Table ofContents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

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

 

**For the quarterly period ended:  March 31, 2009**

 

**or**

 

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

 

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

 

**Commission****File No. ****000-51731**

 

**NATIONAL HEALTH PARTNERS, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

**120Gibraltar RoadSuite 107Horsham, PA 19044**

(Address of Principal Executive Offices)

 

**(215)682-7114**

(Issuer’s TelephoneNumber, includingArea Code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1394 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Website, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

** **

| Large accelerated filer o                                         |   | Accelerated filer o    |
|------------------------------------------------------------------------|--------|-----------------------------|
|                                                                   |   |                        |
| Non-accelerated filer o

(Do not check if a smaller reporting company) |   | Smaller reporting company x |

 

Indicate by check markwhether the registrant is a shell company (as defined in rule 12b-2 of theExchange Act).  Yes o  No x

 

**APPLICABLE ONLY TO ISSUERSINVOLVED IN**

**BANKRUPTCY PROCEEDINGS DURING THE**

**PRECEDING FIVE YEARS**

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequentto the distribution of securities under a plan confirmed by a court. Yes o No o

 

**APPLICABLE ONLY TO CORPORATEISSUERS**

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date:  There were 58,539,406shares of the issuer’s common stock, $.001 par value per share, issued and outstandingon May 12, 2009.

 

 

** **

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**TABLE OF CONTENTS**

 
| ** **                                   | **Page**                                                                                                    |
|----------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                         |                                                                                                        |
| **PART I — FINANCIAL INFORMATION** |                                                                                                        |
|                                         |                                                                                                        |   |
| Item 1.                                      | Financial Statements                                                                                        | 1 |
|                                         |                                                                                                        |   |
|                                         | Consolidated  Balance Sheets at March 31, 2009 (Unaudited) and December 31, 2008                  | 1 |
|                                         |                                                                                                        |   |
|                                         | Consolidated  Statements of Operations for the Three Months Ended March 31, 2009 and  2008 (Unaudited) | 2 |
|                                         |                                                                                                        |   |
|                                         | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2009 and  2008 (Unaudited) | 3 |
|                                         |                                                                                                        |   |
|                                         | Notes  to Consolidated Financial Statements (Unaudited)                                                     | 4 |
|                                         |                                                                                                        |   |
| Item  2.                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                 | 12 |
|                                         |                                                                                                        |   |
| Item  4T.                                    | Controls  and Procedures                                                                                    | 20 |
|                                         |                                                                                                        |   |
| **PART II — OTHER  INFORMATION**   |                                                                                                        |
|                                         |                                                                                                        |   |
| Item  2.                                     | Unregistered  Sales of Equity Securities and Use of Proceeds                                                | 21 |
|                                         |                                                                                                        |   |
| Item 6.                                      | Exhibits                                                                                                    | 21 |

 

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**PART I — FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements.**

** **

**National HealthPartners, Inc. and Subsidiaries**

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                     | ** ** | **March 31,**   | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **2009**        | ** ** | **2008**         | ** ** |
| ** **                                                                                                                                                                     | ** ** | **(Unaudited)** | ** ** | ** **       | ** ** |
|                                                                                                                                                                           |       |            |       |             |       |
| **Assets**                                                                                                                                                                     |       |            |       |             |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Current assets:                                                                                                                                                                |       |            |       |             |       |
| Cash                                                                                                                                                                           |       | $               | 3,723      |             | $          | 177,545 |   |
| Prepaid expense                                                                                                                                                                |       | 190,797         |       | 205,690          |       |
| Deposits                                                                                                                                                                       |       | 105,867         |       | 114,378          |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Total current assets                                                                                                                                                           |       | 300,387         |       | 497,613          |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Property and equipment, net                                                                                                                                                    |       | 26,595          |       | 33,842           |       |
| Prepaid expense                                                                                                                                                                |       | 190,783         |       | 201,669          |       |
| Deposits                                                                                                                                                                       |       | 19,000          |       | 19,000           |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Total assets                                                                                                                                                                   |       | $               | 536,765    |             | $          | 752,124 |   |
|                                                                                                                                                                           |       |            |       |             |       |
| **Liabilities and stockholders’ equity**                                                                                                                                  |       |            |       |             |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Current liabilities                                                                                                                                                            |       |            |       |             |       |
| Accounts payable                                                                                                                                                               |       | $               | 93,580     |             | $          | 68,513 |   |
| Refunds payable                                                                                                                                                                |       | 4,732           |       | —           |       |
| Accrued expenses                                                                                                                                                               |       | 107,889         |       | 13,014           |       |
| Deferred revenue                                                                                                                                                               |       | 57,498          |       | 79,008           |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Total current liabilities                                                                                                                                                      |       | 263,699         |       | 160,535          |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Total liabilities                                                                                                                                                              |       | 263,699         |       | 160,535          |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Commitments and contingencies                                                                                                                                                  |       |            |       |             |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Stockholders’ equity:                                                                                                                                                     |       |            |       |             |       |
| Common stock, $0.001 par value, 100,000,000 shares authorized, 53,286,281  and 52,586,281 shares issued and outstanding on March 31, 2009 and December  31, 2008, respectively |       | 53,286          |       | 52,586           |       |
| Additional paid-in capital                                                                                                                                                     |       | 25,299,120      |       | 25,195,670       |       |
| Deferred compensation                                                                                                                                                          |       | (162,528        | )          | (205,133         | )          |
| Accumulated deficit                                                                                                                                                            |       | (24,916,812     | )          | (24,451,534      | )          |
|                                                                                                                                                                           |       |            |       |             |       |
| Total stockholders’ equity                                                                                                                                                |       | 273,066         |       | 591,589          |       |
|                                                                                                                                                                           |       |            |       |             |       |
| Total liabilities and stockholders’ equity                                                                                                                                |       | $               | 536,765    |             | $          | 752,124 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

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

Consolidated Statements of Operations (Unaudited)

 
| ** **                                                             | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                             | ** ** | **March 31,**                  | ** ** |
| ** **                                                             | ** ** | **2009**                       | ** ** | **2008** | ** ** |
|                                                                   |       |                           |       |   |   |
| Net revenue                                                            |       | $                              | 417,843    |   | $ | 822,177 |   |
|                                                                   |       |                           |       |   |   |
| Direct costs                                                           |       | 131,944                        |       | 467,875 |   |
|                                                                   |       |                           |       |   |   |
| Gross profit                                                           |       | 285,899                        |       | 354,302 |   |
|                                                                   |       |                           |       |   |   |
| Operating expenses:                                                    |       |                           |       |   |   |
| Selling and marketing                                                  |       | 36,041                         |       | 78,925 |   |
| General and administrative                                             |       | 715,218                        |       | 1,102,100 |   |
|                                                                   |       |                           |       |   |   |
| Total operating expenses                                               |       | 751,259                        |       | 1,181,025 |   |
|                                                                   |       |                           |       |   |   |
| Loss from operations                                                   |       | (465,360                       | )          | (826,723 | ) |
|                                                                   |       |                           |       |   |   |
| Other income (expense):                                                |       |                           |       |   |   |
| Interest income                                                        |       | 83                             |       | 9 |   |
| Loss on extinguishment of debt                                         |       | —                         |       | (30,000 | ) |
|                                                                   |       |                           |       |   |   |
| Total other income (expense)                                           |       | 83                             |       | (29,991 | ) |
|                                                                   |       |                           |       |   |   |
| Net loss                                                               |       | $                              | (465,277   | ) | $ | (856,714 | ) |
|                                                                   |       |                           |       |   |   |
| Loss per share — basic and diluted                                |       | $                              | (0.01      | ) | $ | (0.02 | ) |
|                                                                   |       |                           |       |   |   |
| Weighted average number of shares outstanding — basic and diluted |       | 53,145,170                     |       | 40,526,153 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements

 

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

Consolidated Statements of Cash Flows (Unaudited)

 
| ** **                                                                   | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,**                  | ** ** |
| ** **                                                                   | ** ** | **2009**                       | ** ** | **2008** | ** ** |
|                                                                         |       |                           |       |   |   |
| **Cash flows from operating activities**                                     |       |                           |       |   |   |
|                                                                         |       |                           |       |   |   |
| Net loss                                                                     |       | $                              | (465,277   | ) | $ | (856,714 | ) |
| Adjustments to reconcile net loss to net cash used by operating  activities: |       |                           |       |   |   |
| Common stock issued for services and amortization of prepaid services        |       | 98,383                         |       | 219,498 |   |
| Options issued for services                                                  |       | 68,151                         |       | 68,313 |   |
| Depreciation                                                                 |       | 7,246                          |       | 11,664 |   |
| Loss on extinguishment of debt                                               |       | —                         |       | 30,000 |   |
| Changes in operating assets and liabilities:                                 |       |                           |       |   |   |
| Decrease in accounts receivable                                              |       | —                         |       | 21,257 |   |
| Decrease in deposits                                                         |       | 8,511                          |       | 60,239 |   |
| Decrease in other current assets                                             |       | —                         |       | 1,280 |   |
| Increase (decrease) in accounts payable and accrued expenses                 |       | 119,942                        |       | (45,326 | ) |
| Increase in refunds payable                                                  |       | 4,732                          |       | — |   |
| Increase (decrease) in deferred revenue                                      |       | (21,510                        | )          | 124,009 |   |
|                                                                         |       |                           |       |   |   |
| Net cash used by operating activities                                        |       | (179,822                       | )          | (365,780 | ) |
|                                                                         |       |                           |       |   |   |
| **Cash flows from investing activities**                                     |       |                           |       |   |   |
|                                                                         |       |                           |       |   |   |
| Net cash provided by investing activities                                    |       | —                         |       | — |   |
|                                                                         |       |                           |       |   |   |
| **Cash flows from financing activities**                                     |       |                           |       |   |   |
|                                                                         |       |                           |       |   |   |
| Proceeds from sale of stocks and warrants                                    |       | 6,000                          |       | 240 |   |
| Proceeds from exercise of warrants                                           |       | —                         |       | 408,415 |   |
| Proceeds from issuance of note payable                                       |       | —                         |       | 50,000 |   |
| Payments on note payable                                                     |       | —                         |       | (20,000 | ) |
|                                                                         |       |                           |       |   |   |
| Net cash provided by financing activities                                    |       | 6,000                          |       | 438,655 |   |
|                                                                         |       |                           |       |   |   |
| Net increase (decrease) in cash                                              |       | (173,822                       | )          | 72,875 |   |
| Cash at beginning of period                                                  |       | 177,545                        |       | 32,206 |   |
|                                                                         |       |                           |       |   |   |
| Cash at end of period                                                        |       | $                              | 3,723      |   | $ | 105,081 |   |
|                                                                         |       |                           |       |   |   |
| **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                                             |       | $                              | 30,000     |   | $ | 113,300 |   |
| Stock options issued for services                                            |       | $                              | —     |   | $ | 358,960 |   |
| Common stock issued for extinguishment of debt                               |       | $                              | —     |   | $ | 60,000 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

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** **

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

Notes to Consolidated Financial Statements

March 31, 2009

 

**Note 1.  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.  It markets its programs through a directsales force, brokers and agents, unions and associations, chambers of commerce,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 andHealthFi.  The Company selects andutilizes only those provider networks that it believes can deliver adequatesavings to its members while providing adequate support for its membershipprograms with the healthcare providers. It typically pays a per member per month fee for use of the providernetworks that is determined in part based on the number of providersparticipating in the network, the number of members accessing the network, andthe particular products or services offered by the providers.  The Company’s agreements with the providernetworks are generally for a term of between one and two years, may beterminated by either party on between 45 and 180 days’ prior written notice,and renew automatically for additional terms unless so terminated.  Most of these agreements are non-exclusiveand 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 Health Partners, Inc. and Subsidiaries**

Notesto Consolidated Financial Statements

March 31, 2009

 

**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, 2008 included in the Company’s Annual Report on Form 10-K.  The results of operations for the three monthsended March 31, 2009 are not necessarily indicative of the results thatthe Company will have for any subsequent quarter or full fiscal 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 2008 have been reclassified to conform to the 2009 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.

 

Asof March 31, 2009, the Company’s significant accounting policies andestimates, which are detailed in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2008, have not changed materially.

 

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** **

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

Notesto Consolidated Financial Statements

March 31, 2009

 

**Note 3.  Stock CompensationExpense**

** **

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 themodified prospective transition method, and records non-employee stock-basedcompensation expense in accordance with Statement of Financial AccountingStandards No. 123, *“Accounting ForStock-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 $98,383and $287,811 for the three months ended March 31, 2009 and 2008,respectively.

 

**Note 4.** **Loss PerShare**

 

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.  A total of 13,145,717 and 20,527,342 sharesof common stock underlying options and warrants that were outstanding on March 31,2009 and 2008, respectively, have been excluded from the computation of dilutedearnings 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 March 31,** | ** **     |
|------------------------------------------------------------------------|------------|------------------------------------------------|----------------|
| ** **                                                             | ** ** | **2009**                                       | ** **     | **2008** | ** ** |
|                                                                   |       |                                           |           |   |   |
| Net loss as reported                                                   |       | $                                              |  (465,277 | ) | $ |  (856,714 | ) |
|                                                                   |       |                                           |           |   |   |
| Weighted average number of shares outstanding — basic and diluted |       | 53,145,170                                     |           | 40,526,153 |   |
|                                                                   |       |                                           |           |   |   |
| Loss per share — basic and diluted                                |       | $                                              |  (0.01    | ) | $ |  (0.02 | ) |

 

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** **

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

Notesto Consolidated Financial Statements

March 31, 2009

 

**Note 5. Property and Equipment**

** **

Property and equipment consisted of thefollowing at March 31, 2009:

 
| **Asset**                      | ** ** | **Amount** | ** **   |
|--------------------------------|------------|------------|--------------|
|                           |       |       |         |
| Computers                      |       | $          | 60,708       |   |
| Software                       |       | 6,109      |         |
| Furniture                      |       | 27,968     |         |
| Telephone                      |       | 80,780     |         |
| Website                        |       | 106,477    |         |
| Less: accumulated depreciation |       | (255,447   | )            |
|                           |       |       |         |
| Net property and equipment     |       | $          |  26,595 |   |

 

Depreciationexpense was $7,246 and $11,664 for the three months ended March 31, 2009and 2008, respectively.

 

**Note 6.  Deposits**

 

Deposits consist of cashreserves held by merchant processors that the Company uses to process creditcard transactions and the security deposit held by the lessor of the Company’soffice space.  Each agreement that the Company has entered into with merchant processorscontains a standard provision that gives the merchant processors the right towithhold funds from the proceeds generated by the Company through the sale ofits membership programs through credit card transactions.  The amount ofthe reserves may be increased or decreased by each merchant processor at anytime based on the perceived risk exposure of the merchant processor.  Themerchant processors are required to return the amount of funds that theywithhold from the proceeds within no less than six months and no more than ninemonths of the date such funds were originally withheld.  As a result, theCompany expects to receive all such funds within six to nine months of the datesuch funds were originally withheld by the merchant processors.

# ** **

As of March 31, 2009, the Companyhad a total of $124,867 in deposits.  Ofthis amount, $75,000 was being held by PowerPay Payment Systems, Inc., $30,867was being held by PayTran Payment Systems, and $19,000 was being held by thelessor of the Company’s office space.

 

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** **

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

Notesto Consolidated Financial Statements

March 31, 2009

 

**Note 7.  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**

** **

The Company is a party to a lease for its office facility located inHorsham, 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** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2009                 |       | $          | 129,657    |   |
| 2010                 |       | 72,032     |       |
|                 |       |       |       |
|                 |       | $          | 201,689    |   |

 

**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** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2009                 |       | $          | 800,660    |   |
| 2010                 |       | 144,161    |       |
|                 |       |       |       |
|                 |       | $          | 944,821    |   |

 

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** **

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

Notesto Consolidated Financial Statements

March 31, 2009

 

**Note 8.  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 March 31, 2009, all shares of common stock had been issuedunder the plan.  The plan terminates on February 1,2016.  On February 6, 2006, theCompany 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 9.  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.  Asof March 31, 2009, all shares of common stock had been issued under theplan.  The plan terminates on April 6,2018.  On April 10, 2008, theCompany 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 10.  401(k) Plan**

** **

On January 15, 2007, the Company adoptedthe National Health Partners, Inc. 401(k) Plan. Under the plan, eligibleemployees may elect to contribute up to 100% of their compensation to the plan eachyear, subject to certain limitations imposed by the Internal Revenue Service.  The Company contributes 100% of the first 3%of the employee’s contribution and 50% of the next 2% of the employee’scontribution. The Company contributed $2,833 and $7,620 to the plan during thethree months ended March 31, 2009 and 2008, respectively.

 

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** **

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

Notesto Consolidated Financial Statements

March 31, 2009

 

**Note 11.  Common Stock and Warrants**

** **

TheCompany’s authorized capital consisted of 100,000,000 shares of common stock,$0.001 par value per share, at March 31, 2009 and 2008, respectively, ofwhich 53,286,281 and 42,478,106 shares of common stock wereoutstanding at March 31, 2009 and 2008, respectively.  Warrants exercisable into an aggregate of 3,969,217and 11,607,342 shares of the Company’s common stock were outstanding on March 31,2009 and 2008, respectively.

 

**Non Capital-Raising Transactions**

** **

InJanuary 2009, the Company issued a total of 600,000 shares of common stockto a consultant pursuant to a consulting agreement. The shares were valued atthe closing price of the Company’s common stock on the date the agreement wasexecuted for total consideration of $30,000. The Company recognized $2,274 ofexpense during the three months ended March 31, 2009 in connection withthe issuance of these shares.

 

## **Capital-Raising Transactions**

## ** **

## In March 2009, the Companycommenced a private offering of up to 2,400,000 shares of its common stock for totalcash consideration of up to $90,000.  Theshares were being sold in units consisting of two shares of common stock andone Class A warrant at a purchase price of $0.075 per unit.  Each warrant gives the holder the right topurchase one share of common stock.  The Class Awarrants have an exercise price of $0.075 per share, are exercisable during theperiod commencing on the date of grant and ending September 30, 2009, andexpire at the end of the exercise period. As of March 31, 2009, the Company had received total gross proceedsof $6,000 from this offering.

## ** **

**Note 12.  Stock Options**

 

Stockoptions exercisable into an aggregate of 9,176,500 and 8,920,000 shares of theCompany’s common stock were outstanding on March 31, 2009 and 2008,respectively, of which 7,159,000 and 6,237,500 shares were vested, respectively.  No options were exercised during the threemonths ended March 31, 2009 and 2008, respectively.  The Company estimates thefair value of its stock options on the date of grant by using the Black-Scholespricing model in accordance with the provisions of Statement of FinancialAccounting Standards No. 148, *“Accounting forStock-Based Compensation — Transition and Disclosure.”*  Under the Black-Scholes pricing model, theCompany used the following weighted-average assumptions to determine the fairvalue of the stock options issued: a dividend yield of zero percent, anexpected volatility of between 231% and 282%, a risk-free interest rate of between3.5% and 5% and a remaining contractual life of between 9.15 and 9.95 years.

 

**Note13.  Subsequent Events**

** **

In April 2009, theCompany increased the number of units available for sale under the private offeringthat commenced in March 2009 to 3,000,000 units representing 6,000,000shares of common stock and Class A warrants exercisable into 3,000,000shares of common stock for aggregate gross proceeds of $225,000.  The Company completed the private offering inApril 2009 having sold 2,673,000 units representing 5,346,000 shares ofcommon stock and Class A warrants exercisable into 2,673,000 shares ofcommon stock for aggregate gross proceeds of $200,475.

 

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**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

 

Thisreport contains “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended (the “Securities Act”) and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  All statements other than statements ofhistorical facts included or incorporated by reference in this report,including, without limitation, statements regarding our future financialposition, business strategy, budgets, projected revenue and costs, and plansand objectives of management for future operations, are forward-lookingstatements.  In addition, forward-lookingstatements generally can be identified by the use of forward-lookingterminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,”“anticipates,” or “believes” or the negative thereof or any variation thereonor similar terminology or expressions.

 

Theseforward-looking statements are subject to risks and uncertainties that couldcause actual results to differ materially from results proposed in suchstatements.  Although we believe that theexpectations reflected in such forward-looking statements are reasonable, wecan give no assurance that such expectations will prove to have beencorrect.  Important factors that couldcause actual results to differ materially from our expectations include, but arenot limited to:

 

·                  our ability to fund futuregrowth and implement our business strategy;

 

·                  our dependence on a limitednumber of preferred provider organizations (“PPOs”) and other healthcareprovider networks;

 

·                  our dependence on a singleinsurance company for the insurance benefits offered as part of our CARExpressPlusTM programs;

 

·                  our dependence upon alimited number of marketing and distribution partners for substantially all ofour revenue;

 

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

 

·                  demand for and acceptance ofour membership programs;

 

·                  competition in the healthdiscount membership market;

 

·                  our ability to attract andretain qualified personnel;

 

·                  legislative or regulatorychanges in the healthcare industry;

 

·                  the condition of thesecurities and capital markets;

 

·                  general economic andbusiness conditions, either nationally or internationally or in thejurisdictions in which we are doing business;

 

and statements of assumptionunderlying any of the foregoing, as well as any other factors set forth hereinunder *“Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations”* below and *“Item 1A.  Risk Factors”* of our Annual Reporton Form 10-K for our fiscal year ended December 31, 2008.  All subsequent written and oralforward-looking statements attributable to us, or persons acting on our behalf,are expressly qualified in their entirety by the foregoing.  Except as required by law, we assume no dutyto update or revise our forward-looking statements.

 

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

** **

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

 

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and other parts of this report contain forward-looking statementsthat involve risks and uncertainties. All forward-looking statements included in this report are based oninformation available to us on the date hereof, and, except as required by law,we assume no obligation to update any such forward-looking statements.  Our actual results may differ materially fromthose anticipated in these forward-looking statements as a result of a numberof factors, including those set forth herein and under the caption *“Item 1A.  Risk Factors”*in our Annual Report on Form 10-K for our fiscal year ended December 31,2008.  The following should be read inconjunction with our consolidated financial statements included above in Item 1of Part I of this report.

 

**Overview**

** **

Weare a national healthcare membership organization that was formed to addressthe need for affordable healthcare nationwide. We create, market and sell membership programs to predominantlyunderserved markets in the healthcare industry through a national healthcaresavings 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 enablespeople to engage in point-of-service transactions directly with thesehealthcare providers and pay discounted prices to the providers.

 

Ourmembership programs offer savings on healthcare services to persons who areuninsured or underinsured by providing them with access to the same PPOs thatare utilized by employers that self-fund at least a portion of their employees’healthcare costs.  Our membershipprograms are also used to supplement benefit plans and fill in the gaps createdby the need to reduce health benefits to keep the costs of health insurancereasonable.  We sell our membershipprograms directly through our sales force and indirectly through brokers andagents, unions and associations, small businesses and other organizations.

 

Weare actively engaged in marketing our membership programs to the public.  Our primary objective is to generate increasedsales of our membership programs while expanding our position as a provider ofunique healthcare membership service programs. The target market for our membership programs is comprised ofindividuals who have either limited health benefits or no health benefits.  Our share of this market is currently lessthan one percent and has been less than one percent since our inception.  Since we are not currently large enough topursue and support the entire market, we intend to continue to pursue specificopportunities that we identify in this market through our various marketing anddistribution channels.  Through productdesign, competitive membership pricing, and a variety of marketing anddistribution partners, we are pursuing opportunities in the healthcare marketthat insurance companies have not addressed.

 

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**OperationalMetrics**

 

Our revenue consists almostexclusively of recurring monthly membership fees that we receive from membersof our membership programs.  Our memberspay us membership fees each month for the duration of their membership.  The average membership fee per member permonth that we receive for our CARExpressTM healthdiscount programs is approximately $35. Approximately 95% of the CARExpressTM healthdiscount programs that we have sold to our current members consist of ourComprehensive Care Program which is currently sold at a monthly retail price of$39.95.  The remaining CARExpressTM health discount programs that we have sold toour current members consist of a mix of our less expensive programs.  Approximately 90% of the CARExpress PlusTM membership programs that we have sold to ourcurrent members consist of our CARExpress PlusTM Gold Programwhich is currently sold at a monthly retail price of $137.  The remaining CARExpress PlusTM membership programs that we have sold to ourcurrent members consist of a mix of our other programs.

 

Wereceive each member’s initial monthly payment and billing information at thebeginning of the first monthly membership period.  Monthly payments for subsequent periods arereceived 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.

 

Akey metric that we use to evaluate our success is our member retentionrates.  Member retention rates representthe percentage of new members that we acquire that we are able to retain for aspecified period of time.  Since we incura large portion of our costs up front and receive recurring membership feesthroughout the term of the membership, the longer we are able to retain themembers we acquire, the greater the revenue potential of the membershipprograms that we sell.  We believe thatthe key to obtaining a high member retention rate is to target our marketingcampaigns towards those individuals and organizations that are most in need ofour programs, most capable of paying for our programs, and most loyal to us andour programs.  Member retention rates canbe influenced by a variety of factors, including:

 

·                  the type of membership programs being sold;

 

·                  the marketing campaign being used to sell ourmembership programs;

 

·                  the financial condition and loyalty of ourmembers;

 

·                  the distribution channel selling our membershipprograms; and

 

·                  the type and amount of compensation beingpaid to our marketing and distribution partners to sell our membershipprograms.

 

Wehave obtained valuable information regarding member demographics through themarketing and advertising campaigns that we have conducted and are focusing ourmarketing and advertising campaigns on members and member groups that we haveidentified as being most suitable for our membership programs.  As a result, we expect our retention rates tocontinue to improve over the next 12 months as we pursue these opportunitiesthrough our various marketing and distribution channels.

 

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**FinancialResults and Outlook**

 

Ourstrategy is to continue to expand our position as a provider of unique discounthealthcare membership programs.  We haveimplemented several strategic growth initiatives during the past 12 monthsthrough which we achieved new contracts and strategic partnerships with anumber of organizations, the most profound of which involved a shift in oursales strategy from sales through marketing companies to sales throughemployers and “affinity groups.”  An “affinitygroup” is a group of people who share interests, issues, and a common bond orbackground, and offer support for each other. Examples of the types of affinity groups that we are working withinclude unions, associations, chambers of commerce and small businessnetworks.  These organizations typicallyhave a large number of members and thus, each one provides us with theopportunity to obtain a large number of sales. In addition, it is far less costly for us to sell our CARExpressTM programs through these organizations than itis for us to engage in expensive, nation-wide marketing and advertisingcampaigns through marketing companies, and the members that we obtain throughthese sources tend to remain members for a much longer period of time.

 

Weexperienced a decrease in revenue for the three months ended March 31,2009 compared to the three months ended March 31, 2008 as a result of theshift in our sales strategy from sales through marketing companies to salesthrough employers and affinity groups. However, the shift in our sales strategy, coupled with cost-cuttinginitiatives that we implemented over the past few quarters in response todeteriorating economic conditions, have resulted in substantially lower directcosts.  As a result, our gross profitmargin for the three months ended March 31, 2009 was substantially higherthan our gross profit margin for the three months ended March 31,2008.  Similarly, our net loss and netloss per share for the three months ended March 31, 2009 weresubstantially lower than our net loss and net loss per share for the threemonths ended March 31, 2008.  Theshift in our sales strategy and the implementation of cost-cutting initiativesalso resulted in a substantial decrease in net cash used by operatingactivities during the three months ended March 31, 2009 compared to thethree months ended March 31, 2008.

 

Wegenerated revenue of $417,843 for the three months ended March 31, 2009compared to revenue of $822,177 for the three months ended March 31,2008.  We achieved a gross profit of$285,899 and gross profit percentage of 68% for the three months ended March 31,2009, compared to a gross profit of $354,302 and gross profit margin of 43% forthe three months ended March 31, 2008. We recognized a net loss of $(465,277), or $(0.01) per share, for thethree months ended March 31, 2009, compared to a net loss of $(856,714),or $(0.02) per share, for the three months ended March 31, 2008.  Net cash used by operating activities was$(179,822) for the three months ended March 31, 2009 compared to$(365,780) for the three months ended March 31, 2008, representing adecrease of 51%.

 

Wewill generate future revenue and members primarily through sales of ourCARExpressTM health discount programs and our CARExpressPlusTM membership programs to employees and membersof affinity groups through our direct sales force, our marketing anddistribution partners, and various marketing and advertising campaigns.  We have entered into agreements with severalaffinity groups through which we are generating sales of our 

 

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CARExpressTM membershipprograms and are currently in discussions with several other organizationsregarding the sale of our CARExpressTM membershipprograms.  We intend to finance each ofthese projects through cash on hand, internally generated cash flows fromoperating activities and, if necessary, proceeds from the issuance of equitysecurities.  We will use any additionalinvestments that we receive to accelerate the expansion of each of ouradvertising campaigns and programs and increase sales of our membershipprograms.

 

We expect the number of CARExpressTM members generated each month to increasesubstantially during the quarter ended June 30, 2009 as a number of dealsthat we have either recently closed or that we expect to close begin togenerate members for us.  We also expectthe number of CARExpressTM members generated each month to continue toincrease throughout the year and expect our retention rates to improve over thenext 12 months since members generated through affinity groups havehistorically remained members of CARExpressTM for a muchlonger period of time than members generated through marketing companies.  As a result, we expect to generate revenue ofbetween $8 million and $12 million during the year ended December 31,2009.  We believe that this increase inrevenue combined with the various cost-cutting initiatives that we implementedover the past few quarters will enable us to generate positive cash flows fromoperating activities during the year ended December 31, 2009 as therecurring membership fees from our increasing membership base overtake thecosts associated with retaining existing members and obtaining newmembers.  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, that we will generate theaforementioned projected revenue, or that we will generate positive cash flowsfrom operating activities during the year ended December 31, 2009.

 

**Critical Accounting Policies**

** **

For information regarding our critical accountingpolicies, please refer to the discussion provided in our Annual Report on Form 10-Kfor our fiscal year ended December 31, 2008 under the caption *“Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operations — CriticalAccounting Policies”* and our Notes to Consolidated FinancialStatements included therein.

 

**RecentAccounting Pronouncements**

** **

For information regarding recent accountingpronouncements applicable to our business, please refer to the discussionprovided in our Annual Report on Form 10-K for our fiscal year ended December 31,2008 under the caption *“Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Recent AccountingPronouncements”* and our Notes to Consolidated Financial Statementsincluded therein.

 

**Comparison of the Three-Month Periods Ended March 31, 2009 and2008**

** **

Revenue

 

Revenue consists almost exclusively of the monthly membership fees thatwe receive from members of our membership programs.  Revenue decreased $404,334 to $417,843 forthe

 

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three months ended March 31, 2009 from $822,177 for the threemonths ended March 31, 2008.  Thedecrease of $404,334 resulted primarily from a decrease in sales of ourmembership programs through marketing companies in connection with the shift inour sales strategy from sales through marketing companies to sales throughemployers and affinity groups. Approximately 30% of the revenue that we generated during the threemonths ended March 31, 2009 was derived from sales of our membershipprograms to first-time members, compared to approximately 70% during the threemonths ended March 31, 2008.  Theremainder of the revenue that we generated during these periods was derivedfrom existing members.  We expect revenueto increase over the next 12 months as a result of increased sales of ourmembership programs to employees and members of affinity groups through ourdirect sales force, our marketing and distribution partners and our variousmarketing and advertising campaigns.

 

Direct Costs

 

Direct costs consist of sales commissions that we pay to our marketingand distribution partners and fees that we pay to our PPOs and providernetworks for access to their networks. Direct costs decreased $335,931 to $131,944 for the three months ended March 31,2009, from $467,875 for the three months ended March 31, 2008.  The decrease of $335,931 was due to decreasesof $226,968 for sales commissions and $108,963 for PPO and provider networkcosts 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 network costs.

 

Selling and Marketing Expenses

 

Selling and marketing expenses consist of advertising expenses,marketing expenses, salaries and other compensation paid to employees sellingand marketing our membership programs, rent expense allocated to our sellingand marketing activities, depreciation and amortization expense allocated toour selling and marketing activities, and all other selling and marketingexpenses incurred by us.  Selling andmarketing expenses decreased $42,884 to $36,041 for the three months ended March 31,2009, from $78,925 for the three months ended March 31, 2008.  The decrease of $42,884 was due primarily toa decrease of $33,826 for salaries and other compensation paid to employeesselling and marketing our membership programs. We expect selling and marketing expenses to increase during the next 12months as we grow our direct sales force and engage in larger and more frequentmarketing and advertising campaigns and activities.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of employeecompensation expense, professional fees and other general and administrativeexpenses.

 

*Employee Compensation Expense*.  Employee compensation expense consists of allsalaries and other cash compensation, equity-based compensation, 401(k) contributionsand other compensation that we pay to our employees and the related payrolltaxes that are not associated with our selling and marketing activities.  Employee compensation expense decreased$38,918 to

 

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$479,145 for the three months ended March 31, 2009, from $518,063for the three months ended March 31, 2008. The decrease of $38,918 was due primarily to decreases of $26,008 forsalary expense and $8,462 for restricted stock award expense.  We expect employee compensation expense toincrease over the next 12 months as we begin to hire additional employees tosupport 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 decreased $149,689 to $99,770 for the three monthsended March 31, 2009 from $249,459 for the three months ended March 31,2008.  The decrease of $149,689 was dueprimarily to  decreases of $112,653 forthe amount of expense recognized in connection with equity-based compensationpaid to service providers and consultants for various services, and $33,353 inlegal fees.  We expect professional feesto increase over the next 12 months as we incur additional legal, accountingand technology fees in connection with the general expansion of our businessand operations.

 

*Other General and AdministrativeExpenses*.  Othergeneral and administrative expenses consist of office supplies expense,computer hardware and system costs, bank service charges, filing fees and dues,non-employee customer service representative expense, rent expense, healthinsurance and other related benefit costs, financial printer costs, transferagent costs, the costs of investor relations campaigns and activities, postageand delivery expenses, severance expenses, general business expenses andmiscellaneous general and administrative expenses that are not associated withour selling and marketing activities. Other general and administrative expenses decreased $198,275 to $136,303for the three months ended March 31, 2009 from $334,578 for the threemonths ended March 31, 2008.  Thedecrease of $198,275 resulted primarily from decreases of $92,063 for bankservice charges associated with new and recurring member transactions, $20,923for office supplies, $18,879 for printing and reproduction costs, and $16,733for postage and delivery costs.  Weexpect other general and administrative expenses to increase over the next 12months as we continue to incur expenses for bank service charges, financialprinter services, investor relations campaigns and activities, transfer agentfees, 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.

 

Loss on the Extinguishmentof Debt

 

Loss on the extinguishmentof debt consists of the loss that we recognized in connection with the paymentof $20,000 and the issuance of 240,000 shares of common stock to a debt holderin full payment of all principal and interest that was due and payable under a$50,000 promissory note and a mutual release from any and all claims arisingout of the promissory note.  Werecognized a loss on the extinguishment of debt of $30,000 during the threemonths ended March 31, 2008 in connection with the issuance of theseshares.  We did not recognize any suchloss during the three months ended March 31, 2009.  We do not expect to recognize any additionalgains or losses on the extinguishment of debt in the foreseeable future.

 

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Net Loss

 

Our net loss decreased $391,437 to $465,277 for thethree months ended March 31, 2009, from $856,714 for the three monthsended March 31, 2008.  The decreaseof $391,437 was primarily due to decreases of $335,931 for direct costsincurred in connection with the sale of our membership programs, $198,275 forother general and administrative expenses, $149,689 for professional fees,$42,884 for selling and marketing expenses, $38,918 for employee compensationexpenses and $30,000 for loss on the extinguishment of debt, partially offsetby a decrease of $404,334 for revenue. We expect to begin generating a netprofit from operations during 2009 as the recurring membership fees from ourincreasing membership base overtake the costs associated with obtaining andretaining members.

 

**Liquidity and Capital Resources**

 

Sinceour inception, we have funded our operations primarily through private sales ofequity securities.  As of May 13,2009, we had cash and cash equivalents of approximately $115,000.

 

Netcash used by operating activities was $179,822 for the three months ended March 31,2009, compared to $365,780 for the three months ended March 31, 2008.  The $185,958 decrease in cash used byoperating activities was due primarily to a decrease of $391,437 for net lossand an increase of $165,268 for accounts payable and accrued expenses.  These amounts were partially offset bydecreases of $121,277 for equity-based compensation expense, $51,728 fordeposits, $30,000 for loss on the extinguishment of debt and $145,519 fordeferred revenue, and an increase of $21,257 for accounts receivable.

 

Wedid not have any cash flows from investing activities for the three monthsended March 31, 2009 and 2008.

 

Net cash provided byfinancing activities was $6,000 for the three months ended March 31, 2009,compared to $438,655 for the three months ended March 31, 2008.  The $432,655 decrease in cash provided byfinancing activities was due to decreases of $408,415 for proceeds from theexercise of warrants and $50,000 for proceeds from the issuance of debt. Theseamounts were partially offset by an increase of $5,760 for proceeds from thesale of stock and warrants and a decrease of $20,000 for payments on debt.

 

Ourprimary sources of capital over the past 12 months are set forth below.

 

In June 2008, wecompleted 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.  Thesesecurities were 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 perunit.  We agreed to provide each investorwith an opportunity to include all shares of common stock and all shares ofcommon stock issued upon the exercise of the warrants in any registrationstatement that we file with the SEC for the purposes of a public offering ofour securities (excluding registration statements on Forms S-4 or S-8).  The Class A warrants were initiallyexercisable into one share 

 

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of our commonstock at an exercise price of $0.20 per share, were exercisable during a periodof 90 days beginning on the date of grant, and expired at the end of theexercise 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 of grant and ending on December 31, 2008, and expired at the end of the exerciseperiod.

 

In July 2008, wesold 3,000,000 shares of our common stock and Class A warrants exercisableinto 3,000,000 shares of our common stock to an accredited investor foraggregate cash consideration of $750,000. These securities were sold in units comprised of one share of our commonstock, and one Class A warrant at a purchase price of $0.25 per unit.  The Class A warrants are initiallyexercisable into one share of our common stock at an exercise price of $0.30per share, are exercisable during a period beginning on the date of grant andending on December 31, 2009, and expire at the end of the exercise period.

 

In April 2009, we completed aprivate offering of 5,346,000 shares of our common stock and Class Awarrants exercisable into 2,673,000 shares of our common stock for aggregategross proceeds of $200,475.  The Class Awarrants have an exercise price of $0.075 per share, are exercisable until September 30,2009, and expire at the end of the exercise period.

 

Duringthe period beginning January 1, 2008 and ending May 1, 2009, weissued 3,463,250 shares of common stock upon the exercise of warrants atexercise prices ranging between $0.12 and $0.40 per share for aggregate grossproceeds of $597,415.

 

To date, our capital needs have been met primarily through sales ofequity securities and proceeds received upon the exercise of warrants held byour security holders.   We do notcurrently maintain a line of credit or term loan with any commercial bank orother financial institution.  We haveused the proceeds from the exercise of warrants and our private offerings ofsecurities to pay virtually all of the costs and expenses we haveincurred.  These costs and expenses werecomprised of operating expenses, which consisted of the employee compensation expenses,professional fees and other general and administrative expenses discussedabove, and the costs of sales discussed above to the extent such costs of salesexceeded our revenue.

 

We believe thatour current cash resources will not be sufficient to sustain our currentoperations for the next 12 months.  Wewill need to obtain additional cash resources within the next 12 months toenable us to pay our ongoing costs and expenses as they are incurred andfinance the growth of our business.  Weintend to obtain these funds through internally generated cash flows fromoperating activities and proceeds from the issuance of equity securities.  The issuance of additional equity wouldresult in dilution to our existing shareholders.  We have not made arrangements to obtainadditional financing and we can provide no assurance that additional financingwill be available in an amount or on terms acceptable to us, if at all.  If we are unable to obtain additional fundswhen they are needed or if such funds cannot be obtained on terms favorable tous, 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.

 

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**Off-BalanceSheet Arrangements**

 

As of March 31, 2009, we did not have any relationships withunconsolidated entities or financial partners, such as entities often referredto as structured finance or special purpose entities, that had been establishedfor the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity,market or credit risk that could arise if we had engaged in such relationships.

 

**Item 4T.  Controls andProcedures.**

 

As of March 31, 2009, 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 March 31, 2009, 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 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 March 31, 2009that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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**PART II — OTHER INFORMATION**

 

**Item  2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

 

During the three months ended March 31, 2009, wesold the following securities without registration under the SecuritiesAct of 1933, as amended (the “Securities Act”):

 

## **In March 2009, wecommenced a private offering of up to 2,400,000 shares of our common stock fortotal cash consideration of up to $90,000. The shares were being sold in units consisting of two shares of commonstock and one Class A warrant at a purchase price of $0.075 per unit.  Each warrant gives the holder the right topurchase one share of common stock.  The Class Awarrants have an exercise price of $0.075 per share, are exercisable during theperiod commencing on the date of grant and ending September 30, 2009, andexpire at the end of the exercise period. As of March 31, 2009, we had sold 80,000 units for total grossproceeds of $6,000 from this offering. 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.**

## ** **

**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 |

 

21

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|                    | NATIONAL HEALTH PARTNERS, INC. |
|-------------------------|--------------------------------|
|                    |                           |
|                    |                           |
| Date: May 14, 2009 | /s/ David M. Daniels           |
|                    | David M. Daniels               |
|                    | Chief Executive Officer        |

 

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**EXHIBIT INDEX**

 
| **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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