National Health Partners (NHPR) 10-Q 2010 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2010
o	TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______________ to _____________

Commission File No. 000-51731

NATIONAL HEALTH PARTNERS, INC.

(Exact name of registrant as specified in its charter)

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

120 Gibraltar Road

Suite 107

Horsham, PA  19044

(Address of Principal Executive Offices)

(215) 682-7114

(Issuer's Telephone Number, including Area Code)

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  There were 85,392,478 shares of the issuer’s common stock, $.001 par value per share, issued and outstanding on August 12, 2010.

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements	1
Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009	2
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)	3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)	4
Notes to Consolidated Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4T. Controls and Procedures	20
PART II – OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 6. Exhibits	21

2

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements.

National Health Partners, Inc. and Subsidiaries

Consolidated Interim Financial Statements

June 30, 2010

(Unaudited – Prepared by Management)

NOTICE OF NO AUDITOR REVIEW

The accompanying unaudited consolidated interim financial statements have been prepared by management and approved by the Audit Committee and Board of Directors.

The Company’s independent auditors have not performed a review of these consolidated interim financial statements in accordance with the standards established by the Public Company Accounting Oversight Board (United States) for a review of interim statements by an entity’s auditor.

3

National Health Partners, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited - Prepared by Management)

	June 30,			December 31,
	2010			2009
	(Unaudited)
Assets
Current assets
Cash	$	53,151		$	31,691
Prepaid expense		—			4,699
Deposits		27,880			78,829
Other current assets		—			9,300
Total current assets		81,031			124,519
Property and equipment, net		10,622			15,743
Prepaid expense		—			1,357
Deposits		19,000			19,000
Total assets	$	110,653		$	160,619
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	224,381		$	144,369
Refunds payable		14,796			8,607
Accrued expenses		130			892
Deferred revenue		186,673			92,188
Total current liabilities		425,980			246,056
Total liabilities		425,980			246,056
Commitments and contingencies		—			—
Stockholders' deficit
Common stock, $0.001 par value, 100,000,000 shares authorized,
85,392,478 and 73,894,2754 shares issued and outstanding
on June 30, 2010 and December 31, 2009, respectively		85,392			73,895
Additional paid-in capital		26,925,913			26,554,571
Deferred compensation		(68,893	)		(106,060	)
Accumulated deficit		(27,257,739	)		(26,607,843	)
Total stockholders' deficit		(315,327	)		(85,437	)
Total liabilities and stockholders' deficit	$	110,653		$	160,619

See unaudited notes to financial statements

4

National Health Partners, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited - Prepared by Management)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net revenue	$	539,854		$	375,228		$	1,077,664		$	793,071
Direct costs		443,570			226,033			689,209			357,977
Gross profit		96,284			149,195			388,455			435,094
Operating expenses:
Selling and marketing		13,730			31,050			24,608			67,091
General and administrative		389,476			681,237			1,013,744			1,396,455
Total operating expenses		403,206			712,287			1,038,352			1,463,546
Loss from operations		(306,922	)		(563,092	)		(649,897	)		(1,028,452	)
Other income (expense):
Interest income		1			4			1			87
Total other income		1			4			1			87
Net loss	$	(306,921	)	$	(563,088	)	$	(649,896	)	$	(1,028,365	)
Loss per share - basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
Weighted average number of shares outstanding - basic and diluted		84,546,324			59,344,518			80,835,599			56,263,627

See unaudited notes to financial statements

5

National Health Partners, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited - Prepared by Management)

	For the Six Months Ended
	June 30,
	2010			2009
Cash flows from operating activities
Net loss	$	(649,896	)	$	(1,028,365	)
Adjustments to reconcile net loss to net cash
used by operating activities:
Common stock issued for services and amortization of prepaid services		105,731			253,084
Options issued for services		106,205			157,071
Depreciation		5,121			11,932
Changes in operating assets and liabilities:
Decrease in deposits		50,948			10,727
Increase in other current assets		9,300			(800	)
Increase in accounts payable and accrued expenses		79,250			147,897
Increase in refunds payable		6,189			8,807
Increase in deferred revenue		94,486			15,533
Net cash used by operating activities		(192,666	)		(424,114	)
Cash flows from investing activities
Net cash provided by investing activities		—			—
Cash flows from financing activities
Proceeds from sale of stocks and warrants		214,125			300,475
Net cash provided by financing activities		214,125			300,475
Net increase (decrease) in cash		21,459			(123,639	)
Cash at beginning of period		31,692			177,545
Cash at end of period	$	53,151		$	53,906
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	$	—		$	111,450
Stock options issued for services	$	—		$	20,245
Common stock issued for stock offering costs	$	285		$	40,068

See unaudited notes to financial statements

6

National Health Partners, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2010

(Unaudited – Prepared by Management)

Note 1. Description of Business

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

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

The Company contracts with preferred provider organizations and other provider networks for access to the discounted rates they have negotiated with their healthcare providers.  The principal suppliers of the healthcare providers that comprise CARExpress are CareMark, Aetna, Optum, Outlook Vision, Integrated Health, Three Rivers and HealthFi.  The Company selects and utilizes only those provider networks that it believes can deliver adequate savings to its members while providing adequate support for its membership programs with the healthcare providers.  It typically pays a per member per month fee for use of the provider networks that is determined in part based on the number of providers participating in the network, the number of members accessing the network, and the particular products or services offered by the p roviders.  The Company’s agreements with the provider networks are generally for a term of between one and two years, may be terminated by either party on between 45 and 180 days’ prior written notice, and renew automatically for additional terms unless so terminated.  Most of these agreements are non-exclusive and contain confidentiality provisions.

Note 2. Basis of Presentation

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

The unaudited consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements and in management’s opinion, reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2009 included in the Company’s Annual Report on Form 10-K.  The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results that the Company will have for any subsequent quarter or full fiscal year.

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

7

National Health Partners, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2010

(Unaudited – Prepared by Management)

Note 2. Basis of Presentation (Continued)

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

As of June 30, 2010, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, have not changed materially.

Note 3. Stock Compensation Expense

The Company records employee stock-based compensation using the fair value recognition provisions of Accounting Standards Codification (“ASC”) Topic 718 (“ASC 718”) using the modified prospective transition method, and records non-employee stock-based compensation expense in accordance with ASC Topic 505.  In accordance therewith, the Company recognized stock compensation expense of $18,686 and $243,621 for the three months ended June 30, 2010 and 2009, respectively, and $43,222 and $410,155 for the six months ended June 30, 2010 and 2009, respectively.

Note 4. Loss Per Share

Basic loss per share is based on the weighted average number of shares of the Company’s common stock outstanding during the applicable period, and is calculated by dividing the reported net loss for the applicable period by the weighted average number of shares of common stock outstanding during the applicable period.  The Company calculates diluted loss per share by dividing the reported net loss for the applicable period by the weighted average number of shares of common stock outstanding during the applicable period as adjusted to give effect to the exercise of all potentially dilutive options and warrants outstanding at the end of the period.  A total of 11,030,393 and 17,438,650 shares of common stock underlying options and warrants that were outstanding on June 30, 2010 and 2009, respectively, have been excl uded from the computation of diluted earnings per share because they are anti-dilutive.  As a result, basic loss per share was equal to diluted loss per share for each period.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2010			2009			2010			2009
Net loss as reported	$	(306,921	)	$	(563,088	)	$	(649,896	)	$	(1,028,365	)
Weighted average number of shares outstanding – basic and diluted		84,546,324			59,344,518			80,835,599			56,263,627
Loss per share – basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)

Note 5. Property and Equipment

Property and equipment consisted of the following at June 30, 2010:

Asset	Amount
Computers	$	60,708
Software		6,109
Furniture		27,968
Telephone		80,780
Website		106,477
Less: accumulated depreciation		(271.420	)
Net property and equipment	$	10,622

Depreciation expense was $2,259 and $4,685 for the three months ended June 30, 2010 and 2009, respectively, and  $5,121 and $11,932 for the six months ended June 30, 2010 and 2009, respectively.

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National Health Partners, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2010

(Unaudited – Prepared by Management)

Note 6. Deposits

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

As of June 30, 2010, the Company had a total of $46,880 in deposits.  Of this amount, $25,000 was being held by PowerPay Payment Systems, Inc., $1,880 was being held by Card Flex, Inc., $1,000 was being held by Clickbooth.com and $19,000 was being held by the lessor of the Company’s office space.

Note 7. Commitments and Contingencies

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

Operating Leases

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

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

Fiscal Year	Amount
2010	$	160,500
2011		164,000
2012		167,500
2013		69,792
	$	561,792

Employment Agreements

The Company is a party to an employment agreement with its current executive officer.  At the request of the executive officer, the Company resolved to decrease the annual salary in the employment agreement to $168,000, effective February 1, 2010.  Future minimum payments under this employment agreement are as follows:

Fiscal Year	Amount
2010	$	185,690
2011		168,000
	$	353,690

9

National Health Partners, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2010

(Unaudited – Prepared by Management)

Note 8. 2006 Stock Incentive Plan

On February 2, 2006, the Company adopted the National Health Partners, Inc. 2006 Stock Incentive Plan.  Under the plan, 4,500,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards.  As of June 30, 2010, all shares of common stock had been issued under the plan.  The plan terminates on February 1, 2016.  On February 6, 2006, the Company filed a registration statement on Form S-8, File No. 333-131589, with the SEC covering the public sale of the 4,500,000 shares of common stock available for issuance under the pla n.

Note 9. 2008 Stock Incentive Plan

On April 7, 2008, the Company adopted the National Health Partners, Inc. 2008 Stock Incentive Plan.  Under the plan, 3,000,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards.  As of June 30, 2010, all shares of common stock had been issued under the plan.  The plan terminates on April 6, 2018.  On April 10, 2008, the Company filed a registration statement on Form S-8, File No. 333-150177, with the SEC covering the public sale of the 3,000,000 shares of common stock available for issuance under the plan.

Note 10. 401(k) Plan

On January 15, 2007, the Company adopted the National Health Partners, Inc. 401(k) Plan. Under the plan, eligible employees may elect to contribute up to 100% of their compensation to the plan each year, subject to certain limitations imposed by the Internal Revenue Service.  The Company contributes 100% of the first 3% of the employee’s contribution and 50% of the next 2% of the employee’s contribution. The Company contributed $0 and $2,177 to the plan during the three months ended June 30, 2010 and 2009, respectively and $0 and $4,888 to the plan during the six months ended June 30, 2010 and 2009, respectively.

Note 11. Common Stock and Warrants

The Company’s authorized capital consisted of 100,000,000 shares of common stock, $0.001 par value per share, of which 85,392,478 and 62,439,081 shares of common stock were outstanding at June 30, 2010 and 2009, respectively.  Warrants exercisable into an aggregate of 9,013,250 and 8,037,150 shares of the Company’s common stock were outstanding on June 30, 2010 and 2009, respectively.

Non Capital-Raising Transactions

On March 31, 2010, the Company entered into a Securities Agreement with David M. Daniels, its Chief Executive Officer, pursuant to which it granted 1,180,612 shares of the Company’s common stock, $0.001 par value per share to Mr. Daniels.  The shares were issued in lieu of the payment of $17,690 of salary compensation earned by Mr. Daniels under the Employment Agreement, dated May 1, 2006, by and between the Company and Mr. Daniels, during the period commencing January 1, 2010 and ending January 31, 2010 and payable to Mr. Daniels as of January 31, 2010, and in part for the termination of the following stock options held by Mr. Daniels: (i) the stock option dated February 1, 2005 to acquire 2,500,000 shares of common stock at an exercise price of $0.40, (ii) t he stock option dated December 12, 2006 to acquire 250,000 shares of common stock at an exercise price of $0.88, and (iii) the stock option dated March 25, 2008 to acquire 400,000 shares of common stock at an exercise price of $0.28.

On March 31, 2010, the Company entered into a Securities Agreement with Patricia S. Bathurst, its Vice President — Marketing,  pursuant to which it granted a stock option (the “Option”) to acquire 500,000 shares of common stock to Ms. Bathurst.  The Option was issued in lieu of the payment of $8,119 of salary compensation earned by Ms. Bathurst under the Employment Agreement, dated May 1, 2006, by and between the Company and Ms. Bathurst during the period commencing January 1, 2010 and ending January 31, 2010 and payable to Ms. Bathurst as of January 31, 2010, and in part for the termination of the following stock options held by Ms. Bathurst: (i) the stock option dated February 1, 2005 to acquire 2,500,000 shares of common stock at an exercis e price of $0.40, (ii) the stock option dated December 12, 2006 to acquire 250,000 shares of common stock at an exercise price of $0.88, (iii) the stock option dated September 4, 2007 to acquire 400,000 shares of common stock at an exercise price of $0.50, and (iv) the stock option dated March 25, 2008 to acquire 400,000 shares of common stock at an exercise price of $0.28.  The Option is for a term of 10 years, has an exercise price of $0.045 per share and vested in full on the date of grant. 

10

National Health Partners, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2010

(Unaudited – Prepared by Management)

Note 11. Common Stock and Warrants (Continued)

On March 31, 2010, the Company entered into a Securities Agreement with Alex Soufflas, its Chief Financial Officer and Executive Vice President,  pursuant to which it granted 382,112 shares of common stock to Mr. Soufflas.  The shares were issued in lieu of the payment of $14,765 of salary compensation earned by Mr. Soufflas under the Employment Agreement, dated February 1, 2006, by and between the Company and Mr. Soufflas, during the period commencing January 1, 2010 and ending January 31, 2010 and payable to Mr. Soufflas as of January 31, 2010.

Capital-Raising Transactions

In January 2010, we sold 1,000,000 shares of our common stock and Class A warrants exercisable into 1,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $40,000.  The Class A warrants have an exercise price of $0.04 per share, are exercisable during the period commencing on the date of grant and ending December 31, 2010, and expire at the end of the exercise period.

In February 2010, we sold 2,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $40,000.

In February 2010, we sold 2,000,000 shares of our common stock and Class A warrants exercisable into 4,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $40,000.  The Class A warrants have an exercise price of $0.02 per share, are exercisable during the period commencing on the date of grant and ending December 31, 2010, and expire at the end of the exercise period.

In March 2010, we completed a private offering of 450,000 shares of our common stock for aggregate cash consideration of $10,125.

In March 2010, we completed a private offering of 3,200,000 shares of our common stock for aggregate cash consideration of $64,000.

In June 2010, we completed a private offering of 1,000,000 shares of our common stock for aggregate cash consideration of $20,000.

Note 12. Stock Options

Stock options exercisable into an aggregate of 2,017,143 and 9,401,500 shares of the Company’s common stock were outstanding on June 30, 2010 and 2009, respectively, of which 1,927,143 and 7,384,000 shares were vested, respectively.  No options were exercised during the three months ended June 30, 2010 and 2009, respectively.  The Company estimates the fair value of its stock options on the date of grant by using the Black-Scholes pricing model in accordance with the provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.”  Under the Black-Scholes pricing model, the Company used the following weighted-average assumptions to determine the fair value of the stock options issued: a dividend yield of zero perce nt, an expected volatility of between 217% and 282%, a risk-free interest rate of between 2.25% and 4.76% and a remaining contractual life of between 9.15 and 9.95 years.

Note 13. Related Party Transactions

On March 31, 2010, the Company entered into a Securities Agreement with David M. Daniels, its Chief Executive Officer, pursuant to which it granted 1,180,612 shares of the Company’s common stock, $0.001 par value per share to Mr. Daniels.  The shares were issued in lieu of the payment of $17,690 of salary compensation earned by Mr. Daniels under the Employment Agreement, dated May 1, 2006, by and between the Company and Mr. Daniels, during the period commencing January 1, 2010 and ending January 31, 2010 and payable to Mr. Daniels as of January 31, 2010, and in part for the termination of the following stock options held by Mr. Daniels: (i) the stock option dated February 1, 2005 to acquire 2,500,000 shares of common stock at an exercise price of $0.40, (ii) t he stock option dated December 12, 2006 to acquire 250,000 shares of common stock at an exercise price of $0.88, and (iii) the stock option dated March 25, 2008 to acquire 400,000 shares of common stock at an exercise price of $0.28.

11

National Health Partners, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2010

(Unaudited – Prepared by Management)

Note 13. Related Party Transactions (Continued)

On March 31, 2010, the Company entered into a Securities Agreement with Patricia S. Bathurst, its Vice President - Marketing, pursuant to which it granted a stock option (the “Option”) to acquire 500,000 shares of common stock to Ms. Bathurst.  The Option was issued in lieu of the payment of $8,119 of salary compensation earned by Ms. Bathurst under the Employment Agreement, dated May 1, 2006, by and between the Company and Ms. Bathurst during the period commencing January 1, 2010 and ending January 31, 2010 and payable to Ms. Bathurst as of January 31, 2010, and in part for the termination of the following stock options held by Ms. Bathurst: (i) the stock option dated February 1, 2005 to acquire 2,50 0,000 shares of common stock at an exercise price of $0.40, (ii) the stock option dated December 12, 2006 to acquire 250,000 shares of common stock at an exercise price of $0.88, (iii) the stock option dated September 4, 2007 to acquire 400,000 shares of common stock at an exercise price of $0.50, and (iv) the stock option dated March 25, 2008 to acquire 400,000 shares of common stock at an exercise price of $0.28.  The Option is for a term of 10 years, has an exercise price of $0.045 per share and vested in full on the date of grant. 

On March 31, 2010, the Company entered into a Securities Agreement with Alex Soufflas, its Chief Financial Officer and Executive Vice President, pursuant to which it granted 382,112 shares of common stock to Mr. Soufflas.  The shares were issued in lieu of the payment of $14,765 of salary compensation earned by Mr. Soufflas under the Employment Agreement, dated February 1, 2006, by and between the Company and Mr. Soufflas, during the period commencing January 1, 2010 and ending January 31, 2010 and payable to Mr. Soufflas as of January 31, 2010.

Note 14.  Subsequent Events

 The Company has performed an evaluation of subsequent events through August 10, 2010, which is the date the financial statements were issued.   Other than the events noted below, the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

 In July 2010, the Company completed a private offering of 1,000,000 shares of its common stock for aggregate cash consideration of $15,000.

 In July 2010, warrants were exercised resulting in the issuance of 1,000,000 shares of the Company’s common stock for aggregate cash consideration of $15,000.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenue and costs, and plans and objectives of management for future operations, are forward-looking statements.  In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” &# 8220;plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions.

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

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

·   our dependence on a limited number of preferred provider organizations (“PPOs”) and other healthcare provider networks;

·   our dependence on a single insurance company for the insurance benefits offered as part of our CARExpress PlusTM programs;

·   our dependence upon a limited number of marketing and distribution partners for substantially all of our revenue;

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

·   demand for and acceptance of our membership programs;

·   competition in the health discount membership market;

·   our ability to attract and retain qualified personnel;

·   legislative or regulatory changes in the healthcare industry;

·   the condition of the securities and capital markets;

·   general economic and business conditions, either nationally or internationally or in the jurisdictions in which we are doing business;

and statements of assumption underlying any of the foregoing, as well as any other factors set forth herein under “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and “Item 1A.  Risk Factors” of our Annual Report on Form 10-K for our fiscal year ended December 31, 2009.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing.  Except as required by law, we assume no duty to update or revise our forward-looking statements.

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

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties.  All forward-looking statements included in this report are based on information available to us on the date hereof, and, except as required by law, we assume no obligation to update any such forward-looking statements.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth herein and under the caption “Item 1A.  Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2009.  The following shoul d be read in conjunction with our consolidated financial statements included above in Item 1 of Part I of this report.

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Overview

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

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

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

Operational Metrics

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

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

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

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·   the type of membership programs being sold;

·   the marketing campaign being used to sell our membership programs;

·   the financial condition and loyalty of our members;

·   the distribution channel selling our membership programs; and

·   the type and amount of compensation being paid to our marketing and distribution partners to sell our membership programs.

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

Financial Results and Outlook

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

We experienced an increase in revenue for the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009 as a result of the shift in our sales strategy from sales through marketing companies to sales through employers and affinity groups.  The shift in our sales strategy resulted in increased direct costs in total and as a percentage of revenue.  However, our gross profit margin for the three and six months ended June 30, 2010 was lower than our gross profit margin for the three and six months ended June 30, 2009.  Similarly, our net loss and net loss per share for the three and six months ended June 30, 2010 were substantially lower than our net loss and net loss per share for the three and six months ended June 30, 2009.  The shift in our sales strategy a nd the implementation of cost-cutting initiatives also resulted in a decrease in net cash used by operating activities during the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

We generated revenue of $539,854 and $1,077,664 for the three and six months ended June 30, 2010, respectively, compared to revenue of $375,228 and $793,071 for the three and six months ended June 30, 2009, respectively.  We achieved a gross profit of $96,284 and $388,455 for the three and six months ended June 30, 2010, respectively, compared to a gross profit of $149,195 and $435,094 for the three and six months ended June 30, 2009, respectively.  We recognized a net loss of $306,921 and $649,896 ($0.00 and $0.01 per share) for the three and six months ended June 30, 2010, respectively, compared to a net loss of $563,088 and $1,028,365 ( $0.01 and $0.02 per share) for the three and six months ended June 30, 2009, respectively.  Net cash used by operating activities was $192,666 for the six months ended Jun e 30, 2010 compared to $424,114 for the six months ended June 30, 2009, representing a decrease of 55%.

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

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We expect the number of CARExpressTM members generated each month to increase substantially during the quarter ended September 30, 2010 as a number of deals that we have either recently closed or that we expect to close begin to generate members for us.  We also expect the number of CARExpressTM members generated each month to continue to increase throughout the year and expect our retention rates to improve over the next 12 months since members generated through affinity groups have historically remained members of CARExpressTM for a much longer period of time than members generated through marketing companies.  As a result, we expect to generate an incre asing amount of revenue during the year ended December 31, 2010.  We believe that this increase in revenue combined with the various cost-cutting initiatives that we implemented over the past few quarters will enable us to generate positive cash flows from operating activities during the year ended December 31, 2010 as the recurring membership fees from our increasing membership base overtake the costs associated with retaining existing members and obtaining new members.  We can provide no assurance, however, that our membership base will increase as projected, that our member retention rates will improve over the next 12 months, that we will generate the aforementioned projected revenue, or that we will generate positive cash flows from operating activities during the year ended December 31, 2010.

Critical Accounting Policies

For information regarding our critical accounting policies, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 31, 2009 under the caption “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and our Notes to Consolidated Financial Statements included therein.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements applicable to our business, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 31, 2009 under the caption “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting Pronouncements” and our Notes to Consolidated Financial Statements included therein.

Comparison of the Three-Month Periods Ended June 30, 2010 and 2009

Revenue

Revenue consists almost exclusively of the monthly membership fees that we receive from members of our membership programs.  Revenue increased $164,626 to $539,854 for the three months ended June 30, 2010 from $375,228 for the three months ended June 30, 2009.

The increase of $164,626 resulted primarily from an increase in sales through employers and affinity groups in connection with the shift in our sales strategy from sales through marketing companies to sales through employers and affinity groups. The remainder of the revenue that we generated during these periods was derived from existing members.  We expect revenue to increase over the next 12 months as a result of increased sales to employees and members of affinity groups through our direct sales force, our marketing and distribution partners and our various marketing and advertising campaigns.

Direct Costs

Direct costs consist of sales commissions that we pay to our marketing and distribution partners and fees that we pay to our PPOs and provider networks for access to their networks.  Direct costs increased $217,537 to $443,570 for the three months ended June 30, 2010, from $226,033 for the three months ended June 30, 2010.  The increase of $217,537 was due to increases of $196,394 for sales commissions and $21,143 for PPO and provider network costs resulting from the increase in sales of our membership programs.  We expect cost of sales to increase over the next 12 months as increased sales of our membership programs result in higher overall sales commission expenses and provider network costs.

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Selling and Marketing Expenses

Selling and marketing expenses consist of advertising expenses, marketing expenses, salaries and other compensation paid to employees selling and marketing our membership programs, rent expense allocated to our selling and marketing activities, depreciation and amortization expense allocated to our selling and marketing activities, and all other selling and marketing expenses incurred by us.  Selling and marketing expenses decreased $17,320 to $13,730 for the three months ended June 30, 2010, from $31,050 for the three months ended June 30, 2009.  The decrease of $17,320 was due primarily to a decrease of $12,043 for general marketing and advertising.  We expect selling and marketing expenses to increase during the next 12 months as we grow our direct sales force and engage in larger and more frequent mar keting and advertising campaigns and activities.

General and Administrative Expenses

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

Employee Compensation Expense.  Employee compensation expense consists of all salaries and other cash compensation, equity-based compensation, 401(k) contributions and other compensation that we pay to our employees and the related payroll taxes that are not associated with our selling and marketing activities.  Employee compensation expense decreased $231,626 to $221,358 for the three months ended June 30, 2010, from $452,984 for the three months ended June 30, 2009.  The decrease of $231,626 was due primarily to decreases of $184,372 for salary expense,   $29,604 in stock option expenses and $16,165 for other employee compensation.  We expect employee compensation expense to increase over the next 12 months as we begin t o hire additional employees to support the growth of our business.

Professional Fees.  Professional fees consist of fees paid to our independent accountants, lawyers, technology consultants and other professionals and consultants.  Professional fees decreased $56,760 to $12,580 for the three months ended June 30, 2010 from $69,340 for the three months ended June 30, 2009.  The decrease of $56,760 was due primarily to a decrease of $54,566 for the amount of expense recognized in connection with equity-based compensation paid to service providers and consultants for various services.  We expect professional fees to increase over the next 12 months as we incur additional legal, accounting and technology fees in connection with the general expansion of our business and operations.

Other General and Administrative Expenses.  Other general and administrative expenses consist of office supplies expense, computer hardware and system costs, bank service charges, filing fees and dues, non-employee customer service representative expense, rent expense, health insurance and other related benefit costs, financial printer costs, transfer agent costs, the costs of investor relations campaigns and activities, postage and delivery expenses, severance expenses, general business expenses and miscellaneous general and administrative expenses that are not associated with our selling and marketing activities.  Other general and administrative expenses decreased $3,375 to $155,538 for the three months ended June 30, 2010 from $158,913 for the three months e nded June 30, 2009.  The decrease of $3,375 resulted primarily from decreases of $10,402 for supplies and $5,233 for rent expense, offset by an increase of $12,006 for credit card service charges associated with new and recurring member transactions.  We expect other general and administrative expenses to increase over the next 12 months as we continue to incur expenses for bank service charges, financial printer services, investor relations campaigns and activities, transfer agent fees, health insurance, rent, non-employee customer service representatives, supplies, computer hardware and systems, and other miscellaneous items associated with the general operation and growth of our business.

Net Loss

Our net loss decreased $256,167 to $306,921 for the three months ended June 30, 2010, from $563,088 for the three months ended June 30, 2009.  The decrease of $256,167 was primarily due to decreases of $17,320 for selling and marketing expenses, $231,626 for employee compensation expenses, $56,760 for professional fees and $3,375 for other general and administrative expenses, offset by increases of $164,626 for revenue and $217,537 for direct costs incurred in connection with the sale of our membership programs. We expect to begin generating a net profit from operations during 2010 as the recurring membership fees from our increasing membership base overtake the costs associated with obtaining and retaining members.

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Comparison of the Six-Month Periods Ended June 30, 2010 and 2009

Revenue

Revenue consists almost exclusively of the monthly membership fees that we receive from members of our membership programs.  Revenue increased $284,593 to $1,077,664 for the six months ended June 30, 2010 from $793,071 for the six months ended June 30, 2009.

The increase of $284,593 resulted primarily from an increase in sales through employers and affinity groups in connection with the shift in our sales strategy from sales through marketing companies to sales through employers and affinity groups. The remainder of the revenue that we generated during these periods was derived from existing members.  We expect revenue to increase over the next 12 months as a result of increased sales to employees and members of affinity groups through our direct sales force, our marketing and distribution partners and our various marketing and advertising campaigns.

Direct Costs

Direct costs consist of sales commissions that we pay to our marketing and distribution partners and fees that we pay to our PPOs and provider networks for access to their networks.  Direct costs increased $331,232 to $689,209 for the six months ended June 30, 2010, from $357,977 for the six months ended June 30, 2009.  The increase of $331,232 was due to increases of $295,444 for sales commissions and increases of $35,788 for PPO and provider network costs resulting from the increase in sales of our membership programs.  We expect cost of sales to increase over the next 12 months as increased sales of our membership programs result in higher overall sales commission expenses and provider network costs.

Selling and Marketing Expenses

Selling and marketing expenses consist of advertising expenses, marketing expenses, salaries and other compensation paid to employees selling and marketing our membership programs, rent expense allocated to our selling and marketing activities, depreciation and amortization expense allocated to our selling and marketing activities, and all other selling and marketing expenses incurred by us.  Selling and marketing expenses decreased $42,483 to $24,608 for the six months ended June 30, 2010, from $67,091 for the six months ended June 30, 2009.  The decrease of $42,483 was due primarily to a decrease of $10,025 for marketing programs, a decrease of $10,214 in sales salaries and a decrease of $13,936 in sales related stock option expenses.  We expect selling and marketing expenses to increase during the next 12 months as we grow our direct sales force and engage in larger and more frequent marketing and advertising campaigns and activities.

General and Administrative Expenses

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

Employee Compensation Expense.  Employee compensation expense consists of all salaries and other cash compensation, equity-based compensation, 401(k) contributions and other compensation that we pay to our employees and the related payroll taxes that are not associated with our selling and marketing activities.  Employee compensation expense decreased $311,609 to $620,398 for the six months ended June 30, 2010, from $932,007 for the six months ended June 30, 2009.  The decrease of $311,609 was due primarily to a decrease of $266,819 for salary expense.  We expect employee compensation expense to increase over the next 12 months as we begin to hire additional employees to support the growth of our business.

Professional Fees.  Professional fees consist of fees paid to our independent accountants, lawyers, technology consultants and other professionals and consultants.  Professional fees decreased $102,538 to $70,567 for the six months ended June 30, 2010 from $173,105 for the six months ended June 30, 2009.  The decrease of $102,538 was due primarily to a decrease of $104,288 for the amount of expense recognized in connection with equity-based compensation paid to service providers and consultants for various services.  We expect professional fees to increase over the next 12 months as we incur additional legal, accounting and technology fees in connection with the general expansion of our business and operations.

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Other General and Administrative Expenses.  Other general and administrative expenses consist of office supplies expense, computer hardware and system costs, bank service charges, filing fees and dues, non-employee customer service representative expense, rent expense, health insurance and other related benefit costs, financial printer costs, transfer agent costs, the costs of investor relations campaigns and activities, postage and delivery expenses, severance expenses, general business expenses and miscellaneous general and administrative expenses that are not associated with our selling and marketing activities.  Other general and administrative expenses increased $31,436 to $322,779 for the six months ended June 30, 2010 from $291,343 for the six months ende d June 30, 2009.  The increase of $31,436 resulted primarily from increases of $5,744 for supplies and $28,367 for credit card service charges associated with new and recurring member transactions.  We expect other general and administrative expenses to increase over the next 12 months as we continue to incur expenses for bank service charges, financial printer services, investor relations campaigns and activities, transfer agent fees, health insurance, rent, non-employee customer service representatives, supplies, computer hardware and systems, and other miscellaneous items associated with the general operation and growth of our business.

Net Loss

Our net loss decreased $378,469 to $649,896 for the six months ended June 30, 2010, from $1,028,365 for the six months ended June 30, 2009.  The decrease of $378,469 was primarily due to decreases of $42,483 for selling and marketing expenses, $311,609 for employee compensation, and $102,538 in professional fees, offset by increases of $31,436 in other general and administrative expenses described above, $284,593 for revenue and $331,232 for direct costs incurred in connection with the sale of our membership programs. We expect to begin generating a net profit from operations during 2010 as the recurring membership fees from our increasing membership base overtake the costs associated with obtaining and retaining members.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through private sales of equity securities.  As of June 30, 2010, we had cash and cash equivalents of $53,151.

Net cash used by operating activities was $192,666 for the six months ended June 30, 2010, compared to $424,114 for the six months ended June 30, 2009.  The $231,448 decrease in cash used by operating activities was due primarily to a decrease of $378,469 for net loss, decreases of $68,647 for accounts payable and accrued expenses and $198,219 for equity-based compensation expense and increases of $78,953 for deferred revenue and $40,221 for deposits.

We did not have any cash flows from investing activities for the six months ended June 30, 2010 and 2009.

Net cash provided by financing activities was $214,125 for the six months ended June 30, 2010, compared to $300,475 for the six months ended June, 2009.  The $86,350 decrease in cash provided by financing activities was due solely to the decrease in proceeds from the sale of stock and warrants.

Our primary sources of capital for the six months ended June 30, 2010 are set forth below.

In January 2010, we sold 1,000,000 shares of our common stock and Class A warrants exercisable into 1,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $40,000.  The Class A warrants have an exercise price of $0.04 per share, are exercisable during the period commencing on the date of grant and ending December 31, 2010, and expire at the end of the exercise period.

In February 2010, we sold 2,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $40,000.

In February 2010, we sold 2,000,000 shares of our common stock and Class A warrants exercisable into 4,000,000 shares of our common stock to an accredited investor for aggregate gross proceeds of $40,000.  The Class A warrants have an exercise price of $0.02 per share, are exercisable during the period commencing on the date of grant and ending December 31, 2010, and expire at the end of the exercise period.

In March 2010, we completed a private offering of 450,000 shares of our common stock for aggregate cash consideration of $10,125.

In March 2010, we completed a private offering of 3,200,000 shares of our common stock for aggregate cash consideration of $64,000.

In June 2010, we completed a private offering of 1,000,000 shares of our common stock for aggregate cash consideration of $20,000.

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

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

The Company’s authorized capital consists of 100,000,000 shares of common stock, of which 85,392,478 shares of common stock were outstanding at June 30, 2010.  The total of warrants exercisable into an aggregate of 9,013,250 shares of the Company’s common stock and stock options exercisable into an aggregate of 2,017,143 shares of the Company’s common stock at June 30, 2010 equal a total 11,030,393 shares of common stock underlying options and warrants that were outstanding at June 30, 2010.  The combination of the 85,392,478 shares of common stock outstanding and the 11,030,393 shares of potentially dilutive options and warrants outstanding at June 30, 2010 gives effect to a potential outstanding total of 96,422,871 of the authorized capital of 100,000,000 shares of common stock.    ;

Off-Balance Sheet Arrangements

As of June 30, 2010, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 4T. Controls and Procedures.

As of June 30, 2010, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2010, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended June 30, 2010 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 and Use of Proceeds.

During the three months ended June 30, 2010, we sold the following securities without registration under the Securities Act of 1933, as amended (the “Securities Act”):

In June 2010, we completed a private offering of 1,000,000 shares of our common stock for aggregate cash consideration of $20,000. The shares were sold at a purchase price of $.02 per share.

Item 6. Exhibits.

The following exhibits are included herein:

Exhibit No.	Exhibit
31.1	Certification of Chief Executive Officer and Chief Financial Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as 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 Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NATIONAL HEALTH PARTNERS, INC.
Date: August 13, 2010	/s/ David M. Daniels
	David M. Daniels
	Chief Executive Officer and
	Chief Financial Officer

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