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 %

* Percent not meaningful

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 3rd quarter"), compared with the three months ended June 30, 2008 (the "2008 3rd 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 3RD quarter compared with the 2008 3rd 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 3rd 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 3rd 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 3rd quarter compared with the 2008 3rd quarter. The increase was primarily attributable to income earned from a non-recurring transaction during the 2009 3rd 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.

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