Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

 

| **(Mark One)**                                                    |
|-------------------------------------------------------------------|
| ** **                                                        | ** ** |
| **x**                                                             | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                        | ** ** |
| **For the quarterly period ended:  September 30, 2008** |
| ** **                                                        | ** ** |
| ** **                                                        | **or** |
| ** **                                                        | ** ** |
| **o**                                                             | **TRANSITION  REPORT PURSUANT TO 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 registrant asspecified in its charter)

 

| **Indiana**                                                     | ** ** | **04-3786176**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or other jurisdiction of

incorporation or organization) |       | (IRS Employer

Identification No.) |

 

**120Gibraltar Road**

**Suite 107**

**Horsham, PA  19044**

(Address of Principal ExecutiveOffices)

 

**(215) 682-7114**

(Issuer’s Telephone Number,including Area Code)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities 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

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated 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 (Do  not check if a smaller reporting company) o |   | Smaller reporting company x |

 

Indicate by check mark whether the registrantis a shell company (as defined in rule 12b-2 of the Exchange Act).

 

Yes  o   No  x

 

**APPLICABLE ONLY TO ISSUERS INVOLVED IN**

**BANKRUPTCY PROCEEDINGS DURING THE**

**PRECEDING FIVE YEARS**

 

Indicate by check mark whether the registranthas filed all documents and reports required to be filed by Sections 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court.

 

Yes  o   No  o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date:  There were 50,679,356 shares of the issuer’scommon stock, $.001 par value per share, issued and outstanding on November 10,2008.

 

 

 

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**TABLE OF CONTENTS**

 
| ** ** | ** **                                                                                                              | **Page**   |
|------------|-------------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** **                                                                                                              | ** ** |
|       | **PART I – FINANCIAL INFORMATION**                                                                            |       |
|       | ** **                                                                                                              |       |
| Item 1.    | Financial Statements                                                                                                    | 1          |
|       | Consolidated Balance Sheets at September 30, 2008 (Unaudited)  and December 31, 2007                          | 1          |
|       | Consolidated Statements of Operations for  the Three and Nine Months Ended September 30, 2008 and 2007 (Unaudited) | 2          |
|       | Consolidated  Statements of Cash Flows for the Nine Months Ended September 30, 2008  and 2007 (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                                                                                                 | 26         |
|       |                                                                                                                    |       |
|       | **PART II – OTHER INFORMATION**                                                                               |       |
|       | ** **                                                                                                              |       |
| Item 2.    | Unregistered Sales of Equity Securities and  Use of Proceeds                                                            | 27         |
| Item 6.    | Exhibits                                                                                                                | 27         |

 

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**PART I – FINANCIAL INFORMATION**

 

**Item1.  Financial Statements.**

** **

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

ConsolidatedBalance Sheets

 
| ** **                                                                                                                                                                                   | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                                                   | ** ** | **(unaudited)**        | ** ** | ** **            | ** ** |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| **Assets**                                                                                                                                                                                   |       |                   |       |                  |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Current assets:                                                                                                                                                                              |       |                   |       |                  |       |
| Cash                                                                                                                                                                                         |       | $                      | 532,545    |                  | $          | 32,206 |   |
| Accounts receivable, net                                                                                                                                                                     |       | —                 |       | 21,257                |       |
| Prepaid expense                                                                                                                                                                              |       | 331,756                |       | 182,228               |       |
| Deposits                                                                                                                                                                                     |       | 103,161                |       | 276,389               |       |
| Other current assets                                                                                                                                                                         |       | 11,087                 |       | 4,500                 |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Total current assets                                                                                                                                                                         |       | 978,549                |       | 516,580               |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Property and equipment, net                                                                                                                                                                  |       | 41,270                 |       | 69,550                |       |
| Prepaid expense                                                                                                                                                                              |       | 908,773                |       | 117,702               |       |
| Deposits                                                                                                                                                                                     |       | 19,000                 |       | 19,000                |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Total assets                                                                                                                                                                                 |       | $                      | 1,947,592  |                  | $          | 722,832 |   |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| **Liabilities and stockholders’ equity**                                                                                                                                                |       |                   |       |                  |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Current liabilities                                                                                                                                                                          |       |                   |       |                  |       |
| Accounts payable                                                                                                                                                                             |       | $                      | 63,109     |                  | $          | 262,355 |   |
| Refunds payable                                                                                                                                                                              |       | 8,036                  |       | —                |       |
| Accrued expenses                                                                                                                                                                             |       | 6,384                  |       | 39,984                |       |
| Deferred revenue                                                                                                                                                                             |       | 84,895                 |       | 17,338                |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Total current liabilities                                                                                                                                                                    |       | 162,424                |       | 319,677               |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Total liabilities                                                                                                                                                                            |       | 162,424                |       | 319,677               |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Commitments and contingencies                                                                                                                                                                |       |                   |       |                  |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Stockholders’ equity:                                                                                                                                                                   |       |                   |       |                  |       |
| Common stock, $0.001 par value, 100,000,000  shares authorized, 50,679,356 and 39,419,856 shares issued and outstanding on September 30, 2008 and  December 31, 2007, respectively |       | 50,679                 |       | 39,420                |       |
| Additional paid-in capital                                                                                                                                                                   |       | 25,239,374             |       | 22,174,891            |       |
| Deferred compensation                                                                                                                                                                        |       | (256,761               | )          | (410,524              | )          |
| Accumulated deficit                                                                                                                                                                          |       | (23,248,124            | )          | (21,400,632           | )          |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Total stockholders’ equity                                                                                                                                                              |       | 1,785,168              |       | 403,155               |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                              |       | $                      | 1,947,592  |                  | $          | 722,832 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

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**NationalHealth Partners, Inc. and Subsidiaries**

ConsolidatedStatements of Operations (Unaudited)

 
| ** **                                                             | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                             | ** ** | **September 30,**                             | ** ** | **September 30,**                            | ** ** |
| ** **                                                             | ** ** | **2008**                                           | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Net revenue                                                            |       | $                                                  | 528,301    |                                              | $          | 1,026,477 |   | $ | 2,232,494 |   | $ | 3,250,182 |   |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Direct costs                                                           |       | 170,881                                            |       | 812,647                                           |       | 872,290 |   | 2,037,603 |   |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Gross profit                                                           |       | 357,420                                            |       | 213,830                                           |       | 1,360,204 |   | 1,212,579 |   |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Operating expenses:                                                    |       |                                               |       |                                              |       |   |   |   |   |
| Selling and marketing                                                  |       | 47,203                                             |       | 59,627                                            |       | 182,178 |   | 170,877 |   |
| General and administrative                                             |       | 920,910                                            |       | 1,138,569                                         |       | 2,996,479 |   | 3,069,339 |   |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Total operating expenses                                               |       | 968,113                                            |       | 1,198,196                                         |       | 3,178,657 |   | 3,240,216 |   |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Loss from operations                                                   |       | (610,693                                           | )          | (984,366                                          | )          | (1,818,453 | ) | (2,027,637 | ) |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Other income (expense):                                                |       |                                               |       |                                              |       |   |   |   |   |
| Interest income                                                        |       | 918                                                |       | 949                                               |       | 961 |   | 15,368 |   |
| Loss on extinguishment of debt                                         |       | —                                             |       | —                                            |       | (30,000 | ) | — |   |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Total other income (expense)                                           |       | 918                                                |       | 949                                               |       | (29,039 | ) | 15,368 |   |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Net loss                                                               |       | $                                                  | (609,775   | )                                                 | $          | (983,417 | ) | $ | (1,847,492 | ) | $ | (2,012,269 | ) |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Loss per share — basic and diluted                                |       | $                                                  | (0.01      | )                                                 | $          | (0.03 | ) | $ | (0.04 | ) | $ | (0.06 | ) |
|                                                                   |       |                                               |       |                                              |       |   |   |   |   |
| Weighted average number of shares outstanding — basic and diluted |       | 50,188,595                                         |       | 33,657,367                                        |       | 45,597,184 |   | 31,155,082 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

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

ConsolidatedStatements of Cash Flows (Unaudited)

 
| ** **                                                                    | ** ** | **For the Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                    | ** ** | **September 30,**                            | ** ** |
| ** **                                                                    | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                                                                          |       |                                              |       |   |   |
| **Cash flows from operating activities**                                      |       |                                              |       |   |   |
|                                                                          |       |                                              |       |   |   |
| Net loss                                                                      |       | $                                                 | (1,847,492 | ) | $ | (2,012,269 | ) |
| Adjustments to reconcile net loss to net  cash used  by operating activities: |       |                                              |       |   |   |
| Common stock issued for services and amortization of prepaid services         |       | 568,187                                           |       | 502,701 |   |
| Options issued for services                                                   |       | 205,664                                           |       | 43,087 |   |
| Depreciation                                                                  |       | 28,280                                            |       | 57,079 |   |
| Loss on extinguishment of debt                                                |       | 30,000                                            |       | — |   |
| Changes in operating assets and  liabilities:                                 |       |                                              |       |   |   |
| Decrease (increase) in accounts receivable                                    |       | 21,257                                            |       | (9,662 | ) |
| Decrease (increase) in deposits                                               |       | 173,228                                           |       | (231,857 | ) |
| Decrease in other current assets                                              |       | (6,587                                            | )          | (5,000 | ) |
| (Decrease) increase in accounts payable and accrued expenses                  |       | (232,846                                          | )          | 165,022 |   |
| Increase in refunds payable                                                   |       | 8,036                                             |       | — |   |
| Decrease (increase) in deferred revenue                                       |       | 67,557                                            |       | (154,720 | ) |
|                                                                          |       |                                              |       |   |   |
| Net cash used by operating activities                                         |       | (984,716                                          | )          | (1,645,619 | ) |
|                                                                          |       |                                              |       |   |   |
| **Cash flows from investing activities**                                      |       |                                              |       |   |   |
|                                                                          |       |                                              |       |   |   |
| Increase in assets held for resale                                            |       | —                                            |       | (55,000 | ) |
|                                                                          |       |                                              |       |   |   |
| Net cash used by investing activities                                         |       | —                                            |       | (55,000 | ) |
|                                                                          |       |                                              |       |   |   |
| **Cash flows from financing activities**                                      |       |                                              |       |   |   |
|                                                                          |       |                                              |       |   |   |
| Proceeds from sale of stocks and warrants                                     |       | 933,340                                           |       | 540,000 |   |
| Stock offering costs                                                          |       | (75,700                                           | )          | (64,800 | ) |
| Proceeds from exercise of warrants                                            |       | 597,415                                           |       | 70,000 |   |
| Proceeds from issuance of note payable                                        |       | 50,000                                            |       | — |   |
| Payments on note payable                                                      |       | (20,000                                           | )          | — |   |
|                                                                          |       |                                              |       |   |   |
| Net cash provided by financing activities                                     |       | 1,485,055                                         |       | 545,200 |   |
|                                                                          |       |                                              |       |   |   |
| Net increase (decrease) in cash                                               |       | 500,339                                           |       | (1,155,419 | ) |
| Cash at beginning of period                                                   |       | 32,206                                            |       | 1,596,969 |   |
|                                                                          |       |                                              |       |   |   |
| Cash at end of period                                                         |       | $                                                 | 532,545    |   | $ | 441,550 |   |
|                                                                          |       |                                              |       |   |   |
| **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  |   | $ | 490,300 |   |
| Stock options issued for services                                             |       | $                                                 | 358,960    |   | $ | 596,760 |   |
| Common stock issued for extinguishment of  debt                               |       | $                                                 | 60,000     |   | $ | — |   |
| Common stock issued for stock offering  costs                                 |       | $                                                 | 83,700     |   | $ | 27,000 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

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**National Health Partners, Inc. andSubsidiaries**

Notes to Consolidated Financial Statements

September 30, 2008

 

**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 State ofIndiana.  The Company changed its name to“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. andSubsidiaries**

Notes to Consolidated Financial Statements

September 30, 2008

 

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

 

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

 

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

 

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

 

Asof September 30, 2008, the Company’s significant accounting policies andestimates, which are detailed in the Company’s Annual Report on Form 10-KSBfor the year ended December 31, 2007 as updated in the Company’s QuarterlyReport on Form 10-Q for the quarter ended June 30, 2008, have notchanged materially.

 

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**National Health Partners, Inc. andSubsidiaries**

Notes to Consolidated Financial Statements

September 30, 2008

 

**Note 3.  Stock CompensationExpense**

 

TheCompany records employee stock-based compensation using the fair valuerecognition provisions of Statement of Financial Accounting Standards No. 123(revised 2004), *“Share-Based Payment,”* using themodified prospective transition method, and records non-employee stock-basedcompensation expense in accordance with Statement of Financial AccountingStandards No. 123, *“Accounting ForStock-Based Compensation”*and Emerging Issues Task Force No. 96-18*“Accounting for Equity Instruments That Are Issuedto Other Than Employees for Acquiring or in Conjunction with Selling Goods orServices”* (“EITF 96-18”).  Inaccordance therewith, the Company recognized stock compensation expense of$204,140 and $127,113 for the three months ended September 30, 2008 and2007, respectively, and $568,187 and $545,788 for the nine months ended September 30,2008 and 2007, respectively.

 

**Note 4.** **Loss Per Share**

 

Basicloss per share is based on the weighted average number of shares of the Company’scommon stock outstanding during the applicable period, and is calculated bydividing the reported net loss for the applicable period by the weightedaverage number of shares of common stock outstanding during the 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.  An aggregate of 23,140,342 and 16,190,809shares of common stock underlying options and warrants that were outstanding onSeptember 30, 2008 and 2007, respectively, have been excluded from thecomputation of diluted earnings per share because they are anti-dilutive.  As a result, basic loss per share was equalto diluted loss per share for each period.

 
| ** **                                                              | ** ** | **For the Three Months  Ended September 30,** | ** ** | **For the Nine Months  Ended September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                                               | ** ** | **2007**                                                              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                    |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Net loss as reported                                                    |       | $                                                                      | (609,775   | )                                                                     | $          | (983,417 | ) | $ | (1,847,492 | ) | $ | (2,012,269 | ) |
|                                                                    |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Weighted average number of shares  outstanding – basic and diluted |       | 50,188,595                                                             |       | 33,657,367                                                            |       | 45,597,184 |   | 31,155,082 |   |
| Loss per share – basic and diluted                                 |       | $                                                                      | (0.01      | )                                                                     | $          | (0.03 | ) | $ | (0.04 | ) | $ | (0.06 | ) |

 

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**National Health Partners, Inc. andSubsidiaries**

Notes to Consolidated Financial Statements

September 30, 2008

 

**Note 5.  Property and Equipment**

 

Property and equipment consisted of the following at September 30,2008:

 
| **Asset**                      | ** ** | **Amount** | ** ** |
|--------------------------------|------------|------------|------------|
|                           |       |       |       |
| Computers                      |       | $          | 60,708     |   |
| Software                       |       | 6,109      |       |
| Furniture                      |       | 27,968     |       |
| Telephone                      |       | 80,780     |       |
| Website                        |       | 106,477    |       |
| Less: accumulated depreciation |       | (240,772   | )          |
|                           |       |       |       |
| Net property and equipment     |       | $          | 41,270     |   |

 

Depreciationexpense was $8,047 and $18,546 for the three months ended September 30,2008 and 2007, respectively, and $28,280 and $57,079 for the nine months ended September 30,2008 and 2007, respectively.

 

**Note 6.   Deposits**

 

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

# ** **

As of September 30,2008, the Company had a total of $122,161 in deposits.  Of this amount, $75,000 was being held byPowerPay Payment Systems, Inc., $27,459 was being held by PayTran PaymentSystems, $19,000 was being held by the lessor of the Company’s office space andthe remainder was being held by other entities.

 

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** **

**National Health Partners, Inc. andSubsidiaries**

Notes to Consolidated Financial Statements

September 30, 2008

** **

**Note 7.  Commitments andContingencies**

 

The Company’s material commitments andcontingencies consist of an operating lease for its office space inPennsylvania and employment agreements with 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 thisfacility lease are as follows:

 
| **Fiscal Year** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2008                 |       | $          | 43,440     |   |
| 2009                 |       | 166,672    |       |
| 2010                 |       | 70,060     |       |
|                 |       |       |       |
|                 |       | $          | 280,172    |   |

 

**EmploymentAgreements**

 

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

 
| **Fiscal Year** | ** ** | **Amount** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2008                 |       | $          | 277,563    |   |
| 2009                 |       | 748,107    |       |
| 2010                 |       | 56,315     |       |
|                 |       |       |       |
|                 |       | $          | 1,081,985  |   |

 

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

Notes to Consolidated Financial Statements

September 30, 2008

 

**Note 8.  2006 Stock Incentive Plan**

 

OnFebruary 2, 2006, the Company adopted the National Health Partners, Inc.2006 Stock Incentive Plan.  Under theplan, 4,500,000 shares of common stock may be granted to employees, officersand directors of, and consultants and advisors to, the Company under awardsthat may be made in the form of stock options, warrants, stock appreciationrights, restricted stock, restricted units, unrestricted stock and otherequity-based or equity-related awards. As of September 30, 2008, 393,425 shares of common stock wereavailable for issuance 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 SECcovering the public sale of the 4,500,000 shares of common stock available forissuance under the plan.

 

**Note 9.  2008 Stock Incentive Plan**

 

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

 

**Note 10.  401(k) Plan**

 

On January 15, 2007, the Company adoptedthe National Health Partners, Inc. 401(k) Plan. Under the plan, eligibleemployees may elect to contribute up to 100% of their compensation to the plan eachyear, subject to certain IRS limitations.  The Company contributes 100% of the first 3%of the employee’s contribution and 50% of the next 2% of the employee’scontribution. The Company contributed $11,077 and $6,723 to the plan during thethree months ended September 30, 2008 and 2007, respectively, and $26,600and $18,161 to the plan during the nine months ended September 30, 2008and 2007, respectively.

 

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

Notesto Consolidated Financial Statements

September 30, 2008

 

**Note 11.  Common Stock and Warrants**

 

TheCompany’s authorized capital consisted of 100,000,000 shares of common stock,$0.001 par value per share, at September 30, 2008 and 2007, respectively,of which 50,679,356 and 34,849,106 shares of common stock wereoutstanding at September 30, 2008 and 2007, respectively.  Warrants exercisable into an aggregate of 14,220,342and 8,855,809 shares of the Company’s common stock were outstanding on September 30,2008 and 2007, respectively.

 

TheCompany estimates the fair value of warrants issued for services on the date ofgrant by using the Black-Scholes pricing model. Under this model, the Company used the following weighted-averageassumptions to determine the fair value of the warrants that have been issuedfor services: a dividend yield of zero percent, an expected volatility of 282%,a risk-free interest rate of 3.5% and a remaining contractual term of twoyears.  The Company follows EITF 96-18 torecognize the 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.

 

**Non Capital-Raising Transactions**

 

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

 

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

 

In April 2008,the Company issued an aggregate of 2,700,000 shares of common stock toconsultants for marketing and advisory services pursuant to individualconsulting agreements.  The shares were valuedat the closing price of the Company’s common stock on the date the agreementswere executed for total consideration of $1,246,900.  The Company recognized $108,118 and $157,689 ofexpense during the three and nine months ended September 30, 2008,respectively, in connection with the issuance of these shares.

 

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

Notesto Consolidated Financial Statements

September 30, 2008

 

**Note11.  Common Stock and Warrants(Continued)**

 

## **Capital-Raising Transactions**

##  

In February 2008, the Company completeda private offering of Class A warrants exercisable into 1,000,000 sharesof common stock for aggregate gross proceeds of $100.  The Class A warrants had an exerciseprice of $0.12 per share, were exercisable until February 29, 2008, andexpired at the end of the exercise period.

 

In February 2008, the Company sold one Class Awarrant exercisable into 500,000 shares of common stock, one Class Bwarrant exercisable into 1,000,000 shares of common stock and one Class Cwarrant exercisable into 1,000,000 shares of common stock to an accreditedinvestor for aggregate gross proceeds of $100. The Class A warrant had an exercise price of $0.20 per share, wasexercisable until February 29, 2008, and expired at the end of theexercise period.  The Class Bwarrant had an exercise price of $0.30 per share, was exercisable until June 30,2008, was callable by the Company if certain criteria were satisfied, andexpired at the end of the exercise period. The Class C warrant has an exercise price of $0.40 per share, isexercisable until December 31, 2008, is callable by the Company if certaincriteria are satisfied, and expires at the end of the exercise period.

 

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

 

In April 2008, the Company completed aprivate offering of 500,000 shares of common stock and Class A warrantsexercisable into 500,000 shares of common stock for aggregate gross proceeds of$75,000.  The Company paid finder feesconsisting of 75,000 shares of common stock and a Class A warrantexercisable into 75,000 shares of common stock in connection with thisoffering.  The Class A warrants hadan exercise price of $0.12 per share, were exercisable until April 18,2008, and expired at the end of the exercise period.

 

In June 2008, the Company completed aprivate offering of 675,000 shares of common stock, Class A warrantsexercisable into 675,000 shares of common stock and Class B warrantsexercisable into 675,000 shares of common stock for aggregate cashconsideration of $108,000.  Thesesecurities were sold in units comprised of one share of common stock, one Class Awarrant and one Class B warrant at a purchase price of $0.16 perunit.  The Company paid finder feesconsisting of 101,250 units identical to the units sold in the offering.  The Company agreed to provide each investorwith an opportunity to include all shares of common stock and all shares ofcommon stock issued upon the exercise of the warrants in any registrationstatement that the Company files with the SEC for the purposes of a publicoffering of the Company’s securities (excluding registration statements onForms S-4 or S-8).  The Class Awarrants were initially exercisable into one share of common stock at anexercise price of $0.20 per share, were

 

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

Notesto Consolidated Financial Statements

September 30, 2008

 

**Note 11.  Common Stock and Warrants (Continued)**

 

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

##  

exercisableduring a period of 90 days beginning on the date of grant, and expired at theend of the exercise period.  The Class Bwarrants are initially exercisable into one share of common stock at anexercise price of $0.30 per share, are exercisable during a period beginning onthe date of grant and ending on December 31, 2008, and expire at the endof the exercise period.

 

In July 2008, the Company sold 3,000,000shares of common stock and one Class A warrant exercisable into 3,000,000shares of common stock to an accredited investor for aggregate gross proceedsof $750,000.  The Company paid finderfees consisting of 225,000 shares of common stock and a Class A warrantexercisable into 225,000 shares of common stock and cash consideration of $56,250in connection with this offering.  The Class Awarrants have an exercise price of $0.30 per share, are exercisable for aperiod commencing on the date of grant and ending on December 31, 2009,and expire at the end of the exercise period.

 

In July 2008, the Company completed aprivate offering of Class A warrants exercisable into 1,000,000 shares ofcommon stock for aggregate gross proceeds of $100.  The Class A warrants have an exerciseprice of $0.20 per share, are exercisable until December 31, 2008, andexpire at the end of the exercise period.

 

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

 

**Note 12.  Stock Options**

 

Stockoptions exercisable into an aggregate of 8,920,000 and 7,335,000 shares of theCompany’s common stock were outstanding on September 30, 2008 and 2007,respectively, of which 6,487,500 and 6,230,000 shares were vested, respectively.  No options were exercised during the ninemonths ended September 30, 2008 and 2007, respectively.  The Company estimates thefair value of its stock options on the date of grant by using the Black-Scholespricing model in accordance with the provisions of Statement of FinancialAccounting Standards No. 148, *“Accounting forStock-Based Compensation – Transition and Disclosure.”*  Under the Black-Scholes pricing model, theCompany used the following weighted-average assumptions to determine the fairvalue of the stock options issued: a dividend yield of zero percent, anexpected volatility of between 241% and 282%, a risk-free interest rate of between3.5% and 5% and a remaining contractual life of between 9.15 and 9.95 years.

 

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

Notesto Consolidated Financial Statements

September 30, 2008

 

**Note12.  Stock Options (Continued)**

 

InJanuary 2008, the Company issued a stock option to a new employee toacquire 100,000 shares of common stock. The option has an exercise price of $0.23 per share, which was theclosing sales price of the Company’s common stock on the date of grant, andvests in four equal annual installments beginning on the first anniversary ofthe date of grant.  The option has a termof 10 years and was valued at $22,997 on the date of grant.  The Company recognized $1,432 and $3,935 ofexpense during the three and nine months ended September 30, 2008,respectively, in connection with the issuance of this option.

 

InMarch 2008, the Company issued a stock option to each of David M. Daniels,Alex Soufflas and Patricia S. Bathurst to acquire 400,000 shares of commonstock.  Each option has an exercise priceof $0.28 per share, which was the closing sales price of the Company’s commonstock on the date of grant, and vests in four equal annual installmentsbeginning on the first anniversary of the date of grant.  The options have a term of 10 years and hadan aggregate value of $335,962 on the date of grant.  The Company recognized a total of $20,926 and$62,777 of expense during the three and nine months ended September 30,2008, respectively, in connection with the issuance of these options.

 

**Note 13.  Related-Party Transactions**

 

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

 

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**CAUTIONARY STATEMENT 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 anyvariation thereon or similar terminology or expressions.

 

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

 
| · |   | our ability to fund future  growth and implement our business strategy;                                                                  |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                     |
| · |   | our dependence on a  limited number of preferred provider organizations (“PPOs”) and other  healthcare provider networks;      |
|   |   |                                                                                                                                     |
| · |   | our dependence on a single  insurance company for the insurance benefits offered as part of our  CARExpressTM Plus programs;        |
|   |   |                                                                                                                                     |
| · |   | our dependence upon a  limited number of marketing and distribution partners for substantially all  of our revenue;                      |
|   |   |                                                                                                                                     |
| · |   | our ability to market our  membership programs and develop and expand the market for our membership  programs;                           |
|   |   |                                                                                                                                     |
| · |   | demand for and acceptance  of our membership programs;                                                                                   |
|   |   |                                                                                                                                     |
| · |   | competition in the health  discount membership market;                                                                                   |
|   |   |                                                                                                                                     |
| · |   | our ability to attract and  retain qualified personnel;                                                                                  |
|   |   |                                                                                                                                     |
| · |   | legislative or regulatory  changes in the healthcare industry;                                                                           |
|   |   |                                                                                                                                     |
| · |   | the condition of the  securities and capital markets;                                                                                    |
|   |   |                                                                                                                                     |
| · |   | general economic and  business conditions, either nationally or internationally or in the  jurisdictions in which we are doing business; |

 

and statements of assumptionunderlying any of the foregoing, as well as any other factors set forth hereinand under the caption *“Item 1.  Description of Business – Risks andUncertainties”* of our Annual Report on Form 10-KSB for ourfiscal year ended December 31, 2007. All subsequent written and oral forward-looking statements attributableto us, or persons acting on our behalf, are expressly qualified in theirentirety by the foregoing.  Except asrequired by law, we assume no duty to update or revise our forward-lookingstatements.

 

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**Item2.  Management’s Discussion and Analysisof 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 and other parts of this report contain forward-lookingstatements that involve risks and uncertainties.  All forward-looking statements included inthis report are based on information available to us on the date hereof and,except as required by law, we assume no obligation to update any suchforward-looking statements.  Our actualresults may differ materially from those anticipated in these forward-lookingstatements as a result of a number of factors, including those set forth hereinand under the caption *“Item 1.  Description of Business – Risks andUncertainties”* in our Annual Report on Form 10-KSB for ourfiscal year ended December 31, 2007. The following should be read in conjunction with our consolidatedfinancial statements included above in Item 1 of Part I of this report.

 

**Overview**

 

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 generateincreased sales of our membership programs while expanding our position as aprovider of unique healthcare membership service programs.  The target market for our membership programsis comprised of individuals who have either limited health benefits or nohealth benefits.  Our share of thismarket is currently less than one percent and has been less than one percentsince our inception.  Since we are notcurrently large enough to pursue and support the entire market, we intend tocontinue to pursue specific opportunities that we identify in this marketthrough our various marketing and distribution channels.  Through product design, competitivemembership pricing, and a variety of marketing and distribution partners, weare pursuing opportunities in the healthcare market that insurance companieshave not addressed.

 

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**Operational Metrics**

 

Our revenue consists almost exclusively of recurring monthly membershipfees that we 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.  We do not have similar data available for ourCARExpressTM Plus membership programs as we have sold onlya limited number of these programs since first offering them to the public in2007.

 

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

 

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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** Financial Results and Outlook**

 

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

 

Weexperienced a decrease in revenue for the three- and nine-month periods ended September 30,2008 compared to the corresponding periods in 2007 as a result of the shift inour sales strategy from sales through marketing companies to sales throughemployers and affinity groups.  However,the shift in our sales strategy, coupled with other cost-cutting initiativesthat we implemented over the past few quarters in response to deterioratingeconomic conditions, have resulted in substantially lower direct costs andlower operating expenses.  As a result,our gross profit and gross profit margins for the three- and nine-month periodsended September 30, 2008 were substantially higher than our gross profitand gross profit margins for the corresponding periods in 2007.  Similarly, our net losses and net losses pershare for the three- and nine-month periods ended September 30, 2008 weresubstantially lower than our net losses and net losses per share for thecorresponding periods in 2007.  The shiftin our sales strategy and the implementation of cost-cutting initiatives alsoresulted in a substantial decrease in net cash used by operating activitiesduring the nine-month period ended September 30, 2008 compared to thecorresponding period in 2007.

 

Wegenerated revenue of $528,301 and $2,232,494 for the three- and nine-monthperiods ended September 30, 2008, respectively, compared to revenue of$1,026,477 and $3,250,182 for the three- and nine-month periods ended September 30,2007, respectively.  We achieved a grossprofit of $357,420 and gross profit percentage of 68% for the three-monthperiod ended September 30, 2008, compared to a gross profit of $213,830and gross profit margin of 21% for the three-month period ended September 30,2007.  We generated a gross profit of$1,360,204 and gross profit percentage of 61% for the nine-month period ended September 30,2008, compared to a gross profit of $1,212,579 and gross profit margin of 37%for the nine-month period ended September 30, 2007.  We achieved a net loss of $(609,775), or$(0.01) per share, for the three-month period ended September 30, 2008,compared to a net loss of $(983,417), or $(0.03) per share, for thecorresponding period in 2007.  Weachieved a net loss of $(1,847,492), or $(0.04) per share, for the nine-monthperiod ended September 30, 2008, compared to a net loss of $(2,012,269),or $(0.06) per share, for the corresponding period in 2007.  Net cash used by operating activitiesdecreased to $(196,506) and $(984,716) for the three- and nine-month periodsended September 30, 2008 from $(546,190) and $(1,645,619) for the three- andnine-month periods ended September 30, 2007.

 

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Weexpect to generate future revenue and members primarily through sales of ourCARExpressTM health discount programs and our CARExpressTM Plus membership programs to employees andmembers of affinity groups through our direct sales force, our marketing anddistribution partners, and various marketing and advertising campaigns.  We have entered into agreements with severalaffinity groups through which we are generating sales of our CARExpressTM membership programs and are currently indiscussions with several other organizations regarding the sale of ourCARExpressTM membership programs.  We intend to finance each of these projectsthrough cash on hand, internally generated cash flows from operating activitiesand proceeds from the issuance of debt and equity securities.  We will use any additional investments thatwe receive to accelerate the expansion of each of our advertising campaigns andprograms and increase sales of our membership programs.

 

Weexpect the number of CARExpressTM membersgenerated each month to increase for the foreseeable future.  We also expect our retention rates to improveover the next 12 months as we obtain additional information regarding memberdemographics and target our marketing and advertising campaigns towardsprospective members and member groups that are most suitable for our membershipprograms.  As a result, we expect tobegin generating positive cash flows from operating activities and a net profitfrom operations during 2009 as the recurring membership fees from ourincreasing membership base overtake the costs associated with obtaining the newmembers we are generating.  We canprovide no assurance, however, that our membership base will increase asprojected, that our member retention rates will improve over the next 12 monthsor that we will begin generating positive cash flows from operating activitiesor a net profit from operations during 2009.

 

**CriticalAccounting Policies**

 

Forinformation regarding our critical accounting policies, please refer to thediscussion provided in our Annual Report on Form 10-KSB for our fiscalyear ended December 31, 2007 under the caption *“Item6.  Management’s Discussion and Analysis –Critical Accounting Policies”* and our Notes to ConsolidatedFinancial Statements included therein, as updated by our Notes to ConsolidatedFinancial Statements included in our Quarterly Report on Form 10-Q for ourfiscal quarter ended June 30, 2008.

 

**RecentAccounting Pronouncements**

 

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

 

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

 

Revenue

 

Revenue consists almost exclusively of the monthly membership fees thatwe receive from members of our membership programs.  Revenue decreased $498,176 to $528,301 forthe three months ended September 30, 2008 from $1,026,477 for the threemonths ended September 30, 2007. The decrease of $498,176 resulted primarily from a decrease in sales ofour membership programs through marketing companies in connection with theshift in our sales strategy from sales through marketing companies to salesthrough employers and affinity groups. Approximately 20% of the revenue that we generated during the threemonths ended September 30, 2008 was derived from sales of our membershipprograms to first-time members, compared to approximately 65% during thecorresponding period in 2007.  Theremainder of the revenue that we generated during these periods was derivedfrom existing members.  We expect revenueto increase over the next 12 months as a result of increased sales of ourmembership programs to employees and members of affinity groups through ourdirect sales force, our marketing and distribution partners and our variousmarketing and advertising campaigns.

 

Direct Costs

 

Direct costs consist of sales commissions that we pay to our marketingand distribution partners and fees that we pay to our PPOs and providernetworks for access to their networks. Direct costs decreased $641,766 to $170,881 for the three months ended September 30,2008, from $812,647 for the three months ended September 30, 2007.  The decrease of $641,766 was due to decreasesof $557,901 for sales commissions and $83,865 for PPO and network providercosts resulting from the decrease in sales of our membership programs.  We expect cost of sales to increase over thenext 12 months as increased sales of our membership programs result in higheroverall sales commission expenses and provider networks costs.

 

Selling and Marketing Expenses

 

Selling and marketing expenses consist of advertising expenses,marketing expenses, salaries and other compensation paid to employees sellingand marketing our membership programs, rent expense allocated to our sellingand marketing activities, depreciation and amortization expense allocated toour selling and marketing activities, and all other selling and marketingexpenses incurred by us.  Selling andmarketing expenses decreased $12,424 to $47,203 for the three months ended September 30,2008, from $59,627 for the three months ended September 30, 2007.  The decrease of $12,424 was due primarily todecreases of $31,259 for marketing programs and $8,946 for websiteamortization, partially offset by an increase of $27,922 for salaries and othercompensation paid to employees selling and marketing our membershipprograms.  We expect selling andmarketing expenses to increase during the next 12 months as we grow our directsales force and engage in larger and more frequent marketing and advertisingcampaigns and activities.

 

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General and Administrative Expenses

 

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

 

*Employee Compensation Expense*.  Employee compensation expense consists of allsalaries and other cash compensation, equity-based compensation, 401(k) contributionsand other compensation that we pay to our employees and the related payrolltaxes that are not associated with our selling and marketing activities.  Employee compensation expense increased $51,662to $542,594 for the three months ended September 30, 2008, from $490,932for the three months ended September 30, 2007.  The increase of $51,662 was due primarily toincreases of $13,552 for restricted stock expense and $46,827 for stock optionexpense, partially offset by decreases in other employee compensationexpenses.  We expect employeecompensation expense to increase over the next 12 months as we continue toretain additional executive management personnel and other employees inconnection with the growth of our business.

 

*Professional Fees*.  Professional fees consist of fees paid to ourindependent accountants, lawyers, technology consultants and otherprofessionals and consultants. Professional fees increased $62,898 to $183,608 for the three monthsended September 30, 2008 from $120,710 for the three months ended September 30,2007.  The increase of $62,898 was dueprimarily to an increase of $78,316 for the amount of expense recognized inconnection with equity-based compensation paid to service providers andconsultants for various services, partially offset by a decrease of $15,317 forlegal fees and consulting fees as well as decreases in other professionalfees.  We expect professional fees to increaseover the next 12 months as we incur additional legal, accounting and technologyfees in connection with the general expansion of our business 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 decreased $332,219 to $194,708for the three months ended September 30, 2008 from $526,927 for the threemonths ended September 30, 2007. The decrease of $332,219 resulted primarily from decreases of $184,672for bank service charges associated with new and recurring member transactions,$59,535 for office supplies expense, $32,312 for postage and delivery costs,$30,563 for printing and production costs, $23,198 for business travel andentertainment costs, and $11,446 for computer and web repair and maintenancecosts, partially offset by increases in other miscellaneous general andadministrative expenses.  We expect othergeneral and administrative expenses to increase over the next 12 months as wecontinue to incur expenses for bank service charges, financial printerservices, investor relations campaigns and activities, transfer agent fees,health insurance, rent, non-employee customer service representatives,supplies, computer hardware and systems, and other miscellaneous items associatedwith the general operation and growth of our business.

 

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Net Loss

 

Our net loss decreased $373,642 to $609,775 for thethree months ended September 30, 2008, from $983,417 for the three monthsended September 30, 2007.  Thedecrease of $373,642 was primarily due to decreases of $641,766 for directcosts incurred in connection with the sale of our membership programs and$332,219 for other general and administrative expenses, partially offset by adecrease of $498,176 in revenue and increases of $62,898 for professional feesand $51,662 for employee compensation expense. We expect to begin generating a net profit from operations during 2009as the recurring membership fees from our increasing membership base overtakethe costs associated with obtaining and retaining members.

 

**Comparison of the Nine-Month Periods Ended September 30, 2008****and 2007**

 

Revenue

 

Revenue decreased $1,017,688 to $2,232,494 for the nine months ended September 30,2008 from $3,250,182 for the nine months ended September 30, 2007.  The decrease of $1,017,688 resulted primarilyfrom a decrease in sales of our CARExpressTM membershipprograms through marketing companies in connection with the shift in our salesstrategy from sales through marketing companies to sales through employers andaffinity groups.  Approximately 35% ofthe revenue that we generated during the nine months ended September 30,2008 was derived from sales of our membership programs to first-time members,compared to approximately 80% during the corresponding period in 2007.  The remainder of the revenue that wegenerated during these periods was derived from existing members.

 

Direct Costs

 

Direct costs decreased $1,165,313 to $872,290 for the nine months endedSeptember 30, 2008, from $2,037,603 for the nine months ended September 30,2007.  The decrease of $1,165,313 was dueto decreases of $1,119,118 for sales commissions and $46,195 for PPO andnetwork provider costs.

 

Selling and Marketing Expenses

 

Selling and marketing expenses increased $11,301 to $182,178 for thenine months ended September 30, 2008, from $170,877 for the nine monthsended September 30, 2007.  Theincrease of $11,301 was due primarily to an increase of $64,475 for salariesand other compensation paid to employees selling and marketing our membershipprograms, partially offset by decreases of $27,057 for marketing andadvertising programs and $26,477 for depreciation and amortization expenseallocated to our selling and marketing activities.

 

General and Administrative Expenses

 

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

 

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*Employee Compensation Expense*.  Employee compensation expense increased$74,939 to $1,617,649 for the nine months ended September 30, 2008, from$1,542,710 for the nine months ended September 30, 2007.  The increase of $74,939 was due primarily toan increase of $141,557 for stock option expense as well as increases in otheremployee compensation expenses, partially offset by decreases of $60,015 forrestricted stock expense and $18,539 for salaries paid.

 

*Professional Fees*.  Professional fees increased $140,956 to$560,440 for the nine months ended September 30, 2008 from $419,484 forthe nine months ended September 30, 2007. The increase of $140,956 was due primarily to increases of $135,580 forthe amount of expense recognized in connection with equity-based compensationpaid to service providers and consultants for various services.

 

*Other General and AdministrativeExpenses*.  Othergeneral and administrative expenses decreased $288,755 to $818,390 for the ninemonths ended September 30, 2008 from $1,107,145 for the nine months ended September 30,2007.  The decrease of $288,755 resultedprimarily from decreases of $118,186 for bank service charges associated withnew and recurring member transactions, $132,365 for office supplies expense,$63,952 for postage and delivery costs, and $21,619 for corporate filing fees,partially offset by increases of $17,350 for computer and web repair andmaintenance costs, $16,153 for various types of insurance, $10,171 for dues andsubscriptions and increases in other miscellaneous general and administrativeexpenses.  We expect other general and administrativeexpenses to increase over the next 12 months as we continue to incur expensesfor bank service charges, financial printer services, investor relationscampaigns and activities, transfer agent fees, health insurance, rent,non-employee customer service representatives, supplies, computer hardware andsystems, and other miscellaneous items associated with the general operationand growth of our business.

 

Loss on the Extinguishmentof Debt

 

Loss on the extinguishmentof debt consists of the loss that we recognized in connection with our issuanceof 240,000 shares of our common stock to a note holder in February 2008 inpartial consideration for the extinguishment of debt.  We recognized a loss on the extinguishment ofdebt of $30,000 during the nine months ended September 30, 2008 inconnection with the issuance of these shares. We did not recognize any such loss during the nine months ended September 30,2007.  We do not expect to recognize anyadditional gains or losses on the extinguishment of debt in the foreseeablefuture.

 

Net Loss

 

Our net loss decreased $164,777 to $1,847,492 for thenine months ended September 30, 2008, from $2,012,269 for the nine monthsended September 30, 2007.  Thedecrease of $164,777 was primarily due to decreases of $1,165,313 for directcosts incurred in connection with the sale of our membership programs and$288,755 in other general and administrative expenses, partially offset by adecrease of $1,017,688 in revenue and increases of $140,956 for professional fees,$74,939 for employee compensation expense and $30,000 for the loss on theextinguishment of debt.

 

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**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 October 28, 2008, we had cash andcash equivalents of approximately $473,500.

 

Netcash used by operating activities was $984,716 for the nine months ended September 30,2008 compared to $1,645,619 for the nine months ended September 30,2007.  The $660,903 decrease in cash usedby operating activities was due primarily to decreases of $164,777 for netloss, $405,085 for deposits, $222,277 for deferred revenue and $30,919 foraccounts receivable, and increases of $228,063 for equity-based compensationexpense and $30,000 for loss on the extinguishment of debt.  This was partially offset by decreases of$397,868 for accounts payable and accrued expenses and $28,799 for depreciationexpense.

 

Wedid not have any cash flows from investing activities for the nine months endedSeptember 30, 2008.  Net cash usedby investing activities was $55,000 for the nine months ended September 30,2007.  The $55,000 decrease in cash usedby investing activities was due to a decrease in assets held for resale.

 

Net cash provided byfinancing activities was $1,485,055 for the nine months ended September 30,2008 compared to $545,200 for the nine months ended September 30,2007.  The $939,855 increase in cashprovided by financing activities was due to increases of $527,415 for proceedsfrom the exercise of warrants, $382,440 for proceeds from the sale of commonstock and warrants and $50,000 for proceeds from the issuance of debt,partially offset by an increase of $20,000 for payments on debt.

 

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

 

In November 2007, we completed a private offeringof 500,000 shares of our common stock, Class A warrants exercisable into500,000 shares of our common stock and Class B warrants exercisable into500,000 shares of our common stock for aggregate cash consideration of$150,000.  These securities were sold inunits comprised of one share of our common stock, one Class A warrant andone Class B warrant.  The units weresold at a purchase price of $0.30 per unit. We agreed to use our reasonable best efforts to file a registrationstatement with the Securities and Exchange Commission (“SEC”) by December 15,2007 to register all of the shares of our common stock issued in the offeringand all of the shares of our common stock underlying the Class A warrantsand Class B warrants issued in the offering.  The Class A warrants were initiallyexercisable into one share of our common stock at an exercise price of $0.30per share, were exercisable during a period beginning on the date theregistration statement covering the public resale of the shares underlying thewarrants was declared effective by the SEC and ending on the later of January 31,2008 or the date that was 30 calendar days after the effective date of theregistration statement, and expired at the end of the exercise period.  The Class B warrants are initiallyexercisable into one share of our common stock at an exercise price of $0.40per share, are exercisable during a period beginning on the date theregistration statement covering the public resale of the shares underlying thewarrants was declared effective by the SEC and ending on December 31,2008, and expire at the end of the exercise period.

 

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In November 2007, wecompleted a private offering of 1,240,000 shares of our common stock, Class Awarrants exercisable into 1,240,000 shares of our common stock, and Class Bwarrants exercisable into 1,240,000 shares of our common stock for aggregatecash consideration of $310,000.  Thesesecurities were sold in units comprised of one share of our common stock, one Class Awarrant and one Class B warrant. The units were sold at a purchase price of $0.25 per unit.  We agreed to use our reasonable best effortsto file a registration statement with the SEC by December 15, 2007 toregister all of the shares of our common stock issued in the offering and allof the shares of our common stock underlying the Class A warrants and Class Bwarrants issued in the offering.  The Class Awarrants were initially exercisable into one share of our common stock at anexercise price of $0.30 per share, were exercisable during a period beginningon the date the registration statement covering the public resale of the sharesunderlying the warrants was declared effective by the SEC and ending on thelater of January 31, 2008 or the date that was 30 calendar days after theeffective date of the registration statement, and expired at the end of theexercise period.  The Class Bwarrants are initially exercisable into one share of our common stock at anexercise price of $0.40 per share, are exercisable during a period beginning onthe date the registration statement covering the public resale of the sharesunderlying the warrants was declared effective by the SEC and ending on December 31,2008, and expire at the end of the exercise period.

 

In December 2007, wecompleted a private offering of 555,000 shares of our common stock, Class Awarrants exercisable into 555,000 shares of our common stock, Class Bwarrants exercisable into 555,000 shares of our common stock, and Class Cwarrants exercisable into 555,000 shares of our common stock for aggregate cashconsideration of $111,000.  Thesesecurities were sold in units comprised of one share of our common stock, one Class Awarrant, one Class B warrant and one Class C warrant.  The units were sold at a purchase price of$0.20 per unit.  We agreed to use ourreasonable best efforts to file a registration statement with the SEC by December 15,2007 to register all of the shares of our common stock issued in the offeringand all of the shares of our common stock underlying the Class A warrants,Class B warrants and Class C warrants issued in the offering.  The Class A warrants were initiallyexercisable into one share of our common stock at an exercise price of $0.22per share, were exercisable during a period beginning on the date theregistration statement covering the public resale of the shares underlying thewarrants was declared effective by the SEC and ending on the date that was 90calendar days after the effective date of the registration statement, were callableby us if certain criteria are satisfied,and expired at the end of the exercise period. The Class B warrants were initially exercisable into one share ofour common stock at an exercise price of $0.30 per share, were exercisableduring a period beginning on the date the registration statement covering thepublic resale of the shares underlying the warrants was declared effective by theSEC and ending on the date that was 180 calendar days after the effective dateof the registration statement, were callable by us if certain criteriaare satisfied, and expired at the endof the exercise period.  The Class Cwarrants are initially exercisable into one share of our common stock at anexercise price of $0.30 per share, are exercisable during a period beginning onthe date the registration statement covering the public resale of the sharesunderlying the warrants was declared effective by the SEC and ending on thethird anniversary of the effective date of the registration statement, andexpire at the end of the exercise period.

 

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InApril 2008, we sold 500,000 shares of common stock and one Class Awarrant exercisable into 500,000 shares of common stock to an accreditedinvestor for aggregate gross proceeds of $75,000. The Class A warrant hadan exercise price of $0.12 per share, was exercisable for a period commencingon the date of grant and ending on April 18, 2008, and expired at the endof the exercise period.

 

In June 2008, wecompleted a private offering of 675,000 shares of our common stock, Class Awarrants exercisable into 675,000 shares of our common stock and Class Bwarrants exercisable into 675,000 shares of our common stock for aggregate cashconsideration of $108,000.  Thesesecurities were sold in units comprised of one share of our common stock, one Class Awarrant and one Class B warrant at a purchase price of $0.16 perunit.  We agreed to provide each investorwith an opportunity to include all shares of common stock and all shares ofcommon stock issued upon the exercise of the warrants in any registrationstatement that we file with the SEC for the purposes of a public offering ofour securities (excluding registration statements on Forms S-4 or S-8).  The Class A warrants were initiallyexercisable into one share of our common stock at an exercise price of $0.20per share, were exercisable during a period of 90 days beginning on the date ofgrant, and expired at the end of the exercise period.  The Class B warrants are initiallyexercisable into one share of our common stock at an exercise price of $0.30per share, are exercisable during a period beginning on the date of grant andending on December 31, 2008, and expire at the end of the exercise period.

 

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

 

Duringthe period beginning January 1, 2007 and ending September 30, 2008,we issued 3,603,250 shares of common stock upon the exercise of warrants atexercise prices ranging between $0.12 and $0.40 per share for aggregate gross proceedsof $667,415.

 

To date, our capital needs have been met primarily through sales of ourequity and debt securities and proceeds received upon the exercise of warrantsheld by our 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 currentoperations for the next 12 months.  Wewill need to obtain additional cash resources within the next 12 months toenable us to pay our ongoing costs and expenses as they are incurred andfinance the growth of our business.  Weintend to obtain these funds through internally generated cash flows fromoperating activities and proceeds from the issuance of debt and equitysecurities.  The sale of equity orconvertible debt securities would result in additional dilution to our shareholders.  The issuance of debt would result inincreased expenses and could subject us to covenants that may have the effectof restricting our operations.  We havenot 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-BalanceSheet Arrangements**

 

As of September 30,2008, we did not have any relationships with unconsolidated entities orfinancial partners, such as entities often referred to as structured finance orspecial purpose entities, that had been established for the purpose offacilitating off-balance sheet arrangements or other contractually narrow orlimited purposes.  As such, we are notmaterially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

 

**Item 4T.  Controls andProcedures.**

 

As of September 30, 2008, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2008, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief 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, 2008 that 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, 2008,we sold the following securities without registration under the Securities Actof 1933, as amended (the “Securities Act”):

 

In July 2008, wesold 3,000,000 shares of our common stock and Class A warrants exercisableinto 3,000,000 shares of our common stock to an accredited investor foraggregate gross proceeds of $750,000. These securities were sold in units comprised of one share of our commonstock and one Class A warrant at a purchase price of $0.25 per unit.  The Class A warrants are initiallyexercisable into one share of our common stock at an exercise price of $0.30per share, are exercisable during a period beginning on the date of grant andending on December 31, 2009, and expire at the end of the exercise period.  We paid finder fees consisting of cashconsideration of $56,250 and 225,000 units identical to the units sold in theoffering.  These securities were issued to anaccredited investor in a private placement transaction exempt from theregistration 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 July 2008, we sold a Class A warrantexercisable into 1,000,000 shares of common stock to an accredited investor foraggregate gross proceeds of $100.  The Class Awarrant has an exercise price of $0.20 per share, is exercisable until December 31,2008, and expires at the end of the exercise period.  These securities were issued to an accreditedinvestor in a private placement transaction exempt from the registrationrequirements of the Securities Act pursuant to Section 4(2) of theSecurities Act directly by us without engaging in any advertising or generalsolicitation of any kind and without payment of underwriting discounts orcommissions to any person.

 

**Item 6.  Exhibits.**

 

The followingexhibits are included herein:

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

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                         | NATIONAL HEALTH PARTNERS, INC. |
|------------------------------|--------------------------------|
|                         |                           |
|                         |                           |
| Date: November 14, 2008 | /s/ David M. Daniels           |
|                         | David M. Daniels               |
|                         | Chief Executive Officer        |

 

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**EXHIBIT INDEX**

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

 

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