**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,DC 20549**

**FORM10-QSB**
| **x**                                              | **QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|----------------------------------------------------|----------------------------------------------------------------------------------------|
| ** **                                         | ** **                                                                             |
| **For the  quarterly period ended: June 30, 2007** |
| ** **                                         |
| **OR**                                             |
| ** **                                         |
| **o**                                              | **TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF  THE EXCHANGE ACT OF 1934**           |

 

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

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

**NATIONAL HEALTH PARTNERS, INC.**

(Exact Name of Small Business Issuer as Specified in Its Charter)

| **Indiana**                      |   | **04-3786176**       |
|----------------------------------|--------|----------------------|
| (State or Other  Jurisdiction of |   | (IRS Employer        |
| Incorporation or  Organization)  |   | Identification  No.) |

 

| **120 Gibraltar Road**                    |
|-------------------------------------------|
| **Suite  107**                            |
| **Horsham,  PA 19044**                    |
| (Address of  Principal Executive Offices) |

 

**(215)682-7114**

(Issuer’sTelephone Number, including Area Code)

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes x  No o

**APPLICABLE ONLY TO ISSUERSINVOLVED IN**

**BANKRUPTCY PROCEEDINGS DURING THE**

**PRECEDINGFIVE YEARS**

Checkwhether the registrant filed all documents and reports required to be filed bySection 12, 13 or 15(d) of the Exchange Act after the distribution ofsecurities under a plan confirmed by a court.

Yes o  No o

Indicateby check mark whether the registrant is a shell company (as defined in rule12b-2 of the Exchange Act).

Yes  o  No x

**APPLICABLEONLY TO CORPORATE ISSUERS**

State the numberof shares outstanding of each of the issuer’s classes of common equity, as ofthe latest practicable date: There were 34,149,106 issued and outstandingshares of the issuer’s common stock, $.001 par value per share, on August 13,2007.

Transitional Small BusinessDisclosure Format (checkone):                            Yes o  No x

 

----

**TABLE OF CONTENTS**
|                        | ** **                                                                                                   | **Page** |
|------------------------|--------------------------------------------------------------------------------------------------------------|----------|
| PART I                 |
| FINANCIAL  INFORMATION |
| Item 1.                | Financial Statements                                                                                         | 1        |
|                   |                                                                                                         |     |
|                   | Consolidated Balance Sheet at June 30, 2007  (Unaudited)                                                     | 1        |
|                   |                                                                                                         |     |
|                   | Consolidated Statements of Operations for the Three  and Six Months Ended June 30, 2007 and 2006 (Unaudited) | 2        |
|                   |                                                                                                         |     |
|                   | Consolidated Statements of Cash Flows for the Six  Months Ended June 30, 2007 and 2006 (Unaudited)           | 3        |
|                   |                                                                                                         |     |
|                   | Notes to Consolidated Financial Statements (Unaudited)                                                       | 5        |
|                   |                                                                                                         |     |
| Item 2.                | Management’s  Discussion and Analysis                                                                   | 13       |
|                   |                                                                                                         |     |
| Item 3.                | Controls and  Procedures                                                                                     | 23       |
|                   |                                                                                                         |     |
| PART II                |
| OTHER  INFORMATION     |
|                   |
| Item  6.               | Exhibits                                                                                                     | 24       |
|                        |                                                                                                              |          |  |

 

----

**PART I**

**FINANCIALINFORMATION**

**Item 1.  Financial Statements.**

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

Consolidated Balance Sheet (Unaudited)

 
| ** **                                                                                                | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                | ** ** | **2007**          | ** ** |
|                                                                                                      |       |              |       |
| **Assets**                                                                                                |       |              |       |
|                                                                                                      |       |              |       |
| Current assets:                                                                                           |       |              |       |
| Cash and cash  equivalents                                                                                |       | $                 | 497,540    |   |
| Accounts  receivable                                                                                      |       | 175,400           |       |
| Prepaid expense                                                                                           |       | 260,479           |       |
| Deposits                                                                                                  |       | 128,268           |       |
|                                                                                                      |       |              |       |
| Total current  assets                                                                                     |       | 1,061,687         |       |
|                                                                                                      |       |              |       |
| Property and equipment,  net                                                                              |       | 106,288           |       |
| Prepaid expense                                                                                           |       | 123,424           |       |
|                                                                                                      |       |              |       |
| Total assets                                                                                              |       | $                 | 1,291,399  |   |
|                                                                                                      |       |              |       |
| **Liabilities and stockholders’  equity**                                                            |       |              |       |
|                                                                                                      |       |              |       |
| Current liabilities                                                                                       |       |              |       |
| Accounts payable                                                                                          |       | $                 | 67,675     |   |
| Accrued expenses                                                                                          |       | 14,647            |       |
| Deferred revenue                                                                                          |       | 15,264            |       |
|                                                                                                      |       |              |       |
| Total current  liabilities                                                                                |       | 97,586            |       |
|                                                                                                      |       |              |       |
| Total  liabilities                                                                                        |       | 97,586            |       |
|                                                                                                      |       |              |       |
| Commitments and  contingencies                                                                            |       |              |       |
|                                                                                                      |       |              |       |
| Stockholders’ equity:                                                                                |       |              |       |
| Common stock,  $0.001 par value, 100,000,000 shares authorized, 32,949,106 shares issued and  outstanding |       | 32,949            |       |
| Additional paid-in  capital                                                                               |       | 20,263,945        |       |
| Deferred compensation                                                                                     |       | (205,567          | )          |
| Accumulated deficit                                                                                       |       | (18,897,514       | )          |
|                                                                                                      |       |              |       |
| Total  stockholders’ equity                                                                          |       | 1,193,813         |       |
|                                                                                                      |       |              |       |
| Total liabilities and  stockholders’ equity                                                          |       | $                 | 1,291,399  |   |

 

 

The accompanying notesare an integral part of these consolidated financial statements

1

----

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

Consolidated Statements ofOperations (Unaudited)
| ** **                                                              | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                              | ** ** | **June 30,**                                  | ** ** | **June 30,**                                | ** ** |
| ** **                                                              | ** ** | **2007**                                           | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Net revenue                                                             |       | $                                                  | 1,179,197  |                                             | $          | 317,024 |   | $ | 2,223,705 |   | $ | 641,428 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Direct costs                                                            |       | 656,873                                            |       | 252,772                                          |       | 1,224,956 |   | 401,859 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Gross profit                                                            |       | 522,324                                            |       | 64,252                                           |       | 998,749 |   | 239,569 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Operating  expenses:                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Selling and marketing                                                   |       | 39,312                                             |       | 841,357                                          |       | 111,250 |   | 943,694 |   |
| General and administrative                                              |       | 880,217                                            |       | 869,117                                          |       | 1,930,770 |   | 1,895,190 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Total operating  expenses                                               |       | 919,529                                            |       | 1,710,474                                        |       | 2,042,020 |   | 2,838,884 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Loss from  operations                                                   |       | (397,205                                           | )          | (1,646,222                                       | )          | (1,043,271 | ) | (2,599,315 | ) |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Other income  (expense):                                                |       |                                               |       |                                             |       |   |   |   |   |
| Interest income                                                         |       | 8,089                                              |       | 21,936                                           |       | 14,419 |   | 55,018 |   |
| Interest expense                                                        |       | —                                             |       | (5,699                                           | )          | — |   | (12,130 | ) |
| Gain on extinguishment of debt                                          |       | —                                             |       | 35,932                                           |       | — |   | 35,932 |   |
| Other income (expense)                                                  |       | —                                             |       | —                                           |       | — |   | 1,972 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Total other  income (expense)                                           |       | 8,089                                              |       | 52,169                                           |       | 14,419 |   | 80,792 |   |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Net loss                                                                |       | $                                                  | (389,116   | )                                                | $          | (1,594,053 | ) | $ | (1,028,852 | ) | $ | (2,518,523 | ) |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Loss per share —  basic and diluted                                |       | $                                                  | (0.01      | )                                                | $          | (0.07 | ) | $ | (0.03 | ) | $ | (0.12 | ) |
|                                                                    |       |                                               |       |                                             |       |   |   |   |   |
| Weighted average  number of shares outstanding — basic and diluted |       | 32,949,106                                         |       | 22,901,201                                       |       | 30,876,650 |   | 21,131,779 |   |

 

 

The accompanying notes are an integral part of theseconsolidated financial statements

2

----

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

Consolidated Statements of Cash Flows (Unaudited)

 
| ** **                                                                   | ** ** | **For the Six Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                   | ** ** | **June 30,**                                | ** ** |
| ** **                                                                   | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                                         |       |                                             |       |   |   |
| **Cash flows from operating  activities**                                    |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Net loss                                                                     |       | $                                                | (1,028,852 | ) | $ | (2,518,523 | ) |
| Adjustments to  reconcile net loss to net cash used by operating activities: |       |                                             |       |   |   |
| Common stock  issued for services and amortization of prepaid services       |       | 390,429                                          |       | 205,001 |   |
| Options issued  for services                                                 |       | 28,246                                           |       | 584,981 |   |
| Depreciation                                                                 |       | 38,533                                           |       | 29,338 |   |
| Changes in  operating assets and liabilities:                                |       |                                             |       |   |   |
| Increase in  accounts receivable                                             |       | (175,400                                         | )          | — |   |
| Increase in  deposits                                                        |       | (108,651                                         | )          | (16,478 | ) |
| Increase in  other current assets                                            |       | —                                           |       | (5,958 | ) |
| Increase  (decrease) in accounts payable and accrued expenses                |       | (48,406                                          | )          | 30,641 |   |
| Decrease in  accounts payable — related party                           |       | —                                           |       | (16,373 | ) |
| Increase  (decrease) in deferred revenue                                     |       | (195,328                                         | )          | 33,209 |   |
| Decrease in  notes payable                                                   |       | —                                           |       | (23,742 | ) |
| Increase in  deferred compensation                                           |       | —                                           |       | 20,042 |   |
|                                                                         |       |                                             |       |   |   |
| Net cash used by  operating activities                                       |       | (1,099,429                                       | )          | (1,677,862 | ) |
|                                                                         |       |                                             |       |   |   |
| **Cash flows from investing  activities**                                    |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Decrease  (increase) in certificates of deposit                              |       | —                                           |       | 35,717 |   |
| Increase in  property and equipment                                          |       | —                                           |       | (43,692 | ) |
|                                                                         |       |                                             |       |   |   |
| Net cash  provided (used) by investing activities                            |       | —                                           |       | (7,975 | ) |
|                                                                         |       |                                             |       |   |   |
| **Cash flows from financing  activities**                                    |       |                                             |       |   |   |
|                                                                         |       |                                             |       |   |   |
| Proceeds from  sale of common stock                                          |       | —                                           |       | 127,160 |   |
| Proceeds from  stock subscriptions                                           |       | —                                           |       | 1,140,000 |   |
| Proceeds from  exercise of warrants                                          |       | —                                           |       | 1,484,938 |   |
| Payments on  notes payable                                                   |       | —                                           |       | (168,000 | ) |
|                                                                         |       |                                             |       |   |   |
| Net cash  provided by financing activities                                   |       | —                                           |       | 2,584,098 |   |
|                                                                         |       |                                             |       |   |   |
| Net increase (decrease)  in cash                                             |       | (1,099,429                                       | )          | 898,261 |   |
| Cash at beginning of  year                                                   |       | 1,596,969                                        |       | 109,807 |   |
|                                                                         |       |                                             |       |   |   |
| Cash at end of quarter                                                       |       | $                                                | 497,540    |   | $ | 1,008,068 |   |

 

 

The accompanying notesare an integral part of these consolidated financial statements

3

----

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

ConsolidatedStatements of Cash Flows (Unaudited) (Continued)

 
| ** **                                            | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                            | ** ** | **June 30,**                                | ** ** |
| ** **                                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                  |       |                                             |       |   |   |
| **Supplemental  disclosure of cash flow information** |       |                                             |       |   |   |
|                                                  |       |                                             |       |   |   |
| Cash paid for taxes                                   |       | $                                                | —     |   | $ | — |   |
| Cash received (paid) for interest                     |       | $                                                | 14,419     |   | $ | 42,888 |   |
|                                                  |       |                                             |       |   |   |
| **Schedule  of non-cash financing activities**        |       |                                             |       |   |   |
|                                                  |       |                                             |       |   |   |
| Common stock issued for services                      |       | $                                                | 190,300    |   | $ | 156,138 |   |
| Warrants issued for services                          |       | $                                                | —     |   | $ | 48,863 |   |
| Stock options issued for services                     |       | $                                                | 95,796     |   | $ | 584,981 |   |

 

 

The accompanying notes are an integral part of theseconsolidated financial statements

4

----

**NationalHealth Partners, Inc. and Subsidiary**

Notes to ConsolidatedFinancial Statements (Unaudited)

June 30, 2007

**Note1.  Description of Business**

National Health Partners, Inc. (the “Company”) wasorganized on March 10, 1989 as Spectrum Vision Systems of Indiana, Inc. underthe laws of the State of Indiana.  TheCompany changed its name to “National Health Partners, Inc.” on March 13,2001.  On December 15, 2004, NationalHealth Brokerage Group, Inc. was organized as a wholly-owned subsidiary of theCompany.  The Company sells membershipprograms that encompass all aspects of healthcare, including physicians,hospitals, ancillary services, dentists, prescription drugs and vision carethrough a national healthcare savings network called “CARExpress.”  The Company markets its programs directlythrough infomercials, newspapers, publications and its website, and indirectlythrough marketing representatives, brokers and agents, retail chains andoutlets, small businesses and trade associates, and unions and associations.  The Company derives substantially all of itsrevenue from the monthly membership fees it receives from members of itsmembership programs.

**Note 2.  Basis of Presentation**

The accompanying unaudited consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America and in conformity with theinstructions to Form 10-QSB and Article 10 of Regulation S-X and the relatedrules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements. In theopinion of management, the disclosures included in these financial statementsare adequate to make the information presented not misleading.

The unaudited consolidated financial statementsincluded in this document have been prepared on the same basis as the annualconsolidated financial statements and in management’s opinion, reflect alladjustments, including normal recurring adjustments, necessary to presentfairly the Company’s financial position, results of operations and cash flowsfor the interim periods presented. The unaudited consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements and the notes thereto for the year ended December 31, 2006included in the Company’s Annual Report on Form 10-KSB.  The results of operations for the three andsix months ended June 30, 2007, respectively, are not necessarily indicative ofthe results that the Company will have for any subsequent quarter or fullfiscal year.

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes.  Actual results could differ from thoseestimates.  The financial statementsinclude the balances of National Health Partners, Inc. and its wholly-ownedsubsidiary, National Health Brokerage Group, Inc. All material intercompanybalances and transactions have been eliminated in consolidation.  Certain amounts in the financial statementsfor 2006 have been reclassified to conform to the 2007 presentation.  These reclassifications did not result in anychange to the previously reported total assets, net loss or stockholders’equity.

5

----

 

The Company’s financial statements are preparedusing accounting principles generally accepted in the United States of Americaapplicable to a going concern which contemplates the realization of assets andliquidation of liabilities in the normal course of business.  The Company has historically incurredsignificant losses, which raises substantial doubt about the Company’s abilityto continue as a going concern.  Theaccompanying financial statements do not include any adjustments relating tothe recoverability and classification of asset carrying amounts or the amountand classification of liabilities that might result from the outcome of thisuncertainty.

As of June 30, 2007, the Company’s significant accounting policies andestimates, which are detailed in the Company’s Annual Report on Form 10-KSB forthe year ended December 31, 2006, have not changed materially.

**Note3.  Stock Compensation Expense**

The Company records employee stock-basedcompensation using the fair value recognition provisions of Financial Statementof Financial Accounting Standards No. 123 (revised 2004), *“Share-BasedPayment”* (“SFAS 123R”), using the modified prospective transitionmethod, and records non-employee stock-based compensation expense in accordancewith Statement of Financial Accounting Standards No. 123, *“AccountingFor Stock-Based Compensation”*(“SFAS 123”) and Emerging Issues TaskForce No. 96-18 *“Accounting for Equity Instruments That AreIssued to Other Than Employees for Acquiring or in Conjunction with SellingGoods or Services”* (“EITF 96-18”). In accordance therewith, the Company recognized $129,188 and $418,675 ofstock compensation expense during the three and six months ended June 30, 2007.

**Note 4.  Loss per Share**

Basic loss per share is based on the weightedaverage number of shares of the Company’s common stock outstanding during theapplicable three- and six-month periods, and is calculated by dividing thereported net loss for the applicable three- and six-month periods by theweighted average number of shares of common stock outstanding during theapplicable three- and six-month periods. The Company calculates diluted loss per share by dividing the reportednet loss for the applicable three- and six-month periods by the weightedaverage number of shares of common stock outstanding during the applicablethree- and six-month periods as adjusted to give effect to the exercise of allpotentially dilutive options and warrants outstanding at the end of theapplicable three- and six-month periods. An aggregate of 19,372,684 and 23,193,677 shares of common stockunderlying options and warrants that were outstanding on June 30, 2007 and2006, respectively, have been excluded from the computation of diluted earningsper share because they are anti-dilutive. As a result, basic loss per share was equal to diluted loss per sharefor each three-month period.

6

----

 
|                                                                         | ** ** | **For the Three Months  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                                          | ** ** | **2006**                                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                    |       |                                                              |       |                                                            |       |   |   |   |   |
| Net loss as  reported                                                   |       | $                                                                 | (389,116   | )                                                               | $          | (1,594,053 | ) | $ | (1,028,852 | ) | $ | (2,518,523 | ) |
|                                                                    |       |                                                              |       |                                                            |       |   |   |   |   |
| Weighted average  number of shares outstanding — basic and diluted |       | 32,949,106                                                        |       | 22,901,201                                                      |       | 30,876,650 |   | 21,131,779 |   |
|                                                                    |       |                                                              |       |                                                            |       |   |   |   |   |
| Earnings (loss) per  share — basis and diluted                     |       | $                                                                 | (0.01      | )                                                               | $          | (0.07 | ) | $ | (0.03 | ) | $ | (0.12 | ) |

 

**Note 5.  Property and Equipment**

Propertyand equipment consisted of the following at June 30, 2007:
|                                | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|
| Computers                      |       | $        | 60,708     |   |
| Software                       |       | 6,109    |       |
| Furniture                      |       | 27,968   |       |
| Telephone                      |       | 80,780   |       |
| Website                        |       | 106,477  |       |
| Less: accumulated depreciation |       | (175,754 | )          |
|                           |       |     |       |
| Property and equipment,  net   |       | $        | 106,288    |   |

 

Depreciationexpense for the three months ended June 30, 2007 and 2006 was $18,655 and$14,910, respectively, and for the six months ended June 30, 2007 and 2006 was$38,533 and $29,338, respectively.

**Note 6.   Accrued Expenses**

Accrued expenses consist primarily ofamounts owed to an unrelated third party for its payment of certain Companyliabilities in 2001 and 2002.  Inconnection with the Company’s execution of a note payable for a portion of theamount owed and the Company’s agreement to pay the remaining balance of theamount owed thereafter, the third party agreed to accept payments of $5,000 permonth until all amounts are paid in full. The note payable was paid off in full in 2006.  The balance of accrued expenses owed to thisthird party at June 30, 2007 and 2006 was $10,010 and $70,010, respectively.

7

----

**Note7.  Commitments and Contingencies**

The Company’smaterial commitments and contingencies consist of an operating lease for its officespace in Horsham, Pennsylvania and employment agreements with its current andformer executive officers.

**OperatingLeases**

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

Future minimum leasepayments under this facility lease are as follows:
| Fiscal Year | ** ** | **Amount** | ** ** |
|------------------|------------|------------|------------|
|             |       |       |       |
| 2007             |       | $          | 80,539     |   |
| 2008             |       | 163,138    |       |
| 2009             |       | 166,672    |       |
| 2010             |       | 70,060     |       |
|             |       | $          | 480,409    |   |

 

**Employment Agreements**

The Company is a party to employment agreements witheach of its current executive officers and one of its former executiveofficers.  Future minimum payments underthese employment agreements are as follows:
| Fiscal Year | ** ** | **Amount** | ** ** |
|------------------|------------|------------|------------|
| 2007             |       | $          | 474,960    |   |
| 2008             |       | 1,044,912  |       |
| 2009             |       | 748,107    |       |
| 2010             |       | 56,315     |       |
|             |       | $          | 2,324,294  |   |

 

8

----

**Note 8.  2006 Stock IncentivePlan**

On February 2, 2006, the Company adopted theNational Health Partners, Inc. 2006 Stock Incentive Plan.  Under the plan, 4,500,000 shares of commonstock may be granted to employees, officers and directors of, and consultantsand advisors to, the Company under awards that may be made in the form of stockoptions, warrants, stock appreciation rights, restricted stock, restrictedunits, unrestricted stock and such other equity-based or equity-related awards.  As of June 30, 2007, awards for an aggregateof 4,466,575 shares of common stock had been issued under the plan.  The plan terminates on February 1, 2016.  On February 6, 2006, the Company filed aregistration statement on Form S-8, File No. 333-131589, with the SEC coveringthe public sale of the 4,500,000 shares of common stock available for issuanceunder the National Health Partners, Inc. 2006 Stock Incentive Plan.

**Note9.  Common Stock and Warrants**

TheCompany’s authorized capital consisted of 100,000,000 shares of common stock,$0.001 par value per share, at June 30, 2007 and 2006, respectively, of which32,949,106 and 23,671,981 shares of common stock were outstanding at June 30,2007 and 2006, respectively.  Warrantsexercisable into an aggregate of 12,637,684 and 15,548,677 shares of theCompany’s common stock were outstanding on June 30, 2007 and 2006,respectively.

The Company estimates the fair value of warrantsissued for services on the date of grant by using the Black-Scholes pricingmodel.  Under this model, the Companyused the following weighted-average assumptions to determine the fair value ofthe outstanding warrants that were issued for services: a dividend yield ofzero percent, an expected volatility of 276%, a risk-free interest rate of 3.5%and a remaining contractual term of 2 years. The Company follows Emerging Issues Task Force No. 96-18 to recognizethe fair value of warrants granted. Under EITF 96-18, the fair value of the warrants should be recognized asthe services are rendered.  The Companyis recognizing the cost of services evenly over the term of the agreementssince the services are being rendered on an ongoing basis during the term ofthe agreements.

On March 14, 2007, the Company issued a restrictedstock award for 200,000 shares of common stock to a business partner.  The award vests in four equal quarterlyinstallments commencing June 30, 2007 if certain performance criteria areachieved.  The shares were valued at theclosing price of the Company’s common stock on the date of issuance for totalconsideration of $130,000.  The Companyrecognized $5,770 and $30,888 of expense during the three and six months endedJune 30, 2007 in connection with the issuance of these shares.

On March 16, 2007, the Company issued 30,000 sharesof common stock to each of three consultants pursuant to individual consultingagreements.  The shares were valued atthe closing price of the Company’s common stock on the date of issuance fortotal consideration of $60,300, all of which was recognized as expense duringthe six months ended June 30, 2007.

9

----

**Note 10.  Stock Options**

Stockoptions exercisable into an aggregate of 6,735,000 and 7,645,000 shares of theCompany’s common stock were outstanding on June 30, 2007 and 2006,respectively, of which 6,630,000 and 3,745,000 were vested, respectively.  The weighted average exercise price of thestock options outstanding on June 30, 2007 was $0.54.  Nooptions were exercised during the six months ended June 30, 2007.

The Company estimates the fair value of its stock optionson the date of grant by using the Black-Scholes pricing model in accordancewith the provisions of Statement of Financial Accounting Standards No. 148, *“Accounting for Stock-Based Compensation — Transition and Disclosure.”*  Under the Black-Scholes pricing model, theCompany used the following weighted-average assumptions to determine the fairvalue of the stock options issued: a dividend yield of zero percent, anexpected volatility of between 257% and 282%, a risk-free interest rate ofbetween 3.5 percent and 4.8%, and a remaining contractual life of 8.99years.

In January 2007, the Company issued a stock optionto a new employee to acquire 100,000 shares of common stock.  The option has an exercise price of $0.69 pershare and vests as follows: 25% on the date of grant and 25% per yearcommencing January 22, 2008.  The optionhas a term of 10 years and was valued at $68,997 on the date of grant.  The Company recognized $4,281 and $21,546 ofexpense during the three and six months ended June 30, 2007 in connection withthe issuance of this option.

In March 2007, the Company issued a stock option toa new employee to acquire 40,000 shares of common stock.  The option has an exercise price of $0.67 pershare and vests as follows: 25% on the date of grant and 25% per yearcommencing March 1, 2008.  The option hasa term of 10 years and was valued at $26,799 on the date of grant.  The Company recognized $734 and $6,700 ofexpense during the three and six months ended March 31, 2007 in connection withthe issuance of this option.

**Note11.  Related-Party Transactions**

On March 15, 2007, the Company terminated theemployment of David A. Taylor, its Senior Vice President — National Sales.

10

----

**Note 12.  Subsequent Events**

On August 3, 2007, theCompany sold 1,200,000 shares of common stock, one Class A warrant exercisableinto 1,000,000 shares of common stock and one Class B warrant exercisable into1,000,000 shares of common stock to an accredited investor for aggregate grossproceeds of $540,000.  The Companygranted registration rights covering all shares of common stock and the sharesissuable upon the exercise of the warrants. All Class A warrants have an exercise price of $0.60 per share, areexercisable for a period of 30 days commencing on the date the registrationstatement is declared effective by the SEC, and expire at the end of theexercise period.  All Class B warrantshave an exercise price of $.80 per share, are exercisable until December 31,2008, are callable by the Company if certain criteria are satisfied, and expireat the end of the exercise period.

11

----

**CAUTIONARY STATEMENT REGARDINGFORWARD-LOOKING STATEMENTS**

This report contains “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, as amended(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934,as amended (the “Exchange Act”).  Allstatements other than statements of historical fact included or incorporated byreference in this report, including, without limitation, statements regardingour future financial position, business strategy, budgets, projected revenueand costs, and plans and objectives of management for future operations, areforward-looking statements.  In addition,forward-looking statements 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 risks and uncertaintiesthat could cause actual results to differ materially from results proposed insuch statements.  Although we believethat the expectations reflected in such forward-looking statements arereasonable, we can give no assurance that such expectations will prove to havebeen correct.  Important factors thatcould cause actual results to differ materially from our expectations include,but are not limited to:

·                  ourability to fund future growth and implement our business strategy;

·                  demandfor and acceptance of our CARExpress membership programs;

·                  ourdependence on a limited number of preferred provider organizations (“PPOs”) andother provider networks for healthcare providers;

·                  ourdependence upon a limited number of marketing and distribution partners forsubstantially all of our revenue;

·                  ourability to market our CARExpress membership programs and develop and expand themarket for our CARExpress membership programs;

·                  growthand market acceptance of the health savings industry;

·                  competitionin the health savings industry and our markets;

·                  ourability to attract and retain qualified personnel;

·                  legislativeor regulatory changes in the healthcare industry;

·                  thecondition of the securities and capital markets;

·                  generaleconomic and business conditions, either nationally or internationally or inthe jurisdictions in which we are doing business;

and statements of assumption underlying any of theforegoing, as well as any other factors set forth under the captions *“Item 1.  Description of Business— Risks and Uncertainties”* and *“Item 6.  Management’s Discussions and Analysis”*in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

All subsequentwritten and oral forward-looking statements attributable to us, or personsacting on our behalf, are expressly qualified in their entirety by theforegoing.  Except as required by law, weassume no duty to update or revise our forward-looking statements based onchanges in internal estimates or expectations or otherwise.

12

----

**Item 2. Management’s Discussion and Analysis.**

Unless otherwise indicated or the context otherwiserequires, all references to the “Company,” “we,” “us” or “our” and similarterms refer to National Health Partners, Inc. and its subsidiaries.

This Management’s Discussion and Analysis and otherparts of this report contain forward-looking statements that involve risks anduncertainties.  All forward-lookingstatements included in this report are based on information available to us onthe date hereof and, except as required by law, we assume no obligation toupdate any such forward-looking statements. Our actual results may differ materially from those anticipated in theseforward-looking statements as a result of a number of factors, including thoseset forth under the captions *“Item 1.  Description of Business — Risks andUncertainties”* and *“Item 6.  Management’s Discussion and Analysis”*in our Annual Report on Form 10-KSB for the year ended December 31, 2006.  The following should be read in conjunctionwith our consolidated financial statements included above in Item 1 of Part Iof this report.

**Overview**

We area national healthcare savings organization that was formed by healthcareprofessionals to address the need for affordable healthcare nationwide.  We create, market and sell discount healthcaremembership programs to predominantly underserved markets in the healthcareindustry through a national healthcare savings network called CARExpress (“CARExpress”).  CARExpress is a network of hospitals,doctors, dentists, pharmacists and other healthcare providers comprised of over1,000,000 medical professionals that have agreed to render their services andproducts to CARExpress members at discounted prices.  CARExpress enables people to engage inpoint-of-service transactions directly with these providers and pay discountedprices that are similar in amount to those paid by insurance companies onbehalf of their insureds.  Our membershipprograms offer savings on healthcare services to persons who are uninsured andunderinsured and to those who purchase only high deductible or limited benefitmedical insurance policies by providing access to the same PPOs that areutilized 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 and indirectly through resellers that privately label orco-brand our membership programs and employers that offer our membershipprograms to their employees.

We areactively engaged in marketing our CARExpress membership programs to the publicand our primary strategic objectives are to generate increased sales of ourmembership programs and expand our position as a provider of unique healthcaremembership service programs.  The targetmarket for our membership programs is comprised of individuals who have eitherlimited health benefits or no health benefits. Our market share of this market is currently less than one percent andhas been less than one percent since our inception.  Since we are not currently large enough topursue and support the entire market, we intend to continue to pursue specificopportunities that we identify in this market through our various marketing anddistribution channels.  Through productdesign, competitive membership pricing, and a variety of marketing anddistribution partners, we are pursuing opportunities in the healthcare marketthat insurance companies have not addressed.

13

----

**RecentDevelopments**

We haveexperienced a substantial increase in revenue and our membership base over thepast 12 months.  We achieved revenue of$1,179,197 for the three-month period ended June 30, 2007, compared to revenueof $317,024 for the three-month period ended June 30, 2006, an increase of over270%.  We have entered into agreementswith several marketing and distribution partners that are selling ourCARExpress membership programs to the public and are currently in negotiationswith several other companies regarding the sale of our CARExpress membershipprograms.

On May 16, 2007, we entered into a MembershipAgreement (“Membership Agreement”) with American Advantage Association (“AmericanAdvantage”).  Under the terms of theMembership Agreement, American Advantage agreed to provide us with access tolimited insurance benefits initially underwritten by The United States LifeInsurance Company in the City of New York (“US Life”), a member company ofAmerican International Group, Inc. (AIG), under a group master policy issued toAmerican Advantage.  The limitedinsurance benefits may be sold by us in the form of membership benefit programsthat contain both our traditional health discount membership programs and US Life’slimited insurance benefits.

We are currently offering several of these newmembership benefit programs to the public under the name “CARExpress Plus.”  Our CARExpress Plus membership programscurrently consist of our CARExpress comprehensive discount health program andvarious limited liability insurance benefits from US Life.  Members of our CARExpress Plus membershipprograms are able to use the health discount component of the programs toobtain discounts on healthcare costs and use the insurance component of theprograms to cover healthcare costs up to the amount of the coverage limit.  Each CARExpress Plus membership programprovides coverage for the member’s full family or, at the member’s option,coverage limited exclusively to the primary insured.  We are marketing our CARExpress Plusmembership programs through brokers, agents and other independent third partiesand, in the future, intend to market these programs directly to the publicthrough National Health Brokerage Group, Inc., our wholly-owned subsidiary.

**OperationalMetrics**

Ourrevenue consists exclusively of recurring monthly membership fees that wereceive from members of our CARExpress membership programs.  To generate revenue, we engage in marketingcampaigns offering money-back guarantees and free-trial periods as an incentivefor prospective members to try our CARExpress membership programs.  Upon becoming paying members, the members payus membership fees each month for the duration of their membership.  The average membership fee per member permonth that we receive for our traditional health discount membership programsis approximately $35.  Approximately 95%of the health discount membership programs that we have sold to our currentmembers consist of our Comprehensive Care Program which is sold at a monthlyretail price of $39.95.  The remaininghealth discount membership programs that we have sold to our current membersconsist of a mix of our less expensive programs.  We do not yet have similar data available forour new CARExpress Plus membership programs since we only recently beganselling them to the public.

14

----

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.  For those memberships sold in connection withour free-trial offers, we receive the member’s billing information at thebeginning of the free-trial period. After the free-trial period has expired, the member is charged for thenext monthly membership period unless the member cancels the membership priorto the expiration of the free-trial period. The monthly membership fees that we receive are recognized as revenueevenly over the applicable monthly membership period.  As a result, there is a delay of four weeksbetween the date we receive a monthly membership fee and the date we recognizethe entire fee as revenue.

A keymetric that we use to evaluate our success is our member retention rates.  Member retention rates represent thepercentage 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 CARExpressmembership programs that we sell.  Webelieve that the key to obtaining a high member retention rate is to target ourmarketing campaigns towards those individuals and organizations that are mostin need of our programs, most capable of paying for our programs, and mostloyal to us and our programs.  Memberretention rates can be influenced by a variety of factors, including:

·                  thetype of CARExpress membership programs being sold;

·                  themarketing campaign being used to sell our CARExpress membership programs;

·                  thefinancial condition and loyalty of our members;

·                  thedistribution channel selling our CARExpress membership programs; and

·                  thetype and amount of compensation being paid to our marketing and distributionpartners to sell our CARExpress membership programs.

Wehave obtained valuable information regarding member demographics through themarketing and advertising campaigns that we have conducted over the last 12months and are focusing our marketing and advertising campaigns on members andmember groups that we have identified as being most suitable for our CARExpressmembership programs.  As a result, weexpect our retention rates to continue to improve over the next 12 months as wepursue these opportunities through our various marketing and distributionchannels.

**Outlook**

Ourstrategy is to continue to expand our position as a provider of uniquehealthcare membership service programs. We implemented several strategic growth initiatives during 2006 throughwhich we achieved new contracts and strategic partnerships with a number ofmarketing and distribution companies.  Wehave also initiated several measures in anticipation of our future growth,including hiring additional customer service staff and transitioning ourcurrent customer service staff from one shift to two shifts to ensure adequatecoverage for our members.  We expect togenerate future revenue and members primarily through our marketing anddistribution 

15

----

partners and ourvarious marketing and advertising campaigns. We expect to further increase revenue and members through sales of ourCARExpress Plus programs to the public. We intend to finance each of these projects through cash on hand,internally generated cash flows from operating activities, proceeds from theexercise of outstanding warrants and, if necessary, additional sales of debt orequity securities.  We will use any additionalinvestments that we receive to accelerate the expansion of each of ouradvertising campaigns and programs and increase sales of our membershipprograms.

We expect the number ofCARExpress members generated each month to increase for the foreseeablefuture.  We also expect our retentionrates to improve over the next 12 months as we obtain additional informationregarding member demographics and target our marketing and advertisingcampaigns at prospective members and member groups that are most suitable forour membership programs.  As a result, weexpect to begin generating a net profit from operations in the second half of2007 as the recurring membership fees from our increasing membership baseovertake the costs associated with obtaining the new members we are generating.  We can provide no assurance, however, thatour membership base will increase as projected, that our member retention rateswill improve over the next 12 months or that we will begin generating a netprofit from operations in the second half of 2007.

**Critical Accounting Policies**

For information regardingour critical accounting policies, please refer to the discussion provided inour Annual Report on Form 10-KSB for the year ended December 31, 2006under the caption *“Item 6. Management’s Discussion and Analysis — Critical Accounting Policies”*and our Notes to Consolidated Financial Statements.

**RecentAccounting Pronouncements**

For information regardingrecent accounting pronouncements applicable to our business, please refer tothe discussion provided in our Annual Report on Form 10-KSB for the year endedDecember 31, 2006 under the caption *“Item 6.  Management’s Discussion and Analysis — RecentAccounting Pronouncements”* and our Notes to Consolidated FinancialStatements.

**Comparison of the Three-Month Periods Ended June30, 2007 and 2006**

Revenue

Revenue consists of the monthly membership fees thatwe receive from members of our CARExpress membership programs and CARExpressPlus membership programs.  To date,revenue has consisted exclusively of the monthly membership fees we receivefrom members of our CARExpress membership programs.  Revenue increased $862,173 to $1,179,197 forthe three-month period ended June 30, 2007 from $317,024 for the three-monthperiod ended June 30, 2006.  The increaseof $862,173 resulted primarily from sales of our CARExpress membership programsto new members and increased revenue generated from our existing members.  Approximately 65% of the revenue that wegenerated during the three-month period ended June 30, 2007 was derived fromsales of our CARExpress membership programs to first-time members, compared toapproximately 95% during the corresponding period in 2006.  The remainder of the revenue that wegenerated during these periods was derived from existing 

16

----

members.  We expect revenue to increase over the next12 months as a result of increased sales of our CARExpress health discountprograms and our CARExpress Plus membership programs by our marketing anddistribution partners and through our various marketing and advertisingcampaigns.

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 theirnetworks.  Direct costs increased$404,101 to $656,873 for the three-month period ended June 30, 2007, from$252,772 for the three-month period ended June 30, 2006.  The increase of $404,101 was due primarily toan increase of $302,305 for sales commissions and $102,016 for PPO and networkprovider costs.  We expect cost of salesto increase over the next 12 months as increased sales of our health membershipprograms result in higher overall sales commission expenses and providernetworks costs.

Selling and Marketing Expenses

Selling and marketingexpenses consist of advertising expenses, marketing expenses, salaries andother compensation paid to employees selling and marketing our healthmembership programs, rent expense allocated to our selling and marketingactivities, depreciation and amortization expense allocated to our selling andmarketing activities, and all other selling and marketing expenses incurred byus.  Selling and marketing expensesdecreased $802,045 to $39,312 for the three-month period ended June 30, 2007,from $841,357 for the three-month period ended June 30, 2006.  The decrease of $802,045 was due primarily todecreases of $734,492 for radio and television marketing programs and othermarketing campaigns and activities, and $79,123 for sales-related cash andequity-based compensation. We expect selling and marketing expenses to increaseduring the next 12 months as we continue to engage in targeted andcost-efficient marketing and advertising campaigns and activities.

General and Administrative Expenses

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

*Employee Compensation Expense*.  Employee compensation expense consists of allsalaries and related compensation that we pay to our employees and the relatedpayroll taxes that are not associated with our selling and marketingactivities.  Employee compensationexpense increased $54,026 to $496,315 for the three-month period ended June 30,2007, from $442,289 for the three-month period ended June 30, 2006.  The increase of $54,026 was due primarily toan increase of $192,397 in salary and payroll expense associated primarily withan increase in the number of people employed by us and annual increases in thesalaries payable to our executive officers under their respective employmentagreements. This increase was partially offset by decreases of $119,260 instock option expense resulting from our decision in December 2006 to acceleratethe vesting of certain stock options previously issued to our executiveofficers and employees, and $28,356 in restricted stock award expense.  We are party to employment agreements withDavid M. Daniels, Alex Soufflas and Patricia S. Bathurst and David A.Taylor.  A summary of the material termsof these employment agreements and our financial obligations 

17

----

thereunder is provided in our Annual Report on Form10-KSB for the year ended December 31, 2006 under the captions *“Item 6.  Management’s Discussionand Analysis — Contractual Obligations”*and*“Item 10.  Executive Compensation.”*  We expect to recognize less equity-basedcompensation expense in the future due to the accelerated vesting in 2006 ofmost of the issued and outstanding stock options held by our employees.  However, we intend to retain additionalexecutive management personnel and other employees in connection with theanticipated growth of our business.  As aresult, we expect employee compensation expense to decrease minimally over thenext 12 months.

*Professional Fees*.  Professional fees consist of fees paid to ourindependent accountants, lawyers and other professionals.  Professional fees decreased $76,169 to$114,612 for the three-month period ended June 30, 2007 from $190,781 for thethree-month period ended June 30, 2006. The decrease of $76,169 was due primarily to a decrease of $34,945 inthe amount of expense recognized in connection with equity-based compensationpreviously paid to service providers and consultants for various services and$42,136 in fees paid to our independent accountants and lawyers.  We expect professional fees to decrease overthe next 12 months as we recognize less stock compensation expense associatedwith the equity-based compensation previously paid to our consultants andservice providers.  We expect this to bepartially offset by increases in accounting and legal fees that we will incurin connection with the general expansion of our business and operations.

*Other General and AdministrativeExpenses*.  Othergeneral and administrative expenses consist of costs for supplies, computerhardware and system costs, filing fees and dues, non-employee customer servicerepresentative expense, rent expense, health insurance costs, financial printercosts, transfer agent costs, the costs of investor relations campaigns andactivities, general business expenses, severance expense and miscellaneousgeneral and administrative expenses that are not associated with our sellingand marketing activities.  Other generaland administrative expenses increased $58,620 to $269,290 for the three-monthperiod ended June 30, 2007 from $210,670 for the three-month period ended June30, 2006.  The increase of $58,620resulted primarily from increases of $34,868 for bank service chargesassociated with new and recurring member transactions, $39,225 for officesupplies, and $20,522 for postage and delivery expenses, as well as increasesin other miscellaneous general and administrative expenses.  These increases were partially offset bydecreases of $40,256 for temporary employees services and $33,150 for traveland entertainment expenses.  We expectother general and administrative expenses to increase over the next 12 monthsas we continue to incur expenses for 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 of and growth in our business.

Net Loss

Our net loss decreased $1,204,937 to $389,116 for the three-monthperiod ended June 30, 2007, from $1,594,053 for the three-month period endedJune 30, 2006.  The decrease of $1,204,937was primarily the result of an increase of $862,173 in revenue and decreases of$802,045 for selling and marketing expense and $76,169 for professional fees,partially offset by increases of $404,101 for direct costs incurred inconnection with the sale of our membership programs, $58,620 for other generaland administrative expenses and $54,026 for employee

18

----

compensation expense. We expect to begin generating a net profit from operations in the secondhalf of 2007 as the recurring membership fees from our increasing membershipbase overtake the costs associated with obtaining new members.

**Comparison of the Six-Month Periods Ended June 30,2007****and June 30, 2006**

Revenue

Revenue increased$1,582,277 to $2,223,705 for the six-month period ended June 30, 2007 from$641,428 for the corresponding period in 2006. The increase of $1,582,277 resulted from increased sales of ourCARExpress membership programs to new members and increased revenue generatedfrom our existing members.  Approximately80% of the revenue that we generated during the six-month period ended June 30,2007 was derived from sales of our CARExpress membership programs to first-timemembers, compared to approximately 95% during the corresponding period in2006.  The remainder of the revenue thatwe generated during these periods was derived from existing members.

Direct Costs

Direct costs increased $823,097to $1,224,956 for the six-month period ended June 30, 2007, from $401,859 forthe corresponding period in 2006.  Theincrease of $823,097 was due to an increase of $661,589 for sales commissionsand $161,728 for PPO and provider network costs.

Selling and Marketing Expenses

Selling and marketingexpenses decreased $832,444 to $111,250 for the six-month period ended June 30,2007, from $943,694 for the corresponding period in 2006.  The decrease of $832,444 was due primarily toa decrease of $741,602 for radio and television marketing programs and othermarketing campaigns and activities, and $101,776 for sales salaries and equitycompensation, partially offset by decreases in other selling and marketingexpenses.

General and Administrative Expenses

*Employee Compensation Expense*.  Employee compensation expense decreased $141,423to $1,040,339 for the six-month period ended June 30, 2007 from $1,181,762 forthe corresponding period in 2006.  Thedecrease of $141,423 was due to primarily to an decrease of $556,735 of stockoption expense resulting primarily from our decision in December 2006 toaccelerate the vesting of certain stock options previously issued to ourexecutive officers and employees and the acceleration of the vesting of thestock option previously granted to Roger H. Folts, our former Chief FinancialOfficer, upon the termination of his employment in February 2006, partiallyoffset by an increase of $289,960 in salary and payroll tax expense associatedprimarily with an increase in the number of people employed by us and annualincreases in the salaries payable to our executive officers under theirrespective employment agreements, and an increase of $125,181 in expenseassociated with restricted stock awards granted to our executive officers in2006 and the acceleration of the vesting of the restricted stock awardpreviously granted to David A. Taylor upon the termination of his employment inMarch 2007.

19

----

*Professional Fees*.  Professional fees decreased $9,361 to$298,775 for the six-month period ended June 30, 2007 from $308,136 for thecorresponding period in 2006.  Thedecrease of $9,361 was due primarily to a decrease of $38,694 in cash andequity-based compensation previously paid to services providers and consultantsfor various services, partially offset by an increase of $22,515 in fees paidto our independent accountants and lawyers.

*Other General and AdministrativeExpenses*.  Othergeneral and administrative expenses increased $186,364 to $591,656 for thesix-month period ended June 30, 2007 from $405,292 for the corresponding periodin 2006.  The increase of $186,364resulted primarily from increases of $86,726 in bank service charges associatedwith new and recurring member transactions, $81,670 for office supplies,$42,875 for postage and delivery expenses and $28,967 for state corporatefiling fees.  These increases werepartially offset by decreases of $50,106 for financial printing costs, $41,587for travel and entertainment costs associated with business development and$37,838 for temporary employee services.

Gain on the Extinguishment of Debt

Gain on theextinguishment of debt consists of the gain that we recognized in connectionwith our termination of the lease for our office space in Sarasota, Floridaupon the issuance of common stock to Centerpointe Property, LLC on April 1,2006 in full payment of all rent and other expenses that were due and payableunder the lease and a mutual release from any and all claims arising out of thelease.  We recognized a gain on theextinguishment of debt of $35,932 during the six months ended June 30, 2006 inconnection with the issuance of these shares. We did not recognize any gain or loss on the extinguishment during thesix months ended June 30, 2007.  We donot expect to incur any similar gains on the extinguishment of debt in theforeseeable future.

Net Loss

Our net loss decreased $1,489,671 to $1,028,852 during the six-monthperiod ended June 30, 2007, from $2,518,523 during the corresponding period in2006.  The decrease of $1,489,671 wasprimarily the result of an increase of $1,582,277 in revenue and decreases of$832,444 for selling and marketing expenses and $141,423 for employeecompensation expense, partially offset by increases of $823,097 for directcosts incurred in connection with the sale of our membership programs and$186,364 for other general and administrative expenses.

**Liquidity and Capital Resources**

Sinceour inception, we have funded our operations primarily through private sales ofequity securities and the use of short-term debt.  As of June 30, 2007, we had cash and cashequivalents of approximately $497,540 and working capital of approximately$964,101.

Netcash used by operating activities was $1,099,429 for the six-month period endedJune 30, 2007 compared to $1,677,862 for the six-month period ended June 30,2006.  The $578,433 decrease in cash usedby operating activities was due primarily to a decrease of $1,489,671 in netloss and an increase of $185,428 in stock compensation expense.  These changes were partially offset by adecrease of $566,735 in stock option expense, differences of $228,537 indeferred 

20

----

revenue and$62,674 in accounts payable and accrued expenses, and increases of $92,173 indeposits and $175,000 in accounts receivable.

We didnot have any cash flows from investing activities for the six-month periodended June 30, 2007.  Net cash used byinvesting activities was $7,975 for the six-month period ended June 30, 2006.  The $7,975 difference in cash flows frominvesting activities was due to our disposal of $35,717 in certificates ofdeposit in 2006, partially offset by our purchase of $43,692 in property andequipment in 2006.

We didnot have any cash flows from financing activities for the six-month periodended June 30, 2007.  Net cash providedby financing activities was $2,584,098 for the six-month period ended June 30,2006.  The $2,584,098 difference in cashflows from financing activities was due to decreases of $1,484,938 in proceedsreceived upon the exercise of outstanding warrants, $127,160 in proceeds fromthe sale of common stock, and $1,140,000 in proceeds from stock subscriptions,partially offset by a decrease of $168,000 in payments on notes payable.

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

In August 2006, wecompleted a private offering of 1,705,000 shares of common stock, Class Awarrants exercisable into 1,705,000 shares of our common stock and Class Bwarrants exercisable into 1,705,000 shares of our common stock for aggregatecash consideration of $1,364,000.  Thesesecurities were sold in units comprised of one share of common stock, one ClassA warrant and one Class B warrant.  Theunits were sold at a purchase price of $0.80 per unit.  The Class A warrants were initiallyexercisable into one share of our common Stock at an exercise price of $0.80per share until August 31, 2006, and expired at the end of the exercise period.  The Class B warrants were initially exercisableinto one share of our common stock at an exercise price of $1.00 per share,were exercisable until November 30, 2006, and expired at the end of theexercise period.

In September 2006, wecompleted a private offering of 710,000 shares of common stock, Class Awarrants exercisable into 710,000 shares of our common stock and Class Bwarrants exercisable into 710,000 shares of our common stock for aggregate cashconsideration of $355,000.  Thesesecurities were sold in units comprised of one share of common stock, one ClassA warrant and one Class B warrant.  Theunits were sold at a purchase price of $0.50 per unit.  The Class A warrants were initiallyexercisable into one share of our common stock at an exercise price of $0.50per share until October 16, 2006, and expired at the end of the exerciseperiod.  The Class B warrants areinitially exercisable into one share of our common stock at an exercise priceof $0.50 per share, are exercisable until August 31, 2007, and expire at theend of the exercise period.

In October 2006, we completed a private offering of510,000 shares of common stock, Class A warrants exercisable into 510,000shares of our common stock, Class B warrants exercisable into 510,000 shares ofour common stock, Class C warrants exercisable into 510,000 shares of ourcommon stock, and Class D warrants exercisable into 510,000 shares of ourcommon stock for aggregate cash consideration of $255,000.  These securities were sold in units comprisedof one share of common stock, one Class A warrant, one Class B warrant, oneClass C warrant and one Class D warrant. The units were sold at a purchase price of $0.50 per unit.  The Class A warrants were initially exercisableinto one share of our common Stock at an exercise 

21

----

priceof $0.50 per share, were exercisable until October 16, 2006, and expired at theend of the exercise period.  The Class Bwarrants were initially exercisable into one share of our common stock at anexercise price of $0.50 per share, were exercisable until November 30, 2006 andexpired at the end of the exercise period. The Class C warrants are initially exercisable into one share of ourcommon stock at an exercise price of $0.50 per share, are exercisable untilAugust 31, 2007, and expire at the end of the exercise period.  The Class D warrants are initiallyexercisable into one share of our common stock at an exercise price of $0.80per share, are exercisable until November 30, 2007, and expire at the end ofthe exercise period.

On August 3, 2007, wesold 1,200,000 shares of common stock, one Class A warrant exercisable into1,000,000 shares of common stock and one Class B warrant exercisable into1,000,000 shares of common stock to an accredited investor for aggregate grossproceeds of $540,000.  We grantedregistration rights covering the public resale of all of the shares of commonstock and all of the shares issuable upon the exercise of the warrants.  All Class A warrants have an exercise priceof $0.60 per share, are exercisable for a period of 30 days commencing on thedate the registration statement is declared effective by the SEC, and expire atthe end of the exercise period.  AllClass B warrants have an exercise price of $.80 per share, are exercisable untilDecember 31, 2008, are callable by us if certain criteria are satisfied, andexpire at the end of the exercise period.

During the period beginning January 1, 2006 and endingAugust 13, 2007, we issued 6,855,397 shares of common stock upon the exercise ofwarrants at exercise prices ranging between $0.50 and $2.00 per share foraggregate gross cash proceeds of $4,634,413.

To date, ourcapital needs have been met principally through internally generated cash flowsfrom operating activities, proceeds received upon the exercise of outstandingwarrants by our security holders, and sales of our equity and debtsecurities.  We do not currently maintaina line of credit or term loan with any commercial bank or other financialinstitution.  We have used the internallygenerated cash flows from operating activities, proceeds from the exercise ofwarrants and proceeds from our private offerings of securities to pay virtuallyall of the costs and expenses we have incurred. These costs and expenses were comprised of operating expenses, whichconsisted of the employee compensation expenses, professional fees and othergeneral and administrative expenses discussed above.

We recently entered into an agreement with a newmerchant processor through which we can process credit card transactions formembers who wish to pay our membership fees via credit cards.  We discontinued processing credit cardtransactions through our former merchant processor on June 1st.  During the interim period, we continuedproviding our services to all of our new and existing members.  Accordingly, we recorded accounts receivablefor the membership fees we expect to collect for the unpaid servicesrendered.  We expect to recognize asubstantial portion of these fees as revenue during our third fiscal quarter.

We believe that our current cash resources will not besufficient to sustain our current operations for the next 12 months.  While we expect to have sufficient cash onhand in the immediate future when we begin processing credit card transactionsthrough a new merchant processor, we may need to obtain additional cashresources during the next 12 months to enable us to pay our ongoing costs andexpenses as they are incurred and finance the growth of our business.  In the event such funds are needed, we mayengage in additional sales of debt or 

22

----

equity securities.  The sale of additional equity or convertibledebt securities would result in additional dilution to our shareholders.  The issuance of additional debt would resultin increased expenses and could subject us to covenants that may have theeffect of restricting our operations.  Wehave not made arrangements to obtain additional financing and we can provide noassurance that additional financing will be available in an amount or on termsacceptable to us, if at all.  If we areunable to obtain additional funds when they are needed or if such funds cannotbe obtained on terms favorable to us, we may be unable to execute upon ourbusiness plan or pay our costs and expenses as they are incurred, which couldhave a material, adverse effect on our business, financial condition andresults of operations.

**Off-Balance Sheet Arrangements**

As of June 30, 2007, wedid not have any relationships with unconsolidated entities or financialpartners, such as entities often referred to as structured finance or specialpurpose entities, that had been established for the purpose of facilitatingoff-balance sheet arrangements or other contractually narrow or limitedpurposes.  As such, we are not materiallyexposed to any financing, liquidity, market or credit risk that could arise ifwe had engaged in such relationships.

**Item 3.  Controls and Procedures.**

As of June 30, 2007, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2007, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

23

----

**PART II**

**OTHERINFORMATION**

**Item6.  Exhibits.**

The following exhibitsare included herein: 
| Exhibit No. | ** ** | **Exhibit**                                                                                                                                                            |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                             |
| 31.1        |       | Certification of Chief Executive Officer of the  Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934,  as amended                             |
|        |       |                                                                                                                                                                   |
| 31.2        |       | Certification of Chief Financial Officer of the  Company 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 Company required by Rule 13a-14(b) under the  Securities Exchange Act of 1934, as amended |

 

24

----

**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.
|                       | NATIONAL HEALTH PARTNERS, INC. |
|-----------------------|--------------------------------|
|                  |                           |
|                  |                           |
|                  |                           |
| Date: August 14, 2007 | /s/ David M.  Daniels          |   |
|                  | David M. Daniels               |
|                  | Chief Executive Officer        |

 

----

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

 

----