Mail Stop 6010
October 21, 2005
David M. Daniels, CEO
National Health Partners, Inc.
120 Gibraltar Road, Suite 107
Horsham, PA 19044
Re: National Health Partners, Inc.
Amendment No. 1 to Registration Statement on Form SB-2
Filed September 30, 2005
File No. 333-126315
Dear Mr. Daniels:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Page references are to the marked copy furnished.
Risk Factors, page 3
1. Please add a risk factor or risk factors that highlight that
the
trading price of your common stock may not be related to the
offering
price. Also, quantify the average cost of the shares being sold
by
your selling shareholders.
2. Please add a risk factor that highlights the issuance of shares
to
consultants and the related risk, such as dilution.
We are an early stage company with an unproven business model ...
prospects, page 3
3. We note your responses to prior comments 9, 10, 15, 25 and 26.
Please revise this section to clarify when the company or its
predecessors began implementing the business plan and the current
state of operational development of that plan. We note that
although
your provider contracts were signed as early as April 2001 you
still
have only limited revenues.
We have a history of losses and ... losses through the remainder
of
2005, page 3
4. We note that you revised the disclosure about being
unprofitable
in the near term to losses through the remainder of 2005. Please
tell us why the disclosure changed, such as whether you recently
entered into material contracts.
5. Please add or expand the appropriate risk factor to highlight
the
compensation you are obligated to pay to your executives. Also,
expand your MD&A to include the amount you are obligated to pay
and
the source of funds for these obligations.
Our use of independent marketing representatives ... state
regulations, page 7
6. Please clarify whether the bullets in this risk factor relate
to
you or the marketing representatives.
Disclosure Regarding Forward-Looking Statements, page 17
7. Please revise your disclosure here and throughout the document
to
eliminate all references to the cited safe harbor, as it does not
apply to statements made by non-reporting companies.
Overview, page 18
8. Please refer to prior comment 5. Please revise the references
throughout the filing to the "leading" and "largest," such as a
"leading national healthcare organization" and "one of the largest
and most comprehensive healthcare savings networks in the United
States." In the alternative, please provide us with support for
the
statements. Also, balance your disclosure concerning affiliations
with "some of the largest ... networks in the country" to describe
the lack of exclusivity in provider contracts.
Critical Accounting Policies, page 18
9. We note that you have revised your critical accounting policies
to
include revenue recognition as your only critical policy. In
light
of the fact that you utilize stock and stock options as
consideration
for services rendered to your company, it appears that stock-based
compensation to employees and consultants would qualify as a
significant accounting estimate. As appropriate for an investor
to
better understand the significant estimates and assumptions
involved
in the application of GAAP, revise your disclosure to discuss the
significant estimates inherent in valuing stock-based compensation
or
tell us why you do not believe this disclosure is necessary.
Refer
to the interpretative MD&A guidance in our Release 33-8350.
Comparison of Years Ended December 31, 2004 and 2003, page 21
10. We have reviewed your response to prior comment 10. We note
that
you are unable to determine the amount of revenues derived in each
period from new members versus recurring revenues from old members
because you do not have sufficient information available to
accurately break out revenues in that manner. However, we note
your
disclosure that the number of members is minimal. We also note
your
disclosures on page 38 that you pay your provider networks the
greater of a flat fee or a monthly rate based on the number of
CARExpress members utilizing the network. Please tell us why you
cannot provide this information requested.
11. We have reviewed your response to prior comments 53 and 69
wherein you stated that you have omitted the disclosure of the
shares
not issued for cash from your liquidity and capital resources
discussion. Due to the fact that you issued stock for services,
please disclose the amount of shares and compensation expense
recorded for each such issuance in your results of operations
discussion for all periods presented.
General and Administrative Expense, page 22
12. Please refer to prior comment 9. Your response that
commission
totaled $3,065 in the six months in 2005 and none in 2004 is
inconsistent with your prior disclosure that commissions increased
by
$5,540 comparing 3 months ended 2005 with 2004. Please advise.
Professional Fees, page 22
13. Please discuss in greater detail the increase of $395,727.
For
example, describe the services provided. Also, expand page 24 to
clarify the reference to the "various business transactions" such
as
which transactions.
Liquidity and Capital Resources, page 27
14. Please clarify how you used the proceeds from your private
placements in 2004 and 2005.
Description of Business, page 31
15. Please expand the appropriate section to discuss the material
terms of your agreements with consultants.
Healthcare Industry, page 31
16. Please refer to prior comment 13. Please provide us a copy of
the authoritative source cited in this section. Mark for ease of
reference the portions you believe support your disclosure. Also,
provide us with support of your ability to address the entire
market.
Also, state your approximate market share for the operating
periods
presented. Also, provide support for the references on page 34 to
one million providers, and 70% of doctors and hospitals and 90% of
pharmacies.
Overview, page 33
17. Please clarify how the "underlying principles," specifically i
and ii, as explained in bullet points 2, 3 and 4, provide benefits
to
targeted customers. Please revise to explain why you believe
these
"principles" are significant to your business model and the appeal
of
your product.
Our CARExpress Membership Programs, page 34
18. Please refer to prior comment 15 and your response. As
previously requested, quantify the number of members. Otherwise,
please disclose why you are unable to provide such disclosure.
19. Please quantify the amount of your revenues related to each of
the six networks.
CARExpress Insurance Programs, page 41
20. Please refer to prior comment 20. Please expand the
appropriate
sections, such as regulation and risk factors, to discuss in
greater
detail the regulation of insurance products you intend to offer
and
the related risks. Also, describe the insurance products you
intend
to offer if they differ from the three products on page 42.
Sales Channels, page 43
21. Please refer to prior comment 23. Please identify the
principal
retail chains and outlets you have contracted with and state the
number of stores which sell your products. Briefly describe the
principal contract terms, including exclusivity. If you do not
have
material contracts in place so state. Provide similar information
regarding unions and associations.
Suppliers, page 45
22. Please expand upon the lack of exclusivity of the provider
contracts to describe whether it may limit or impact your ability
to
price and sell memberships. If applicable, also discuss in the
Risk
Factors section.
Marketing and Distribution, page 47
23. Please refer to prior comments 3 and 26. Please discuss the
amount of your revenues from each of the five items discussed on
pages 47 and 48.
Independent Marketing Representatives, page 47
24. Please clarify whether the independent marketing
representatives
are individual persons or organizations. If organizations, how
many
persons are actively marketing your product?
25. Please clarify the disclosure about the representatives, such
as
who they are and how they go about selling your products. Please
revise to describe the methods and circumstances the
representatives
utilize to identify prospective customers and effectuate sales.
Do
these persons sell other products and services? Do they sell
competitors` products? Are they engaged in other unrelated
business
activities?
26. Please refer to prior comment 27. Please briefly discuss why
there are five levels of marketing representatives. Also, revise
the
risk factors and page 54 to clarify whether the number of such
levels
may be affected by the marketing laws and regulations. In
addition,
clarify the reference to "override commissions" and quantify the
"bonus pools" and "certain levels of enrollments to receive
additional commissions."
Customer Service Training and Support, page 49
27. Please refer to prior comment 30. Please expand the first
sentence of the carryover paragraph at the bottom of page 49 to
quantify the significant investment.
Insurance Regulation, page 52
28. Please refer to prior comment 34. Please clarify, if
applicable,
whether states have enacted legislation that may affect the manner
in
which you sell your products.
Marketing Laws and Regulation, page 54
29. Please refer to prior comment 35. Please discuss in greater
detail the regulations that affect your business, such as limits
on
royalties. In addition, clarify the phrase "directly sponsored."
Also, tell us why you deleted the second paragraph of this
section,
such as your review of the requirements and your belief about
compliance.
Health Insurance Portability and Accountability Act, page 54
30. Please refer to prior comment 36. Please revise the next to
last
sentence of this section to describe the effect to the extent
practical. Also, we note the disclosure that the regulations are
new
conflicts with the disclosure that the Act became effective in
2003.
Please revise.
Management, page 57
31. Please refer to prior comments 2 and 40. Please clarify the
relationship, if any, between XRAYMEDIA and you.
32. Please file as exhibits the employment agreements with Mr.
Soufflas and Mr. Taylor. Also, discuss the business experience of
Mr. Soufflas from October 2002 until April 2004.
Board of Directors, page 58
33. Please revise this section to clarify that you only have one
director. Also, tell us why the other two directors recently
resigned.
Summary Compensation Table, page 60
34. Please refer to prior comment 12. Please revise the table to
include the $874,125 paid to Mr. Daniels in 2004.
35. Please revise footnote 3 to describe in greater detail the
compensation in the "All Other Compensation" column. See
Instruction
1 to Item 402(b) (2)(iii)(C) of Regulation S-B.
Security Ownership of Certain Beneficial Owners and Management,
page
65
36. Please update the disclosure in this section.
Certain Relationships and Related Transactions, page 66
37. Please provide the disclosure required by Item 404 of
Regulation
S-B. For example, we note the transactions with Mr. Westman in
September 2005. As another example, expand the disclosure on page
66
to discuss, if applicable, the agreement with your former officer.
We note the disclosure on pages 65 and F-40.
38. Please disclose whether the terms of the transactions
discussed
in this section are as fair to you as could have been made with
unaffiliated parties.
The Offering, page 73
39. The number of shares registered for resale in the first full
paragraph on page 76 conflicts with first sentence and the 50%
reference in the carryover paragraph at the bottom of page 75. We
note similar discrepancies regarding the number of shares
registered
for resale in the June 2005 offerings. Please revise. Also,
clarify
whether there is any penalty related to registering for resale
only
650,000 shares.
40. Please refer to prior comment 73. Please expand the
disclosure
on pages 75 and 76 to discuss the cash payment on September 16,
2005.
41. Please expand the last paragraph on page 77 to describe the
"consulting services to be rendered." Also, quantify the value of
the services.
Determination of Offering Price, page 78
42. Please discuss the all material factors that you considered in
determining the initial public offering price. For example, we
note
the reference to "several factors, but not limited to the
following"
and the transactions on pages 73-78.
Selling Security Holders, page 79
43. Please refer to prior comment 48. Please confirm that you
have
already issued the options and warrants and are registering for
resale the related common shares. Also, tell us why you are
registering for resale shares at this time that may not be issued,
such as the shares related to Trident.
44. Please refer to prior comment 49. Please disclose, if true,
that
the affiliates purchased in the ordinary course of business, and
at
the time of the purchase of the securities to be resold, the
sellers
had no agreements or understandings, directly or indirectly, with
any
person to distribute the securities. Also, revise the disclosure
to
clarify that the broker-dealer is an underwriter.
Annual Financial Statements, page F-1
Consolidated Statements of Stockholders` Equity, page F-5
45. We have reviewed your response to prior comment 62. Revise
your
statements of stockholders` equity to separately present the
issuance
of 1,748,250 shares of common stock to your CEO, as it does not
appear that the stock was issued for services, but rather as a
sign-
on bonus. Furthermore, since the CEO is an employee of the
company,
revise the consolidated statements of operations to present the
expense associated with this stock signing bonus as salary expense
rather than professional fees and revise Note 7 and your MD&A
discussion accordingly.
Note 1. Nature of Organization, page F-8
a. Organization and Business Activities, page F-8
46. We have reviewed your disclosure in response to prior comment
54.
The disclosure does not appear to address our prior comment.
Please
explain to us in more detail the structure of your relationship
with
marketing representatives. Tell us the nature and significant
terms
of these relationships and any related agreements. Discuss
whether
or not these representatives must pay you initial or ongoing fees
as
a result of their relationship to you.
47. Please note that the information concerning your organization
and
business activities is included in an audited footnote to the
financial statements. The current disclosure appears to contain
some
information that is more appropriately presented in the
description
of your business (see page 31) and not the footnotes to your
financial statements. Please revise or advise.
g. Revenue Recognition, page F-11
48. We have reviewed your response to prior comment 56. Please
tell
us the journal entries that you record when a customer`s account
is
debited, resulting in deferred revenue, as previously requested.
We
note no accounts receivable.
49. We note that your cost of sales includes depreciation and
amortization costs. Please tell us and revise to disclose the
assets
to which these charges are linked and how those assets contribute
to
the generation of revenue.
50. We note your disclosure, "these fees are typically pre-billed
and
received, resulting in deferred revenue." Tell us and revise to
disclose the nature of the transaction in a more detailed manner,
so
that it is apparent how the transaction is accounted for. For
example, if you bill the membership fees to the customer at the
beginning of the month through a debit to the account and then
recognize the revenue at the end of the month after the services
have
been rendered, please state that fact. Tell us and revise to
disclose the typical period from when the account is debited to
when
cash is received.
51. We have reviewed your response to prior comment 57. You state
that you revised Note 1g. of the audited financial statements in
response to our comment. Please tell us where you have addressed
our
comment in Note 1g.
52. We note your disclosure on page 18 that any fees that you
receive
in connection with the sale of your membership programs that are
non-
refundable are recognized when received. We note your disclosure
here and on page 18 that you recognize fees as revenue when
services
have been rendered. Please reconcile your disclosures and cite
the
accounting literature upon which you have relied to recognize
revenue
when payment is received up front.
Note 7. Equity Transactions, page F-17
53. We have reviewed your response to prior comments 64 and 75.
We
note that you have determined that the warrants issued in your
private placements of stock have no value based on the reasons
provided, and are not subject to the requirements of EITF 00-19
since
they were issued as part of units of stock and warrants. Please
tell
us how these warrants differ from the warrants granted to
consultants
for services rendered in the second quarter of 2005 as disclosed
in
Note 4 to your interim financial statements, to which you have
assigned value. Please tell us how you have applied the guidance
in
EITF 96-18 in accounting for the shares and warrants issued to
consultants in the second quarter of 2005.
54. Please refer to prior comment 64. Your response stated that
SFAS
133 is not applicable to the unit sales but did not provide your
analysis why. As such, please provide us with your analysis
showing
why you believe the warrants are properly classified in equity and
not as a liability. That is, please address your consideration of
paragraphs 12 - 32 of EITF 00-19.
Interim Financial Statements
Consolidated Statements of Stockholders` Equity, page F-25
55. Revise this statement for the stock signing bonus issued to
your
CEO as indicated in our comment on your annual financial
statements
above and revise to disclose that the "common stock issued for
stock
swap" was issued to a related party or refer to the Note where the
related party is disclosed.
Consolidated Statements of Cash Flows, page F-26
56. We have reviewed your response to prior comment 68. Revise
your
statements of cash flows and MD&A discussion to present the
investment in certificate of deposit as an investing activity in
accordance with SFAS 95.
Note 4. Commitments and Contingencies, page F-28
57. Revise the column header "Accumulated Amortization" in the
tables
reflecting the stock and warrants issued to consultants to
"Consulting Expense Recorded in the Six Months Ended June 30,
2005"
or similar caption in order to better present the information to
investors.
Note 5. Equity Transactions, page F-32
58. We have reviewed your response to prior comment 70. We have
the
following comments related to your March 2005 issuance of 737,750
shares of common stock to previous shareholders:
- - Revise your disclosure in the Note be consistent with your
disclosure on page II-4. The disclosure in the notes to the
financial statements states that the shares were issued to
previous
investors in consideration for the investors agreeing to
amendments
to their offering document, whereas the disclosure on page II-4
explicitly states that the shares were issued in exchange for each
person agreeing to an extension of the registration date.
- - Tell us the purpose of the amendment to the private placement
agreement. We note that you issued an amount of shares to reduce
the
per share price of stock issued to $0.40 per share and accounted
for
the issuance as a reduction in paid-in capital. However, we note
your disclosure on page II-4 that the amendment was entered into
in
exchange for each person agreeing to an extension of the
registration
date, which may suggest that the shares were issued as a penalty
for
non-timely registration of the shares.
- - Please file the private placement amendment as an exhibit to
your
amended Form SB-2.
59. We have reviewed your response to prior comments 72 and 74.
Revise your disclosure in this Note to quantify the number of
warrants issued in exchange for the shares of Infinium Labs` stock
and revise to clarify that the shares and warrants issued "to an
investor" were in fact issued to Ronald F. Westman, a related
party,
as that term is described in SFAS 57, as you have disclosed on
page
55.
Note 6. Stock Options, page F-35
60. We have reviewed your response to prior comment 66. Please
revise the notes to your interim financial statements to present
the
pro forma stock-based compensation in Note 1 as previously
requested.
61. We note that you entered into an agreement on June 24, 2005
with
Trident Marketing International, Inc. whereby Trident has the
opportunity to earn options to purchase up to 400,000 shares of
common stock at $0.50 per share. Based on the information
disclosed
in this Note, it does not appear that the options have been
granted,
i.e, the options will be granted based on the achievement of
milestones as disclosed. Therefore, your disclosure "the rights
to
exercise are as follows:" appears to be inaccurate. Revise this
language to read "the options will be granted as follows:" or a
similar disclosure or tell us why the current presentation is
appropriate. Options that are not granted cannot be exercised.
Additionally, please reconcile your disclosure here with the
disclosure on page II-7 which states that the options have been
issued.
62. Please tell us how you are accounting for the stock options
pursuant to the Marketing Incentive Plan and cite the accounting
literature upon which you relied.
Exhibits
63. Please refer to prior comment 79. As previously requested,
please fill the material contracts. For example, file as exhibits
the warrant agreements and the June 2005 option agreement issued
to
Trident Marketing International as exhibits. Also, file the
Marketing Incentive Plan agreement with Trident. As other
examples
we note several consulting agreements were entered into in
connection
with the June 2005 issuance of common stock and warrants in
exchange
for services provided or to be provided.
64. We note your pending request for confidential treatment. We
will
review and provide comments, if any, on the request separately.
Any
comments on your request must be resolved before we may accelerate
the effectiveness of this registration statement.
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
You may contact Thomas Dyer at (202) 551-3641 or Kate
Tillan,
Assistant Chief Accountant, at (202) 551-3604 if you have
questions
regarding comments on the financial statements and related
matters.
Please contact Alan Morris at (202) 551-3601 or me at (202) 551-
3602
with any other questions.
Sincerely,
Thomas A. Jones
Senior Attorney
cc. Alex Soufflas
Via telefax (215) 682-7116
David M. Daniels, CEO
National Health Partners, Inc.
October 21, 2005
Page 13