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** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

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

 

**For the quarterly period ended:  September 30, 2009**

 

**or**

 

**o**         **TRANSITION REPORT PURSUANT TO SECTION 13 OR15(D) OF THE EXCHANGE ACT OF 1934**

 

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

 

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

 

**NATIONALHEALTH PARTNERS, INC.**

(Exact name of registrant as specified in itscharter)

 

| **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, includingArea Code)

 

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

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).   Yes  o   No  o

 

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

** **

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

 

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

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate:  There were 70,399,325 shares ofthe issuer’s common stock, $.001 par value per share, issued and outstanding onNovember 13, 2009.

 

 

 

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**TABLE OF CONTENTS**

 
| ** **                                    | ** ** | ** **                                                                                                              | ** ** | **Page** |
|-----------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I —  FINANCIAL INFORMATION** |       |                                                                                                                    |
|                                          |       |                                                                                                                    |       |     |
| Item 1.                                       |       | Financial Statements                                                                                                    |       | 1        |
|                                          |       |                                                                                                                    |       |     |
|                                          |       | Consolidated  Balance Sheets at September 30, 2009 (Unaudited) and December 31,  2008                         |       | 1        |
|                                          |       |                                                                                                                    |       |     |
|                                          |       | Consolidated Statements of Operations for the Three  and Nine Months Ended September 30, 2009 and 2008 (Unaudited) |       | 2        |
|                                          |       |                                                                                                                    |       |     |
|                                          |       | Consolidated Statements of Cash Flows for the Nine  Months Ended September 30, 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                             |       | 15       |
|                                          |       |                                                                                                                    |       |     |
| Item 4T.                                      |       | Controls and  Procedures                                                                                                |       | 24       |
|                                          |       |                                                                                                                    |       |     |
| **PART II — OTHER  INFORMATION**    |       |                                                                                                                    |
|                                          |       |                                                                                                                    |       |     |
| Item 2.                                       |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                            |       | 25       |
|                                          |       |                                                                                                                    |       |     |
| Item 5.                                       |       | Other Information                                                                                                       |       | 26       |
|                                          |       |                                                                                                                    |       |     |
| Item 6.                                       |       | Exhibits                                                                                                                |       | 26       |

 

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**PART I— FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements.**

 

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

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                                    | ** ** | **September 30,** | ** ** | ** **            | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                    | ** ** | **2009**               | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                                                                    | ** ** | **(Unaudited)**        | ** ** | **2008**              | ** ** |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| **Assets**                                                                                                                                                                                    |       |                   |       |                  |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Current  assets:                                                                                                                                                                              |       |                   |       |                  |       |
| Cash                                                                                                                                                                                          |       | $                      | 25,078     |                  | $          | 177,545 |   |
| Prepaid  expense                                                                                                                                                                              |       | 128,640                |       | 205,690               |       |
| Deposits                                                                                                                                                                                      |       | 77,829                 |       | 114,378               |       |
| Other  current assets                                                                                                                                                                         |       | 550                    |       | —                |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Total  current assets                                                                                                                                                                         |       | 232,097                |       | 497,613               |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Property  and equipment, net                                                                                                                                                                  |       | 18,669                 |       | 33,842                |       |
| Prepaid  expense                                                                                                                                                                              |       | 143,209                |       | 201,669               |       |
| Deposits                                                                                                                                                                                      |       | 19,000                 |       | 19,000                |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Total  assets                                                                                                                                                                                 |       | $                      | 412,975    |                  | $          | 752,124 |   |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| **Liabilities and stockholders’ equity (deficit)**                                                                                                                                       |       |                   |       |                  |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Current  liabilities                                                                                                                                                                          |       |                   |       |                  |       |
| Accounts  payable                                                                                                                                                                             |       | $                      | 118,733    |                  | $          | 68,513 |   |
| Refunds  payable                                                                                                                                                                              |       | 8,885                  |       | —                |       |
| Accrued  expenses                                                                                                                                                                             |       | 196,014                |       | 13,014                |       |
| Deferred  revenue                                                                                                                                                                             |       | 92,601                 |       | 79,008                |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Total  current liabilities                                                                                                                                                                    |       | 416,233                |       | 160,535               |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Total  liabilities                                                                                                                                                                            |       | 416,233                |       | 160,535               |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Commitments  and contingencies                                                                                                                                                                |       |                   |       |                  |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Stockholders’  equity (deficit):                                                                                                                                                         |       |                   |       |                  |       |
| Common  stock, $0.001 par value, 100,000,000 shares authorized, 67,289,081 and  52,586,281 shares issued and outstanding on September 30, 2009 and  December 31, 2008, respectively |       | 67,289                 |       | 52,586                |       |
| Additional  paid-in capital                                                                                                                                                                   |       | 26,056,845             |       | 25,195,670            |       |
| Deferred  compensation                                                                                                                                                                        |       | (124,951               | )          | (205,133              | )          |
| Accumulated  deficit                                                                                                                                                                          |       | (26,002,441            | )          | (24,451,534           | )          |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Total  stockholders’ equity (deficit)                                                                                                                                                    |       | (3,258                 | )          | 591,589               |       |
|                                                                                                                                                                                          |       |                   |       |                  |       |
| Total  liabilities and stockholders’ equity (deficit)                                                                                                                                    |       | $                      | 412,975    |                  | $          | 752,124 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements

 

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**NationalHealth Partners, Inc. and Subsidiaries**

Consolidated Statements of Operations (Unaudited)

 
| ** **                                                              | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                                                              | ** ** | **September 30,**         | ** ** | **September 30,**        | ** ** |
| ** **                                                              | ** ** | **2009**                       | ** ** | **2008**                      | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Net  revenue                                                            |       | $                              | 590,591    |                          | $          | 528,301 |   | $ | 1,383,662 |   | $ | 2,232,494 |   |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Direct  costs                                                           |       | 357,106                        |       | 170,881                       |       | 715,083 |   | 872,290 |   |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Gross  profit                                                           |       | 233,485                        |       | 357,420                       |       | 668,579 |   | 1,360,204 |   |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Operating  expenses:                                                    |       |                           |       |                          |       |   |   |   |   |
| Selling  and marketing                                                  |       | 21,212                         |       | 47,203                        |       | 88,303 |   | 182,178 |   |
| General  and administrative                                             |       | 734,838                        |       | 920,910                       |       | 2,131,293 |   | 2,996,479 |   |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Total  operating expenses                                               |       | 756,050                        |       | 968,113                       |       | 2,219,596 |   | 3,178,657 |   |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Loss  from operations                                                   |       | (522,565                       | )          | (610,693                      | )          | (1,551,017 | ) | (1,818,453 | ) |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Other  income (expense):                                                |       |                           |       |                          |       |   |   |   |   |
| Interest  income                                                        |       | 23                             |       | 918                           |       | 110 |   | 961 |   |
| Loss  on extinguishment of debt                                         |       | —                         |       | —                        |       | — |   | (30,000 | ) |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Total  other income (expense)                                           |       | 23                             |       | 918                           |       | 110 |   | (29,039 | ) |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Net  loss                                                               |       | $                              | (522,542   | )                             | $          | (609,775 | ) | $ | (1,550,907 | ) | $ | (1,847,492 | ) |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Loss  per share — basic and diluted                                |       | $                              | (0.01      | )                             | $          | (0.01 | ) | $ | (0.03 | ) | $ | (0.04 | ) |
|                                                                    |       |                           |       |                          |       |   |   |   |   |
| Weighted  average number of shares outstanding — basic and diluted |       | 66,265,168                     |       | 50,188,595                    |       | 59,634,110 |   | 45,597,184 |   |

 

The accompanying notesare an integral part of these consolidated financial statements

 

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

Consolidated Statements of Cash Flows (Unaudited)

 
| ** **                                                                   | ** ** | **For the Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                   | ** ** | **September 30,**        | ** ** |
| ** **                                                                   | ** ** | **2009**                      | ** ** | **2008** | ** ** |
|                                                                         |       |                          |       |   |   |
| **Cash flows from operating activities**                                     |       |                          |       |   |   |
|                                                                         |       |                          |       |   |   |
| Net  loss                                                                    |       | $                             | (1,550,907 | ) | $ | (1,847,492 | ) |
| Adjustments  to reconcile net loss to net cash used by operating activities: |       |                          |       |   |   |
| Common  stock issued for services and amortization of prepaid services       |       | 327,140                       |       | 568,187 |   |
| Options  issued for services                                                 |       | 226,455                       |       | 205,664 |   |
| Depreciation                                                                 |       | 15,173                        |       | 28,280 |   |
| Loss  on extinguishment of debt                                              |       | —                        |       | 30,000 |   |
| Changes  in operating assets and liabilities:                                |       |                          |       |   |   |
| Decrease  in accounts receivable                                             |       | —                        |       | 21,257 |   |
| Decrease  in deposits                                                        |       | 36,549                        |       | 173,228 |   |
| Increase  in other current assets                                            |       | (550                          | )          | (6,587 | ) |
| Increase  (decrease) in accounts payable and accrued expenses                |       | 233,220                       |       | (232,846 | ) |
| Increase  in refunds payable                                                 |       | 8,885                         |       | 8,036 |   |
| Increase  in deferred revenue                                                |       | 13,593                        |       | 67,557 |   |
|                                                                         |       |                          |       |   |   |
| Net  cash used by operating activities                                       |       | (690,442                      | )          | (984,716 | ) |
|                                                                         |       |                          |       |   |   |
| **Cash flows from investing activities**                                     |       |                          |       |   |   |
|                                                                         |       |                          |       |   |   |
| Net  cash provided by investing activities                                   |       | —                        |       | — |   |
|                                                                         |       |                          |       |   |   |
| **Cash flows from financing activities**                                     |       |                          |       |   |   |
|                                                                         |       |                          |       |   |   |
| Proceeds  from sale of stocks and warrants                                   |       | 537,975                       |       | 857,640 |   |
| Proceeds  from exercise of warrants                                          |       | —                        |       | 597,415 |   |
| Proceeds  from issuance of note payable                                      |       | —                        |       | 50,000 |   |
| Payments  on note payable                                                    |       | —                        |       | (20,000 | ) |
|                                                                         |       |                          |       |   |   |
| Net  cash provided by financing activities                                   |       | 537,975                       |       | 1,485,055 |   |
|                                                                         |       |                          |       |   |   |
| Net  increase (decrease) in cash                                             |       | (152,467                      | )          | 500,339 |   |
| Cash  at beginning of period                                                 |       | 177,545                       |       | 32,206 |   |
|                                                                         |       |                          |       |   |   |
| Cash  at end of period                                                       |       | $                             | 25,078     |   | $ | 532,545 |   |
|                                                                         |       |                          |       |   |   |
| **Supplemental disclosure of cash flow information**                         |       |                          |       |   |   |
|                                                                         |       |                          |       |   |   |
| Cash  paid for interest                                                      |       | $                             | —     |   | $ | — |   |
| Cash  paid for taxes                                                         |       | $                             | —     |   | $ | — |   |
|                                                                         |       |                          |       |   |   |
| **Schedule of non-cash financing activities**                                |       |                          |       |   |   |
|                                                                         |       |                          |       |   |   |
| Common  stock issued for services                                            |       | $                             | —     |   | $ | 1,360,200 |   |
| Stock  options issued for services                                           |       | $                             | —     |   | $ | 358,960 |   |
| Common  stock issued for extinguishment of debt                              |       | $                             | —     |   | $ | 60,000 |   |
| Common  stock issued for stock offering costs                                |       | $                             | 10,000     |   | $ | 83,700 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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

Notes to Consolidated Financial Statements

September 30, 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

September 30, 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 andnine months ended September 30, 2009 are not necessarily indicative of theresults that the Company will have for any subsequent quarter or full fiscalyear.

 

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 September 30, 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

September 30, 2009

 

**Note 3.  Stock CompensationExpense**

 

The Company records employee stock-basedcompensation using the fair value recognition provisions of AccountingStandards Codification (“ASC”) Topic 718 (“ASC 718”) using the modifiedprospective transition method, and records non-employee stock-basedcompensation expense in accordance with ASC Topic 505.  In accordance therewith, the Companyrecognized stock compensation expense of $74,056 and $204,140 for the threemonths ended September 30, 2009 and 2008, respectively, and $327,140 and$568,187 for the nine months ended September 30, 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 applicableperiod.  The Company calculates dilutedloss per share by dividing the reported net loss for the applicable period bythe weighted average number of shares of common stock outstanding during theapplicable period as adjusted to give effect to the exercise of all potentiallydilutive options and warrants outstanding at the end of the period.  A total of 18,564,750 and 23,140,342 sharesof common stock underlying options and warrants that were outstanding on September 30,2009 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 September 30,** | ** ** | **For the Nine Months********Ended September 30,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2009**                                                 | ** ** | **2008**                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Net loss as reported                                                  |       | $                                                        | (522,542   | )                                                       | $          | (609,775 | ) | $ | (1,550,907 | ) | $ | (1,847,492 | ) |
|                                                                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Weighted average numberof shares  outstanding —basic and diluted |       | 66,265,168                                               |       | 50,188,595                                              |       | 59,634,110 |   | 45,597,184 |   |
|                                                                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Loss per share — basic and diluted                               |       | $                                                        | (0.01      | )                                                       | $          | (0.01 | ) | $ | (0.03 | ) | $ | (0.04 | ) |

 

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

Notesto Consolidated Financial Statements

September 30, 2009

 

**Note 5. Property and Equipment**

 

Property and equipment consisted of thefollowing at September 30, 2009:

 
| **Asset**                      | ** ** | **Amount** | ** ** |
|--------------------------------|------------|------------|------------|
|                           |       |       |       |
| Computers                      |       | $          | 60,708     |   |
| Software                       |       | 6,109      |       |
| Furniture                      |       | 27,968     |       |
| Telephone                      |       | 80,780     |       |
| Website                        |       | 106,477    |       |
| Less: accumulated depreciation |       | (263,373   | )          |
|                           |       |       |       |
| Net property and equipment     |       | $          | 18,669     |   |

 

Depreciationexpense was $3,242 and $8,047 for the three months ended September 30,2009 and 2008, respectively, and $15,173 and $28,280 for the nine months ended September 30,2009 and 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.

** **

Asof September 30, 2009, the Company had a total of $96,829 indeposits.  Of this amount, $75,000 wasbeing held by PowerPay Payment Systems, Inc., $2,829 was being held byPayTran Payment Systems, and $19,000 was being held by the lessor of theCompany’s office space.

 

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

Notesto Consolidated Financial Statements

September 30, 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 ofthe lease from May 31, 2007 to May 31, 2010.  The amendment provides for an initial monthlyrent payment of $7,803 and an initial monthly operating expense payment ofapproximately $5,620.

 

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

 

| **Fiscal Year** | ** ** | **Amount** | ** ** |
|-----------------|------------|------------|------------|
|            |       |       |       |
| 2009            |       | $          | 44,103     |   |
| 2010            |       | 73,504     |       |
|            |       |       |       |
|            |       | $          | 117,607    |   |

 

**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            |       | $          | 266,867    |   |
| 2010            |       | 80,477     |       |
|            |       |       |       |
|            |       | $          | 347,344    |   |

 

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

Notesto Consolidated Financial Statements

September 30, 2009

 

**Note8.  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 September 30, 2009, all shares of common stock had beenissued under the plan.  The planterminates on February 1, 2016.  On February 6,2006, the Company filed a registration statement on Form S-8, File No. 333-131589,with the SEC covering the public sale of the 4,500,000 shares of common stockavailable for issuance under the plan.

 

**Note9.  2008 Stock Incentive Plan**

 

OnApril 7, 2008, the Company adopted the National Health Partners, Inc.2008 Stock Incentive Plan.  Under theplan, 3,000,000 shares of common stock may be granted to employees, officersand directors of, and consultants and advisors to, the Company under awardsthat may be made in the form of stock options, warrants, stock appreciationrights, restricted stock, restricted units, unrestricted stock and otherequity-based or equity-related awards. As of September 30, 2009, all shares of common stock had beenissued under the plan.  The planterminates on April 6, 2018.  On April 10,2008, the Company filed a registration statement on Form S-8, File No. 333-150177,with the SEC covering the public sale of the 3,000,000 shares of common stockavailable for issuance under the plan.

 

**Note10.  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 theircompensation to the plan each year, subject to certain limitations imposed bythe Internal Revenue Service.  TheCompany contributes 100% of the first 3% of the employee’s contribution and 50%of the next 2% of the employee’s contribution. The Company contributed $1,363and $11,077 to the plan during the three months ended September 30, 2009and 2008, respectively, and $6,251 and $26,600 to the plan during the ninemonths ended September 30, 2009 and 2008, respectively.

 

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

Notesto Consolidated Financial Statements

September 30, 2009

 

**Note11.  Common Stock and Warrants**

 

TheCompany’s authorized capital consisted of 100,000,000 shares of common stock,$0.001 par value per share, at September 30, 2009 and 2008, respectively,of which 67,289,081 and 50,679,356 shares of commonstock were outstanding at September 30, 2009 and 2008, respectively.  Warrants exercisable into an aggregate of9,363,250 and 14,220,342 shares of the Company’s common stock were outstandingon September 30, 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 $7,288 ofexpense during the nine months ended September 30, 2009 in connection withthe issuance of these shares.

 

In June 2009, the Company issued500,000 and 405,000 shares of common stock to David M. Daniels, its President andChief Executive Officer, and Alex Soufflas, its Vice President and ChiefFinancial Officer, respectively, in full payment of deferred salarycompensation that was earned by each of them during the three months ended March 31,2009 and payable to each of them as of March 31, 2009.  The shares were valued at $0.09 per share fortotal consideration of $81,450, all of which was recognized as expense duringthe nine months ended September 30, 2009.

 

## **Capital-Raising Transactions**

##  

## In April 2009, the Companycompleted a private offering of 5,346,000 shares of its common stock and Class A warrants exercisable into 2,673,000 shares ofcommon stock for aggregate cash consideration of$200,475.  The shares were sold in unitsconsisting of two shares of common stock and one Class A warrant at apurchase price of $0.075 per unit.   TheCompany paid finder fees consisting of 400,900 units identical to the unitssold in the offering.  Each warrant gavethe holder the right to purchase one share of common stock.  The Class A warrants had an exerciseprice of $0.075 per share, were exercisable during the period commencing on thedate of grant and ending September 30, 2009, and expired at the end of theexercise period.

 

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

Notesto Consolidated Financial Statements

September 30, 2009

 

**Note 11.  Common Stock andWarrants****(Continued)**

 

**Capital-Raising Transactions (Continued)**

 

In May 2009, the Company sold2,000,000 shares of common stock and Class A warrants exercisable into1,000,000 shares of common stock to an accredited investor for aggregate grossproceeds of $100,000.  The Company paidfinder fees consisting of 200,000 shares of common stock and 100,000 Class Awarrants.  The Class A warrants havean exercise price of $0.075 per share, are exercisable during the periodcommencing on the date of grant and ending December 31, 2009, and expireat the end of the exercise period.

 

## In July 2009, the Companycompleted a private offering of 500,000 shares of its common stock and Class A warrants exercisable into 250,000 shares ofcommon stock for aggregate cash consideration of$30,000.  The shares were sold in unitsconsisting of two shares of common stock, one Class A warrant and one Class Bwarrant at a purchase price of $0.12 per unit.  Each warrant gives the holder the right to purchase one share of commonstock.  The Class A warrants have an exercise price of $0.06 per share, areexercisable during the period commencing on the date of grant and ending December 31,2009, and expire at the end of the exercise period.

##  

In July 2009, the Company sold2,000,000 shares of common stock and Class A warrants exercisable into2,000,000 shares of common stock to an accredited investor for aggregate grossproceeds of $100,000.  The Company paidfinder fees consisting of 200,000 shares of common stock.  The Class A warrants have an exerciseprice of $0.05 per share, are exercisable during the period commencing on thedate of grant and ending December 31, 2010, and expire at the end of theexercise period.

 

## In August 2009, the Companycompleted a private offering of 2,150,000 shares of its common stock, Class A warrants exercisable into 1,075,000 shares ofcommon stock and Class Bwarrants exercisable into 1,075,000 shares of common stock foraggregate cash consideration of $107,500. The shares were sold in units consisting of two shares of common stock,one Class A warrant and one Class B warrant at a purchase price of$0.10 per unit.   Each warrant gives theholder the right to purchase one share of common stock.  The Class A warrants have an exerciseprice of $0.05 per share, are exercisable during the period commencing on thedate of grant and ending December 31, 2009, and expire at the end of theexercise period.   The Class Bwarrants have an exercise price of $0.10 per share, are exercisable during theperiod commencing on the date of grant and ending December 31, 2010, andexpire at the end of the exercise period.

 

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

Notesto Consolidated Financial Statements

September 30, 2009

 

**Note12.  Stock Options**

 

Stockoptions exercisable into an aggregate of 9,201,500 and 8,920,000 shares of theCompany’s common stock were outstanding on September 30, 2009 and 2008,respectively, of which 7,534,000 and 6,487,500 shares were vested,respectively.  No options were exercisedduring the three and nine months ended September 30, 2009 and 2008,respectively.  The Companyestimates the fair value of its stock options on the date of grant by using theBlack-Scholes pricing model in accordance with the provisions of ASC 718.  Under the Black-Scholes pricing model, theCompany used the following weighted-average assumptions to determine the fair valueof the stock options issued: a dividend yield of zero percent, an expectedvolatility of between 227% and 282%, a risk-free interest rate of between 2.25%and 5% and a remaining contractual life of between 9.15 and 9.95 years.

 

InJune 2009, the Company issued a stock option to Patricia S. Bathurst toacquire 225,000 shares of common stock in full payment of deferred salarycompensation that was earned by her during the three months ended March 31,2009 and payable to her as of March 31, 2009.  The option has an exercise price of $0.09 pershare and was vested in full on the date of grant.  The option has a term of 10 years and wasvalued at $20,245 on the date of grant, all of which was recognized as expenseduring the nine months ended September 30, 2009.

 

**Note13.  Subsequent Events**

 

## The Company has performed anevaluation of subsequent events through November 16, 2009, which is thedate the financial statements were issued.  Other than the events notedbelow, the Company is not aware of any subsequent events which would requirerecognition or disclosure in the financial statements.

##  

## In October 2009, theCompany completed a private offering of 1,004,560 shares of its common stockand Class A warrantsexercisable into 502,280 shares of common stock for aggregatecash consideration of $50,228.  Theshares were sold in units consisting of two shares of common stock and one Class Awarrant at a purchase price of $0.10 per unit.  The Company paid finder feesconsisting of 150,684 shares of common stock and Class A warrantsexercisable into 75,342 shares of common stock. Each warrant gives the holder the right to purchase oneshare of common stock.  The Class Awarrants have an exercise price of $0.05 per share, are exercisable during theperiod commencing on the date of grant and ending May 31, 2010, and expireat the end of the exercise period.

 

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

Notesto Consolidated Financial Statements

September 30, 2009

 

**Note13.  Subsequent Events (Continued)**

 

## In November 2009, theCompany completed a private offering of 700,000 shares of its common stock and Class A warrants exercisable into 350,000 shares ofcommon stock for aggregate cash consideration of$35,000.  The shares were sold in unitsconsisting of two shares of common stock and one Class A warrant at apurchase price of $0.10 per unit.   The Company paid finder fees consisting of 105,000 shares ofcommon stock and Class A warrants exercisable into 52,500 shares of commonstock.  Each warrantgives the holder the right to purchase one share of common stock.  The Class A warrants have an exerciseprice of $0.05 per share, are exercisable during the period commencing on thedate of grant and ending May 31, 2010, and expire at the end of theexercise period.

##  

In November 2009, the Company enteredinto a Second Amendment to Lease Agreement with Liberty Property LimitedPartnership.  The amendment extends theterm of the Company’s existing lease of approximately 7,100 square feet ofoffice space located at 120 Gibraltar Road, Suite 107, Horsham,Pennsylvania 19044 from May 31, 2010 to May 31, 2013.  The amendment provides for an initial monthlyrent payment of $7,214 and an initial monthly operating expense payment ofapproximately $6,160.  The Company willbe required to make minimum annual rent payments of approximately $86,500,$90,000 and $93,500, respectively, and estimated annual operating expensepayments of approximately $74,000 (subject to periodic increases) during thethree-year term of the amendment.

 

## In November 2009, theCompany completed a private offering of Class Awarrants exercisable into 2,000,000 shares of common stock foraggregate cash consideration of $1,000.  The Company paid finder fees consisting of Class Awarrants exercisable into 300,000 shares of common stock.  Each warrantgives the holder the right to purchase one share of common stock.  The Class A warrants have an exerciseprice of $0.04 per share, are exercisable during the period commencing on thedate of grant and ending December 31, 2009, and expire at the end of theexercise period.

##  

In November 2009, the Company sold1,000,000 shares of common stock and Class A warrants exercisable into1,000,000 shares of common stock to an accredited investor for aggregate grossproceeds of $50,000.  The Company paidfinder fees consisting of 150,000 shares of common stock and Class Awarrants exercisable into 150,000 shares of common stock.  The Class A warrants have an exerciseprice of $0.05 per share, are exercisable during the period commencing on thedate of grant and ending December 31, 2010, and expire at the end of theexercise period.

 

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**DISCLOSURE REGARDINGFORWARD-LOOKING STATEMENTS**

 

This reportcontains “forward-looking statements” within the meaning of Section 27A ofthe 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.

 

These forward-looking statements are subject to risksand uncertainties that could cause actual results to differ materially fromresults proposed in such statements. Although we believe that the expectations reflected in suchforward-looking statements are reasonable, we can give no assurance that suchexpectations will prove to have been correct. Important factors that could cause actual results to differ materiallyfrom our expectations include, but are not 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 Discussionand Analysis of Financial Condition and Results of Operations.**

 

Unless otherwiseindicated 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.

 

This Management’sDiscussion and Analysis of Financial Condition and Results of Operations andother parts of this report contain forward-looking statements that involverisks and uncertainties.  Allforward-looking statements included in this report are based on informationavailable to us on the date hereof, and, except as required by law, we assumeno 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 to pursueand support the entire market, we intend to continue to pursue specific opportunitiesthat we identify in this market through our various marketing and distributionchannels.  Through product design,competitive membership pricing, and a variety of marketing and distributionpartners, we are pursuing opportunities in the healthcare market that insurancecompanies have not addressed.

 

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**Operational Metrics**

 

Ourrevenue consists almost exclusively of recurring monthly membership fees thatwe receive from members of our membership programs.  Our members pay us membership fees each monthfor the duration of their membership. The average membership fee per member per month that we receive for ourCARExpressTM health discount programs is approximately$35.  Approximately 95% of the CARExpressTM health discount programs that we have sold toour current members consist of our Comprehensive Care Program which iscurrently 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.  One of theseinitiatives involved a shift in our sales strategy from sales through marketingcompanies to sales through employers and affinity groups, such as unions, associations,chambers of commerce, small business networks and internet marketingfirms.  These organizations typicallyhave a large number of members and customers and thus, each one provides uswith the opportunity to obtain a large number of sales.

 

Weexperienced a substantial increase in revenue and gross profit for the threemonths ended September 30, 2009 compared to the three months ended June 30,2009 as a result of the aforementioned shift in our sales strategy.  The shift in our sales strategy, coupled withcost-cutting initiatives that we implemented over the past few quarters inresponse to deteriorating economic conditions, have also resulted in loweroperating expenses and a substantial decrease in net cash used by operatingactivities during the nine months ended September 30, 2009 compared to thenine months ended September 30, 2008.

 

Wegenerated revenue of $590,591 for the three months ended September 30,2009, compared to revenue of $375,228 for the three months ended June 30,2009, representing an increase of 57%. We achieved a gross profit of $233,485 for the three months ended September 30,2009, compared to a gross profit of $149,195 for the three months ended June 30,2009, representing an increase of 56%. We recognized a net loss of $(522,542) and $(1,550,907) for the threeand nine months ended September 30, 2009, respectively, and a net loss pershare of $(0.01) and $(0.03) for the three and nine months ended September 30,2009, respectively.  By comparison, werecognized a net loss of $(609,775) and $(1,847,492) for the three and ninemonths ended September 30, 2008, respectively, and a net loss per share of$(0.01) and $(0.04) for the three and nine months ended September 30,2008, respectively.  Net cash used byoperating activities was $(690,442) for the nine months ended September 30,2009 compared to $(984,716) for the nine months ended September 30, 2008,representing a decrease of 30%.

 

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 are beginning to experience rapid growthin the number of new members that we are generating through our businesspartners.  We have entered intoagreements with several affinity groups through which we are generating salesof our CARExpressTM membership programs and are currently indiscussions with several other organizations regarding the sale of ourCARExpressTM membership programs.  We are also in discussions with severalorganizations regarding the development of customized CARExpressTM programs that combine specific CARExpressTM benefits, like vision, dental, pharmacy and24-hour nurseline, in a cost-effective manner that can be targeted towardsspecific groups and markets.  We intendto finance each of these projects through cash on hand, internally generatedcash flows from operating activities and, if necessary, proceeds from theissuance of equity securities.  We willuse any additional investments that we 

 

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receiveto accelerate the expansion of each of our advertising campaigns and programsand increase sales of our membership programs.

 

We expect the number ofCARExpressTM members generated each month to increase as anumber of deals that we have either recently closed or that we expect to closebegin to generate members for us.  Wealso expect the number of CARExpressTM membersgenerated each month to continue to increase throughout the year and expect ourretention rates to improve over the next 12 months since members generatedthrough affinity groups have historically remained members of CARExpressTM for a much longer period of time than membersgenerated through marketing companies. As a result, we expect to generate an increasing amount of revenue andcash flows from operating activities during the remainder of our fiscal yearending December 31, 2009.  We canprovide no assurance, however, that our membership base will increase asprojected, that our member retention rates will improve over the next 12months, or that we will generate increased revenue and cash flows fromoperating activities during the remainder of our fiscal year ended December 31,2009.

 

**Critical Accounting Policies**

 

For information regardingour critical accounting policies, please refer to the discussion provided inour 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 — Critical Accounting Policies”*and our Notes to Consolidated Financial Statements 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 September 30, 2009 and2008**

 

Revenue

 

Revenue consists almost exclusively of the monthlymembership fees that we receive from members of our membership programs.  Revenue increased $62,290 to $590,591 for thethree months ended September 30, 2009 from $528,301 for the three monthsended September 30, 2008.  Theincrease of $62,290 resulted primarily from an increase in sales of ourmembership programs through internet marketers and other affinity groups.  Approximately 75% of the revenue that wegenerated during the three months ended September 30, 2009 was derivedfrom sales of our membership programs to first-time members, compared toapproximately 20% during the three months ended September 30, 2008.  The remainder of the revenue that wegenerated during these periods was derived from existing members.  We expect revenue to increase over the next12 months as a result of increased sales of our membership programs to

 

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employees and members of affinity groups through our direct salesforce, our marketing and distribution partners and our various marketing andadvertising campaigns.

 

Direct Costs

 

Direct costs consist ofsales commissions that we pay to our marketing and distribution partners andfees that we pay to our PPOs and provider networks for access to their networks.  Direct costs increased $186,225 to $357,106for the three months ended September 30, 2009, from $170,881 for the threemonths ended September 30, 2008. The increase of $186,225 was due to an increase of $192,278 for salescommissions paid in connection with the acquisition of new members, partiallyoffset by a decrease of $6,053 for PPO and provider network costs.  We expect our direct costs to increase overthe next 12 months as increased sales of our membership programs result inhigher overall sales commission expenses and provider network costs.

 

Selling and Marketing Expenses

 

Selling and marketing expenses consist ofadvertising expenses, marketing expenses, salaries and other compensation paidto employees selling and marketing our membership programs, rent expenseallocated to our selling and marketing activities, depreciation andamortization expense allocated to our selling and marketing activities, and allother selling and marketing expenses incurred by us.  Selling and marketing expenses decreased$25,991 to $21,212 for the three months ended September 30, 2009, from$47,203 for the three months ended September 30, 2008.  The decrease of $25,991 was due primarily toa decrease of $20,839 for salaries and other compensation paid to employees sellingand 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 administrativeexpenses consist primarily of employee compensation expense, professional feesand other general and administrative expenses.

 

*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$104,049 to $438,545 for the three months ended September 30, 2009, from$542,594 for the three months ended September 30, 2008.  The decrease of $104,049 was due primarily todecreases of $64,398 for salary expense and $32,737 for restricted stock awardexpense.  We expect employee compensationexpense to increase over the next 12 months as we begin to hire additionalemployees to support 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 $99,076 to $84,532 for the three monthsended September 30, 2009 from $183,608 for

 

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the three months ended September 30,2008.  The decrease of $99,076 was dueprimarily to a decrease of $97,346 for the amount of expense recognized in connectionwith equity-based compensation paid to service providers and consultants forvarious services.  We expect professionalfees to increase over the next 12 months as we incur additional legal,accounting and technology fees in connection with the general expansion of ourbusiness and 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 increased $17,053 to $211,761for the three months ended September 30, 2009 from $194,708 for the threemonths ended September 30, 2008. The increase of $17,053 resulted primarily from increases of $12,291 forrent and $14,667 for supplies, partially offset by a decrease of $10,799 forrepairs.  We expect other general andadministrative expenses to increase over the next 12 months as we continue toincur expenses for bank service charges, financial printer services, investorrelations campaigns and activities, transfer agent fees, health insurance,rent, non-employee customer service representatives, supplies, computerhardware and systems, and other miscellaneous items associated with the generaloperation and growth of our business.

 

Net Loss

 

Our net loss decreased $87,233 to $522,542 for thethree months ended September 30, 2009, from $609,775 for the three monthsended September 30, 2008.  Thedecrease of $87,233 was due primarily to an increase of $62,290 for revenue anddecreases of $104,049 for employee compensation expenses and $99,076 forprofessional fees, partially offset by an increase of $186,225 for directcosts.  We expect to begin generating anet profit from operations as the recurring membership fees from our increasingmembership base overtake the costs associated with obtaining and retainingmembers.

** **

**Comparison of the Nine-Month Periods Ended September 30, 2009 and2008**

 

Revenue

 

Revenue decreased $848,832 to $1,383,662 for thenine months ended September 30, 2009 from $2,232,494 for the nine monthsended September 30, 2008.  Thedecrease of $848,832 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.  Approximately65% of the revenue that we generated during the nine months ended September 30,2009 was derived from sales of our membership programs to first-time members,compared to approximately 35% during the nine months ended September 30,2008.  The remainder of the revenue thatwe generated during these periods was derived from existing members.

 

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Direct Costs

 

Direct costs decreased$157,207 to $715,083 for the nine months ended September 30, 2009, from$872,290 for the nine months ended September 30, 2008.  The decrease of $157,207 was due to decreasesof $10,319 for sales commissions and $146,888 for PPO and provider networkcosts resulting from the decrease in sales of our membership programs.

 

Selling and Marketing Expenses

 

Selling and marketing expenses decreased $93,875 to$88,303 for the nine months ended September 30, 2009, from $182,178 forthe nine months ended September 30, 2008. The decrease of $93,875 was due primarily to a decrease of $75,618 forsalaries and other compensation paid to employees selling and marketing ourmembership programs.

 

General and Administrative Expenses

 

*Employee Compensation Expense*.  Employee compensation expense decreased$254,181 to $1,363,468 for the nine months ended September 30, 2009, from$1,617,649 for the nine months ended September 30, 2008.  The decrease of $254,181 was due primarily todecreases of $147,682 for salary expense, $73,581 for restricted stock awardexpense and $20,471 for 401(k) contributions.

 

*Professional Fees*.  Professional fees decreased $302,803 to$257,637 for the nine months ended September 30, 2009 from $560,440 forthe nine months ended September 30, 2008. The decrease of $302,803 was due primarily to decreases of $248,915 forthe amount of expense recognized in connection with equity-based compensationpaid to service providers and consultants for various services, and $66,083 forlegal fees.

 

*Other General and AdministrativeExpenses*.  Othergeneral and administrative expenses decreased $308,202 to $510,188 for the ninemonths ended September 30, 2009 from $818,390 for the nine months ended September 30,2008.  The decrease of $308,202 resultedprimarily from decreases of $157,965 for bank service charges associated withnew and recurring member transactions, $39,774 for repairs, $23,813 forinsurance, $13,036 for postage and delivery, and $23,316 for dues,subscriptions and corporate filing fees, as well as decreases in othermiscellaneous general and administrative expenses.

 

Loss on the Extinguishmentof Debt

 

Loss on the extinguishmentof debt consists of the loss that we recognized in 2008 in connection with thepayment of $20,000 and the issuance of 240,000 shares of common stock to a debtholder in full payment of all principal and interest that was due and payableunder a $50,000 promissory note and a mutual release from any and all claimsarising out of the promissory note.  Werecognized a loss on the extinguishment of debt of $30,000 during the ninemonths ended September 30, 2008 in connection with the issuance of theseshares.  We did not recognize any suchloss during the nine months ended September 30, 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 $296,585 to $1,550,907 for thenine months ended September 30, 2009, from $1,847,492 for the nine monthsended September 30, 2008.  Thedecrease of $296,585 was due primarily to decreases of $157,207 for directcosts incurred in connection with the sale of our membership programs, $309,952for other general and administrative expenses, $302,803 for professional fees,$254,181 for employee compensation expenses and $93,875 for selling andmarketing expenses, partially offset by a decrease of $848,832 for revenue.

** **

**Liquidity and Capital Resources**

 

Sinceour inception, we have funded our operations primarily through private sales ofequity securities.  As of November 13,2009, we had cash and cash equivalents of approximately $110,000.

 

Netcash used by operating activities was $690,442 for the nine months ended September 30,2009, compared to $984,716 for the nine months ended September 30,2008.  The $294,274 decrease in cash usedby operating activities was due primarily to a decrease of $296,585 for netloss and an increase of $466,066 for accounts payable and accruedexpenses.  These amounts were partiallyoffset by decreases of $220,256 for equity-based compensation expense, $136,679for deposits, $30,000 for loss on the extinguishment of debt and $53,964 fordeferred revenue.

 

Wedid not have any cash flows from investing activities for the nine months endedSeptember 30, 2009 and 2008.

 

Net cash provided byfinancing activities was $537,975 for the nine months ended September 30,2009, compared to $1,485,055 for the nine months ended September 30,2008.  The $947,080 decrease in cashprovided by financing activities was due to decreases of $917,080 for proceedsfrom the sale of stock and exercise of warrants and $50,000 for proceeds fromthe issuance of debt. These amounts were partially offset by a decrease of$20,000 for payments on debt.

 

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

 

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.

 

In May 2009, we sold 2,000,000 shares of ourcommon stock and Class A warrants exercisable into 1,000,000 shares of ourcommon stock for aggregate gross proceeds of $100,000.  The Class A warrants have an exerciseprice of $0.075 per share, are exercisable until December 31, 2009 andexpire at the end of the exercise period.

 

## **In July 2009, wecompleted a private offering of 500,000 shares of our common stock and Class Awarrants exercisable into 250,000 shares of our common stock for aggregate cash**

 

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## **consideration of$30,000.  The Class A warrants havean exercise price of $0.06 per share, are exercisable until December 31,2009 and expire at the end of the exercise period.**

 

In July 2009, we sold 2,000,000 shares of ourcommon stock and Class A warrants exercisable into 2,000,000 shares of ourcommon stock for aggregate gross proceeds of $100,000.  The Class A warrants have an exerciseprice of $0.05 per share, are exercisable until December 31, 2010 andexpire at the end of the exercise period.

 

## **In August 2009, wecompleted a private offering of 2,150,000 shares of our common stock, Class Awarrants exercisable into 1,075,000 shares of our common stock and Class Bwarrants exercisable into 1,075,000 shares of our common stock for aggregatecash consideration of $107,500.  The Class Awarrants have an exercise price of $0.05 per share, are exercisable until December 31,2009 and expire at the end of the exercise period.   The Class B warrants have an exerciseprice of $0.10 per share, are exercisable until December 31, 2010 andexpire at the end of the exercise period.**

 

In October 2009,we completed a private offering of 1,004,560 shares of our common stock and Class Awarrants exercisable into 502,280 shares of our common stock for aggregate cash consideration of$50,228.  The shares were sold in unitsconsisting of two shares of common stock and one Class A warrant at apurchase price of $0.10 per unit.   The Class Awarrants have an exercise price of $0.05 per share, are exercisable during theperiod commencing on the date of grant and ending May 31, 2010, and expireat the end of the exercise period.

 

In November 2009,we completed a private offering of 700,000 shares of our common stock and Class Awarrants exercisable into 350,000 shares of our common stock for aggregate cash consideration of $35,000.  The shares were sold in units consisting oftwo shares of common stock and one Class A warrant at a purchase price of$0.10 per unit.   The Class Awarrants have an exercise price of $0.05 per share, are exercisable during theperiod commencing on the date of grant and ending May 31, 2010, and expireat the end of the exercise period.

 

In November 2009,we completed a private offering of 1,000,000 shares of our common stock and Class Awarrants exercisable into 1,000,000 shares of our common stock for aggregate cash consideration of$50,000.  The shares were sold in unitsconsisting of one share of common stock and one Class A warrant at apurchase price of $0.05 per unit.   The Class Awarrants have an exercise price of $0.05 per share, are exercisable during theperiod commencing on the date of grant and ending May 31, 2010, and expireat the end of the exercise period.

 

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 compensationexpenses, professional fees and other general and administrative expensesdiscussed above, and the costs of sales discussed above to the extent suchcosts of sales exceeded our revenue.

 

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We believe thatour current cash resources will not be sufficient to sustain our operations forthe next 12 months.  We will need toobtain additional cash resources within the next 12 months to enable us to payour ongoing costs and expenses as they are incurred and finance the growth ofour business.  We intend to obtain thesefunds through internally generated cash flows from operating activities andproceeds 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.

 

**Off-BalanceSheet Arrangements**

 

As of September 30, 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 September 30, 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 September 30, 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 Securities and Exchange Commission’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 September 30, 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 September 30, 2009,we sold the following securities without registration under the SecuritiesAct of 1933, as amended (the “Securities Act”):

 

## **In July 2009, wecompleted a private offering of 500,000 shares of our common stock and Class Awarrants exercisable into 250,000 shares of our common stock for aggregate cashconsideration of $30,000.  The shareswere sold in units consisting of two shares of our common stock and one Class Awarrant at a purchase price of $0.12 per unit.  Each warrant gives the holder the right to purchase one share of ourcommon stock. The Class A warrants have an exercise price of $0.06 pershare, are exercisable until December 31, 2009 and expire at the end ofthe exercise period.   These securitieswere issued to a limited number of accredited investors in private placementtransactions exempt from the registration requirements of the Securities Actpursuant to Section 4(2) of the Securities Act directly by us withoutengaging in any advertising or general solicitation of any kind and withoutpayment of underwriting discounts or commissions to any person.**

 

## **In July 2009, wesold 2,000,000 shares of common stock and Class A warrants exercisableinto 2,000,000 shares of common stock to an accredited investor for aggregategross proceeds of $100,000.  We paid finderfees consisting of 200,000 shares of common stock.  Each warrant gives the holder the right topurchase one share of our common stock. The Class A warrants have an exercise price of $0.05 per share, areexercisable during the period commencing on the date of grant and ending December 31,2010, and expire at the end of the exercise period. These securities wereissued to one accredited investor in private placement transactions exempt fromthe registration requirements of the Securities Act pursuant to Section 4(2) ofthe Securities Act directly by us without engaging in any advertising orgeneral solicitation of any kind.**

 

## **In August 2009,we completed a private offering of 2,150,000 shares of our common stock, Class Awarrants exercisable into 1,075,000 shares of our common stock and Class Bwarrants exercisable into 1,075,000 shares of our common stock for aggregatecash consideration of $107,500.  Theshares were sold in units consisting of two shares of our common stock, one Class Awarrant and one Class B warrant at a purchase price of $0.10 per unit.Each warrant gives the holder the right to purchase one share of our commonstock.  The Class A warrants have anexercise price of $0.05 per share, are exercisable until December 31, 2009and expire at the end of the exercise period.  The Class B warrants have an exercise price of $0.10 per share, areexercisable until December 31, 2010 and expire at the end of the exerciseperiod.  These securities were issued toa limited number of accredited investors in private placement transactionsexempt from the registration requirements of the Securities Act pursuant to Section 4(2) ofthe Securities Act directly by us without engaging in any advertising orgeneral solicitation of any kind and without payment of underwriting discountsor commissions to any person.**

 

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**Item 5.  Other Information.**

 

Thedescription set forth below is included herewith for the purpose of providingthe disclosure required under “Item 5.02 – Departure of Directors or CertainOfficers; Election of Directors; Appointment of Certain Officers; CompensatoryArrangements of Certain Officers” of Form 8-K in connection with ourissuance of stock to David M. Daniels and Alex Soufflas on June 15, 2009and our issuance of a stock option to Patricia S. Bathurst on December June 15,2009.

 

OnJune 15, 2009, we granted 500,000 and 405,000 shares of common stock toDavid M. Daniels and Alex Soufflas, respectively, and granted an option toPatricia S. Bathurst to acquire 225,000 shares of our common stock.  The shares and option were granted to Messrs. Danielsand Soufflas and Ms. Bathurst, respectively, in full payment of deferredsalary compensation that was earned by each of them during the periodcommencing January 1, 2009 and ending March 31, 2009, and payable tothem as of March 31, 2009.  Theoption is for a term of 10 years, has an exercise price of $0.09 per share (theclosing market price of our common stock on the OTC Bulletin Board on the dateof grant), and was vested in full on the date of grant.  In the event the employment of Ms. Bathurstis terminated for death, disability or retirement, her option may be exercisedto the extent exercisable on the date of such termination of employment untilthe earlier of the date that is one year after the date of such termination ofemployment (90 days in the case of termination due to retirement) or the expirationdate of the option.  In the event heremployment is terminated not for “cause” or is terminated by her for “goodreason,” as such terms are defined in the option, the option vests in fullimmediately and remains exercisable until the expiration date of theoption.  In the event her employment isterminated for “cause,” the option terminates immediately.

 

Theforegoing description of the option does not purport to be complete and isqualified in its entirety by the terms of the option filed as Exhibit 10.1to this report and incorporated by reference herein.

 

**Item 6.  Exhibits.**

 

The following exhibits are included herein:

 
| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                          |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                           |
| 10.1                 |       | Option to Acquire Shares of Common Stock, dated June 15, 2009,  issued by the Company to Patricia S. Bathurst                                                                   |
|                 |       |                                                                                                                                                                                 |
| 31.1                 |       | Certification of Chief Executive Officer of the registrant required  by Rule 13a-14(a) under the Securities Exchange Act of 1934, as  amended                              |
|                 |       |                                                                                                                                                                                 |
| 31.2                 |       | Certification of Chief Financial Officer of the registrant required  by Rule 13a-14(a) under the Securities Exchange Act of 1934, as  amended                              |
|                 |       |                                                                                                                                                                                 |
| 32.1                 |       | Certification of Chief Executive Officer  and Chief Financial Officer of the registrant required by  Rule 13a-14(b) under the Securities Exchange Act of 1934, as  amended |

 

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**SIGNATURES**

 

Pursuant 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: November 16, 2009 | /s/ David M. Daniels           |
|                         | David M. Daniels               |
|                         | Chief  Executive Officer       |

 

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EXHIBIT INDEX

 
| Exhibit |   | Exhibit Description                                                                                                                                     |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1    |   | Option to Acquire Shares of  Common Stock, dated June 15, 2009, issued by the Company to Patricia S.  Bathurst                                          |
|    |   |                                                                                                                                                    |
| 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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