (“SFAS 141”). Goodwill in such acquisitions represents the excess of the cost of a business acquired over the net of the amounts assigned to assets acquired, including identifiable intangible assets and liabilities assumed. SFAS 141 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates. Customer lists and other intangible assets acquired in an acquisition are capitalized and amortized over the estimated useful lives of the customer lists.

Intangible assets acquired in the acquisition of Access Plans were valued at $3,000,000 consisting of the following:

		Value				Estimated Life
In-force books of business		$	1,200,000			5 Years
Agency relationships		$	1,500,000			8 Years
Proprietary programs		$	300,000			8 Years

Amortization of intangible assets related to Access Plans totaled $105,300 for the three months ended June 30, 2009.

Customer lists acquired in 2007 were valued at $2,500,000 and are being amortized over 60 months, the estimated useful life of that list. Amortization of customer lists totaled $375,003 and $375,003, respectively, for the nine months ended June 30, 2009 and 2008.

The Company accounts for recorded goodwill and other intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Asset (“SFAS 142”). In accordance with SFAS 142, we do not amortize goodwill. Management evaluates goodwill for impairment at least annually at fiscal year end. If considered impaired goodwill will be written down to fair value and a corresponding impairment loss recognized. The Company has recorded $3,000,000 for intangible assets and $1,664,631 for goodwill in connection with the acquisition consummated on April 1, 2009.

NOTE 6 — SUPPLEMENTAL CASH FLOWS INFORMATION

Cash payments for interest and income taxes for the nine months ended June 30, 2009 and 2008 are as follows:

		2009				2008
Cash paid for interest to related parties		$	48,694			$	39,730
Cash paid for income taxes		$	1,375,673			$	1,088,923
Non cash transactions are as follows:
Issuance of stock options to consultants		$	13,000			$	18,470
Acquisition of Access Plans, net of cash received		$	(346,344	)			—

NOTE 7 — NOTES PAYABLE TO RELATED PARTIES

Three promissory notes were issued to shareholders on March 1, 2007 in the aggregate principal amount of $7,147,000 and bear interest at 1% per annum. The principal amounts of these notes were discounted to $6,666,447 with an effective interest rate of 7% to adjust for the below market interest rate. Principal and accrued interest are payable in 12 consecutive quarterly installments commencing on May 15, 2007 and on each August 14, November 14, February 14 and May 15 of each year thereafter and in full on February 14, 2010, if not previously paid. Any payment of principal and interest is applied first to accrued interest and the balance in reduction of outstanding principal. Notwithstanding the foregoing and any other provision in the notes, in the event that the consolidated earnings before interest, income taxes, depreciation and amortization of the Company, determined in accordance with generally accepted accounting principles for each of the fiscal years ending on September 30, 2007, 2008 and 2009 (“Actual EBITDA”) shall be less than Four Million Two Hundred Thousand Dollars ($4,200,000) (the “Targeted EBITDA”), then the principal amount of these notes will be reduced by an amount equal to the percentage by which the Actual EBITDA for each such period is less than the Targeted EBITDA, and the adjusted principal balance of these notes will then be amortized over the remaining term of the notes in accordance with the payment terms.

Furthermore, the principal amount of these notes will be reduced dollar-for-dollar by any loss incurred by the Company’s subsidiary, BMS Insurance Agency, L.L.C., resulting from contingent commissions held by Caribbean American Property Insurance Company (“CAPIC”) pending receipt of a non-resident license from the Puerto Rico Department of Insurance. Any net proceeds of BMS Insurance Agency, L.L.C. attributable to pre-closing periods shall inure on a pro-rata basis to the benefit of the note holders. After any decrease or increase in the principal amount of these notes related to post-closing payments to or from CAPIC, the adjusted principal balance of these notes will be amortized over the remaining term of the notes in accordance with the foregoing payment terms. In accordance with these provisions, the principal of the notes was reduced by $247,073 as of September 30, 2007. The notes further provide that recovery of any net proceeds of BMS Insurance Agency, L.L.C. attributable to pre-closing periods will inure on a pro-rata basis to the benefit of the note holders. As a result of the settlement agreement completed on March 13, 2008 with CAPIC, BMS Insurance Agency, L.L.C. received proceeds of $34,280 which resulted in a pro rata increase in the outstanding principal amounts of these notes.

For financial reporting purposes, the issuance of these notes in 2007 was treated as a dividend to the former BMS shareholders.

Pursuant to discussions between the note holders and our disinterested directors, on January 10, 2008 the original notes were cancelled and replaced by new notes reflecting the unpaid principal balance but modifying the measurement periods to be deferred by one year to the fiscal years ending September 30, 2008 and September 30, 2009 and converted to quarterly reviews thereafter. Management felt that these deferred periods more appropriately tie the payment obligations to the Company’s performance because the initial period did not reflect an entire year and also contained several merger related one-time expenses. Several additional provisions were added to allow for adjustments if necessary. The new notes were issued in the aggregate amount of $5,113,177 representing the unpaid principal balances on the original notes on that date before the above described note adjustments.

Principal and interest payments made on these notes (net of discount) were $1,738,764 and $1,775,859, respectively, for the nine months ended June 30, 2009 and 2008. Principal payments due on these notes for the Company’s 2009 and 2010 fiscal years are as follows:

		Principal				Discount				Net
Fiscal Year Ended September 30,		Payments				Applied				Amount Due
2009 (remaining payments)		$	720,545			$	32,203			$	688,342
2010		$	1,013,910			$	82,329			$	931,581

NOTE 8 — OTHER LONG TERM DEBT

During March 2008, Access Plans USA, Inc. obtained a loan of $1,605,000 from Commission Funding Group (CFG), a specialty corporation. The current CFG loan matures March 2011, and the principal is repayable in equal monthly installments. The interest rate, which is variable, together with the origination fee amortization charge, was currently 10% at June 30, 2009, the minimum rate provided by the loan agreement. The loan may be prepaid without penalty. Collateral provided to CFG includes rights, only in the event of a default, to certain Insurance Marketing commissions from insurance carriers.

Principal and interest payments made on this loan were $155,404 for the three months ended June 30, 2009. Principal payments due on this loan for the Company’s 2009, 2010 and 2011 fiscal years are as follows:

		Principal
Fiscal Year Ended September 30,		Payments
2009 (remaining payments)		$	131,542
2010		$	561,051
2011		$	302,744

NOTE 9 — ADVANCED AGENT COMMISSIONS

Advanced agent commissions at June 30, 2009 consist of:

Advances funded by:
Insurance carriers		$	6,202,812
Specialty lending corporation			995,337
Commercial bank			—
Self-funded			1,194,330
Sub-total			8,392,479
Allowance for doubtful recoveries			(1,501,860	)
Advanced agent commissions, net		$	6,890,619

The allowance for doubtful recoveries was determined based primarily upon estimates of the recovery of future commissions expected to be earned by the agents to whom advances are outstanding and, where applicable, the agents responsible for the management. The Company recognized bad debt expense on advanced agent commissions of $70,000 for the nine months ended June 30, 2009.

NOTE 10 — INVESTMENT IN LLC

On December 30, 2008, the Company invested in an entity whose purpose is to invest in Oklahoma-based small business ventures or in Oklahoma-based rural small business ventures. Such investment is expected to generate tax credits that will be allocated to the Company and can be used to offset Oklahoma state income tax.

On December 30, 2008, the Company invested $100,000 and executed a non-recourse debt agreement in the principal amount of $768,704. The debt agreement is completely non-recourse to the Company for any amounts in excess of the capital investment of $100,000. Because the debt agreement is non-recourse and has been guaranteed by other parties, it has not been reflected in these financial statements.

NOTE 11 — INCOME TAXES

Components of income tax expense for the nine months ended June 30, 2009 and 2008 are as follows:

		2009				2008
Current income tax expense
Federal		$	1,218,319			$	1,301,298
State			161,300				295,195
Total current income tax expense			1,379,619				1,596,493
Deferred income tax (benefit)
Federal			20,780				—
State			4,130				—
State Tax Credit			(200,000	)			—
Total deferred income tax (benefit)			(175,000	)			—
Net income tax expense		$	1,204,619			$	1,596,493

As discussed in Note 10, the Company invested in a rural economic development fund with the State of Oklahoma. Upon completion of the investment, the fund provides an immediately available Oklahoma state income tax credit of approximately $200,000 and this amount has been recorded as a deferred income tax credit for the nine months ended June 30, 2009.

NOTE 12 — CLAIMS LIABILITY

The Company has entered into contractual arrangements to administer certain membership programs for its clients, primarily in the rental purchase industry. For some clients, the administration duties include reimbursing the client for certain expenses they incur in the operation of a particular membership program. Under these arrangements, the Company is responsible for reimbursing the client when (under the terms of the agreement with its customer) it waives rental payments required of the client’s customer under specifically defined and limited circumstances, such as when their customer becomes unemployed for a stated period of time or when the Company’s client provides product service to its customer. It is our policy to reserve the necessary funds in order to meet the anticipated reimbursement obligation owed to our clients in the event our reimbursement obligations require payment in the future. The Company’s obligations for these reimbursements do not have any kind of a tail that extends beyond Company’s client’s payment obligations following termination of the contractual arrangement or agreement with the Company’s client or the client’s customer. As of June 30, 2009 and September 30, 2008 we recorded an estimated incurred but not reported reimbursements obligation of $1,155,500 and $462,596, respectively.

NOTE 13 — FINANCIAL INSTRUMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”) in order to establish a single definition of fair value and a framework for measuring fair value in accordance with generally accepted accounting principles GAAP that is intended to result in increased consistency and comparability in fair value measurements. SFAS 157 also expands disclosures about fair value measurements. SFAS 157 applies whenever other authoritative literature requires (or permits) certain assets or liabilities to be measured at fair value, but does not expand the use of fair value. SFAS 157 was originally effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years with early adoption permitted. In early 2008, the FASB issued Staff Position (“FSP”) FAS-157-2, Effective Date of FASB Statement No. 157 that delays by one year, the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The delay pertains to items including, but not limited to, non-financial assets and non-financial liabilities initially measured at fair value in a business combination and non-financial assets recorded value for impairment assessment under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

The carrying value of financial instruments including cash, receivables, accounts payable, accrued expenses and debt, approximates their fair value at June 30, 2009 and 2008 due to the relatively short-term nature of these instruments.

On October 1, 2008, the Company adopted the portion of SFAS No. 157, Fair Value Measurements (“SFAS 157”) that was not delayed by FASB Staff Position FAS 157-2 (“FSP FAS 157-2”). FSP FAS 157-2 delays the effective date of SFAS 157 as it applies to non-financial assets and liabilities that are not required to be measured at fair value on a recurring (at least annual) basis. As a result of the delay, SFAS 157 will be applied to the Company’s non-financial assets and liabilities effective on April 1, 2009. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). SFAS 157 also establishes a three-level fair value hierarchy for classifying financial instruments that is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The three levels of the SFAS 157 fair value hierarchy are described below:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities

Level 3: Unobservable inputs

As of June 30, 2009, the Company did not have any financial assets or liabilities that were measured at fair value on a recurring basis subsequent to initial recognition.

NOTE 14 — LOAN COMMITMENT

In connection with the acquisition of Access Plans, (Note 4. Mergers and Acquisitions), we entered into a Loan Agreement on February 9, 2009. Under the Loan Agreement, Alliance agreed to loan Access Plans USA, Inc. up to $300,000. As a result of the merger acquisition of Access Plans USA, Inc. the outstanding debt became an inter-company item and accordingly was eliminated.

NOTE 15 — OTHER INCOME

The Company has recognized other income of $346,775 from a release of a liability related to a contract termination in April 2009.

NOTE 16 — SEGMENT REPORTING

Historically, the Company pursued similar marketing strategies for our Wholesale and Retail Plans’ Divisions and thus the divisions were managed at a corporate level rather than on a segment basis.

Effective with the acquisition of Access Plans USA, Inc. on April 1, 2009, the Company began pursuing distinct marketing strategies and developed separate management teams for each division. The Company’s operations now consist of the following segments; a) Wholesale Plans; b) Retail Plans; c) Insurance Marketing; and d) Corporate.

Reportable business segment information follows.

		Three Months Ended June 30,								Nine Months Ended June 30,
Segment net revenues		2009				2008				2009				2008
Wholesale Plans		$	5,021			$	4,655			$	14,707			$	13,355
Retail Plans			4,479				1,864				8,723				5,357
Insurance Marketing			5,653				—				5,653				—
Eliminations			(1,193	)			(1,153	)			(3,569	)			(3,290	)
Total		$	13,960			$	5,366			$	25,514			$	15,422

		Three Months Ended June 30,								Nine Months Ended June 30,
Segment operating income		2009				2008				2009				2008
Wholesale Plans		$	508			$	1,100			$	1,856			$	3,036
Retail Plans			860				417				1,863				1,100
Insurance Marketing			114				—				114				—
Corporate			(225	)			(223	)			(697	)			(686	)
Total		$	1,257			$	1,294			$	3,136			$	3,450

		6/30				9/30
Segment Assets		2009				2008
Wholesale Plans		$	5,762			$	5,302
Retail Plans			8,490				5,222
Insurance Marketing			12,392				—
Corporate			—				—
Eliminations
Total		$	26,644			$	10,524

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout the remainder of this report the first personal plural pronoun in the nominative case form “we” and its objective case form “us”, its possessive and the intensive case forms “our” and “ourselves” and its reflexive form “ourselves” refer collectively to Alliance HealthCard, Inc., its subsidiaries and their executive officers and directors.

Certain information included in this Quarterly Report on Form 10-Q contains, and other reports or materials filed or that we may file with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us or our management) contain or will contain, “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended. Some of these forward-looking statements can be identified by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategies that involve risks and uncertainties. Such forward-looking statements may relate to financial results and plans for future business activities, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are competitive pressures, loss of significant customers, the mix of revenue, changes in pricing policies, delays in revenue recognition, lower-than-expected demand for our products and services, business conditions in the integrated healthcare delivery network market, general economic conditions, and the risk factors detailed from time to time in our periodic reports and registration statements filed with the United States Securities and Exchange Commission. Any forward-looking statements made are only as of the date made and are subject to change as may be reported.

Overview

We are a leading provider of consumer membership plans, healthcare savings membership plans and a leading marketer for individual major medical health insurance products. Through working with our wholesale and retail clients, we design and build membership plans that contain benefits aggregated from our vendors that appeal to our client’s customers. For our major medical health insurance products, we offer and sell these products through a national network of independent agents.

Our current operations are organized under three business divisions.

Wholesale Plans

Our Wholesale Plans’ agreements with our clients deliver customized membership marketing plans that leverage their brand name and customer relationship and typically their payment mechanism, and offer benefits that appeal to their customers. The value provided by our plans to our clients, includes increased customer attraction and retention, plus incremental fee income with no risk or capital cost. By implementing these plans repetitively, our management team is uniquely qualified to efficiently assist our clients in achieving their goals, while avoiding operational and marketing pitfalls.

Our plans are primarily offered at rent-to-own retail stores. Nationwide there are approximately 8,500 locations serving approximately 3.0 million households according to the Association of Progressive Rental Organizations. It is estimated that the two largest rent-to-own industry participants’ account for approximately 4,800 of the total number of stores, and the majority of the remainder of the industry consists of operations with fewer than 50 stores. The industry has been consolidating and is expected to continue, resulting in an increased concentration of stores in the two largest rent-to-own industry participants.

The rent-to-own industry serves a highly diverse customer base. According to the Association of Progressive Rental Organizations, approximately 73% of rent-to-own customers have household incomes between $15,000 and $50,000 per year. The rent-to-own industry serves a wide variety of customers by allowing them to obtain merchandise that they might otherwise be unable to obtain due to insufficient cash resources or a lack of access to credit. The Association of Progressive Rental Organizations also estimates that 95% of customers have high school diplomas. According to an April 2000 Federal Trade Commission study, 75% of rent-to-own customers were satisfied with their experience with rent-to-own transactions. The study noted that customers gave a wide variety of reasons for their satisfaction, including “the ability to obtain merchandise they otherwise could not; the low payments; the lack of a credit check; the convenience and flexibility of the transaction; the quality of the merchandise; the quality of the maintenance, delivery, and other services; the friendliness and flexibility of the store employees; and the lack of any problems or hassles.”

We currently deliver membership plans to over 200 companies, including retail purchase dealers, insurance companies, financial institutions, retail merchants, and consumer finance companies. At June 30, 2009, our wholesale plans were offered at approximately 5,000 locations. Of the locations at June 30, 2009, 2,900 locations were operated or franchised by Rent-A-Center under the brands “Rent-A-Center”, “Get It Now,” and “ColorTyme,” Rent-A-Center, Inc., a Nasdaq (symbol RCII) traded company, is the largest rent-to-own company in the United States, Puerto Rico and Canada. Our revenue attributable to the contractual arrangements with Rent-A-Center was approximately $2.9 million, (21% of total revenue) and $8.8 million, (35% of total revenue) during the three and nine months ended June 30, 2009, compared to $2.97 million, (54% of total revenue) and $8.6 million, (56% of total revenue) during the three and nine months ended June 30, 2008. Furthermore, our contracts with Rent-A-Center and other rent-to-own companies accounted for $5.0 million, (36% of total revenue) and $14.7 million, (58% of total revenue) during the three and nine months ended June 30, 2009, compared to $4.7 million, (65% of total revenue) and $13.4 million, (87% of total revenue) during the three and nine months ended June 30, 2008. Our growth in wholesale plans revenue is dependent in significant part on an increase in the number of rent-to-own locations at which these plans are offered and the rental and sale performances of those locations. Although our revenue from wholesale plans continues to grow, we expect this revenue source to decline as a percentage of total revenues as we diversify our revenue sources. Although we have long-term contracts with Rent-A-Center and other rent-to-own companies, loss of any, especially Rent-A-Center would have a significant impact on our revenues, profitability and our ability to negotiate discounts with our vendors.

Retail Plans

Our Retail Plans’ offerings are primarily healthcare savings plans. These plans are not insurance, but allow members access to a variety of healthcare networks to obtain discounts from usual and customary fees. We offer wellness programs, prescription drug and dental discount programs, medical discount cards, and limited benefit insured plans. Our members pay providers the discounted rate at the time services are provided to them. These plans are designed to serve the markets in which individuals either have no health insurance or limited healthcare benefits. Our revenue attributable to retail plans was approximately $4.5 million, (32% of total revenue) and $8.7 million, (34% of total revenue) during the three and nine months ended June 30, 2009, compared to $1.9 million, (35% of total revenue) and $5.4 million, (35% of total revenue) during the three and nine months ended June 30, 2008.

In addition to our wholesale and retail offerings, certain clients may choose to include our benefits with their own membership plan offering. In these instances, the client bears the cost of marketing and fulfillment, and we provide customer service. These offerings are designed to enhance our clients’ existing offering and improve their product value relative to their competition and in some instances to improve their customer retention. While these plans provide lower periodic member fees, we incur limited implementation costs and receive higher revenue participation rates. Our additional distribution channels also include network marketing representatives, independent agents and consumer direct sales call centers. We also market to internet portals and financial institutions.

In order to deliver our membership offerings, we contract with a number of different vendors to provide various products and services to our members. The majority of these vendor relationships involve the vendor providing our members access to their network or providers or their locations and our members obtain a discount at the time of service. We have vendor relationships with medical networks, automotive service companies, insurance companies, travel related entities and food and entertainment consumer discount providers. Our vendors value the relationship with us because we deliver many customers to them without incremental capital cost or risk on their part and these relationships are governed by multi-year agreements and aggregated volume scaling.

Insurance Marketing

Our Insurance Marketing division offers and sells individual major medical health insurance products and related benefit plans, including specialty insurance products, primarily through a national network of independent agents. We support our agents with access to proprietary and private label products, leads for new sales, commission advance programs, incentive programs, including an annual convention, web-based technology, and back-office support.

We generate most of our revenue in this segment from commissions paid to us by health insurance carriers whose health insurance policies we have sold. Commission and fee revenue represented 96% of our total revenue in this segment for the three months ended June 30, 2009. The remainder of our revenue is primarily attributable to interest earned on commissions advanced to our agents.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results may differ from those estimates and the differences may be material to the financial statements. Significant estimates include our claims liability (see Note 12 — Claims Liability of the financial statements above) and the discounted future cash flows used to evaluate our goodwill for impairment.

Goodwill and Intangible Assets

We account for acquisitions of businesses in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Goodwill in such acquisitions represents the excess of the cost of a business acquired over the net of the amounts assigned to assets acquired, including identifiable intangible assets and liabilities assumed. SFAS 141 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.

Intangible assets deemed acquired in connection with Access Plans, were valued at $3,000,000 and are being amortized over the estimated useful life of those assets (See Note 5 — Goodwill and Intangible Assets of the financial statements above). Customer lists acquired in an acquisition are capitalized and amortized over the estimated useful lives of the customer lists. Customer lists deemed acquired in 2007 were valued at $2,500,000 and are being amortized over 60 months, the estimated useful life of the list. Amortization expense totaled $230,301 and $125,001, respectively for the quarters ended June 30, 2009 and 2008 and $480,303 and $375,003, respectively for the nine months ended June 30, 2009 and 2008.

We account for recorded goodwill and other intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). In accordance with SFAS 142, we do not amortize goodwill. Management evaluates goodwill for impairment at least annually on September 30 of each year, our fiscal year end. If considered impaired goodwill will be written down to fair value and a corresponding impairment loss recognized. For the periods ended June 30, 2009 and 2008 we recognized no impairment related to our goodwill.

We evaluate the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. These circumstances include: (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. We measure the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The fair value is measured based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. For the periods ended June 30, 2009 and 2008 we recognized no impairment losses related to our intangible assets.

Stock Based Compensation

In accordance with the provisions of SFAS No. 123 (revised 2004) Share-Based Payment (“SFAS 123R”), we measure stock based compensation expense using the modified prospective method. Under the modified prospective method, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service or vesting period.

The provisions of SFAS 123R became effective on January 1, 2006. As permitted, prior to the effectiveness of SFAS 123R, we elected to adopt only the disclosure provisions of SFAS No. 123, Accounting for Stock-based Compensation.

Income Taxes

We adopted SFAS No. 109, Accounting for Income Taxes that requires, among other things, a liability approach to calculating deferred income taxes. The objective is to measure a deferred income tax liability or asset using the tax rates expected to apply to taxable income in the periods in which the deferred income tax liability or asset is expected to be settled or realized. Any resulting net deferred income tax assets should be reduced by a valuation allowance sufficient to reduce such assets to the amount that is more likely than not to be realized.

In 2006, FASB issued Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48, which clarifies the application of SFAS 109 by defining a criterion that an individual income tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and provides guidance on measurement, de-recognition, classification, accounting for interest and penalties, accounting in interim periods, disclosure and transition. In accordance with the transition provisions, we adopted FIN 48 on January 1, 2007.

Revenue Recognition

We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition, corrected copy” which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and, (4) collectability is reasonably assured.

Our revenue recognition varies based on source.

Wholesale and Retail Plans— membership fees are paid to us on a weekly, monthly or annual basis and fees paid in advance are recorded as deferred revenue and recognized monthly over the applicable membership term.

Insurance Marketing — revenue reflects commissions and fees reported to us by insurance companies for policies sold by the division’s agents. Commissions and fees collected are recognized as earned on a monthly basis until such time as the underlying contract is reported to the division as terminated. Revenue also includes interest income earned on commissions advanced to the division’s agents.

Unearned commissions comprise commission advances received from insurance carriers but not yet earned. Additionally, enrollment fees received are recorded as deferred revenue and amortized over the expected weighted average life of the policies sold which currently approximates eighteen months. Deferred revenue is reported net of related policy acquisition costs, principally lead and marketing credits, which are capitalized and amortized over the same weighted average life, to the extent such deferred costs do not exceed the related gross deferred revenue. Any excess costs are expensed as incurred.

Commission Expense

Commission expense is based on the applicable rates applied to membership revenues billed or insurance commissions collected, and are recognized as incurred on a monthly basis until such time as the underlying program member or insurance policy is terminated.

The Insurance Marketing division advances agent commissions, up to nine months, for certain insurance programs. Collection of the commissions advanced (plus accrued interest) is accomplished by withholding amounts earned by the agent on the policy upon which the advance was made. In the event of early termination of the underlying policy, the division seeks to recover the unpaid advance balance by withholding advanced and earned commissions on other policies sold by the agent. This division also has the contractual right to pursue other sources of recovery, including recovery from the agents managing the agent to whom advances were made.

Advanced agent commissions are reviewed and an allowance is provided for those balances where recovery is considered doubtful. This allowance requires judgment and is based primarily upon estimates of the recovery of future commissions expected to be earned by the agents with outstanding balances and, where applicable, the agents responsible for their management. Advances are written off when determined to be non-collectible.

The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition, corrected copy, that requires four basic criteria be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and, (4) collectability is reasonably assured.

Results of Operations

A summary of our results of operations for the three and nine months ended June 30, 2009 and 2008 is set forth below. The financial statements appearing elsewhere in this report provide additional related information. Certain reclassifications have been made to prior period financial statements to conform to the current presentation of the financial statements. The operating results for Access Plans acquired on April 1, 2009 are for the three months ended June 30, 2009.

The following table sets forth selected results of our operations for the three and nine months ended June 30, 2009 and 2008. The following information was derived and taken from our unaudited financial statements appearing elsewhere in this report.

		For the Three Months Ended June 30,												For the Nine Months Ended June 30,
(Dollars in thousands)		2009				2008				Change				2009				2008				Change
Net revenues		$	13,960			$	5,366				160	%		$	25,514			$	15,422				65	%
Direct costs			9,811				2,872				242	%			16,785				8,296				102	%
Operating expenses			2,892				1,200				141	%			5,593				3,676				52	%
Operating income			1,257				1,294				(3	%)			3,136				3,450				(9	%)
Net other income (expense)			303				(36	)			*				217				41				*
Provision for income taxes			698				728				(4	%)			1,380				1,596				(14	%)
Deferred income taxes			—				—				—				(175	)			—				*
Net income		$	862			$	530				63	%		$	2,148			$	1,895				13	%

Discussion of Three Month Periods Ended June 30, 2009 and 2008

Net revenues increased $8.6 million, or 160% during the three months ended June 30, 2009 (“the 2009 3^rd quarter”), compared with the three months ended June 30, 2008 (the “2008 3^rd quarter”). The increase in net revenues was attributable to the following.

•

Growth in Wholesale Plans’ revenue of 8% attributable to existing growth for a major client and the addition of new rent to own locations;

•

An increase for Retail Plans’ revenue of 140% primarily attributable to the acquisition of the Retail Plans’ segment of Access Plans;

•

Insurance Marketing revenue of $5.7 million, our new segment from the acquisition of Access Plans.

Direct costs increased $6.9 million, or 242% during the 2009 3^RD quarter compared with the 2008 3^rd quarter. The increase in direct cost was attributable to the following.

•

Our Wholesale Plans division experienced an increase of 32% primarily related to our client’s waiver of rental payments and product service expenses. We entered into contractual arrangements to administer certain membership programs for clients, primarily in the rental purchase industry. For approximately 3,100 (78%) of our point of sale locations, the administration duties include reimbursing the client for certain expenses they incur in the operation of the program. Those expenses are primarily related to the client’s waiver of rental payments under defined circumstances such as when their customer becomes unemployed for a stated period of time. It is our policy to reserve the necessary funds in order to reimburse our clients as those obligations become due in the future. The increase is primarily attributable to: a) changes in the economy; b) program changes; and c) enhanced reporting efforts at our client locations.

•

Growth in direct costs for our Retail Plans division was primarily attributable to the Retail Plans division from Access Plans;

•

Direct costs for our Insurance Marketing division were $4.7 million during the 2009 3rd quarter from Access Plans.

Marketing and sales expenses increased $0.3 million primarily attributable to the acquisition of Access Plans.

Depreciation and amortization expense increased 100% for the 2009 3^rd quarter attributable to the amortization of intangible assets acquired by us from Access Plans.

General and administrative expenses increased $1.3 million during the 2009 3^rd quarter compared with the third quarter of 2008. The increase was primarily attributable to the following.

•

Wholesale Plan’s expenses increased 15% primarily due to additional compensation for new employees, health insurance premium expense and additional travel expenses related to the Access Plans’ acquisition;

•

Retail Plan’s expenses increased 288% with the majority of the increase related to the acquisition of the Retail Plan division of Access Plans. Additional costs were also incurred for travel and legal expenses related to the Access Plans’ acquisition.

•

Insurance Marketing’s expenses were $.4 million for the 2009 3rd quarter from Access Plans.

Other income, net increased $0.2 million during the 2009 3^rd quarter compared with the 2008 3^rd quarter. The increase was primarily attributable to income earned from a non-recurring transaction during the 2009 3^rd quarter. Interest expense incurred for promissory notes was $0.05 million for each of the three months ended June 30, 2009 and 2008.

Discussion of Nine Month Periods Ended June 30, 2009 and 2008

Net revenues increased $10.1 million, or 65% during the nine months ended June 30, 2009 (“the 2009 period”) compared with the same period in 2008 (“the 2008 period”). The increase in net revenues was due to the following.

•

Wholesale Plans of approximately $1.4 million attributable to new rent to own locations plus membership growth from existing locations.

•

Retail Plans of approximately $3.4 million consisting of $2.3 million related to the acquisition of the Retail Plans division of Access Plans. The remaining $1.1 million was attributable to 3 new contracts for our existing Retail Plans division.

•

Insurance Marketing at $5.7 million generated by Access Plans.

Direct costs increased $8.5 million, or 102% during the 2009 period compared with the 2008 period. The increase in direct cost was due to the following.

•

Our Wholesale Plans direct cost increased 29% primarily related to our client’s waiver of rental payments and product service expenses. The Company has entered into contractual arrangements to administer certain membership programs for clients, primarily in the rental purchase industry. For approximately 3,100 (78%) of our point of sale locations, the administration duties include reimbursing the client for certain expenses they incur in the operation of the program. Those expenses are primarily related to the client’s waiver of rental payments under defined circumstances such as when their customer becomes unemployed for a stated period of time. It is our policy to reserve the necessary funds in order to reimburse our clients as those obligations become due in the future. The increase is primarily attributable to: a) changes in the economy; b) program changes; and c) enhanced reporting efforts at our client locations.

•

Retail Plans’ direct costs increased 56% primarily attributable to the addition of Access Plans existing Retail Plan division.

•

Direct cost for Insurance Marketing was $4.7 million during the three months, April 1, 2009 thru June 30, 2009 from Access Plans.

Marketing and sales expenses increased $.2 million or 25% during the 2009 period compared with the 2008 period. The increase was due to the following.

•

A decrease in expense of $.1 million related to convention and commission expense for our Wholesale Plans segment;

•

Marketing and sales expenses for our Insurance Marketing segment was $.3 million from Access Plans

Depreciation and amortization expense increased $.1 million during the 2009 period compared with the 2008 period related to the amortization of intangible assets acquired from Access Plans.

General and administrative expenses increased $1.5 million or 66% during the 2009 period compared with the 2008 period. The increase was due to the following.

•

Wholesale Plan’s expenses increased 16% to $.9 million from additional compensation expense for new employees, an increase for our health insurance premiums and additional legal and travel expenses related to the acquisition of Access Plans.

•

Retail Plans’ expenses increased 112% to $1.9 million with the majority of the increase for the Retail Plans’ division of Access Plans. Additional costs were also incurred for travel and legal expenses related to the acquisition.

•

Insurance Marketing expenses were $.4 million for the three months ended June 30, 2009 from Access Plans.

Other income increased $.2 million for the 2009 period compared with the 2008 period. The increase was primarily attributable to income earned from a non-recurring transaction during the 2009 period of $.3 million. Interest expense incurred for promissory notes was $.2 million and $.1 million, respectively for the 2009 period and 2008 period. The increase in interest expense was attributable to the acquisition of Access Plans.

For the nine months ended June 30, 2009 we recorded an income tax provision of $1.2 million consisting of income tax expense of $1.4 million, offset by a deferred income tax benefit of $0.2 million related to a tax credit available to utilize in payment of Oklahoma income tax. We invested in a rural economic development fund with the State of Oklahoma that provides an immediately available state income tax credit of approximately $200,000. See Note 6 — Investment in LLC in the notes to financial statements appearing above.

Liquidity and Capital Resources

We had unrestricted cash of $4.4 million and $3.0 million at June 30, 2009 and September 30, 2008, respectively. Our working capital deficit was $.2 million at June 30, 2009 and $0.6 million at September 30, 2008. The improvement of $.4 million was due to the following:

•

Access Plans net deficit of $.5 million;

•

Other changes, exclusive of Access Plans, are as follows;

•

Cash and accounts receivable increased $.8 million as a result of new business;

•

Accounts payable decreased $.3 million due to a one-time non-recurring transaction;

•

Notes payable, short-term, to related parties decreased $.5 million;

•

Claims liability increased $.7 million due to the upward trend of our claims and product services expenses;

Our current liabilities include an estimated current portion of notes payable to related parties and other debt acquired from the acquisition. The amount of note obligations due to related parties will be adjusted in the event that our consolidated earnings before interest, income taxes, depreciation and amortization, determined in accordance with generally accepted accounting principles, for the fiscal year ending on September 30, 2009 (“Actual EBITDA”) exceeds $4,200,000 (the “Targeted EBITDA”). If the Targeted EBITDA level is not achieved, the principal amounts of these notes will be reduced by the aggregate amount equal to the percentage by which the Actual EBITDA for the fiscal year is less than the Targeted EBITDA and the adjusted principal balance of these notes will then be amortized and payable over the remaining terms of the notes. Principal and interest payments made on these notes (net of discount) were $1,738,764 and $1,775,859, respectively for the nine months ended June 30, 2009 and 2008. Principal payments due on these notes for the next two fiscal years are as follows:

		Principal				Discount				Net
Fiscal Year Ended September 30,		Payments				Applied				Amount Due
2009 (remaining payments)		$	720,545			$	32,203			$	688,342
2010		$	1,013,910			$	82,329			$	931,581

Principal and interest payments made on other long term debt, acquired from Access Plans, was $155,404 for the three months ended June 30, 2009. Principal payments due on this loan for the next three fiscal years are as follows:

		Principal
Fiscal Year Ended September 30,		Payments
2009 (remaining payments)		$	131,542
2010		$	561,051
2011		$	302,744

Cash provided by operating activities was $2.9 million during the nine months ended June 30, 2009 compared to $2.6 million for the same period in 2008. The increase was primarily due to:

•

An increase in net income of $.2 million directly related to Access Plans;

•

An increase in other operating activities for the acquisition of Access Plans of $.2 million;

•

A long-term investment of $0.1 million creating an additional deferred tax credit of $.2 million; and

•

Other changes of $0.1 million

Cash provided and (used) by investing activities was $0.3 million and ($.1) million, respectively during the nine months ended June 30, 2009 and 2008. Net assets acquired from Access Plans were $4.8 million. On December 30, 2008 we invested $100,000 (and executed a non-recourse debt agreement in the principal amount of $768,704) in an entity whose purpose is to invest in Oklahoma-based small business ventures or in Oklahoma-based rural small business ventures. This investment is expected to generate tax credits of approximately $200,000 that may be used to offset Oklahoma state income tax.

Cash used by financing activities was $1.8 million during the nine months ended June 30, 2009 and 2008 attributable to notes to related parties and other long term debt associated with the acquisition.

We expect to meet our obligations as they become due through available cash and funds generated from our operations. We expect to generate positive working capital through our operations. However, there are no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations to support our capital commitments and working capital requirements. Our principal capital commitments during the next 12 months primarily involve payments of our indebtedness obligations under the related-party promissory notes of approximately $1,734,000 plus interest of $8,469 as of June 30, 2009. Our payment obligations under the related-party promissory notes are based upon our achievement of Actual EBITDA from operations in excess of $4,200,000. Accordingly, our payment obligations under the related-party promissory notes are wholly contingent upon achievement of minimum operating results during the 12-month period ending March 31, 2010 and if not achieved, the amount of these payment obligations would be reduced. We also acquired other capital commitments of approximately $1,124,000 related to the Access Plans acquisition with principal capital commitments during the next 12 months of approximately $547,000 plus interest of $75,000.

The following table sets forth revenue, gross margin and operating income by segment.

		Three Months Ended June 30,												Nine Months Ended June 30,
($ in thousands)		2009				2008				% Change				2009				2008				% Change
Total Revenue — by segment
Wholesale Plans		$	5,021			$	4,655				8	%		$	14,707			$	13,355				10	%
Retail Plans (a)			4,479				1,864				140	%			8,723				5,357				63	%
Insurance Marketing			5,653				—				*				5,653				—				*
Corporate			—				—								—				—
Eliminations			(1,193	)			(1,153	)			*				(3,569	)			(3,290	)			*
Total		$	13,960			$	5,366				160	%		$	25,514			$	15,422				65	%
Gross margin — by segment
Wholesale Plans (a)		$	919			$	1,557				-41	%		$	3,244			$	4,442				-27	%
Retail Plans (a)			2,308				937				146	%			4,562				2,683				70	%
Insurance Marketing			922				—				*				922				—				*
Corporate			—				—								—				—
Total		$	4,149			$	2,494				66	%		$	8,728			$	7,125				22	%
Operating income — by segment
Wholesale Plans (a)		$	508			$	1,100				-54	%		$	1,856			$	3,036				-39	%
Retail Plans (a)			860				417				106	%			1,863				1,100				69	%
Insurance Marketing			114				—				*				114				—				*
Corporate			(225	)			(223	)			1	%			(697	)			(686	)			2	%
Total		$	1,257			$	1,294				-3	%		$	3,136			$	3,450				-9	%

Wholesale Plans Division. The operating results for our Wholesale Plan Division are set forth below.

		Three Months Ended June 30,												Nine Months Ended June 30,
($ in thousands)		2009				2008				Change				2009				2008				Change
Results of Operations
Total revenue		$	5,021			$	4,655				8	%			14,707				13,355				10	%
Direct expenses (a)			4,102				3,105				32	%			11,464				8,913				29	%
Gross margin			919				1,550				-41	%			3,243				4,442				-27	%
Marketing and sales expenses			126				201				-37	%			496				634				-22	%
Depreciation and amrtization			10				11				-9	%			31				30				3	%
General and administrative expenses			275				238				15	%			860				742				16	%
Operating income		$	508			$	1,100				-54	%		$	1,856			$	3,036				-39	%
Percent of revenue
Total revenue			100	%			100	%							100	%			100	%
Direct expenses			82	%			67	%							78	%			67	%
Gross margin			18	%			33	%							22	%			33	%
Marketing and sales expenses			3	%			4	%							3	%			5	%
Depreciation and amrtization			0	%			0	%							0	%			0	%
General and administrative expenses			5	%			5	%							6	%			6	%
Operating income			10	%			24	%							13	%			23	%

Retail Plans Division. The operating results for our Retail Plans Division are set forth below.

		Three Months Ended June 30,												Nine Months Ended June 30,
($ in thousands)		2009				2008				Change				2009				2008				Change
Results of Operations
Total revenue (a)		$	4,479			$	1,864				140	%			8,723				5,357				63	%
Direct expenses			2,171				927				136	%			4,160				2,674				56	%
Gross margin			2,308				937				144	%			4,563				2,683				70	%
Marketing and sales expenses			113				106				7	%			338				300				13	%
Depreciation and amrtization			192				127				51	%			448				382				17	%
General and administrative expenses			1,143				287				289	%			1,914				901				112	%
Operating income		$	860			$	417				106	%		$	1,863			$	1,100				69	%
Percent of revenue
Total revenue			100	%			100	%							100	%			100	%
Direct expenses			48	%			49	%							48	%			50	%
Gross margin			52	%			51	%							52	%			50	%
Marketing and sales expenses			3	%			6	%							4	%			6	%
Depreciation and amrtization			4	%			7	%							5	%			7	%
General and administrative expenses			26	%			16	%							22	%			17	%
Operating income			19	%			22	%							21	%			21	%

Insurance Marketing Division. The operating results for our Insurance Marketing Division, acquired as part of Access Plans on April 1, 2009 are set forth below.

		Three Months
		Ended
($ in thousands)		June 30, 2009
Results of Operations
Total revenue		$	5,653
Direct expenses			4,730
Gross margin			923
Marketing and sales expenses			335
Depreciation and amrtization			75
General and administrative expenses			399
Operating income		$	114
Percent of revenue
Total revenue			100	%
Direct expenses			84	%
Gross margin			16	%
Marketing and sales expenses			6	%
Depreciation and amrtization			1	%
General and administrative expenses			7	%
Operating income			2	%

Corporate. The operating results for our Corporate segment are set forth below.

		Three Months Ended June 30,												Nine Months Ended June 30,
($ in thousands)		2009				2008				Change				2009				2008				Change
Results of Operations
Total revenue (a)		$	—			$	—								—				—
Direct expenses			—				—								—				—
Gross margin			—				—								—				—
Marketing and sales expenses			—				—								—				—
Depreciation and amrtization			—				—								—				—
General and administrative expenses			225				223				1	%			697				686				2	%
Operating income		$	(225	)		$	(223	)			1	%		$	(697	)		$	(686	)			2	%

Eliminations — For informational purposes only.

		Three Months Ended June 30,												Nine Months Ended June 30,
($ in thousands)		2009				2008				Change				2009				2008				Change
Results of Operations
Total revenue (a)		$	(1,193	)		$	(1,153	)			*				(3,569	)			(3,290	)			*
Direct expenses			(1,193	)			(1,153	)			*				(3,569	)			(3,290	)			*
Gross margin			—				—								—				—
Marketing and sales expenses			—				—								—				—
Depreciation and amrtization			—				—								—				—
General and administrative expenses			—				—								—				—
Operating income		$	—			$	—							$	—			$	—