UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





FORM 10-Q





(Mark one)


x
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period endedSeptember 30, 2012o
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ______________ to _____________





Commission File No. 000-51731








NATIONAL HEALTH PARTNERS, INC.(Exact name of registrant as specified in its charter)





Indiana

04-3786176(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)





120 Gibraltar Road


Suite 107


Horsham, PA  19044


(Address of Principal Executive Offices)





(215) 682-7114


(Issuer's Telephone Number, including Area Code)





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





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o





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





Large accelerated filer o

Accelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)

Smaller reporting company x





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





APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS





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





APPLICABLE ONLY TO CORPORATE ISSUERS





Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  There were 232,803,252 shares of the issuer’s common stock, $.001 par value per share, issued and outstanding on, December 17, 2012.











TABLE OF CONTENTS





PagePART I – FINANCIAL INFORMATIONItem 1. Financial Statements
3Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011
3Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)
4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)
5Notes to Consolidated Financial Statements (Unaudited)
6Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
16Item 4. Controls and Procedures
23PART II – OTHER INFORMATIONItem 1A. Risk Factors
23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
23Item 6. Exhibits
23





2


PART I – FINANCIAL INFORMATION





Item 1.  Financial Statements.




National Health Partners, Inc. and Subsidiaries


Consolidated Balance Sheets






September 30,


December 31,2012


2011(Unaudited)AssetsCurrent assets:Cash

$
8,242


$
3,340Accounts receivable, net


---



5,843Prepaid expense


110,776



305,843Deposits


51,509



---Total current assets


170,527



315,026Property and equipment, net


---



---Prepaid expense


---



8,684Deposits


---



19,000Total assets

$
170,527


$
342,710Liabilities and stockholders' equity (deficit)Current liabilitiesAccounts payable

$
280,401


$
161,504Refunds payable


15,636



5,545Accrued expenses


15,915



1,305Deferred revenue


114,809



69,660Notes payable, net of discount


199,090



47,000Total current liabilities


625,851



285,014Total long term liabilities


6,000



---Total liabilities


631,851



285,014Commitments and contingenciesStockholders' equity (deficit):Common stock, $0.001 par value, 250,000,000 shares authorized,232,803,252 and 202,803,252 shares issued and outstandingon September 30, 2012 and December 31, 2011, respectively


232,803



202,803Additional paid-in capital


28,216,976



28,162,599Accumulated deficit


(28,911,103
)


(28,307,706
)Total stockholders' equity (deficit)


(461,324
)


57,696Total liabilities and stockholders' equity

$
170,527


$
342,710










The accompanying notes are an integral part of these consolidated financial statements




3




National Health Partners, Inc. and Subsidiaries


Consolidated Statements of Operations


(Unaudited)







For the Three Months Ended


For the Nine Months EndedSeptember 30,


September 30,2012


2011


2012


2011Net revenue

$
458,446


$
434,339


$
1,086,265


$
1,309,817Direct costs


272,401



197,998



671,295



725,335Gross profit


186,045



236,341



414,970



584,482Operating expenses:General and administrative


343,859



461,046



975,178



1,257,085Total operating expenses


343,859



461,046



975,178



1,257,085Loss from operations


(157,814
)


(224,705
)


(560,208
)


(672,603
)Gain on extinguishment of debt


5,392



---



5,392



---Interest expense


(16,623
)


---



(48,581
)


---Net loss

$
(169,045
)

$
(224,705
)

$
(603,397
)

$
(672,603
)Loss per share -- basic and diluted

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)Weighted average number of sharesoutstanding -- basic and diluted


232,498,904



171,561,132



215,387,194



140,765,331










The accompanying notes are an integral part of these consolidated financial statements




4





National Health Partners, Inc. and Subsidiaries


Consolidated Statements of Cash Flows


(Unaudited)


For the Nine Months EndedSeptember 30,2012


2011Cash flows from operating activitiesNet loss

$
(603,397
)

$
(672,603
)Adjustments to reconcile net loss to net cashused by operating activities:Common stock issued for services and amortization of prepaid services


249,933



468,753Options issued for services


377



4,297Gain on extinguishment of debt


5,392



---Amortization of debt discount


22,331



---Depreciation


---



5,627Changes in operating assets and liabilities:(Increase) decrease in deposits


(32,509
)


25,000Decrease in accounts receivable


5,843



---(Increase) decrease in other current assets


(581
)


213Increase (decrease) in accounts payable and accrued expenses


134,273



(75,493
)Increase in refunds payable


10,091



(1,224
)Increase in deferred revenue


45,149



534Net cash used by operating activities


(163,098
)


(244,896
)Cash flows from investing activitiesNet cash provided by investing activities


---



---Cash flows from financing activitiesNet proceeds from sale of stock and warrants


16,000



224,150Net proceeds from sale of notes and warrants


152,000



---Net cash provided by financing activities


168,000



224,150Net increase (decrease) in cash


4,902



(20,746
)Cash at beginning of period


3,340



28,548Cash at end of period

$
8,242


$
7,802Supplemental disclosure of cash flow informationCash paid for interest

$
---


$
---Cash paid for taxes

$
---


$
---










The accompanying notes are an integral part of these consolidated financial statements




5




National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








Note 1. Description of Business





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





The Company sells membership programs that encompass all aspects of healthcare, including physicians, hospitals, ancillary services, dentists, prescription drugs and vision care through a national healthcare savings network called “CARExpress.”  The Company derives almost all of its revenue from the monthly membership fees it receives from its members.  It markets its programs through a direct sales 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 sale price of the membership programs.  These organizations typically offer and sell the Company’s membership programs on a part-time basis and may engage in other related or unrelated business activities, including selling the products or services of the Company’s competitors.  The Company’s agreements with these organizations are generally for a term of one year and renew automatically for additional one-year terms unless written notice of termination is delivered by either party to the other at least 30 days prior to the then-current term.





The Company contracts with preferred provider organizations and other provider networks for access to the discounted rates they have negotiated with their healthcare providers.  The principal suppliers of the healthcare providers that comprise CARExpress are CareMark, Aetna, Optum, Outlook Vision, Integrated Health and Three Rivers.  Aetna (Aetna Dental Access) is the actual network name and it is administered through National Benefit Builders. Aetna does not contract directly for this network and instead requires users to contract with their administrator for access to their network. Likewise, Integrated Health and Three Rivers are also networks and are contracted through First Access, Inc., who is the administrator for these networks. The Company selects and utilizes only those provider networks that it believes can deliver adequate savings to its members while providing adequate support for its membership programs with the healthcare providers.  It typically pays a per member per month fee for use of the provider networks that is determined in part based on the number of providers participating in the network, the number of members accessing the network, and the particular products or services offered by the providers.  The Company’s agreements with the provider networks are generally for a term of between one and two years, may be terminated 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-exclusive and contain confidentiality provisions.





Note 2. Basis of Presentation





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





The unaudited consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements and in management’s opinion, reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K.  The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that the Company will have for any subsequent quarter or full fiscal year.





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.  The financial statements include the balances of National Health Partners, Inc. and its wholly-owned subsidiaries.  All material inter-company balances and transactions have been eliminated in consolidation.


6


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








Note 2. Basis of Presentation (Continued)





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





Certain amounts in the 2011 financial statements have been reclassified to conform to the 2012 presentation. These reclassifications did not result in any change to the previously reported total assets, net loss or stockholder’s equity.





As of September 30, 2012, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, have not changed materially.





Note 3. Stock Compensation Expense





The Company records employee stock-based compensation using the fair value recognition provisions of Accounting Standards Codification (“ASC”) Topic 718 (“ASC 718”) using the modified prospective transition method, and records non-employee stock-based compensation expense in accordance with ASC Topic 505.  In accordance therewith, the Company recognized stock compensation expense of $0 and $0 for the three months ended September 30, 2012 and 2011, respectively, and $0 and $31,111 for the nine months ended September 30, 2012 and 2011, respectively.





Note 4. Loss Per Share





Basic loss per share is based on the weighted average number of shares of the Company’s common stock outstanding during the applicable period, and is calculated by dividing the reported net loss for the applicable period by the weighted average number of shares of common stock outstanding during the applicable period.  The Company calculates diluted loss per share by dividing the reported net loss for the applicable period by the weighted average number of shares of common stock outstanding during the applicable period as adjusted to give effect to the exercise of all potentially dilutive options and warrants outstanding at the end of the period.  A total of 5,625,000 and 4,125,000 shares of common stock underlying options and warrants that were outstanding on September 30, 2012 and 2011, respectively, have been excluded from the computation of diluted earnings per share because they are anti-dilutive.  As a result, basic loss per share was equal to diluted loss per share for each period.





For the Three Months Ended

September 30,


For the Nine Months Ended

September 30,2012


2011


2012


2011Net profit (loss) as reported

$
(169,045
)

$
(224,705)


$
(603,397
)

$
(672,603
)Weighted average number of shares outstanding – basic and diluted


232,498,904



171,561,132



215,387,194



140,765,331Loss per share – basic and diluted

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)





7


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








Note 5. Property and Equipment





Property and equipment consisted of the following at September 30, 2012:





Asset

AmountComputers

$
60,708Software


6,109Furniture


27,968Telephone


80,780Website


106,477Less: accumulated depreciation


(282,042
)Net property and equipment

$
--





Depreciation expense was zero and $1,234 for the three months ended September 30, 2012 and 2011, respectively, and zero and $5,627 for the nine months ended September 30, 2012 and 2011, respectively.





Note 6. Deposits





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





As of September 30, 2012, the Company had a total of $51,509 in deposits.  The $51,509 is being held by PowerPay Payment Systems, Inc.





Note 7. Notes Payable





In April 2012, the Company executed two promissory notes for $60,000 and $5,000 respectively. Principal plus interest of 15% of the amount loaned is due on or before the 180thday following the date of each promissory note. Attached to each promissory note are Class A warrants. For each $1,000 in principal amount, 100,000 shares of Class A warrants are attached. All warrants have an exercise price of $.002 per share, and are exercisable during the period commencing on the date of the grant and ending December 31, 2012, and expire at the end of the exercise period.  The total value of the warrants (debt discount) issued is $22,400, which will be recognized as an expense during 2012. The Company recognized an expense of $10,803 and $10,613 for the three months ended June 30, 2012 and $16,686 and $15,273 for the six months ended June 30, 2012 in connection with the issuance of these promissory notes and warrants respectively.





In May 2012, the Company executed a Promissory Note of $10,000. Provided the lender does not convert the note into stock, the Company shall pay to the lender the principal and all accrued interest of 15% on March 31, 2013.


8


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








In July 2012, the Lender of a Promissory Note dated January 3, 2012 authorized the Company to convert the Promissory Note in the amount of $30,000 plus accrued interest in the amount of $2,250 into a new Promissory Note in the amount of $32,250. Provided the Lender does not convert the note into stock, the principal and interest of 15% are due on March 31, 2013. The Lender also authorized the Company to cancel the 3,000,000 warrants received from the original Promissory Note.





In July 2012, the lender of a Promissory Note dated December 15, 2011 authorized the Company to convert the Promissory Note in the amount of $40,000 plus accrued interest in the amount of $3,353 into a new Promissory Note in the amount of $43,353. Provided the Lender does not convert the note into stock, the principal and interest of 15% are due on March 31, 2013. The lender also authorized the Company to cancel the 4,000,000 warrants received from the original Promissory Note.





In July 2012, the lender of a Promissory Note dated December 23, 2011 authorized the Company to convert the Promissory Note in the amount of $2,000 plus accrued interest in the amount of $161 into a new Promissory Note in the amount of $2,161. Provided the Lender does not convert the note into stock, the principal and interest of 15% are due on March 31, 2013. The lender also authorized the Company to cancel the 200,000 warrants received from the original Promissory Note.





In July 2012, the lender of a Promissory Note dated December 27, 2011 authorized the Company to convert the Promissory Note in the amount of $2,000 plus accrued interest in the amount of $158 into a new Promissory Note in the amount of $2,158. Provided the Lender does not convert the note into stock, the principal and interest of 15% are due on March 31, 2013. The lender also authorized the Company to cancel the 200,000 warrants received from the original Promissory Note.





In July 2012, the lender of a Promissory Note dated December 27, 2011 authorized the Company to convert the Promissory Note in the amount of $3,000 plus accrued interest in the amount of $236 into a new Promissory Note in the amount of $3,236. Provided the Lender does not convert the note into stock, the principal and interest of 15% are due on March 31, 2013. The lender also authorized the Company to cancel the 300,000 warrants received from the original Promissory Note.





In July 2012, the Company executed a Promissory Note of $10,000 of which $5,000 was paid in July and $5,000 was paid in August. Provided the lender does not convert the note into stock, the principal together with interest of 12% are due on March 31, 2013.





In July 2012, the Company executed a Promissory Note of $15,000 of which $7,500 was paid in August and the balance of $7,500 is due on or before November 30, 2012. As of September 30, 2012 $7,500 has been advanced. Provided the lender does not convert the note into stock, the principal together with interest of 12% are due on March 31, 2013.





In August 2012, the Company executed a Promissory Note of $72,000, in which the lender agrees to make monthly advances of $6,000 commencing in September for a total of twelve monthly advances totaling $72,000. As of September 30, 2012, $6,000 has been advanced. Provided the lender does not convert the note into stock, the principal together with interest of 12.5%, compounded quarterly are due on January 18, 2014.





In August 2012, the Company executed a Promissory Note of $6,000. Provided the lender does not convert the note into stock, the principal together with interest of 15%, compounded quarterly are due on August 31, 2013.




In September 2012, the Company executed a Promissory Note of $7,500. Provided the lender does not convert the note into stock, the principal together with interest of 15%, are due on December 6, 2012.  Management is currently in negotiations to extend the note with the holder of a note for $7,500 that was due December 6, 2012 and the note holder has not made a demand for payment.
 9


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








The total promissory notes outstanding as of September 30, 2012 are $205,158.





The total value of the warrants (debt discount) issued is $22,400, which will be recognized as an expense during 2012. The Company recognized an expense of $9,565 and $7,058 for the three months ended September 30, 2012 and $26,250 and $22,331 for the nine months ended September 30, 2012 in connection with the issuance of these promissory notes and warrants respectively.





Note 8. Commitments and Contingencies





The Company’s material commitments and contingencies consist of an operating lease for its office space in Pennsylvania.





Operating Leases





The Company is a party to a lease for its office facility located in Horsham, Pennsylvania which was most recently amended on November 13, 2009.  The amendment extended the term of the lease from May 31, 2010 to May 31, 2013.  The amendment provides for an initial monthly rent payment of $7,214 and an initial monthly operating expense payment of approximately $6,160.  The agreement requires the Company to make minimum annual rent payments of approximately $86,500, $90,000 and $93,500, respectively, and estimated annual operating expense payments of approximately $74,000 (subject to periodic increases) during the three-year term of the amendment.





Future minimum lease payments, including estimated annual operating expenses under this facility lease are as follows:





Fiscal Year

Amount2012

$
163,8052013

68,865Total

$
232,670





Note 9. 2006 Stock Incentive Plan





On February 2, 2006, the Company adopted the National Health Partners, Inc. 2006 Stock Incentive Plan.  Under the plan, 4,500,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards.  As of September 30, 2012, all shares of common stock had been issued under the plan.  The plan terminates 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 stock available for issuance under the plan.





10


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








Note 10. 2008 Stock Incentive Plan





On April 7, 2008, the Company adopted the National Health Partners, Inc. 2008 Stock Incentive Plan.  Under the plan, 3,000,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards.  As of September 30, 2012, all shares of common stock had been issued under the plan.  The plan terminates 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 stock available for issuance under the plan.





Note 11. 2011 Stock Incentive Plan





On January 28, 2011, the Company adopted the National Health Partners, Inc. 2011 Stock Incentive Plan.  Under the plan, 12,000,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards.  The plan terminates on January 27, 2021.  On January 31, 2011, the Company filed a registration statement on Form S-8, File No. 333-171956, with the Securities and Exchange Commission (“SEC”) covering the public sale of the 12,000,000 shares of common stock available for issuance under the plan.





On May 27, 2011, the Company amended the 2011 Stock Incentive Plan. As amended, the aggregate number of shares that may be issued under the Plan is 20,000,000 shares. On June 27, 2011, the Company filed a registration statement on Form S-8, File No. 333-175156, with the Securities and Exchange Commission (“SEC”) covering the additional 8,000,000 shares.





As of September 30, 2012, 19,800,000 shares of common stock had been issued under the plan.





Note 12. 2011 Stock Incentive Plan No. 2





On April 26, 2011, the Company adopted the National Health Partners, Inc. 2011 Stock Incentive Plan No. 2.  Under the plan, 12,000,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards.  As of September 30, 2012, all shares of common stock had been issued under the plan.  The plan terminates on April 25, 2021.  On April 29, 2011, the Company filed a registration statement on Form S-8, File No. 333-173792, with the Securities and Exchange Commission (“SEC”) covering the public sale of the 12,000,000 shares of common stock available for issuance under the plan.





Note 13. 2011 Stock Incentive Plan No. 3





On September 23, 2011, the Company adopted the National Health Partners, Inc. 2011 Stock Incentive Plan No. 3.  Under the plan, 10,000,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards.  As of September 30, 2012, 2,000,000 shares of common stock had been issued under the plan.  The plan terminates on September 22, 2021.  On September 28, 2011, the Company filed a registration statement on Form S-8, File No. 333-177047, with the Securities and Exchange Commission (“SEC”) covering the public sale of the 10,000,000 shares of common stock available for issuance under the plan.


11


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








Note 14. 401(k) Plan





On January 15, 2007, the Company adopted the National Health Partners, Inc. 401(k) Plan. Under the plan, eligible employees may elect to contribute up to 100% of their compensation to the plan each year, 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’s contribution. The Company did not contribute to the plan during the three months ended September 30, 2012 and 2011, respectively, and did not contribute to the plan during the nine months ended September 30, 2012 and 2011, respectively.





Note 15. Common Stock and Warrants





The Company’s authorized capital consisted of 250,000,000 shares of common stock, $0.001 par value per share, of which 232,803,252 and 186,803,252 shares of common stock were outstanding at September 30, 2012 and 2011, respectively.  Warrants exercisable into an aggregate of 5,500,000 and 4,000,000 shares of the Company’s common stock were outstanding on September 30, 2012 and 2011, respectively.





Effective January 7, 2011 the Articles of Incorporation were amended as follows: The total number of shares of stock which this corporation shall have authority to issue is two hundred fifty million (250,000,000) with a par value of $.001 per share, all of which shall be shares of common stock.





Non Capital-Raising Transactions





In April 2012, the Company issued 6,000,000 shares of common stock to one consultant, pursuant to an individual agreement with one individual.   The agreement relates to management consulting services to be provided to the Company.  The shares were valued at the closing price of the Company’s common stock on the date the agreement was executed for total consideration of $12,000, which will be recognized as expense during the year ended December 31, 2012.





In July 2012, the Company issued 14,000,000 shares of common stock to two consultants, pursuant to individual agreements.  These agreements relate to management consulting services to be provided to the Company.  The shares were valued at the closing price of the Company’s common stock on the date the agreement was executed for total consideration of $33,600, which will be recognized as expense during the year ended December 31, 2012.





The Company recognized $96,955 of expense for the three months ended September 30, 2012 and $249,932 for the nine months end September 30, 2012 in connection with issuance of these shares.





Capital-Raising Transactions







In January 2012, the Company completed a private placement of promissory notes of $30,000 and Class A warrants exercisable into 3,000,000 shares of our common stock to an accredited investor. The principal and interest of 15% of the amount loaned is due on or before the 180th day following the date of the promissory note The Class A warrants have an exercise price of $.002 per share, are exercisable during the period commencing on the date of the grant and ending December 31, 2012, and expire at the end of the exercise period.




In March 2012, the Company completed a private placement of promissory notes of $10,000 and Class A warrants exercisable into 1,000,000 shares of our common stock to an accredited investor.  The principal and interest of 15% of the amount loaned is due on or before the 180th day following the date of the promissory note The Class A warrants have an exercise price of $.002 per share, are exercisable during the period commencing on the date of the grant and ending December 31, 2012, and expire at the end of the exercise period.




12


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








In April 2012, the Company completed a private placement of promissory notes of $65,000 and Class A warrants of our common stock exercisable into 6,500,000 shares of our common stock to an accredited investor.  The principal and interest of 15% of the amount loaned is due on or before the 180th day following the date of the promissory note. The Class A warrants have an exercise price of $0.002 per share, are exercisable during the period commencing on the date of grant and ending December 31, 2012, and expire at the end of the exercise period.




In May 2012, the Company executed a Promissory Note of $10,000. Provided the lender does not convert the note into stock, the Company shall pay to the lender the principal and all accrued interest of 15% on March 31, 2013.





In June 2012, the Company completed a private offering of 10,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $16,000.





In July 2012, the Company executed a Promissory Note of $10,000 of which $5,000 was paid in July and $5,000 was paid in August. Provided the lender does not convert the note into stock, the principal together with interest of 12% are due on March 31, 2013.





In July 2012, the Company executed a Promissory Note of $15,000 of which $7,500 was paid in August and the balance of $7,500 is due on or before November 30, 2012. Provided the lender does not convert the note into stock, the principal together with interest of 12% are due on March 31, 2013.





In August 2012, the Company executed a Promissory Note of $72,000, in which the lender agrees to make monthly advances of $6,000 commencing in September for a total of twelve monthly advances totaling $72,000. Provided the lender does not convert the note into stock, the principal together with interest of 12.5%, compounded quarterly are due on January 18, 2014.





In August 2012, the Company executed a Promissory Note of $6,000. Provided the lender does not convert the note into stock, the principal together with interest of 15%, compounded quarterly are due on August 31, 2013.





In September 2012, the Company executed a Promissory Note of $7,500. Provided the lender does not convert the note into stock, the principal together with interest of 15%, are due on December 6, 2012. Management is currently in negotiations to extend the note with the holder of the note for $7,500 that was due December 6, 2012 and the note holder has not made a demand for payment.




Note 16. Stock Options





Stock options exercisable into an aggregate of 125,000 shares of the Company’s common stock were outstanding on September 30, 2012 and 2011, respectively, of which 125,000 and 100,000 shares were vested, respectively.  No options were exercised during the three months ended September 30, 2012 and 2011, respectively.  The Company estimates the fair value of its stock options on the date of grant by using the Black-Scholes pricing model in accordance 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 following weighted-average assumptions to determine the fair value of the stock options issued: a dividend yield of zero percent, an expected volatility of between 214% and 282%, a risk-free interest rate of between 2.25% and 4.76% and a remaining contractual life of between 9.15 and 9.95 years.





Note 17. Related Party Transactions





None


13


National Health Partners, Inc. and Subsidiaries


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)








Note 18.  Subsequent Events





The Company has performed an evaluation of subsequent events in accordance with ASC Topic 855.  On November 21, 2012 the Company entered into an agreement with Owl Road Corporation (“Owl”) whereby Owl will invest a total of $300,000 for certain exclusive marketing rights to our CARExpress membership programs. The $300,000 is in the form of a Promissory Note Convertible into common stock of the Company only if the Company has successfully performed a reverse split of its stock and/or has successfully increased its authorized number of shares it can issue as long as it provides enough stock to allow Owl the right to convert the entire note plus accrued interest into shares of the Company at a “post-split” price of $0.001 per share. The licensing agreement provides Owl with specific pricing for our programs and it provides Owl with exclusivity for the institutional market. This market includes large group accounts such as corporations with a minimum of 1,000 employees, associations, and unions. As part of the agreement, Owl began making payments in November and will continue with monthly payments through May 2013 with the first two payments being $25,000 and $50,000 each month beginning in January with a final payment being May 2013. As part of this agreement, Liberty Property has agreed to suspend all actions against the Company with regards to the past due rent which was owed to Liberty. As part of the agreement, Owl will make direct payments to Liberty. Each payment beginning in November and ending with the February payment will be paid directly to Liberty Property. Beginning in March, 2013 all subsequent payments will be made directly to the Company. The Company will begin making direct payments to Liberty for all rent beginning in March until the lease ends May 2013. At this time the Company is considering its options for either staying at the current location or possibly moving to another location once the lease has expired.




On December 20, 2012 the Company signed a convertible note for $21,000 with Wellesley, a private fund. The terms of the note is for 2 years paying an interest rate of 15%. The note is similar to other notes the Company has entered into.


14


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS





This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  All statements other than statements of historical facts included or incorporated 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 future operations, are forward-looking statements.  In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions.





These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from results proposed in such statements.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.  Important factors that could cause actual results to differ materially from our expectations include, but are not limited to:


·
our ability to fund future growth and implement our business strategy;
 
 ·
our dependence on a limited number of preferred provider organizations (“PPOs”) and other healthcare provider networks;
 
 ·
our dependence on a single insurance company for the insurance benefits offered as part of our CARExpress PlusTM programs;
 
 ·
our dependence upon a limited number of marketing and distribution partners for substantially all of our revenue;
 
 ·
our ability to market our membership programs and develop and expand the market for our membership programs;
 
 ·
demand for and acceptance of our membership programs;
 
 ·
competition in the health discount membership market;
 
 ·
our ability to attract and retain qualified personnel;
 
 ·
legislative or regulatory changes in the healthcare industry;
 
 ·
the condition of the securities and capital markets;
 
 ·
general economic and business conditions, either nationally or internationally or in the jurisdictions in which we are doing business;
 and statements of assumption underlying any of the foregoing, as well as any other factors set forth herein under “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. All subsequent written and oral forward-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 duty to update or revise our forward-looking statements.


15


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





Unless otherwise indicated or the context otherwise requires, 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 of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties.  All forward-looking statements included in this report are based on information 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 from those anticipated in these forward-looking statements as a result of a number of factors.  The following should be read in conjunction with our consolidated financial statements included above in Item 1 of Part I of this report.





Overview





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





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





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





Operational Metrics





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





We receive each member’s initial monthly payment and billing information at the beginning of the first monthly membership period.  Monthly payments for subsequent periods are received at the beginning of the applicable period.  The monthly membership fees that we receive are recognized as revenue evenly over the applicable monthly membership period.  As a result, there is a delay of four weeks between the date we receive a monthly membership fee and the date we recognize the entire fee as revenue.





16


A key metric that we use to evaluate our success is our member retention rates.  Member retention rates represent the percentage of new members that we acquire that we are able to retain for a specified period of time.  Since we incur a large portion of our costs up 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 the revenue potential of the membership programs that we sell.  We believe that the key to obtaining a high member retention rate is to target our marketing campaigns towards those individuals and organizations that are most in need of our programs, most capable of paying for our programs, and most loyal to us and our programs.  Member retention rates can be influenced by a variety of factors, including:


·
the type of membership programs being sold;
 
 ·
the marketing campaign being used to sell our membership programs;
 
 ·
the financial condition and loyalty of our members;
 
 ·
the distribution channel selling our membership programs; and
 
 ·
the type and amount of compensation being paid to our marketing and distribution partners to sell our membership programs.


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





Financial Results and Outlook





Our strategy is to continue to expand our position as a provider of unique discount healthcare membership programs.  We have implemented several strategic growth initiatives during the past 12 months through which we achieved new contracts and strategic partnerships with a number of organizations, the most profound of which involved a shift in our sales strategy from sales through marketing companies to sales through employers and “affinity groups.”  An “affinity group” is a group of people who share interests, issues, and a common bond or background, and offer support for each other.  Examples of the types of affinity groups that we are working with include unions, associations, chambers of 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.  In addition, it is far less costly for us to sell our CARExpressTM programs through these organizations than it is for us to engage in expensive, nation-wide marketing and advertising campaigns through marketing companies, and the members that we obtain through these sources tend to remain members for a much longer period of time.





We experienced an increase in revenue for the three months ended September 30, 2012 compared to the three months ended September 30, 2011. We experienced a decrease in revenue for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. Our gross profit margin for the three and nine months ended September 30, 2012 was lower than our gross profit margin for the three and nine months ended September 30, 2011.   Our net loss for the three and nine months ended September 30, 2012 was lower than our net loss for the three and nine months ended September 30, 2011.  Our cost-cutting initiatives resulted in a decrease in net cash used by operating activities during the nine months ended September 30, 2012 compared to the Nine months ended September 30, 2011.





We generated net revenue of $458,446 and $1,086,265 for the three and nine months ended September 30, 2012 compared to revenue of $434,339 and $1,309,817 for the three and nine months ended September 30, 2011.  We achieved a gross profit of $186,045 and $414,970 for the three and nine months ended September 30, 2012, compared to a gross profit of $236,341 and $584,482 for the three and nine months ended September 30, 2011.  We recognized a net loss of $169,045 and $603,397 ($0.00 and $0.00 per share) for the three and nine months ended September 30, 2012, respectively, compared to a net loss of $224,705 and $672,603, ($0.00 and $0.00 per share) for the three and nine months ended September 30, 2011, respectively.  Net cash used by operating activities was $163,098 for the nine months ended September 30, 2012 compared to $244,896 for the nine months ended September 30, 2011, representing a decrease of 33%.





17


We will generate future revenue and members primarily through sales of our CARExpressTM health discount programs and our CARExpress PlusTM membership programs to employees and members of affinity groups through our marketing and distribution partners, and various marketing and advertising campaigns.  We have entered into agreements with several affinity groups through which we are generating sales of our CARExpressTM membership programs and are currently in discussions with several other organizations regarding the sale of our CARExpressTM membership programs.  We intend to finance each of these projects through cash on hand, internally generated cash flows from operating activities and, if necessary, proceeds from the issuance of equity securities and promissory notes.  We will use any additional investments that we receive to accelerate the expansion of each of our advertising campaigns and programs and increase sales of our membership programs.





We expect the number of CARExpressTM members generated each month to increase during the quarter ended December 31, 2012 as a number of deals that we have either recently closed or that we expect to close begin to generate members for us.  We also expect the number of CARExpressTM members generated each month to increase throughout the year and expect our retention rates to improve over the next 12 months since members generated through affinity groups have historically remained members of CARExpressTM for a much longer period of time than members generated through marketing companies.  As a result, we expect to generate an increasing amount of revenue during the year ended December 31, 2013.  We believe that this increase in revenue combined with the various cost-cutting initiatives that we implemented over the past several quarters will enable us to generate positive cash flows from operating activities during the year ended December 31, 2013 as the recurring membership fees from our increasing membership base overtake the costs associated with retaining existing members and obtaining new members.  We can provide no assurance, however, that our membership base will increase as projected, that our member retention rates will improve over the next 12 months, that we will generate the aforementioned projected revenue, or that we will generate positive cash flows from operating activities during the year ended December 31, 2013.





Critical Accounting Policies





For information regarding our critical accounting policies, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 31, 2011 under the caption “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and our Notes to Consolidated Financial Statements included therein.





Recent Accounting Pronouncements





For information regarding recent accounting pronouncements applicable to our business, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 31, 2011 under the caption “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting Pronouncements” and our Notes to Consolidated Financial Statements included therein.





Comparison of the Three-Month Periods Ended September 30, 2012 and 2011





Revenue





Revenue consists almost exclusively of the monthly membership fees that we receive from members of our membership programs.  Revenue increased $24,107 to $458,446 for the three months ended September 30, 2012 from $434,339 for the three months ended September 30, 2011.





The increase of $24,107 resulted primarily from an increase in sales through employers and affinity groups in connection with the shift in our sales strategy from sales through marketing companies to sales through employers and affinity groups. The remainder of the revenue that we generated during these periods was derived from existing members.  We expect revenue to increase over the next 12 months as a result of increased sales to employees and members of affinity groups through our marketing and distribution partners and our various marketing and advertising campaigns.


18


Direct Costs





Direct costs consist of sales commissions that we pay to our marketing and distribution partners and fees that we pay to our PPOs and provider networks for access to their networks.  Direct costs increased $74,403 to $272,401 for the three months ended September 30, 2012, from $197,998 for the three months ended September 30, 2011.  The increase of $74,403 was due to increases of $59,656 for sales commissions and $14,747 for PPO and provider network costs.  We expect cost of sales to increase over the next 12 months as increased sales of our membership programs result in higher overall sales commission expenses and provider network costs.





General and Administrative Expenses





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





Employee Compensation Expense.  Employee compensation expense consists of all salaries and other cash compensation, equity-based compensation, 401(k) contributions and other compensation that we pay to our employees and the related payroll taxes.  Employee compensation expense decreased $3,633 to $107,169 for the three months ended September 30, 2012, from $110,802 for the three months ended September 30, 2011.  The decrease of $3,633 was due primarily to decreases of $2,034 for salary expense, $1,448 for stock option expense and $151 for related payroll taxes.  We expect employee compensation expense to increase over the next 12 months as we begin to hire additional employees to support the growth of our business.





Professional Fees.  Professional fees consist of fees paid to our independent accountants, lawyers, technology consultants and other professionals and consultants.  Professional fees decreased $121,033 to $105,533 for the three months ended September 30, 2012 from $226,566 for the three months ended September 30, 2011.  The decrease of $121,033 was due primarily to a decrease of $122,199 for the amount of expense recognized in connection with equity-based compensation paid to service providers and consultants for various services.  We expect professional fees to increase over the next 12 months as we incur additional legal, accounting and technology fees in connection with the general expansion of our business and operations.





Other General and Administrative Expenses.  Other general 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, health insurance and other related benefit costs, financial printer costs, transfer agent costs, the costs of investor relations campaigns and activities, postage and delivery expenses, marketing, general business expenses and miscellaneous general and administrative expenses that are not associated with our employee compensation and professional fees.  Other general and administrative expenses increased $7,479 to $131,157 for the three months ended September 30, 2012 from $123,678 for the three months ended September 30, 2011.  The increase of $7,479 resulted primarily from an increase of $14,235 for bank service and credit card service charges associated with new and recurring member transactions, offset by decreases of $3,599 for office supplies, $1,156 for postage, as well as decreases in other miscellaneous general and administrative expenses.  We expect other general and administrative expenses to increase over the next 12 months as we continue to incur expenses for bank and credit card service charges, financial printer services, investor relations campaigns and activities, transfer agent fees, health insurance, rent, non-employee customer service representatives, supplies, computer hardware and systems, and other miscellaneous items associated with the general operation and growth of our business.





Net Loss





Our net loss decreased $55,660 to $169,045 for the three months ended September 30, 2012, from $224,705 for the three months ended September 30, 2011.  The decrease of $55,660 was due to increases of $24,107 for revenue, $5,392 for gain on extinguishment of debt, decreases of $3,633 for employee compensation and $121,033 for professional fees, offset by increases of $74,403 for direct costs incurred in connection with the sale of our membership programs, $7,479 for other general and administrative expenses and an increase of $16,623 for interest expense.


19


Comparison of the Nine-Month Periods Ended September 30, 2012 and 2011





Revenue





Revenue consists almost exclusively of the monthly membership fees that we receive from members of our membership programs.  Revenue decreased $223,552 to $1,086,265 for the nine months ended September 30, 2012 from $1,309,817 for the nine months ended September 30, 2011.





The decrease of $223,552 resulted primarily from a decrease in sales through employers and affinity groups in connection with the shift in our sales strategy from sales through marketing companies to sales through employers and affinity groups. The remainder of the revenue that we generated during these periods was derived from existing members.  We expect revenue to increase over the next 12 months as a result of increased sales to employees and members of affinity groups through our marketing and distribution partners and our various marketing and advertising campaigns.





Direct Costs





Direct costs consist of sales commissions that we pay to our marketing and distribution partners and fees that we pay to our PPOs and provider networks for access to their networks.  Direct costs decreased $54,040 to $671,295 for the nine months ended September 30, 2012, from $725,335 for the nine months ended September 30, 2011.  The decrease of $54,040 was due to a decrease of $55,966 for PPO and provider network costs, offset by an increase of 1,926 for sales commissions..  We expect cost of sales to increase over the next 12 months as increased sales of our membership programs result in higher overall sales commission expenses and provider network costs.





General and Administrative Expenses





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





Employee Compensation Expense.  Employee compensation expense consists of all salaries and other cash compensation, equity-based compensation, 401(k) contributions and other compensation that we pay to our employees and the related payroll taxes that are not associated with our selling and marketing activities.  Employee compensation expense decreased $74,207 to $333,203 for the nine months ended September 30, 2012, from $407,410 for the nine months ended September 30, 2011.  The decrease of $74,207 was due primarily to decreases of $36,140 for salary expense, $35,030 for stock option and restricted stock award expense and $3,037 for related payroll taxes.  We expect employee compensation expense to increase over the next 12 months as we begin to hire additional employees to support the growth of our business.





Professional Fees.  Professional fees consist of fees paid to our independent accountants, lawyers, technology consultants and other professionals and consultants.  Professional fees decreased $184,419 to $292,603 for the nine months ended September 30, 2012 from $477,022 for the nine months ended September 30, 2011.  The decrease of $184,419 was due primarily to a decrease of $187,710 for the amount of expense recognized in connection with equity-based compensation paid to service providers and consultants for various services.  We expect professional fees to increase over the next 12 months as we incur additional legal, accounting and technology fees in connection with the general expansion of our business and operations.





Other General and Administrative Expenses.  Other general 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, health insurance and other related benefit costs, financial printer costs, transfer agent costs, the costs of investor relations campaigns and activities, postage and delivery expenses, marketing, general business expenses and miscellaneous general and administrative expenses that are not associated with our employee compensation and professional fees.  Other general and administrative expenses decreased $23,281 to $349,372 for the nine months ended September 30, 2012 from $372,653 for the nine months ended September 30, 2011.  The decrease of $23,281 resulted primarily from decreases of $2,503 for telephone, $8,868 for supplies, $1,952 for call center, $4,529 for investor relations, 8,245 for postage, $2,490 for corporate filing fees, $2,573 for financial printing, $5,627 for depreciation as well as decreases in other miscellaneous general and administrative expenses, offset by an increase of $16,903 for bank service and credit card service charges associated with new and recurring member transactions. We expect other general and administrative expenses to increase over the next 12 months as we continue to incur expenses for bank and credit card service charges, financial printer services, investor relations campaigns and activities, transfer agent fees, health insurance, rent, non-employee customer service representatives, supplies, computer hardware and systems, and other miscellaneous items associated with the general operation and growth of our business.





20


Net Loss





Our net loss decreased $69,206 to $603,397 for the nine months ended September 30, 2012, from $672,603 for the nine months ended September 30, 2011.  The decrease of $69,206 was due to decreases of $54,040 for direct costs incurred in connection with the sale of our membership programs, $74,207 for employee compensation expenses, $184,419 for professional fees, $23,281 for other general and administrative expenses, and an increase of $5,392 for gain on extinguishment of debt, offset by a decrease of $223,552 for revenue, and an increase of $48,581 for interest expense.





Liquidity and Capital Resources





Since our inception, we have funded our operations primarily through private sales of equity securities and promissory notes.  As of September 30, 2012, we had cash and cash equivalents of $8,242.





Net cash used by operating activities was $163,098 for the nine months ended September 30, 2012, compared to $244,896 for the nine months ended September 30, 2011.  The $81,798 decrease in cash used by operating activities was due primarily to a decrease of $69,206 for net loss, an increase of $22,331 for amortization of debt discount, an increase of $215,158 for accounts payable and accrued expenses, offset by a decrease of $218,820 for common stock issued for services and amortization of prepaid services, an increase of $57,509 for deposits an increase of $44,615 for deferred rent and an increase of $11,315 for refunds payable.





We did not have any cash flows from investing activities for the nine months ended September 30, 2012 and 2011.





Net cash provided by financing activities was $168,000 for the nine months ended September 30, 2012, compared to $224,150 for the nine months ended September 30, 2011.  The $56,150 decrease in cash provided by financing activities was due to the decrease of $208,150 in proceeds from the sale of stock and warrants offset by an increase of $152,000 in proceeds from the sale of notes payable and warrants.





Our primary sources of capital for the nine months ended September 30, 2012 are set forth below.




In January 2012, the Company completed a private placement of promissory notes of $30,000 and Class A warrants exercisable into 3,000,000 shares of our common stock to an accredited investor. The principal and interest of 15% of the amount loaned is due on or before the 180th day following the date of the promissory note The Class A warrants have an exercise price of $.002 per share, are exercisable during the period commencing on the date of the grant and ending December 31, 2012, and expire at the end of the exercise period.




In March 2012, the Company completed a private placement of promissory notes of $10,000 and Class A warrants exercisable into 1,000,000 shares of our common stock to an accredited investor.  The principal and interest of 15% of the amount loaned is due on or before the 180th day following the date of the promissory note The Class A warrants have an exercise price of $.002 per share, are exercisable during the period commencing on the date of the grant and ending December 31, 2012, and expire at the end of the exercise period.




In April 2012, the Company completed a private placement of promissory notes of $65,000 and Class A warrants of our common stock exercisable into 6,500,000 shares of our common stock to an accredited investor.  The principal and interest of 15% of the amount loaned is due on or before the 180th day following the date of the promissory note. The Class A warrants have an exercise price of $0.002 per share, are exercisable during the period commencing on the date of grant and ending December 31, 2012, and expire at the end of the exercise period.




In May 2012, the Company executed a Promissory Note of $10,000. Provided the lender does not convert the note into stock, the Company shall pay to the lender the principal and all accrued interest of 15% on March 31, 2013.





In June 2012, the Company completed a private offering of 10,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $16,000.


21


In July 2012, the Company executed a Promissory Note of $10,000 of which $5,000 was paid in July and $5,000 was paid in August. Provided the lender does not convert the note into stock, the principal together with interest of 12% are due on March 31, 2013.





In July 2012, the Company executed a Promissory Note of $15,000 of which $7,500 was paid in August and the balance of $7,500 is due on or before November 30, 2012. Provided the lender does not convert the note into stock, the principal together with interest of 12% are due on March 31, 2013.





In August 2012, the Company executed a Promissory Note of $72,000, in which the lender agrees to make monthly advances of $6,000 commencing in September for a total of twelve monthly advances totaling $72,000. Provided the lender does not convert the note into stock, the principal together with interest of 12.5%, compounded quarterly are due on January 18, 2014.





In August 2012, the Company executed a Promissory Note of $6,000. Provided the lender does not convert the note into stock, the principal together with interest of 15%, compounded quarterly are due on August 31, 2013.





In September 2012, the Company executed a Promissory Note of $7,500. Provided the lender does not convert the note into stock, the principal together with interest of 15%, are due on December 6, 2012.





To date, our capital needs have been met primarily through sales of equity securities, promissory notes and proceeds received upon the exercise of warrants held by our security holders.   We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution.  We have used the proceeds from the exercise of warrants, our private offerings of securities and promissory notes to pay virtually all of the costs and expenses we have incurred.  These costs and expenses were comprised of operating expenses, which consisted of the employee compensation expenses, professional fees and other general and administrative expenses discussed above, and the costs of sales discussed above to the extent such costs of sales exceeded our revenue.





We believe that our current cash resources will not be sufficient to sustain our current operations for the next 12 months.  We will need to obtain additional cash resources within the next 12 months to enable us to pay our ongoing costs and expenses as they are incurred and finance the growth of our business.  We intend to obtain these funds through internally generated cash flows from operating activities and proceeds from the issuance of equity securities and promissory notes.  The issuance of additional equity would result in dilution to our existing shareholders.  We have not made arrangements to obtain additional financing and we can provide no assurance that additional financing will be available in an amount or on terms acceptable to us, if at all.  If we are unable to obtain additional funds when they 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 and expenses as they are incurred, which could have a material, adverse effect on our business, financial condition and results of operations.





The Company’s authorized capital consists of 250,000,000 shares of common stock, of which 232,803,252 shares of common stock were outstanding at September 30, 2012.  The total of warrants exercisable into an aggregate of 5,500,000 shares of the Company’s common stock and stock options exercisable into an aggregate of 125,000 shares of the Company’s common stock at September 30, 2012 equal a total 5,625,000 shares of common stock underlying options and warrants that were outstanding at September 30, 2012.  The combination of the 232,803,252 shares of common stock outstanding and the 5,625,000 shares of potentially dilutive options and warrants outstanding at September 30, 2012 gives effect to a potential outstanding total of 238,428,252 of the authorized capital of 250,000,000 shares of common stock.





Off-Balance Sheet Arrangements





As of September 30, 2012, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually 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.


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Item 4. Controls and Procedures.


We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. However, with the inclusion of this report as well as our previous quarterly report, the Company has not filed in a timely manner which indicates that our disclosure controls and procedures are not operating effectively. The Company is taking steps to assure that future reporting will be done in a timely fashion. In  designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet management's objectives.





Changes in Internal Control over Financial Reporting





There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





PART II – OTHER INFORMATION




Item 1A. Risk Factors.





WE HAVE NOT HELD AN ANNUAL MEETING OF SHAREHOLDERS FOR SEVERAL YEARS EVEN THOUGH INDIANA CORPORATION LAW REQUIRES US TO HOLD AN ANNUAL MEETING EVERY YEAR.  OUR FAILURE TO HOLD ANNUAL MEETINGS COULD RESULT IN A COURT-ORDERED ANNUAL MEETING THAT COULD RESULT IN A CHANGE IN CONTROL OF OUR COMPANY IN THE EVENT OUR CURRENT BOARD OF DIRECTORS WAS NOT RE-ELECTED.





We were incorporated under the laws of the State of Indiana. Indiana Code 23-1-29-1 provides that an Indiana corporation shall hold a meeting of the shareholders annually.  We have not held a meeting of shareholders for several years. The last time we held an annual meeting of shareholders was February 4, 2004.  The last time we held an election of Directors was February 3, 2005 when two Directors were removed from the Board of Directors and two people were elected to serve on the Board of Directors.  We do not plan on holding an annual meeting of shareholders during 2012.  However, we do plan to hold an annual meeting of shareholders in May or June of 2013.





Indiana Code 23-1-29-3 provides a procedure for a court-ordered meeting of shareholders by stating that the circuit or superior court of the county where our registered office is located may order a meeting to be held and may fix the time and place of the meeting, which shall be conducted in accordance with our articles of incorporation or bylaws: (1) on application of any shareholder of the corporation entitled to participate in an annual meeting, if an annual meeting has not been held within the earlier of six (6) months after the end of the corporation’s fiscal year or fifteen (15) months after our last annual meeting.





Therefore, since all of our shareholders would be entitled to vote at an annual meeting, any one of our shareholders could make application with a circuit or superior court in Marion County, Indiana (the county in which our registered office is located) to force us to call a meeting of the shareholders.  The result of such a meeting could be that our current directors could be replaced by new directors, thereby resulting in a change of control of our company.




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





None





Item 6. Exhibits.





The following exhibits are included herein:


Exhibit No.

Exhibit31.1

Certification of Chief Executive Officer and Chief Financial Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended32.1

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 amended101*

Interactive Data Files pursuant to Rule 405 of Regulation S-T
 
 * To be provided by amendment.




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SIGNATURES





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





NATIONAL HEALTH PARTNERS, INC.Date: December 31, 2012
/s/ David M. DanielsDavid M. DanielsChief Executive Officer,Chief Financial Officer and Principal Accounting Officer





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