UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

Alliance HealthCard, Inc.

(Exact name of registrant as specified in its charter)

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

3500 Parkway Lane, Suite 720, Norcross, GA 30092
(Address of principal executive offices and zip code

Registrant’s telephone number, including area code: (770) 734-9255

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of the Registrant’s common stock as of the latest practicable date.

Class		Outstanding at July 30, 2008
Common Stock, $.001 par value		14,833,127

Transitional Small Business Disclosure Format (Check One): Yes o No þ

 

 

INDEX

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of June 30, 2008 and September 30, 2007			3
Consolidated Condensed Statements of Operations for the Three and Nine Months Ended June 30, 2008 and 2007			4
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2008 and 2007			5
Notes to Consolidated Condensed Financial Statements			6
Item 2. Management’s Discussion and Analysis or Plan of Operations			11
Item 3. Controls and Procedures			13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 3. Default Upon Senior Securities			14
Item 4. Submission of Matters to a Vote of Security Holders			14
Item 5. Other Information			14
Item 6. Exhibits			14
Signatures			15
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Throughout this Quarterly Report (other than in the notes to the financial statements) 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Alliance HealthCard, Inc.

		June 30,				September 30,
		2008				2007
		(Unaudited)				(Derived From Audited Statements)
Assets
Current assets:
Cash and cash equivalents		$	3,036,131			$	2,274,411
Accounts receivable, net			2,712,206				2,389,541
Prepaid expenses			27,718				33,666
Total current assets			5,776,055				4,697,618
Notes receivable — related parties			9,970				11,070
Furniture and equipment, net			174,066				131,969
Goodwill			2,746,945				2,746,945
Intangibles-Customer lists, net			1,834,717				2,212,220
Deferred income taxes and other			424,602				432,637
Total assets		$	10,966,355			$	10,232,459
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	1,227,630			$	1,441,703
Accrued salaries and benefits			149,913				129,525
Deferred revenue			858,679				911,588
Claims liability			482,200				260,300
Line of credit			—				149,980
Current portion of notes payable to related parties			2,382,333				2,382,333
Other accrued liabilities			1,822,081				1,323,877
Total current liabilities			6,922,836				6,599,306
Long term liabilities:
Notes payable to related parties, net of discount and current portion shown above			1,584,071				3,200,055
Total long term liabilities			1,584,071				3,200,055
Total liabilities			8,506,907				9,799,361
Stockholders’ equity:
Common stock, $.001 par value; 100,000,000 shares authorized; 14,833,127 and 14,647,763 shares issued and outstanding at June 30, 2008 and September 30, 2007, respectively			14,833				14,647
Additional paid-in-capital			6,808,722				6,677,567
Accumulated deficit			(4,364,107	)			(6,259,116	)
Total stockholders’ equity			2,459,448				433,098
Total liabilities and stockholders’ equity		$	10,966,355			$	10,232,459

See the accompanying notes to the condensed financial statements.

Alliance HealthCard, Inc.

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Net revenues		$	5,366,253			$	4,762,984			$	15,421,698			$	12,555,595
Direct costs			2,871,701				2,509,031				8,296,110				7,939,710
Gross Profit			2,494,552				2,253,953				7,125,588				4,615,885
Marketing and sales			306,552				277,955				934,330				675,471
General and administrative			755,997				758,479				2,328,592				2,163,767
Depreciation and amortization			138,222				138,449				412,502				207,858
Operating income			1,293,781				1,079,070				3,450,164				1,568,789
Other income (expense):
Other income			—				—				529,671				—
Interest income			19,477				19,592				44,844				51,748
Interest (expense)			(54,733	)			(94,720	)			(167,458	)			(113,553	)
Total other income (expense):			(35,256	)			(75,128	)			407,057				(61,805	)
Income before income taxes			1,258,525				1,003,942				3,857,221				1,506,984
Income taxes			728,272				459,000				1,596,493				459,000
Net income			530,253				544,942				2,260,728				1,047,984
Less dividends and distributions			—				—				365,720				6,666,417
Net income (loss) available for common stock		$	530,253			$	544,942			$	1,895,008			$	(5,618,433	)
Per share data:
Basic		$	0.04			$	0.04			$	0.13			$	(0.39	)
Diluted		$	0.04			$	0.04			$	0.12			$	(0.39	)
Basic weighted average shares outstanding			14,833,127				14,524,263				14,760,056				14,524,263
Basic weighted diluted average shares outstanding			15,123,908				15,437,710				15,250,551				14,524,263

See the accompanying notes to the condensed financial statements.

Alliance HealthCard, Inc.

		Nine Months Ended
		June 30,
		2008				2007
Cash flows from operating activities
Net income		$	2,260,728			$	1,047,984
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			412,502				207,858
Amortization of loan discount to interest expense			120,149				60,073
Deferred tax			13,272				—
Stock issued to consultants in connection with merger			—				22,000
Stock options issued for services			18,470				55,000
Change in operating assets and liabilities:
Accounts receivable			(322,665	)			(398,696	)
Prepaid expenses and other assets			5,948				234,272
Notes receivable from related parties			1,100				282,375
Other long term assets			(5,237	)			(8,800	)
Accounts payable			(214,073	)			(393,562	)
Accrued salaries and benefits			20,388				(22,794	)
Deferred revenue			(52,909	)			130,417
Claims and other accrued liabilities			720,104				487,594
Net cash provided by operating activities			2,977,777				1,703,721
Cash flows from investing activities
Purchase of equipment			(77,097	)			(69,010	)
Net cash used by investing activities			(77,097	)			(69,010	)
Cash flows from financing activities
Cash received from merger			—				1,065,528
Dividends and distributions paid out			(365,720	)			(1,576,801	)
Repayments of long term debt			(1,736,130	)			(595,583	)
Repayment of line of credit			(149,980	)			—
Stock options exercised			112,870				—
Net cash used by financing activities			(2,138,960	)			(1,106,856	)
Net increase (decrease) in cash			761,720				527,855
Cash at beginning of period			2,274,411				1,940,178
Cash at end of period		$	3,036,131			$	2,468,033
Supplemental cash flow information
Cash paid for interest to related parties		$	39,730			$	14,881
Cash paid for taxes		$	1,089,923			$	—

See the accompanying notes to the condensed consolidated financial statements.

ALLIANCE HEALTHCARD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2008 and 2007
(Unaudited)

The following unaudited condensed 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 financial statements be read in conjunction with the financial statements and the notes thereto included in the company’s latest shareholders’ annual report Form 10KSB.

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-month periods ended June 30, 2008 and 2007 are of a normal, recurring nature.

1. DESCRIPTION OF THE BUSINESS

Alliance HealthCard, Inc. was founded in 1998 as a provider of discount medical plans with a focus on creating, marketing, and distributing membership savings programs primarily to the underserved markets in the United States. Its original programs offered attractive savings in approximately 16 areas of healthcare, including physician visits, hospital stays, chiropractics, vision, dental, pharmacy, hearing, and patient advocacy, among others. On February 28, 2007, Alliance HealthCard, Inc. completed a merger with BMS Holding Company, Inc. and acquired its subsidiary, Benefit Marketing Solutions, L.L.C., (BMS). BMS is the leading membership plan provider to dealers in the rental-purchase industry. For financial reporting purposes, BMS Holding Company, Inc. was considered the acquiring entity and historical financial statements prior to March of 2007 reflect the activities of BMS Holding Company, Inc. and its subsidiaries as adjusted for the effect of the recapitalization which occurred at the merger date. Activities of Alliance HealthCard, Inc. prior to the merger date are no longer reflected in the historical financial statements as it was considered to be the acquired entity. While the Company continues to market its health oriented programs, the merger greatly expanded its business scope to include programs that offer discount savings on dining and entertainment, automotive, legal and financial, as well as insurance programs including leased property, involuntary unemployment, accidental death and dismemberment, and extended service plans. The Company sells its membership savings programs to retailers, insurance companies, finance companies, banks, employer groups and association-based organizations through direct sales or independent marketing consultants, and is a leading provider of value-added membership plans sold in conjunction with point-of-sale transactions.

BMS was formed in February 2002 and is a national membership program benefits organization that designs, markets, and distributes membership programs for rental-purchase companies, financial organizations, employer groups, retailers and association-based organizations. These membership programs are sold as part of a point-of-sale transaction or through direct marketing efforts. BMS is the largest membership plan provider to dealers in the rental-purchase industry market space. The point-of-sale membership plans are sold through more than 4,800 locations in the U.S. and Puerto Rico.

The historical financial statements prior to February 28, 2007 are those of BMS Holding Company, Inc. (and its subsidiaries), the accounting acquirer in the merger. The historical financial statements of BMS Holding Company, Inc., have been adjusted for the effect of the recapitalization which took place at the time of the reverse merger. Activity after February 28, 2007 includes the consolidated activities of the merged companies.

2. GOODWILL AND INTANGIBLE ASSETS

The Company accounts for acquisitions of businesses in accordance with Statement of Financial Accounting Standard (“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 acquired in an acquisition are capitalized and amortized over the estimated useful lives of the customer lists. Customer lists acquired in connection with the Alliance Healthcard, Inc. merger were valued at $2,500,000 and are being amortized over sixty months, the estimated useful life of this list. Amortization of customer lists for the nine months ended June 30, 2008 totaled $375,003.

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.

3. SUPPLEMENTAL CASH FLOWS INFORMATION

Cash payments for interest and income taxes for the nine months ended June 30, 2008 and 2007 are as follows:

		2008				2007
Interest		$	39,730			$	—
Income taxes paid		$	1,088,923			$	—
Other non cash transactions are as follows:
Issuance of 4,524,263 shares of common stock for the acquisition of Alliance HealthCard, Inc., in connection with the reverse merger		$	—			$	4,976,689
Issuance of stock and options to consultants and directors		$	18,470			$	77,000
Notes, net of discount issued for dividends to BMS shareholders		$	—			$	6,666,417

4. NOTES PAYABLE TO RELATED PARTIES

In connection with the merger with BMS Holding Company, Inc., three promissory notes were issued by the Company to former BMS Holding Company, Inc., shareholders in the aggregate amount of $7,147,000. The notes are dated March 1, 2007 and bear interest at 1% per annum. The carrying amount of these notes was discounted to $6,666,447 to adjust for the below market interest rate carried by the notes. The loan discount of $480,753 is amortized over the term of the notes to interest expense. Amortization of interest expense for the nine months ended June 30, 2008 was $120,150. Principal and accrued interest are payable quarterly on February 14th, May 15th, August 14th, and November 14th. 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 shall be less (“Actual EBITDA”) than $4,200,000 (the “Targeted EBITDA”), then the principal amount of these notes are to be reduced by an amount equal to the percentage by which the Actual EBITDA for each such period falls short of the Targeted EBITDA and the adjusted principal balance of these notes will then be amortized over the remaining term of the note in accordance with the foregoing payment terms.

Pursuant to discussions between the note holders and the disinterested directors of the Company, on January 10, 2008 the old 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, 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 since 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.

In addition to the foregoing, after the consummation of the transactions contemplated by the Merger Agreement, the principal amount of these notes were reduced by $247,073 as of September 30, 2007 to comply with provisions in the notes requiring that the notes shall be reduced dollar for dollar by any loss incurred by BMS Insurance Agency, L.L.C., a BMS Holdings’ affiliate, resulting from the failure of Caribbean American Property Insurance Company (“CAPIC”) to pay certain disputed commissions. 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 (See Note 9 — Contingent Commissions), BMSIA received proceeds of $400,000. Pursuant to the terms of the merger completed on February 28, 2007, net proceeds of the settlement for BMSIA attributable to pre-closing periods of the merger totaling $365,720 were paid to the former BMS Holding Company, Inc. shareholders during the three months ended June 30, 2008 with the remaining $34,280 payable to the Company which resulted in a pro rata increase in the notes by that same amount.

Remaining principal payments due on these notes for each of the next three years are as follows:

Quarter ended September 30, 2008		$	572,416
Fiscal year ended September 30, 2009		$	2,289,664
Fiscal year ended September 30, 2010		$	1,144,832

5. LINE OF CREDIT

BMS secured a line of credit with Republic Bank & Trust for $150,000, secured by the personal guarantee of Mr. Brett Wimberley, our President, with interest of the Wall Street Journal prime plus 1%, which was 8.75% at September 30, 2007, and a maturity date of December 19, 2007. The principal balance of $149,980 was paid in full on December 19, 2007. The credit agreement was increased to $500,000 and was renewed on January 25, 2008 with a new maturity date of December 19, 2008. The outstanding principal of this line of credit bears interest at the Wall Street Journal prime rate per annum, as adjusted daily. At June 30, 2008 there was no outstanding principal on the line of credit.

6. STOCK-BASED COMPENSATION

In conjunction with a consulting agreement, the Company granted stock options exercisable for the purchase of 50,000 common stock shares for $2.00 per share on October 1, 2007. Upon termination of that agreement on May 31, 2008, these options were forfeited.

On May 13, 2008, the Company issued stock options exercisable for the purchase of 10,000 common stock shares to each of the Company’s non-employee directors on the date of their appointments to the board and the issuance of stock options exercisable for the purchase of 5,000 common stock shares to each of the Company’s non-employee directors on the date of the annual shareholders meeting. The purchase price of these common stock shares is $1.00 per share and these options will expire on May 13, 2018. The Company recognized compensation expense of $18,470 for the nine months ended June 30, 2008 of which $13,970 was for the directors’ options with the remaining $4,500 attributable to the consulting agreement issued on October 1, 2007.

As of June 30, 2008, the total number of common stock shares purchasable under outstanding stock options, the weighted average exercise price, and number common stock shares available for future stock option grants under approved equity compensation plans were as follows:

Number of common stock shares to be issued upon exercise			1,458,897
Weighted average exercise price per common stock share		$	0.91
Number of common stock shares available for future stock option grants			1,347,794

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-based payment” (“SFAS 123R”). The provisions of SFAS 123R require companies to expense the estimated fair value of stock options awarded after the effective date. The Company adopted SFAS 123R using the modified prospective application. For options granted and vested prior to the effective date, the Company continues to follow the intrinsic value method set forth in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and disclose the pro forma effects on net income had the fair value of these options been expensed.

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model assumptions noted in the following table. Expected volatilities are base on historical volatilities of the Company’s stock. The Company uses historical data to estimate expected term and option forfeitures within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company does not provide for any expected dividends or discount for post-vesting restrictions in the model.

Expected volatility			.1
Dividend yield			0	%
Risk free interest rate			5	%
Expected life		2 Years

The Company recognized equity-based compensation expense under SFAS 123R of approximately $18,470 and zero for the nine months ended June 30, 2008 and June 30, 2007, respectively.

7. INCOME TAXES

The income statement for the nine months ended June 30, 2007 includes nine months of operations for BMS Holding Company, Inc. (including its subsidiaries BMS and BMS Insurance Agency LLC (“BMSIA”) and four months of operations for Alliance HealthCard. Each of the subsidiaries of BMS Holding Company, Inc. is a limited liability company and prior to the organization of BMS Holding Company, Inc. in December 2006 and the acquisition of its subsidiaries, the earnings of each subsidiary were taxed at the member level. During the nine months ended June 30, 2008, the Company accrued $1,583,221 in income taxes payable and incurred $1,583,221 in income tax expense.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under FIN 48, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The adoption of FIN 48 did not have a material effect on the Company’s financial position.

8. CLAIMS LIABILITY

The Company has an obligation for claims incurred but not reported (“IBNR”) as of June 30, 2008 and 2007. The liability is estimated using current claims payment information. As of June 30, 2008 and September 30, 2007, the Company had IBNR obligations of $482,200 and $260,300 respectively. It is the Company’s policy to reserve the necessary funds in order to pay claim obligations as they become due in the future.

9. CONTINGENT COMMISSIONS

A settlement agreement was completed on March 13, 2008 with the Caribbean American Property Insurance Company (“CAPIC”). BMSIA and CAPIC were involved in a dispute involving the amount of contingent commissions due to BMSIA for the period of time beginning January 1, 2006 through June 30, 2007. As a result of the settlement, BMSIA received proceeds of $400,000. Pursuant to the terms of the merger completed on February 28, 2007, net proceeds of the settlement for BMSIA attributable to pre-closing periods of the merger totaling $365,720 were paid to the former BMS Holding Company, Inc. shareholders during the three months ended June 30, 2008 with the remaining $34,280 payable to the Company which resulted in a pro rata increase in the promissory notes by that same amount. For financial reporting, the $400,000 settlement proceeds have been reflected in other income.

10. RESTATED QUARTERLY FINANCIAL STATEMENTS FOR JUNE 30, 2007

Financial statements for the three and nine months ended June 30, 2007 were improperly reported as a result of not applying the correct accounting principles in accounting for the merger between Alliance HealthCard, Inc. and BMS Holding Company, Inc. on February 28, 2007. However, the merger was properly accounted for in the audited financial statements for the Company’s fiscal year ended September 30, 2007. Results for the three and nine month periods ended June 30, 2007 are presented below.

A. Restated Condensed Balance Sheets

		Restated				As Previously Reported
		June 30, 2007				June 30, 2007
		(Unaudited)				(Unaudited)
Assets
Current assets		$	4,990,632			$	4,987,477
Other assets			185,020				185,020
Goodwill			2,746,945				9,669,046
Intangibles, net			2,345,858				12,526
Total Assets		$	10,268,455			$	14,854,069
Liabilities
Current liabilities		$	6,487,779			$	6,187,258
Long term debt — related party			3,749,034				4,018,642
Total liabilities			10,236,813				10,205,900
Total stockholders’ equity			31,642				4,648,169
Total liabilities and stockholders’ equity		$	10,268,455			$	14,854,069

B. Restated Condensed Statements of Operations

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2007				2007				2007
						As Previously								As Previously
		Restated				Reported				Restated				Reported
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net revenues		$	4,762,984			$	4,762,984			$	12,555,595			$	12,555,595
Gross Profit			2,253,953				2,232,017				4,615,885				4,586,761
Net income prior to dividends			544,942				705,359				1,047,984				1,643,850
Less dividends and distributions			—				—				6,666,417				—
Net income (loss) available for common stock		$	544,942			$	705,359			$	(5,618,433	)		$	1,643,850
Diluted net income (loss) per share		$	0.04			$	0.05			$	(0.39	)		$	0.11

10. RESTATED QUARTERLY FINANCIAL STATEMENTS FOR JUNE 30, 2007 (Continued)

A. Restated Condensed Statements of Cash Flows

		Nine Months Ended
		June 30,
		2007				2007
		Restated				As Previously Reported
		(Unaudited)				(Unaudited)
Net cash provided by operating activities		$	1,703,721			$	2,883,888
Net cash used by investing activities			(69,010	)			(69,759	)
Net cash used by financing activities			(1,106,856	)			(2,289,393	)
Net increase (decrease) in cash			527,855				524,736
Cash at beginning of period			1,940,178				1,940,178
Cash at end of period		$	2,468,033			$	2,464,914

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

Certain information included in this Quarterly Report on Form 10-QSB contains, and other reports or materials we have filed or will 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 orours 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. These forward-looking statements may relate to financial results and plans for future business activities, and are thus prospective. These 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 these 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 health care delivery network market, general economic conditions, and the risk factors detailed from time to time in the our periodic reports and registration statements filed with the Securities and Exchange Commission. Readers are cautioned to consider the specific business risk factors described in our annual report on Form 10-KSB for the fiscal year ended September 30, 2007 and not to place undue reliance on the forward-looking statements contained herein that speak only as of the date hereof. We undertake no obligation to publicly revise forward-looking statements to reflect events or circumstances that may arise after the date hereof. Any forward-looking statements are made in this Quarterly Report speak only as of the date made.

Overview

We are a leading provider of consumer membership plans offering access to networks which provide discounts to the consumer on a variety of products and services ranging from medical, dental and pharmacy to groceries, restaurants, travel, automotive and a host of others. We also design and market in our consumer package specialty insurance and warranty products on the goods our marketing clients sell to their customers. Our plans are sold to consumers primarily through retail, rent to own, financial and consumer finance clients. We perform turnkey programs including design and fulfillment of marketing pieces and collateral support material, network support, customer service, regulatory compliance, and billing.

Results of Operations

Three Months Ended June 30, 2008, Compared to Three Months Ended June 30, 2007

Revenue increased $.6 million, or 13%, to $5.4 million in the quarter ended June 30, 2008 compared to revenue of $4.8 million for the same period in 2007 primarily attributable to new membership sales for BMS.

Gross profit increased $.2 million, or 11%, to $2.5 million for the quarter ended June 30, 2008 compared to $2.3 million for the same period in 2007. The increase was attributable to additional revenue offset by an increase in product warranty and involuntary unemployment claims. Gross profit as a percentage of revenue was 46% and 47% for the quarters ended June 30, 2008 and 2007, respectively.

Sales and marketing expenses increased $.03 million or 10%, to $.3 million for the quarter ended June 30, 2008, compared to $.3 million for the same period in 2007. The increase was primarily attributable to additional compensation and sales incentives. Sales and marketing expenses as a percentage of revenue was 6% for each of the quarters ended June 30, 2008 and 2007.

General and administrative expenses remained at $.8 million for the quarter ended June 30, 2008 compared to $.8 million for the same period in 2007. General and administrative expenses as a percentage of revenue were 14% and 16% for the quarters ended June 30, 2008 and 2007 respectively.

Other expense decreased to $.04 million for the quarter ended June 30, 2008, compared to $.08 million for the same period in 2007. The decrease was attributable to interest expense.

Nine Months Ended June 30, 2008, Compared to Nine Months Ended June 30, 2007

Our results of operations are those of BMS Holding Company, Inc. and its subsidiaries for the nine months ended June 30, 2007 and those of Alliance HealthCard for the four months ended on that date. Because these combined results of operations only include four months of Alliance HealthCard operations, our results of operations for the nine months ended June 30, 2007 may not be considered comparable to the nine months ended June 30, 2008.

Revenue increased $2.9 million, or 23%, to $15.4 million for the nine months ended June 30, 2008 compared to revenue of $12.6 million for the same period in 2007. The increase consisted of $1.8 million for BMS resulting from new membership sales and $1.1 million attributable to Alliance HealthCard.

Gross profit increased $2.5 million, or 54%, to $7.1 million for the nine months ended June 30, 2008 compared to $4.6 million for the same period in 2007. The increase was primarily attributable to the following: a) additional revenue; b) a decrease in discount benefits, fulfillment and retro-paid expenses; c) an increase in product warranty and involuntary unemployment claims. Gross profit as a percentage of revenue was 46% and 37% for the nine months ended June 30, 2008 and 2007, respectively.

Sales and marketing expenses increased $.2 million or 38%, to $.9 million for the nine months ended June 30, 2008, compared to $.7 million for the same period in 2007. The increase was primarily attributable to additional compensation and sales incentives. Sales and marketing expenses as a percentage of revenue were 6% and 5% for the nine months ended June 30, 2008 and 2007, respectively.

General and administrative expenses increased $.1 million or 8%, to $2.3 million for the nine months ended June 30, 2008 compared to $2.2 million for the same period in 2007. Expenses for 2007 consisted of one time merger expenses of $.3 million. Excluding one-time merger expenses from the nine months ended June 30, 2007, there was an increase of $.5 million for the nine months ended June 30, 2008. The $.5 million increase was primarily attributable to only four months of operations for Alliance for the nine months ended June 30, 2007. General and administrative expenses as a percentage of revenue were 15% and 17% for the nine months ended June 30, 2008 and 2007, respectively.

Other income increased to $.4 million for the nine months ended June 30, 2008 compared to $(.1) million for the same period in 2007. The increase was primarily attributable to $.5 million related to the settlement agreement of the Caribbean American Property Insurance Company.

Liquidity and Capital Resources

As of June 30, 2008, we had cash of $3.0 million and a working capital deficit of $1.1 million. Our current liabilities include the current portion of notes payable to related parties. These note obligations are only payable in the event that our consolidated earnings before interest, income taxes, depreciation and amortization, determined in accordance with generally accepted accounting principles for each of the fiscal years ending on September 30, 2007, 2008 and 2009 (“Actual EBITDA”) exceeds $4,200,000 (the “Targeted EBITDA”). If the Targeted EBITDA level is not achieved then the principal amount of these notes will be reduced by an amount equal to the percentage by which the Actual EBITDA for each of those fiscal years falls short of 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 foregoing payment terms.

Cash provided by operating activities was $3.0 million for the nine months ended June 30, 2008 and $1.7 million for the nine months ended June 30, 2007. The increase of $1.3 million was primarily attributable to an increase in revenue and net income for the nine months ended June 30, 2008.

Cash used in investing activities was $.1 and $.1 million for the nine months ended June 30, 2008 and June 30, 2007, respectively.

Cash used in financing activities was $2.1 million for the nine months ended June 30, 2008 compared to $1.1 million for the nine months ended June 30, 2007. The increase of $1.0 million was primarily attributable to the following:

•		Cash received from the merger of $1.1 million for the nine months ended June 30, 2007;
•		A reduction of $1.6 million for distributions paid to former shareholders of BMS Holding Company, Inc. for the nine months ended June 30, 2007;
•		Promissory note payments to related parties of $1.7 million for the nine months ended June 30, 2008;
•		Dividend payments to former BMS shareholders of $.4 million for the nine months ended June 30, 2008;
•		Proceeds of $.1 million from exercise of stock options during the nine months ended June 30, 2008; and
•		Repayment of our line of credit for $.15 million for the nine months ended June 30, 2008.

We anticipate that our cash on hand, together with cash flow from operations, will be sufficient for the next 12 months to finance operations, make capital investments in the ordinary course of business, and pay indebtedness when due.

ITEM 3. CONTROLS AND PROCEDURES

The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Our principal executive officer and principal financial officer, based on their evaluation of the effectiveness of our disclosure controls and procedures as of the end of the quarterly period covered by this Quarterly Report, concluded that our disclosure controls and procedures were effective for this purpose. There were no significant changes in our internal control over financial reporting during the three months ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 3A (T). CONTROLS AND PROCEDURES

Internal control over financial reporting consists of control processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with generally accepted accounting principles. To the extent that components of our internal control over financial reporting are included in our disclosure controls, they are included in the scope of the evaluation by our principal executive officer and principal financial officer referenced above. There were no significant changes in our internal control over financial reporting during the three months ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. (Also see “Item 3. Controls and Procedures,” above.)

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On December 14, 2005, Bankers Fidelity Life Insurance Company (“Bankers Fidelity”) filed a demand for arbitration with Alliance HealthCard, Inc. The dispute involves our and Bankers Fidelity’s relative rights under the Prescription Drug Card and our Multi-Service Benefits Agreement. The demand involves a determination of our responsibilities, as well as certain other contract rights between us and Bankers Fidelity.

Bankers Fidelity Life Insurance Company seeks (1) payment by Alliance HealthCard, Inc. for prescriptions purchased by an Rx Card Holder or a Basic Card Holder; (2) full and complete copies of certain reports, including Utilization Summary Report, Customer Inquiry Report, Cancellation Report, and Membership Information Report; and (3) damages for fraud. The amount of the claim sought is $75,000. Other relief sought includes attorney fees, interest and arbitration costs.

We are vigorously defending all claims made by Bankers Fidelity Life Insurance Company. The demand for arbitration is still in the discovery stage and therefore it is not possible at this time to determine the outcome or the effect, if any, that the outcome may have on our results of operations and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There are no items to report under this item.

Item 3. Defaults Upon Senior Securities.

There are no items to report under this item.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the three months ended June 30, 2008.

Item 5. Other Information.

Three are no items to report under this item.

Item 6. Exhibits

Exhibit 31.1 — Certification Pursuant to Rule 13a-14(a) under the Securities Exchange act of 1934, as amended

Exhibit 31.2 — Certification Pursuant to Rule 13a-14(a) under the Securities Exchange act of 1934, as amended.

Exhibit 32.1 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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

EXHIBIT INDEX

Exhibit
No.		Description
Exhibit 31.1		Certification Pursuant to Rule 13a-14(a) under the Securities Exchange act of 1934, as amended
Exhibit 31.2		Certification Pursuant to Rule 13a-14(a) under the Securities Exchange act of 1934, as amended.
Exhibit 32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002