Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

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

 

**For thequarterly period ended:  June 30, 2008**

 

**or**

 

**o****                                ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE EXCHANGEACT OF 1934**

 

**For****the transition period from                        to                       **

 

**Commission File No. 000-51731**

 

**NATIONAL HEALTH PARTNERS, INC.**

(Exactname of registrant as specified in its charter)

 

| **Indiana**                     | ** ** | **04-3786176**      |
|---------------------------------|------------|---------------------|
| (State or other jurisdiction of |       | (IRS Employer       |
| incorporation or organization)  |       | Identification No.) |

 

**120Gibraltar RoadSuite 107Horsham, PA  19044**(Address ofPrincipal Executive Offices)

 

**(215)682-7114**

(Issuer’sTelephone Number, including Area Code)

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1394during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes  x   No  o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large  accelerated filer o                                        |   | Accelerated  filer o    |
|------------------------------------------------------------------------|--------|------------------------------|
|                                                                   |   |                         |
| Non-accelerated  filer (Do not check if a smaller reporting company) o |   | Smaller  reporting company x |

 

Indicate bycheck mark whether the registrant is a shell company (as defined in rule 12b-2of the Exchange Act).

 

Yes  o   No  x

 

**APPLICABLEONLY TO ISSUERS INVOLVED IN**

**BANKRUPTCYPROCEEDINGS DURING THE**

**PRECEDINGFIVE YEARS**

 

Indicate bycheck mark whether the registrant has filed all documents and reports requiredto be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of1934 subsequent to the distribution of securities under a plan confirmed by acourt.

 

Yes  o   No  o

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate:  There were 50,679,356 shares ofthe issuer’s common stock, $.001 par value per share, issued and outstanding onAugust 11, 2008.

 

 

 

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**TABLE OF CONTENTS**

 
| ** **                                    | ** **                                                                                                        | **Page** |
|-----------------------------------------------|-------------------------------------------------------------------------------------------------------------------|----------|
|                                          |                                                                                                              |     |
| **PART I –  FINANCIAL INFORMATION** |
|                                          |                                                                                                              |     |
| Item 1.                                       | Financial Statements                                                                                              | 1        |
|                                          |                                                                                                              |     |
|                                          | Consolidated  Balance Sheets at June 30, 2008 (Unaudited) and December 31, 2007                         | 1        |
|                                          |                                                                                                              |     |
|                                          | Consolidated Statements of Operations for  the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited) | 2        |
|                                          |                                                                                                              |     |
|                                          | Consolidated  Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007  (Unaudited)          | 3        |
|                                          |                                                                                                              |     |
|                                          | Notes to  Consolidated Financial Statements (Unaudited)                                                           | 4        |
|                                          |                                                                                                              |     |
| Item 2.                                       | Management’s Discussion and Analysis                                                                         | 16       |
|                                          |                                                                                                              |     |
| Item 4T.                                      | Controls and Procedures                                                                                           | 26       |
|                                          |                                                                                                              |     |
| **PART II – OTHER INFORMATION**     |
|                                          |                                                                                                              |     |
| Item 2.                                       | Unregistered Sales of Equity Securities and  Use of Proceeds                                                      | 27       |
|                                          |                                                                                                              |     |
| Item 6.                                       | Exhibits                                                                                                          | 28       |

 

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**PART I– FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

** **

**National Health Partners, Inc. and Subsidiaries**

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                             | ** ** | **June 30,** | ** ** | ** **            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                             | ** ** | **2008**          | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                                                             | ** ** | **(unaudited)**   | ** ** | **2007**              | ** ** |
|                                                                                                                                                                                   |       |              |       |                  |       |
| **Assets**                                                                                                                                                                             |       |              |       |                  |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Current assets:                                                                                                                                                                        |       |              |       |                  |       |
| Cash                                                                                                                                                                                   |       | $                 | 54,651     |                  | $          | 32,206 |   |
| Accounts receivable, net                                                                                                                                                               |       | —            |       | 21,257                |       |
| Prepaid expense                                                                                                                                                                        |       | 362,652           |       | 182,228               |       |
| Deposits                                                                                                                                                                               |       | 399,578           |       | 276,389               |       |
| Other current assets                                                                                                                                                                   |       | 11,775            |       | 4,500                 |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total current assets                                                                                                                                                                   |       | 828,655           |       | 516,580               |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Property and equipment, net                                                                                                                                                            |       | 49,317            |       | 69,550                |       |
| Prepaid expense                                                                                                                                                                        |       | 1,030,389         |       | 117,702               |       |
| Deposits                                                                                                                                                                               |       | 19,000            |       | 19,000                |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total assets                                                                                                                                                                           |       | $                 | 1,927,362  |                  | $          | 722,832 |   |
|                                                                                                                                                                                   |       |              |       |                  |       |
| **Liabilities and stockholders’ equity**                                                                                                                                          |       |              |       |                  |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Current liabilities                                                                                                                                                                    |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                       |       | $                 | 231,698    |                  | $          | 262,355 |   |
| Refunds payable                                                                                                                                                                        |       |              | 4,740      |                  |       |   |
| Accrued expenses                                                                                                                                                                       |       | 8,126             |       | 39,984                |       |
| Deferred revenue                                                                                                                                                                       |       | 82,557            |       | 17,338                |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total current liabilities                                                                                                                                                              |       | 327,121           |       | 319,677               |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total liabilities                                                                                                                                                                      |       | 327,121           |       | 319,677               |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Commitments and contingencies                                                                                                                                                          |       |              |       |                  |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Stockholders’ equity:                                                                                                                                                             |       |              |       |                  |       |
| Common stock, $0.001 par value, 100,000,000  shares authorized,47,454,356 and 39,419,856 shares issued and outstanding on June 30, 2008 and  December 31, 2007, respectively |       | 47,454            |       | 39,420                |       |
| Additional paid-in capital                                                                                                                                                             |       | 24,499,524        |       | 22,174,891            |       |
| Deferred compensation                                                                                                                                                                  |       | (308,389          | )          | (410,524              | )          |
| Accumulated deficit                                                                                                                                                                    |       | (22,638,348       | )          | (21,400,632           | )          |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total stockholders’ equity                                                                                                                                                        |       | 1,600,241         |       | 403,155               |       |
|                                                                                                                                                                                   |       |              |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                        |       | $                 | 1,927,362  |                  | $          | 722,832 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements

 

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**National Health Partners, Inc. and Subsidiaries**

Consolidated Statements of Operations (Unaudited)

 
| ** **                                                              | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                              | ** ** | **June 30,**                                  | ** ** | **June 30,**                                | ** ** |
| ** **                                                              | ** ** | **2008**                                           | ** ** | **2007**                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Net revenue                                                             |       | $                                                  | 882,016    |                                             | $          | 1,179,197 |   | $ | 1,704,193 |   | $ | 2,223,705 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Direct costs                                                            |       | 233,535                                            |       | 656,873                                          |       | 701,410 |   | 1,224,956 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Gross profit                                                            |       | 648,481                                            |       | 522,324                                          |       | 1,002,783 |   | 998,749 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Operating expenses:                                                     |       |                                               |       |                                             |       |   |   |   |   |
| Selling and marketing                                                   |       | 56,050                                             |       | 39,312                                           |       | 134,975 |   | 111,250 |   |
| General and administrative                                              |       | 973,468                                            |       | 880,217                                          |       | 2,075,568 |   | 1,930,770 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Total operating expenses                                                |       | 1,029,518                                          |       | 919,529                                          |       | 2,210,543 |   | 2,042,020 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Loss from operations                                                    |       | (381,037                                           | )          | (397,205                                         | )          | (1,207,760 | ) | (1,043,271 | ) |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Other income (expense):                                                 |       |                                               |       |                                             |       |   |   |   |   |
| Interest income                                                         |       | 35                                                 |       | 8,089                                            |       | 44 |   | 14,419 |   |
| Loss on extinguishment of debt                                          |       | —                                             |       | —                                           |       | (30,000 | ) | — |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Total other income (expense)                                            |       | 35                                                 |       | 8,089                                            |       | (29,956 | ) | 14,419 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Net loss                                                                |       | $                                                  | (381,002   | )                                                | $          | (389,116 | ) | $ | (1,237,716 | ) | $ | (1,028,852 | ) |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Loss per share — basic and diluted                                 |       | $                                                  | (0.01      | )                                                | $          | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Weighted average number of shares outstanding  — basic and diluted |       | 46,033,765                                         |       | 32,949,106                                       |       | 42,930,508 |   | 30,876,650 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements

 

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**National Health Partners, Inc. and Subsidiaries**

Consolidated Statements of Cash Flows (Unaudited)

 
| ** **                                                                   | ** ** | **For the Six Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                   | ** ** | **June 30,**                                | ** ** |
| ** **                                                                   | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                                                         |       |                                             |       |   |   |
| **Cash flows from operating activities**                                     |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Net loss                                                                     |       | $                                                | (1,237,716 | ) | $ | (1,028,852 | ) |
| Adjustments to reconcile net loss to net  cash used by operating activities: |       |                                             |       |   |   |
| Common stock issued for services and amortization of prepaid services        |       | 364,047                                          |       | 390,429 |   |
| Options issued for services                                                  |       | 136,988                                          |       | 28,246 |   |
| Depreciation                                                                 |       | 20,233                                           |       | 38,533 |   |
| Loss on extinguishment of debt                                               |       | 30,000                                           |       | —- |   |
| Changes in operating assets and  liabilities:                                |       |                                             |       |   |   |
| Decrease (increase) in accounts receivable                                   |       | 21,257                                           |       | (175,400 | ) |
| Increase in deposits                                                         |       | (123,189                                         | )          | (108,651 | ) |
| Decrease in other current assets                                             |       | (7,275                                           | )          | — |   |
| Decrease in accounts payable and accrued  expenses                           |       | (62,514                                          | )          | (48,406 | ) |
| Increase in refunds payable                                                  |       | 4,740                                            |       | —- |   |
| Increase in deferred revenue                                                 |       | 65,219                                           |       | (195,328 | ) |
|                                                                         |       |                                             |       |   |   |
| Net cash used by operating activities                                        |       | (788,210                                         | )          | (1,099,429 | ) |
|                                                                         |       |                                             |       |   |   |
| **Cash flows from investing activities**                                     |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Net cash provided by investing activities                                    |       | —                                           |       | — |   |
|                                                                         |       |                                             |       |   |   |
| **Cash flows from financing activities**                                     |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Proceeds from sale of stocks and warrants                                    |       | 183,240                                          |       | — |   |
| Proceeds from exercise of warrants                                           |       | 597,415                                          |       | — |   |
| Proceeds from issuance of note payable                                       |       | 50,000                                           |       | — |   |
| Payments on note payable                                                     |       | (20,000                                          | )          | — |   |
|                                                                         |       |                                             |       |   |   |
| Net cash provided by financing activities                                    |       | 810,655                                          |       | — |   |
|                                                                         |       |                                             |       |   |   |
| Net increase (decrease) in cash                                              |       | 22,445                                           |       | (1,099,429 | ) |
| Cash at beginning of period                                                  |       | 32,206                                           |       | 1,596,969 |   |
|                                                                         |       |                                             |       |   |   |
| Cash at end of period                                                        |       | $                                                | 54,651     |   | $ | 497,540 |   |
|                                                                         |       |                                             |       |   |   |
| **Supplemental disclosure of cash flow  information**                        |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Cash paid for interest                                                       |       | $                                                | —     |   | $ | — |   |
| Cash paid for taxes                                                          |       | $                                                | —     |   | $ | — |   |
|                                                                         |       |                                             |       |   |   |
| **Schedule of non-cash financing activities**                                |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Common stock issued for services                                             |       | $                                                | 1,360,200  |   | $ | 190,300 |   |
| Stock options issued for services                                            |       | $                                                | 358,960    |   | $ | — |   |
| Common stock issued for extinguishment of  debt                              |       | $                                                | 60,000     |   | $ | 95,796 |   |
| Common stock issued for stock offering  costs                                |       | $                                                | 27,450     |   | $ | — |   |

 

The accompanying notes are an integral partof these consolidated financial statements

 

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**National Health Partners, Inc.and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30, 2008

 

**Note1.  Description of Business**

 

NationalHealth Partners, Inc. (the “Company”) was organized on March 10, 1989as “Spectrum Vision Systems of Indiana, Inc.” under the laws of the Stateof Indiana.  The Company changed its nameto “National Health Partners, Inc.” on March 13, 2001.

 

TheCompany sells membership programs that encompass all aspects of healthcare,including physicians, hospitals, ancillary services, dentists, prescriptiondrugs and vision care through a national healthcare savings network called “CARExpress.”  The Company derives almost all of its revenuefrom the monthly membership fees it receives from its members.  The Company markets its programs through adirect sales force, brokers and agents, unions and associations, chambers ofcommerce, and a variety of other organizations. The Company typically pays these organizations commissions on the saleprice of the membership programs.  Theseorganizations typically offer and sell the Company’s membership programs on apart-time basis and may engage in other related or unrelated businessactivities, including selling the products or services of the Company’scompetitors.  The Company’s agreementswith these organizations are generally for a term of one year and renewautomatically for additional one-year terms unless written notice oftermination is delivered by either party to the other at least 30 days prior tothe then-current term.

 

TheCompany contracts with preferred provider organizations and other providernetworks for access to the discounted rates they have negotiated with theirhealthcare providers.  The principalsuppliers of the healthcare providers that comprise CARExpress are CareMark,Aetna, Optum, Outlook Vision, Integrated Health, Three Rivers and HealthFi.  The Company selects and utilizes only thoseprovider networks that it believes can deliver adequate savings to its memberswhile providing adequate support for its membership programs with thehealthcare providers.  The Companytypically pays a per member per month fee for use of the provider networks thatis determined in part based on the number of providers participating in thenetwork, the number of members accessing the network, and the particularproducts or services offered by the providers. The Company’s agreements with the provider networks are generally for aterm of between one and two years, may be terminated by either party on between45 and 180 days’ prior written notice, and renew automatically for additionalterms unless so terminated.  Most ofthese agreements are non-exclusive and contain confidentiality provisions.

 

**Note2.  Basis of Presentation**

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America and in conformity with the instructions to Form 10-Q and Article 8-03of Regulation S-X and the related rules and regulations of the Securitiesand Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, thedisclosures included in these financial statements are adequate to make theinformation presented not misleading.

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note2.  Basis of Presentation (Continued)**

 

Theunaudited consolidated financial statements included in this document have beenprepared on the same basis as the annual consolidated financial statements andin management’s opinion, reflect all adjustments, including normal recurringadjustments, necessary to present fairly the Company’s financial position,results of operations and cash flows for the interim periods presented. Theunaudited consolidated financial statements should be read in conjunction withthe audited consolidated financial statements and the notes thereto for theyear ended December 31, 2007 included in the Company’s Annual Report on Form 10-KSB.  The results of operations for the three and sixmonths ended June 30, 2008, respectively, are not necessarily indicativeof the results that the Company will have for any subsequent quarter or fullfiscal year.

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Actual results could differ from those estimates.  The financial statements include the balancesof National Health Partners, Inc. and its wholly-owned subsidiaries.  All material inter-company balances andtransactions have been eliminated in consolidation.  Certain amounts in the financial statementsfor 2007 have been reclassified to conform to the 2008 presentation.  These reclassifications did not result in anychange to the previously reported total assets, net loss or stockholders’equity.

 

TheCompany’s financial statements have been prepared using accounting principlesgenerally accepted in the United States of America applicable to a goingconcern which contemplates the realization of assets and liquidation ofliabilities in the normal course of business. The Company has historically incurred significant losses, which raisessubstantial doubt about the Company’s ability to continue as a goingconcern.  The accompanying financialstatements do not include any adjustments relating to the recoverability andclassification of asset carrying amounts or the amount and classification ofliabilities that might result from the outcome of this uncertainty.

 

**Note3.  Significant Accounting Policies**

 

Exceptas set forth below, as of June 30, 2008, the Company’s significantaccounting policies and estimates, which are detailed in the Company’s AnnualReport on Form 10-KSB for the year ended December 31, 2007, have notchanged materially.

 

**RevenueRecognition**

 

The Company’s revenue consists of the monthlymembership fees that it receives from the sale of its membership programs aswell as any shipping and handling fees that it may receive for the shipment ofmembership packages to new members.  The date a monthly membership begins varies for each individual memberdepending upon when the particular member purchased the membership.  The Company recognizes the membership fees asrevenue when persuasive evidence of an arrangement exists, delivery orperformance has occurred, the sales price is fixed

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note3.  Significant Accounting Policies(Continued)**

 

**RevenueRecognition (Continued)**

 

anddeterminable, and collectibility is reasonably assured in accordance with Staff Accounting Bulletin Topic 13.A (“SABTopic 13.A”).  The fees are recognized asrevenue on a straight-line basis over the longer of the initial contractualterm or the expected period during which the services will be performed if therelationship with the member is expected to extend beyond the initialcontractual term and the member continues to benefit from the payment of thefees.

 

The Company recognizes the monthly membership feesin accordance with SAB Topic 13.A.  Thecontractual term for the monthly membership fees is equal to the monthlymembership period.   Members havethe right to terminate their membership at any time and may do so at the end ofeach month before they pay the membership fee for the next month.   The expected period during which the serviceswill be performed in return for the monthly membership fees will never extendbeyond the one-month membership period since the member will pay anothermonthly membership fee before the next monthly membership period begins. As a result, the Company recognizes the monthly membership fees on astraight-line basis over the contract term since the relationship with themember is not expected to extend beyond the contractual term and the member isnot expected to continue to benefit from the payment of the membership feeafter the contractual term has expired.

 

# **The Companyrecognizes the monthly membership fees in accordance with SAB Topic13.A.3.f.  The shipping and handling feesare one-time payments received by the Company from the applicable members whenthey first become a member.  These fees are not paid repeatedly eachmonth.  The monthly contract term is, therefore, not necessarily equal tothe expected period during which services will be performed since the periodduring which services will be performed is the average period during which eachperson is expected to be a member.  The Company calculates the expectedperiod during which it expects its members to remain members as of the end ofeach fiscal quarter.  It does so by determining the total number of membersthat it had on such date, then dividing the total number of months for whichall of such members had been a member as of that date by the number of suchmembers.  This provides the average number of months each member has beena member.  The expected period during which services will be performed(i.e., the expected period during which each member will remain a member) hasalways exceeded the initial monthly membership period.  Therefore, the Companyrecognizes shipping and handling fees on a straight-line basis over theexpected period during which the services will be performed since therelationship with the member is expected to extend beyond the initialcontractual term and the member is expected to continue to benefit from thepayment of the shipping and handling fees after the initial contractual termhas expired.**

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note3.  Significant Accounting Policies(Continued)**

 

**RevenueRecognition (Continued)**

 

Atthe beginning of each membership period, the monthly membership fee is paid bythe member and recorded as deferred revenue. The Company then recognizes revenue as the services are rendered.  Shipping and handling fees that the Companyreceives for the shipment of membership packages to new members are included inits membership fees and recorded as deferred revenue.  The Company typically receives cash withinfive days of the date the membership fee is charged to a member’s credit card.

 

The Company offers a free trial to some of its members.  The Company does not recognize any membershiprevenue during the free-trial period.  Inthe event the member continues the membership after the free-trial periodexpires, the member pays the monthly membership fee and the Company recognizes revenue asservices are rendered.

 

TheCompany typically offers a 30-day money-back guarantee to its members.  Members can cancel their membership duringthe first 30 days of their initial membership period and receive a fullrefund.  After that, members can canceltheir membership at the end of any subsequent monthly membership period.  If a member cancels his or her membership andthe member’s credit card has already been processed for the next monthlymembership period, a refund check will be issued to the member and no revenuewill be recognized for that period.  TheCompany recognizes refunds as expense in accordance with SAB Topic 13.A.4.a andStatement of Financial Accounting Standards 48, *“RevenueRecognition When Right of Return Exists,”* which permit companies torecognize refundable membership fees, net of estimated refunds, as earnedrevenue over the membership term in limited circumstances if the followingcriteria are met: (i) the estimate of cancellations and refunded revenueare being made for a large pool of homogeneous items (membership transactionswith the same characteristics, such as terms, periods, class of customers,nature of services, etc.), (ii) reliable estimates of the expected refundscan be made on a timely basis and it is remote that material adjustments topreviously recognized revenue would be required, (iii) there is asufficient company-specific historical basis upon which to estimate the refundsand such historical experience is predictive of future events, and (iv) theamount of the membership fees specified in the agreement at the outset of the arrangementis fixed, other than the customer’s right to request a refund.

 

**Note 4.  Stock Compensation Expense**

 

TheCompany records employee stock-based compensation using the fair valuerecognition provisions of Statement of Financial Accounting Standards No. 123(revised 2004), *“Share-Based Payment*,*”* using the modified prospective transition method, andrecords non-employee stock-based compensation expense in accordance withStatement of Financial Accounting Standards No. 123, *“AccountingFor Stock-Based Compensation”* and Emerging Issues Task Force No. 96-18*“Accounting for Equity Instruments That Are Issuedto Other Than Employees for Acquiring or in Conjunction with Selling Goods orServices”* (“EITF 96-18”).  Inaccordance therewith, the Company recognized stock compensation expense of$213,225 and $129,188 for the three months ended June 30, 2008 and 2007,respectively, and $501,036 and $418,675 for the six months ended June 30,2008 and 2007, respectively.

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note 5.** **Loss Per Share**

 

Basicloss per share is based on the weighted average number of shares of the Company’scommon stock outstanding during the applicable period, and is calculated bydividing the reported net loss for the applicable period by the weightedaverage number of shares of common stock outstanding during the applicable period.  The Company calculates diluted loss per shareby dividing the reported net loss for the applicable period by the weightedaverage number of shares of common stock outstanding during the applicable periodas adjusted to give effect to the exercise of all potentially dilutive optionsand warrants outstanding at the end of the period.  An aggregate of 18,739,092 and 19,372,684shares of common stock underlying options and warrants that were outstanding onJune 30, 2008 and 2007, respectively, have been excluded from thecomputation of diluted earnings per share because they are anti-dilutive.  As a result, basic loss per share was equalto diluted loss per share for each period.

 
| ** **                                                                         | ** ** | **For the Three Months  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                                          | ** ** | **2007**                                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                               |       |                                                              |       |                                                            |       |   |   |   |   |
| Net loss as reported                                                               |       | $                                                                 | (381,002   | )                                                               | $          | (389,116 | ) | $ | (1,237,716 | ) | $ | (1,028,852 | ) |
|                                                                               |       |                                                              |       |                                                            |       |   |   |   |   |
| Weighted average number  of shares outstanding –  basic and diluted |       | 46,033,765                                                        |       | 32,949,106                                                      |       | 42,930,508 |   | 30,876,650 |   |
|                                                                               |       |                                                              |       |                                                            |       |   |   |   |   |
| Loss per share – basic and diluted                                            |       | $                                                                 | (0.01      | )                                                               | $          | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) |

 

**Note 6.  Property and Equipment**

 

Propertyand equipment consisted of the following at June 30, 2008:

 
| **Asset**                      | ** ** | **Amount** | ** ** |
|--------------------------------|------------|------------|------------|
|                           |       |       |       |
| Computers                      |       | $          | 60,708     |   |
| Software                       |       | 6,109      |       |
| Furniture                      |       | 27,968     |       |
| Telephone                      |       | 80,780     |       |
| Website                        |       | 106,477    |       |
| Less: accumulated depreciation |       | (232,725   | )          |
|                           |       |       |       |
| Net property and equipment     |       | $          | 49,317     |   |

 

Depreciationexpense was $8,570 and $18,655 for the three months ended June 30, 2008and 2007, respectively, and $20,233 and $38,533 for the six months ended June 30,2008 and 2007, respectively.

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note 7. Deposits**

 

Depositsconsist of cash reserves held by merchant processors that the Company uses toprocess credit card transactions and the security deposit held by the lessor ofthe Company’s office space.  Each agreement that the Company has enteredinto with merchant processors contains a standard provision that gives themerchant processors the right to withhold funds from the proceeds generated bythe Company through the sale of its membership programs through credit cardtransactions.  The amount of the reserves may be increased or decreased byeach merchant processor at any time based on the perceived risk exposure of themerchant processor.  The merchant processors are required to return theamount of funds that they withhold from the proceeds within no less than sixmonths and no more than nine months of the date such funds were originallywithheld.  As a result, the Company expects to receive all such fundswithin six to nine months of the date such funds were originally withheld bythe merchant processors.

 

Asof June 30, 2008, the Company had a total of $418,578 in deposits.  Of this amount, $173,267 was being held byOptimal Payments, Inc., $212,778 was being held by PowerPay PaymentSystems, Inc., $19,000 was being held by the lessor of the Company’soffice space, $12,588 was being held by PayTran Payment Systems, and theremainder was being held by other entities.

 

**Note 8.  Commitments and Contingencies**

 

The Company’s material commitments and contingencies consist of anoperating lease for its office space in Pennsylvania and employment agreementswith its executive officers.

 

**Operating Leases**

 

TheCompany is a party to a lease for its office facility located in Horsham,Pennsylvania which was most recently amended on March 13, 2007.  The amendment extended the term of the leasefrom May 31, 2007 to May 31, 2010. The amendment provides for an initial monthly rent payment of $7,803 andan initial monthly operating expense payment of approximately $5,620.

 

Future minimum lease payments under this facility lease are as follows:

 
| **Fiscal Year** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2008                 |       | $          | 86,879     |   |
| 2009                 |       | 166,672    |       |
| 2010                 |       | 70,060     |       |
|                 |       | $          | 323,611    |   |

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note 8.  Commitments and Contingencies (Continued)**

 

**EmploymentAgreements**

 

TheCompany is a party to employment agreements with each of its current executiveofficers.  Future minimum payments underthese employment agreements are as follows:

 
| **Fiscal Year** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2008                 |       | $          | 555,126    |   |
| 2009                 |       | 748,107    |       |
| 2010                 |       | 56,315     |       |
|                 |       | $          | 1,359,548  |   |

 

**Note 9.  2006 Stock Incentive Plan**

 

OnFebruary 2, 2006, the Company adopted the National Health Partners, Inc.2006 Stock Incentive Plan.  Under theplan, 4,500,000 shares of common stock may be granted to employees, officersand directors of, and consultants and advisors to, the Company under awardsthat may be made in the form of stock options, warrants, stock appreciationrights, restricted stock, restricted units, unrestricted stock and otherequity-based or equity-related awards. As of June 30, 2008, 393,425 shares of common stock were availablefor issuance under the plan.  The planterminates on February 1, 2016.  On February 6,2006, the Company filed a registration statement on Form S-8, File No. 333-131589,with the SEC covering the public sale of the 4,500,000 shares of common stockavailable for issuance under the plan.

 

**Note 10.  2008 Stock Incentive Plan**

 

OnApril 7, 2008, the Company adopted the National Health Partners, Inc.2008 Stock Incentive Plan.  Under theplan, 3,000,000 shares of common stock may be granted to employees, officersand directors of, and consultants and advisors to, the Company under awardsthat may be made in the form of stock options, warrants, stock appreciationrights, restricted stock, restricted units, unrestricted stock and otherequity-based or equity-related awards. As of June 30, 2008, 300,000 shares of common stock were availablefor issuance under the plan.  The planterminates on April 6, 2018.  On April 10,2008, the Company filed a registration statement on Form S-8, File No. 333-150177,with the SEC covering the public sale of the 3,000,000 shares of common stockavailable for issuance under the plan.

 

**Note 11.  401(k) Plan**

** **

On January 15, 2007, the Company adopted the National HealthPartners, Inc. 401(k) Plan. Under the plan, eligible employees may elect to contribute up to 100% oftheir compensation to the 401(k) Plan each year, subject to certain IRSlimitations.  The Company contributes100% of the

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note11.  401(k) Plan (Continued)**

 

first3% of the employee’s contribution and 50% of the next 2% of the employee’scontribution. The Company contributed $8,025 and $9,244 to the 401(k) Planduring the three months ended June 30, 2008 and 2007, respectively, and$15,645 and $11,438 to the 401(k) Plan during the six months ended June 30,2008 and 2007, respectively.

 

**Note 12.  Common Stock andWarrants**

 

The Company’s authorized capital consisted of 100,000,000 shares ofcommon stock, $0.001 par value per share, at June 30, 2008 and 2007,respectively, of which 47,454,356 and 32,949,106 shares of common stock were outstanding at June 30,2008 and 2007, respectively.  Warrantsexercisable into an aggregate of 9,819,092 and 12,637,684 shares of the Company’scommon stock were outstanding on June 30, 2008 and 2007, respectively.

 

TheCompany estimates the fair value of warrants issued for services on the date ofgrant by using the Black-Scholes pricing model. Under this model, the Company used the following weighted-averageassumptions to determine the fair value of the warrants that have been issuedfor services: a dividend yield of zero percent, an expected volatility of 282%,a risk-free interest rate of 3.5% and a remaining contractual term of 2years.  The Company follows EITF 96-18to recognize the fair value of warrants granted.  Under EITF 96-18, the fair value of thewarrants should be recognized as the services are rendered.  The Company is recognizing the cost ofservices evenly over the term of the agreements since the services are beingrendered on an ongoing basis during the term of the agreements.

 

**Non Capital-Raising Transactions**

 

InJanuary and February 2008, the Company issued an aggregate of 330,000shares of common stock to three consultants pursuant to individual consultingagreements. The shares were valued at the closing price of the Company’s commonstock on the date the agreements were executed for total consideration of$113,300, all of which was recognized as expense during the six months ended June 30,2008.

 

In February 2008, the Companyissued 240,000 shares of common stock to the holder of a promissory note in partialconsideration for the extinguishment of debt.  The shares were issued at the closing price ofthe Company’s common stock on the date the agreement was executed for totalconsideration of $60,000, all of which was recognized as expense during the sixmonths ended June 30, 2008.

 

In April 2008,the Company issued an aggregate of 2,700,000 shares of common stock toconsultants for marketing and advisory services pursuant to individualconsulting agreements.  The shares were valuedat the closing price of the Company’s common stock on the date the agreementswere executed for total consideration of $1,246,900.  The Company recognized $49,571 of expenseduring the three and six months ended June 30, 2008 in connection with theissuance of these shares.

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note 12.  Common Stock andWarrants (Continued)**

 

## **Capital-Raising Transactions**

 

In February 2008, theCompany completed a private offering of Class A warrants exercisable into1,000,000 shares of common stock for aggregate gross proceeds of $100.  The Class A warrants had an exerciseprice of $0.12 per share, were exercisable until February 29, 2008, andexpired at the end of the exercise period.

 

In February 2008, theCompany sold one Class A warrant exercisable into 500,000 shares of commonstock, one Class B warrant exercisable into 1,000,000 shares of commonstock and one Class C warrant exercisable into 1,000,000 shares of commonstock to an accredited investor for aggregate gross proceeds of $100.  The Class A warrants had an exerciseprice of $0.20 per share, were exercisable until February 29, 2008, andexpired at the end of the exercise period. The Class B warrants have an exercise price of $0.30 per share, areexercisable until June 30, 2008, are callable by the Company if certaincriteria are satisfied, and expire at the end of the exercise period.  The Class C warrants have an exerciseprice of $0.40 per share, are exercisable until December 31, 2008, arecallable by the Company if certain criteria are satisfied, and expire at theend of the exercise period.

 

In February 2008, theCompany completed a private offering of Class A warrants exercisable into 600,000shares of common stock for aggregate cash proceeds of $60.  The Class A warrants were sold in unitscomprised of one Class A warrant at a purchase price of $1.00 perunit.  The Class A warrants had anexercise price of $0.12 per share, were until March 28, 2008, and expiredat the end of the exercise period.

 

In April 2008, theCompany completed a private offering of 500,000 shares of common stock and Class Awarrants exercisable into 500,000 shares of common stock for aggregate grossproceeds of $75,000.  The Class Awarrants had an exercise price of $0.12 per share, were exercisable until April 18,2008, and expired at the end of the exercise period.    The Company paid finder fees consisting of75,000 shares of common stock and a Class A warrant exercisable into75,000 shares of common stock in connection with this offering.

 

In June 2008, theCompany completed a private offering of 675,000 shares of common stock, Class Awarrants exercisable into 675,000 shares of common stock and Class Bwarrants exercisable into 675,000 shares of common stock for aggregate cashconsideration of $108,000.  Thesesecurities were sold in units comprised of one share of common stock, one Class Awarrant and one Class B warrant at a purchase price of $0.16 perunit.  The Company agreed to provide eachinvestor with an opportunity to include all shares of common stock and allshares of common stock issued upon the exercise of the warrants in anyregistration statement that the Company files with the SEC for the purposes ofa public offering of the Company’s securities (excluding registrationstatements on Forms S-4 or S-8).  The Class Awarrants are initially exercisable into one share of common stock at anexercise price of $0.20 per share, are exercisable during a period

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note 12.  Common Stock andWarrants (Continued)**

 

## **Capital-Raising Transactions(Continued)**

 

of 90 days beginning on thedate of grant and expire at the end of the exercise period.  The Class B warrants are initiallyexercisable into one share of common stock at an exercise price of $0.30 pershare, are exercisable during a period beginning on the date of grant andending on December 31, 2008, and expire at the end of the exercise period.The Company paid finder fees consisting of 101,250 units identical to the unitssold in the offering.

 

Duringthe six months ended June 30, 2008, the Company received aggregate grossproceeds of $597,415 from the exercise of warrants held by the Company’ssecurity holders.  The Company issued atotal of 3,463,250 shares of its common stock in connection therewith atexercise prices ranging between $0.12 and $0.40 per share.

 

**Note 13.  Stock Options**

 

Stock options exercisable into an aggregate of 8,920,000 and 6,735,000shares of the Company’s common stock were outstanding on June 30, 2008 and2007, respectively.  No options wereexercised during the six months ended June 30, 2008 and 2007,respectively.  The Company estimates the fair value of itsstock options on the date of grant by using the Black-Scholes pricing model inaccordance with the provisions of Statement of Financial Accounting Standards No. 148,*“Accounting for Stock-Based Compensation –Transition and Disclosure.”* Under the Black-Scholes pricing model, the Company used the followingweighted-average assumptions to determine the fair value of the stock optionsissued: a dividend yield of zero percent, an expected volatility of between 241%and 282%, a risk-free interest rate of between 3.5% and 5% and a remainingcontractual life of between 9.15 and 9.95 years.

 

InJanuary 2008, the Company issued a stock option to a new employee toacquire 100,000 shares of common stock. The option has an exercise price of $0.23 per share, which was theclosing sales price of the Company’s common stock on the date of grant, andvests in four equal annual installments beginning on the first anniversary ofthe date of grant.  The option has a termof 10 years and was valued at $22,997 on the date of grant.  The Company recognized $1,432 and $2,503 ofexpense during the three and six months ended June 30, 2008, respectively,in connection with the issuance of this option.

 

InMarch 2008, the Company issued a stock option to each of David M. Daniels,Alex Soufflas and Patricia S. Bathurst to acquire 400,000 shares of commonstock.  Each option has an exercise priceof $0.28 per share, which was the closing sales price of the Company’s commonstock on the date of grant, and vests in four equal annual installmentsbeginning on the first anniversary of the date of grant.  The options have a term of 10 years and hadan aggregate value of $335,962 on the date of grant.  The Company recognized a total of $20,926 and$41,852 of expense during the three and six months ended June 30, 2008,respectively, in connection with the issuance of these options.

 

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**National HealthPartners, Inc. and Subsidiaries**

Notes to ConsolidatedFinancial Statements

June 30,2008

 

**Note 14.  Related-PartyTransactions**

 

InMarch 2008, the Company issued a stock option to each of David M. Daniels,Alex Soufflas and Patricia S. Bathurst to acquire 400,000 shares of commonstock.  Each option has an exercise priceof $0.28 per share and vests in four equal annual installments beginning on thefirst anniversary of the date of grant. The options have a term of 10 years and had an aggregate value of$335,962 on the date of grant.

 

**Note 15. Subsequent Events**

 

In July 2008, theCompany sold 3,000,000 shares of common stock and one Class A warrantexercisable into 3,000,000 shares of common stock to an accredited investor foraggregate gross proceeds of $750,000. The Class A warrants have an exercise price of $0.30 per share, areexercisable for a period commencing on the date of grant and ending on December 31,2009, and expire at the end of the exercise period.

 

In July 2008, theCompany completed a private offering of Class A warrants exercisable into1,000,000 shares of common stock for aggregate gross proceeds of $100.  The Class A warrants have an exerciseprice of $0.20 per share, are exercisable until December 31, 2008, andexpire at the end of the exercise period.

 

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**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

 

This report contains “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”) and Section 21E of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included orincorporated by reference in this report, including, without limitation,statements regarding our future financial position, business strategy, budgets,projected revenue and costs, and plans and objectives of management for futureoperations, are forward-looking statements. In addition, forward-looking statements generally can be identified bythe use of forward-looking terminology such as “may,” “will,” “expects,” “intends,”“plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negativethereof or any variation thereon or similar terminology or expressions.

 

These forward-looking statements are subject to risksand uncertainties that could cause actual results to differ materially fromresults proposed in such statements. Although we believe that the expectations reflected in such forward-lookingstatements are reasonable, we can give no assurance that such expectations willprove to have been correct.  Importantfactors that could cause actual results to differ materially from ourexpectations include, but are not limited to:

 

·                  our ability to fund future growth andimplement our business strategy;

 

·                  our dependence on a limited number ofpreferred provider organizations (“PPOs”) and other healthcare providernetworks;

 

·                  our dependence on a single insurancecompany for the insurance benefits offered as part of our CARExpressTM Plus programs;

 

·                  our dependence upon a limited numberof marketing and distribution partners for substantially all of our revenue;

 

·                  our ability to market our membershipprograms and develop and expand the market for our membership programs;

 

·                  demand for and acceptance of ourmembership programs;

 

·                  competition in the health discountmembership market;

 

·                  our ability to attract and retainqualified personnel;

 

·                  legislative or regulatory changes inthe healthcare industry;

 

·                  the condition of the securities andcapital markets;

 

·                  general economic and businessconditions, either nationally or internationally or in the jurisdictions inwhich we are doing business;

 

and statements of assumption underlying any of the foregoing, as wellas any other factors set forth herein and under the caption *“Item 1.  Description of Business– Risks and Uncertainties”* of our Annual Report on Form 10-KSBfor our fiscal year ended December 31, 2007.  All subsequent written and oral forward-lookingstatements attributable to us, or persons acting on our behalf, are expresslyqualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise ourforward-looking statements.

 

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**Item 2.  Management’s Discussionand Analysis.**

 

Unless otherwise indicated or the context otherwiserequires, all references to the “Company,” the “registrant,” “we,” “us” or “our”and similar terms in this report refer to National Health Partners, Inc.and its subsidiaries.

 

This Management’s Discussion and Analysis and otherparts of this report contain forward-looking statements that involve risks anduncertainties.  All forward-lookingstatements included in this report are based on information available to us onthe date hereof and, except as required by law, we assume no obligation to updateany such forward-looking statements.  Ouractual results may differ materially from those anticipated in theseforward-looking statements as a result of a number of factors, including thoseset forth herein and under the caption *“Item 1.  Description of Business – Risks andUncertainties”* in our Annual Report on Form 10-KSB for ourfiscal year ended December 31, 2007. The following should be read in conjunction with our consolidatedfinancial statements included above in Item 1 of Part I of this report.

 

**Overview**

 

We are a national healthcare membershiporganization that was formed to address the need for affordable healthcarenationwide.  We create, market and sellmembership programs to predominantly underserved markets in the healthcareindustry through a national healthcare savings network called CARExpressTM.  CARExpressTM is a network of hospitals, doctors, dentists,pharmacists and other healthcare providers comprised of over 1,000,000healthcare providers that render their services and products to CARExpressTM members at discounted prices.  CARExpressTM enables people to engage in point-of-servicetransactions directly with these healthcare providers and pay discounted pricesto the providers.

 

Our membership programs offer savings onhealthcare services to persons who are uninsured or underinsured by providingthem with access to the same PPOs that are utilized by employers that self-fundat least a portion of their employees’ healthcare costs.  Our membership programs are also used tosupplement benefit plans and fill in the gaps created by the need to reducehealth benefits to keep the costs of health insurance reasonable.  We sell our membership programs directlythrough our sales force and indirectly through brokers and agents, unions andassociations, small businesses and other organizations.

 

We are actively engaged in marketing ourmembership programs to the public.  Ourprimary objective is to generate increased sales of our membership programswhile expanding our position as a provider of unique healthcare membershipservice programs.  The target market forour membership programs is comprised of individuals who have either limitedhealth benefits or no health benefits. Our share of this market is currently less than one percent and has beenless than one percent since our inception. Since we are not currently large enough to pursue and support the entiremarket, we intend to continue to pursue specific opportunities that we identifyin this market through our various marketing and distribution channels.  Through product design, competitivemembership pricing, and a variety of marketing and distribution partners, weare pursuing opportunities in the healthcare market that insurance companieshave not addressed.

 

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**Operational Metrics**

 

Our revenue consists almost exclusively ofrecurring monthly membership fees that we receive from members of ourmembership programs.  Our members pay usmembership fees each month for the duration of their membership.  The average membership fee per member permonth that we receive for our CARExpressTM health discount programs isapproximately $35.  Approximately 95% ofthe CARExpressTMhealth discount programs that we have sold to our current members consist ofour Comprehensive Care Program which is currently sold at a monthly retailprice of $39.95.  The remainingCARExpressTM healthdiscount programs that we have sold to our current members consist of a mix ofour less expensive programs.  We do nothave similar data available for our new CARExpressTM Plus membership programs since we only recently beganselling them to the public.

 

We receive each member’s initial monthlypayment and billing information at the beginning of the first monthlymembership period.  Monthly payments forsubsequent periods are received at the beginning of the applicable period.  The monthly membership fees that we receiveare recognized as revenue evenly over the applicable monthly membershipperiod.  As a result, there is a delay offour weeks between the date we receive a monthly membership fee and the date werecognize the entire fee as revenue.

 

A key metric that we use to evaluate oursuccess is our member retention rates. Member retention rates represent the percentage of new members that weacquire that we are able to retain for a specified period of time.  Since we incur a large portion of our costsup front and receive recurring membership fees throughout the term of the membership,the longer we are able to retain the members we acquire, the greater therevenue potential of the membership programs that we sell.  We believe that the key to obtaining a highmember retention rate is to target our marketing campaigns towards thoseindividuals and organizations that are most in need of our programs, mostcapable of paying for our programs, and most loyal to us and our programs.  Member retention rates can be influenced by avariety of factors, including:

 

·                  the type ofmembership programs being sold;

 

·                  the marketingcampaign being used to sell our membership programs;

 

·                  the financialcondition and loyalty of our members;

 

·                  the distributionchannel selling our membership programs; and

 

·                  the type andamount of compensation being paid to our marketing and distribution partners tosell our membership programs.

 

We have obtained valuable informationregarding member demographics through the marketing and advertising campaignsthat we have conducted and are focusing our marketing and advertising campaignson members and member groups that we have identified as being most suitable forour membership programs.  As a result, weexpect our retention rates to continue to improve over the next 12 months as wepursue these opportunities through our various marketing and distributionchannels.

 

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**Outlook**

 

Our strategy is to continue to expand ourposition as a provider of unique healthcare membership service programs.  We have implemented several strategic growthinitiatives since 2006 through which we achieved new contracts and strategicpartnerships with a number of marketing and distribution companies, the mostrecent of which involved a shift in our sales strategy from sales throughmarketing companies to sales through employers and “affinity groups.”  An “affinity group” is a group of people whoshare interests, issues, and a common bond or background, and offer support foreach other.  Examples of the types ofaffinity groups that we are working with include unions, associations, chambersof commerce and small business networks. These organizations typically have a large number of members and thus,each one provides us with the opportunity to obtain a large number of sales.

 

We expect to generate future revenue andmembers primarily through sales of our CARExpressTM health discount programs andour CARExpressTM Plusmembership programs to employees and members of affinity groups through ourdirect sales force, our marketing and distribution partners, and our variousmarketing and advertising campaigns.  Weintend to finance each of these projects through cash on hand, internallygenerated cash flows from operating activities and proceeds from the issuanceof debt and equity securities.  We willuse any additional investments that we receive to accelerate the expansion ofeach of our advertising campaigns and programs and increase sales of ourmembership programs.

 

We expect thenumber of CARExpressTM members generated each month to increase for theforeseeable future.  We also expect ourretention rates to improve over the next 12 months as we obtain additionalinformation regarding member demographics and target our marketing andadvertising campaigns towards prospective members and member groups that aremost suitable for our membership programs. As a result, we expect to begin generating a net profit from operationsduring 2008 as the recurring membership fees from our increasing membershipbase overtake the costs associated with obtaining the new members we aregenerating.  We can provide no assurance,however, that our membership base will increase as projected, that our memberretention rates will improve over the next 12 months or that we will begingenerating a net profit from operations during 2008.

 

**Critical Accounting Policies**

 

Forinformation regarding our critical accounting policies, please refer to thediscussion provided in our Annual Report on Form 10-KSB for the year endedDecember 31, 2007 under the caption *“Item 6.  Management’s Discussion and Analysis —Critical Accounting Policies”* and our Notes to ConsolidatedFinancial Statements included therein, as updated by our Notes to ConsolidatedFinancial Statements included in this report.

 

**Recent Accounting Pronouncements**

 

Forinformation regarding recent accounting pronouncements applicable to ourbusiness, please refer to the discussion provided in our Annual Report on Form 10-KSBfor the year ended December 31, 2007 under the caption *“Item 6.  Management’s Discussionand Analysis – Recent Accounting Pronouncements”* and our Notes toConsolidated Financial Statements.

 

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**Comparison of the Three-Month Periods Ended June 30,2008****and 2007**

 

Revenue

 

Revenueconsists almost exclusively of the monthly membership fees that we receive frommembers of our membership programs. Revenue decreased $297,181 to $882,016 for the three months ended June 30,2008 from $1,179,197 for the three months ended June 30, 2007.  The decrease of $297,181 resulted primarilyfrom a decrease in sales of our membership programs through marketing companiesin connection with the shift in our sales strategy from sales through marketingcompanies to sales through employers and affinity groups.  Approximately 30% of the revenue that wegenerated during the three months ended June 30, 2008 was derived fromsales of our membership programs to first-time members, compared toapproximately 65% during the corresponding period in 2007.  The remainder of the revenue that wegenerated during these periods was derived from existing members.  We expect revenue to increase over the next12 months as a result of increased sales of our membership programs toemployees and members of affinity groups through our direct sales force, ourmarketing and distribution partners, and our various marketing and advertisingcampaigns.

 

Direct Costs

 

Direct costsconsist of sales commissions that we pay to our marketing and distributionpartners and fees that we pay to our PPOs and provider networks for access totheir networks.  Direct costs decreased$423,338 to $233,535 for the three months ended June 30, 2008, from$656,873 for the three months ended June 30, 2007.  The decrease of $423,338 was due to decreasesof $384,837 for sales commissions and $38,501 for PPO and network providercosts resulting from the decrease in sales of our membership programs.  We expect cost of sales to increase over thenext 12 months as increased sales of our membership programs result in higheroverall sales commission expenses and provider networks costs.

 

Selling and Marketing Expenses

 

Selling andmarketing expenses consist of advertising expenses, marketing expenses,salaries and other compensation paid to employees selling and marketing ourmembership programs, rent expense allocated to our selling and marketingactivities, depreciation and amortization expense allocated to our selling andmarketing activities, and all other selling and marketing expenses incurred byus.  Selling and marketing expensesincreased $16,738 to $56,050 for the three months ended June 30, 2008,from $39,312 for the three months ended June 30, 2007.  The increase of $16,738 was due primarily toan increase of $27,960 for salaries and other compensation paid to employeesselling and marketing our membership programs, partially offset by a decreaseof $9,467 for depreciation and amortization expense allocated to our sellingand marketing activities.  We expectselling and marketing expenses to increase during the next 12 months as we growour direct sales force and engage in larger and more frequent marketing andadvertising campaigns and activities.

 

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General and Administrative Expenses

 

General andadministrative expenses consist primarily of employee compensation expense,professional fees and other general and administrative expenses.

 

*EmployeeCompensation Expense*. Employee compensation expense consists of all salaries and other cashcompensation, equity-based compensation, 401(k) contributions and othercompensation that we pay to our employees and the related payroll taxes thatare not associated with our selling and marketing activities.  Employee compensation expense increased$60,775 to $557,090 for the three months ended June 30, 2008, from$496,315 for the three months ended June 30, 2007.  The increase of $60,775 was due primarily toincreases of $30,381 for restricted stock expense and $38,437 for stock optionexpense, partially offset by decreases in other employee compensationexpenses.  We expect employeecompensation expense to increase over the next 12 months as we continue toretain additional executive management personnel and other employees inconnection with the growth of our business.

 

*Professional Fees*.  Professional fees consist of fees paid to ourindependent accountants, lawyers, technology consultants and otherprofessionals and consultants. Professional fees increased $12,761 to $127,373 for the three monthsended June 30, 2008 from $114,612 for the three months ended June 30,2007.  The increase of $12,761 was dueprimarily to increases of $8,163 for the amount of expense recognized inconnection with equity-based compensation paid to service providers andconsultants for various services and $7,335 for legal and accounting fees,partially offset by decreases in other professional fees.  We expect professional fees to increase overthe next 12 months as we incur additional legal, accounting and technology feesin connection with the general expansion of our business and operations.

 

*Other General and Administrative Expenses*.  Other general and administrative expensesconsist of costs for supplies, computer hardware and system costs, bank servicecharges, filing fees and dues, non-employee customer service representativeexpense, rent expense, health insurance and other related benefit costs,financial printer costs, transfer agent costs, the costs of investor relationscampaigns and activities, postage and delivery expenses, severance expenses,general business expenses and miscellaneous general and administrative expensesthat are not associated with our selling and marketing activities.  Other general and administrative expensesincreased $19,715 to $289,005 for the three months ended June 30, 2008from $269,290 for the three months ended June 30, 2007.  The increase of $19,715 resulted primarilyfrom increases of $32,562 for bank service charges associated with new andrecurring member transactions, $21,654 for computer and web repair and maintenancecosts, $17,993 for business travel and entertainment costs, and $14,763 forincreases in the cost of health insurance and other related benefits, as wellas increases in other miscellaneous general and administrative expenses,partially offset by decreases of $50,556 for supplies and $25,107 for postageand delivery costs.  We expect othergeneral and administrative expenses to increase over the next 12 months as wecontinue to incur expenses for bank service charges, financial printerservices, investor relations campaigns and activities, transfer agent fees,health insurance, rent, non-employee customer service representatives,supplies, computer hardware and systems, and other miscellaneous itemsassociated with the general operation and growth of our business.

 

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Net Loss

 

Our net loss decreased$8,114 to $381,002 for the three months ended June 30, 2008, from $389,116for the three months ended June 30, 2007. The decrease of $8,114 was primarily the result of a decrease of$423,338 for direct costs incurred in connection with the sale of ourmembership programs, partially offset by a decrease of $297,181 for revenue andincreases of $16,738 for selling and marketing expenses, $60,775 for employeecompensation expense, $12,761 for professional fees and $19,715 for othergeneral and administrative expenses.  Weexpect to begin generating a net profit from operations during 2008 as therecurring membership fees from our increasing membership base overtake thecosts associated with obtaining and retaining members.

 

**Comparison of the Six-Month Periods Ended June 30,2008****and 2007**

** **

Revenue

 

Revenuedecreased $519,512 to $1,704,193 for the six months ended June 30, 2008from $2,223,705 for the six months ended June 30, 2007.  The decrease of $519,512 resulted primarilyfrom a decrease in sales of our CARExpressTM membership programs throughmarketing companies in connection with the shift in our sales strategy fromsales through marketing companies to sales through employers and affinitygroups.  Approximately 50% of the revenuethat we generated during the six months ended June 30, 2008 was derivedfrom sales of our membership programs to first-time members, compared toapproximately 80% during the corresponding period in 2007.  The remainder of the revenue that wegenerated during these periods was derived from existing members.

 

Direct Costs

 

Direct costsdecreased $523,546 to $701,410 for the six months ended June 30, 2008,from $1,224,956 for the six months ended June 30, 2007.  The decrease of $523,546 was due to adecrease of $561,217 for sales commissions, partially offset by an increase of$37,671 for PPO and network provider costs.

 

Selling and Marketing Expenses

 

Selling andmarketing expenses increased $23,725 to $134,975 for the six months ended June 30,2008, from $111,250 for the six months ended June 30, 2007.  The increase of $23,725 was due primarily toan increase of $36,552 for salaries as well as an increase in othercompensation paid to employees selling and marketing our membership programs,partially offset by a decrease of $16,754 for depreciation and amortizationexpense allocated to our selling and marketing activities.

 

General and Administrative Expenses

 

General andadministrative expenses consist primarily of employee compensation expense,professional fees and other general and administrative expenses.

 

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*EmployeeCompensation Expense*. Employee compensation expenseincreased $34,716 to $1,075,055 for the six months ended June 30, 2008,from $1,040,339 for the six months ended June 30, 2007. The increase of$34,716 was due primarily to an increase of $94,730 for stock option expense aswell as other employee compensation expenses, partially offset by a decrease of$73,567 for restricted stock expense.

 

*Professional Fees*. Professional fees increased$78,057 to $376,832 for the six months ended June 30, 2008 from $298,775for the six months ended June 30, 2007. The increase of $78,057 was dueprimarily to increases of $57,264 for the amount of expense recognized in connectionwith equity-based compensation paid to service providers and consultants forvarious services and $23,130 for legal and accounting fees, partially offset bydecreases in other professional fees.

 

*Other General and Administrative Expenses*. Othergeneral and administrative expenses increased $32,025 to $623,681 for the sixmonths ended June 30, 2008 from $591,656 for the six months ended June 30,2007. The increase of $32,025 resulted primarily from increases of $66,486 forbank service charges associated with new and recurring member transactions,$28,796 for computer and web repairs and maintenance costs, $24,027 forbusiness travel and entertainment costs, $16,571 for printing and reproductioncosts, $12,177 for health insurance and other related benefits, $11,628 fordues and subscription costs as well as increases in other miscellaneous generaland administrative expenses, partially offset by decreases of $72,830 forsupplies, $31,640 for postage and delivery costs and $23,335 for corporatefiling fees.

 

Loss on theExtinguishment of Debt

 

Loss on the extinguishment of debt consists of the loss that werecognized in connection with our issuance of 240,000 shares of our commonstock to a note holder in February 2008 in partial consideration for theextinguishment of debt. We recognized a loss on the extinguishment of debt of$30,000 during the six months ended June 30, 2008 in connection with theissuance of these shares. We did not recognize any such loss during the sixmonths ended June 30, 2007. We do not expect to recognize any additionalgains or losses on the extinguishment of debt in the foreseeable future.

 

Net Loss

 

Our net loss increased$208,864 to $1,237,716 for the six months ended June 30, 2008, from$1,028,852 for the six months ended June 30, 2007. The increase of$208,864 was primarily the result of a decrease of $519,512 for revenue, andincreases of $23,725 for selling and marketing expenses, $34,716 for employeecompensation expense, $78,057 for professional fees, $32,026 for other generaland administrative expenses and $30,000 for the loss on the extinguishment ofdebt, partially offset by a decrease of $523,546 for direct costs incurred inconnection with the sale of our membership programs.

 

**Liquidity and Capital Resources**

 

Since our inception, we have funded ouroperations primarily through private sales of equity securities and the use ofshort-term debt. As of August 11, 2008, we had cash and cash equivalentsof approximately $615,000.

 

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Net cash used by operating activities was$788,210 for the six months ended June 30, 2008 compared to $1,099,429 forthe six months ended June 30, 2007. The $311,219 decrease in cash used byoperating activities was due primarily to a decrease of $196,657 for accountsreceivable and increases of $82,360 for equity-based compensation expense,$260,547 for deferred revenue and $30,000 for loss on the extinguishment ofdebt, partially offset by an increase of $208,864 for net loss.

 

We did not have any cash flows from investingactivities for the six months ended June 30, 2008 or 2007.

 

Net cashprovided by financing activities was $810,655 for the six months ended June 30,2008. We did not have any cash flows from financing activities for the sixmonths ended June 30, 2007. The $810,655 increase in cash provided byfinancing activities was due to increases of $597,415 for proceeds from theexercise of warrants, $183,240 for proceeds from the sale of common stock andwarrants and $50,000 for proceeds from the issuance of debt, partially offsetby an increase of $20,000 for payments on debt.

 

Our primary sources of capital over the past12 months are set forth below.

 

In August 2007, we sold 1,200,000 sharesof common stock, one Class A warrant exercisable into 1,000,000 shares ofcommon stock and one Class B warrant exercisable into 1,000,000 shares ofcommon stock to an accredited investor for aggregate gross proceeds of $540,000.We agreed to use our reasonable bestefforts to file a registration statement with the SEC by December 31, 2007to register all of the shares of our common stock issued in the offering andall of the shares of our common stock underlying the Class A warrants and Class Bwarrants issued in the offering. The Class A warrant had anexercise price of $0.60 per share, was exercisable for a period of 30 dayscommencing on the date the registration statement was declared effective by theSEC, and expired at the end of the exercise period. The Class B warranthas an exercise price of $.80 per share, is exercisable until December 31,2008, is callable by us if certain criteria are satisfied, and expires at theend of the exercise period.

 

In October 2007, we completed a private offering of 810,000 sharesof our common stock, Class A warrants exercisable into 810,000 shares ofour common stock and Class B warrants exercisable into 810,000 shares ofour common stock for aggregate cash consideration of $243,000. These securitieswere sold in units comprised of one share of our common stock, one Class Awarrant and one Class B warrant. The units were sold at a purchase priceof $0.30 per unit. We agreed to use our reasonable best efforts to file a registrationstatement with the SEC by December 15, 2007 to register all of the sharesof our common stock issued in the offering and all of the shares of our commonstock underlying the Class A warrants and Class B warrants issued inthe offering. The Class A warrants were initially exercisable into oneshare of our common stock at an exercise price of $0.30 per share, wereexercisable during a period beginning on the date the registration statementcovering the public resale of the shares underlying the warrants was declaredeffective by the SEC and ending on January 31, 2008, and expired at theend of the exercise period. The Class B warrants are initially exercisableinto one share of our common stock at an exercise price of $0.40 per share, areexercisable during a period beginning on the date the registration statementcovering the public resale of the shares 

 

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underlying the warrants was declared effective by the SEC and ending onDecember 31, 2008, and expire at the end of the exercise period.

 

In November 2007, we completed a private offering of 500,000shares of our common stock, Class A warrants exercisable into 500,000shares of our common stock and Class B warrants exercisable into 500,000shares of our common stock for aggregate cash consideration of $150,000. Thesesecurities were sold in units comprised of one share of our common stock, one Class Awarrant and one Class B warrant. The units were sold at a purchase priceof $0.30 per unit. We agreed to use our reasonable best efforts to file aregistration statement with the SEC by December 15, 2007 to register allof the shares of our common stock issued in the offering and all of the sharesof our common stock underlying the Class A warrants and Class Bwarrants issued in the offering. The Class A warrants were initiallyexercisable into one share of our common stock at an exercise price of $0.30per share, were exercisable during a period beginning on the date theregistration statement covering the public resale of the shares underlying thewarrants was declared effective by the SEC and ending on the later of January 31,2008 or the date that is 30 calendar days after the effective date of theregistration statement, and expired at the end of the exercise period. The Class Bwarrants are initially exercisable into one share of our common stock at anexercise price of $0.40 per share, are exercisable during a period beginning onthe date the registration statement covering the public resale of the sharesunderlying the warrants was declared effective by the SEC and ending on December 31,2008, and expire at the end of the exercise period.

 

In November 2007, we completed a private offering of 1,240,000shares of our common stock, Class A warrants exercisable into 1,240,000shares of our common stock, and Class B warrants exercisable into1,240,000 shares of our common stock for aggregate cash consideration of $310,000.These securities were sold in units comprised of one share of our common stock,one Class A warrant and one Class B warrant. The units were sold at apurchase price of $0.25 per unit. We agreed to use our reasonable best effortsto file a registration statement with the SEC by December 15, 2007 toregister all of the shares of our common stock issued in the offering and allof the shares of our common stock underlying the Class A warrants and Class Bwarrants issued in the offering. The Class A warrants were initiallyexercisable into one share of our common stock at an exercise price of $0.30per share, were exercisable during a period beginning on the date theregistration statement covering the public resale of the shares underlying thewarrants was declared effective by the SEC and ending on the later of January 31,2008 or the date that is 30 calendar days after the effective date of theregistration statement, and expired at the end of the exercise period. The Class Bwarrants are initially exercisable into one share of our common stock at anexercise price of $0.40 per share, are exercisable during a period beginning onthe date the registration statement covering the public resale of the sharesunderlying the warrants was declared effective by the SEC and ending on December 31,2008, and expire at the end of the exercise period.

 

In December 2007, we completed a private offering of 555,000shares of our common stock, Class A warrants exercisable into 555,000shares of our common stock, Class B warrants exercisable into 555,000shares of our common stock, and Class C warrants exercisable into 555,000shares of our common stock for aggregate cash consideration of $111,000. Thesesecurities were sold in units comprised of one share of our common stock, one Class Awarrant, one Class B warrant and one Class C warrant. The units weresold at a purchase price of $0.20 per unit. We agreed to use our reasonablebest efforts to file a registration statement with the 

 

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SEC by December 15, 2007 to register all of the shares of ourcommon stock issued in the offering and all of the shares of our common stockunderlying the Class A warrants, Class B warrants and Class Cwarrants issued in the offering. The Class A warrants were initiallyexercisable into one share of our common stock at an exercise price of $0.22per share, were exercisable during a period beginning on the date theregistration statement covering the public resale of the shares underlying thewarrants was declared effective by the SEC and ending on the date that is 90calendar days after the effective date of the registration statement,were callable by us if certain criteria are satisfied, and expired at the end of the exercise period. The Class Bwarrants were initially exercisable into one share of our common stock at anexercise price of $0.30 per share, were exercisable during a period beginningon the date the registration statement covering the public resale of the sharesunderlying the warrants was declared effective by the SEC and ending on thedate that is 180 calendar days after the effective date of the registrationstatement, were callable by us if certain criteria are satisfied, and expired at the end of the exerciseperiod. The Class C warrants are initially exercisable into one share ofour common stock at an exercise price of $0.30 per share, are exercisableduring a period beginning on the date a registration statement covering thepublic resale of the shares underlying the warrants is declared effective bythe SEC and ending on the third anniversary of the effective date of theregistration statement, and expire at the end of the exercise period.

 

In April 2008, we sold 500,000 shares ofcommon stock and one Class A warrant exercisable into 500,000 shares ofcommon stock to an accredited investor for aggregate gross proceeds of $75,000.The Class A warrants had an exercise price of $0.12 per share, wereexercisable for a period commencing on the date of grant and ending on April 18,2008, and expired at the end of the exercise period.

 

In June 2008, we completed a private offering of 675,000 shares ofour common stock, Class A warrants exercisable into 675,000 shares of ourcommon stock and Class B warrants exercisable into 675,000 shares of ourcommon stock for aggregate cash consideration of $108,000. These securitieswere sold in units comprised of one share of our common stock, one Class Awarrant and one Class B warrant at a purchase price of $0.16 per unit. Weagreed to provide each investor with an opportunity to include all shares ofcommon stock and all shares of common stock issued upon the exercise of thewarrants in any registration statement that we file with the SEC for thepurposes of a public offering of our securities (excluding registrationstatements on Forms S-4 or S-8). The Class A warrants are initiallyexercisable into one share of our common stock at an exercise price of $0.20per share, are exercisable during a period of 90 days beginning on the date ofgrant and expire at the end of the exercise period. The Class B warrantsare initially exercisable into one share of our common stock at an exerciseprice of $0.30 per share, are exercisable during a period beginning on the dateof grant and ending on December 31, 2008, and expire at the end of the exerciseperiod.

 

In July 2008, we sold 3,000,000 shares of common stock and one Class Awarrant exercisable into 3,000,000 shares of common stock to an accreditedinvestor for aggregate gross proceeds of $750,000. The Class A warrantshave an exercise price of $0.30 per share, are exercisable for a periodcommencing on the date of grant and ending on December 31, 2009, and expireat the end of the exercise period.

 

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During the period beginning January 1,2007 and ending June 30, 2008, we issued 5,413,250 shares of common stockupon the exercise of warrants at exercise prices ranging between $0.12 and$0.40 per share for aggregategross proceeds of $896,415.

 

To date, our capital needs have been metprincipally through the sales of our equity and debt securities and proceedsreceived upon the exercise of outstanding warrants by our security holders. Wedo not currently maintain a line of credit or term loan with any commercialbank or other financial institution. We have used the proceeds from theexercise of warrants and our private offerings of securities to pay virtuallyall of the costs and expenses we have incurred. These costs and expenses werecomprised of operating expenses, which consisted of the employee compensationexpenses, professional fees, rent expenses and other general and administrativeexpenses discussed above, and the costs of sales discussed above to the extentsuch costs of sales exceeded our revenue.

 

We believe that our current cash resources will not besufficient to sustain our current operations for the next 12 months. We willneed to obtain additional cash resources within the next 12 months to enable usto pay our ongoing costs and expenses as they are incurred and finance thegrowth of our business. We intend to obtain these funds through internallygenerated cash flows from operating activities and proceeds from the issuanceof debt and equity securities. The sale of equity or convertible debtsecurities would result in additional dilution to our shareholders. Theissuance of debt would result in increased expenses and could subject us tocovenants that may have the effect of restricting our operations. We have notmade arrangements to obtain additional financing and we can provide noassurance that additional financing will be available in an amount or on termsacceptable to us, if at all. If we are unable to obtain additional funds whenthey are needed or if such funds cannot be obtained on terms favorable to us,we may be unable to execute upon our business plan or pay our costs andexpenses as they are incurred, which could have a material, adverse effect onour business, financial condition and results of operations.

 

**Off-Balance Sheet Arrangements**

 

As of June 30, 2008, we did not have anyrelationships with unconsolidated entities or financial partners, such asentities often referred to as structured finance or special purpose entities,that had been established for the purpose of facilitating off-balance sheetarrangements or other contractually narrow or limited purposes. As such, we arenot materially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

 

**Item 4T. Controls and Procedures.**

 

As of June 30, 2008, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2008, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief 

 

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Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II– OTHER INFORMATION**

 

**Item 2. UnregisteredSales of Equity Securities and Use of Proceeds.**

 

During the three months ended June 30, 2008, wesold the following securities without registration under the Securities Act of1933, as amended (the “Securities Act”):

 

In April 2008, we sold 500,000 shares ofcommon stock and one Class A warrant exercisable into 500,000 shares ofcommon stock to an accredited investor for aggregate gross proceeds of $75,000.The Class A warrants had an exercise price of $0.12 per share, wereexercisable for a period commencing on the date of grant and ending on April 18,2008, and expired at the end of the exercise period. We paid finder feesconsisting of 75,000 shares of our common stock and a Class A warrantexercisable into 75,000 shares of our common stock in connection with thisoffering. These securities were issued to an accredited investor in a privateplacement transaction exempt from the registration requirements of theSecurities Act pursuant to Section 4(2) of the Securities Actdirectly by us without engaging in any advertising or general solicitation ofany kind.

 

In June 2008,we completed a private offering of 675,000 shares of our common stock, Class Awarrants exercisable into 675,000 shares of our common stock and Class Bwarrants exercisable into 675,000 shares of our common stock for aggregate cashconsideration of $108,000. These securities were sold in units comprised of oneshare of our common stock, one Class A warrant and one Class Bwarrant at a purchase price of $0.16 per unit. We agreed to provide eachinvestor with an opportunity to include all shares of common stock and allshares of common stock issued upon the exercise of the warrants in anyregistration statement that we file with the SEC for the purposes of a publicoffering of our securities (excluding registration statements on Forms S-4 orS-8). The Class A warrants are initially exercisable into one share of ourcommon stock at an exercise price of $0.20 per share, are exercisable during aperiod of 90 days beginning on the date of grant, and expire at the end of theexercise period. The Class B warrants are initially exercisable into oneshare of our common stock at an exercise price of $0.30 per share, areexercisable during a period beginning on the date of grant and ending on December 31,2008, and expire at the end of the exercise period. We paid finder feesconsisting of 101,250 units identical to the units sold in the offering. Thesesecurities were issued to a limited number of accredited investors in privateplacement transactions exempt from the registration requirements of theSecurities Act pursuant to Section 4(2) of the Securities Actdirectly by us without engaging in any advertising or general solicitation ofany kind.

 

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**Item 6. Exhibits.**

 

The following exhibits are included herein:

 
| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                          |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification of Chief Executive Officer of  the registrant required by Rule 13a-14(a) under the Securities  Exchange Act of 1934, as amended                              |
|                 |       |                                                                                                                                                                                 |
| 31.2                 |       | Certification of Chief Financial Officer of  the registrant required by Rule 13a-14(a) under the Securities  Exchange Act of 1934, as amended                              |
|                 |       |                                                                                                                                                                                 |
| 32.1                 |       | Certification  of Chief Executive Officer and Chief Financial Officer of the registrant required  by Rule 13a-14(b) under the Securities Exchange Act of 1934, as  amended |

 

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**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                       | NATIONAL HEALTH PARTNERS, INC. |
|----------------------------|--------------------------------|
|                       |                           |
|                       |                           |
| Date: August 12, 2008 | /s/ David M. Daniels           |
|                       | David M. Daniels               |
|                       | Chief Executive Officer        |

 

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**EXHIBITINDEX**

 
| **Exhibit** | ** ** | **Exhibit Description**                                                                                                                                       |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1        |       | Certification  of Chief Executive Officer required by Rule 13a-14(a) under the  Securities Exchange Act of 1934, as amended                              |
|        |       |                                                                                                                                                               |
| 31.2        |       | Certification  of Chief Financial Officer required by Rule 13a-14(a) under the  Securities Exchange Act of 1934, as amended                              |
|        |       |                                                                                                                                                               |
| 32.1        |       | Certification  of Chief Executive Officer and Chief Financial Officer required by  Rule 13a-14(b) under the Securities Exchange Act of 1934, as  amended |

 

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