January 16, 2006
VIA EDGAR AND OVERNIGHT MAIL
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Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attn: Mr. Alan Morris, Esq.
RE: NATIONAL HEALTH PARTNERS, INC. AMENDMENT NO. 4 TO REGISTRATION
STATEMENT ON FORM SB-2, REGISTRATION NO. 333 - 126315
Dear Mr. Morris:
I am writing to you on behalf of National Health Partners, Inc. in
regards to Amendment No. 4 to the Registration Statement on Form SB-2,
Registration No. 333 - 126315, filed by the company with the Securities and
Exchange Commission on January 4, 2006. The company received comments to the
registration statement from the SEC by means of a letter faxed to the company on
January 12, 2006.
Please find enclosed Amendment No. 5 to the Registration Statement on
Form SB-2. In addition, please find below each of the comments provided to the
company by the SEC along with the company's response to each comment. Each
comment is set forth in italics and is numbered to correspond to the numbered
paragraphs in the SEC's comment letter. The company's response to each comment
immediately follows the applicable comment.
Please also note that the company previously submitted a revised
application for confidential treatment to the Office of the Secretary of the SEC
concurrently with the filing of Amendment No. 3 to the Registration Statement on
Form SB-2 for certain of the information contained in the agreements filed as
Exhibits 10.7, 10.8, 10.9, 10.10 and 10.11 to the Registration Statement on Form
SB-2.
Securities and Exchange Commission
January 16, 2006
Page 2
Management's Discussions and Analysis of Financial Condition and Results of
Operations, page 20
Recent Developments, page 21
1. We note that you present certain estimated financial information for
the quarter ended December 31, 2005 in this section. Please ensure that
the financial statements and related information comply with Item
310(g) of Regulation S-B.
The company believes that the financial statements and related
information comply with Item 310(g) of Regulation S-B. The company
acknowledges that it has provided certain estimated financial
information for the quarter ended December 31, 2005 in this section,
but that its audited financial statements for the recently completed
fiscal year ended December 31, 2005 are not yet available and are not
expected to become available prior to effectiveness.
Off-Balance Sheet Arrangements, page 37
2. Please refer to prior comment 4 from our December 22, 2005 letter.
Section J.l. of the Current Accounting and Disclosure Issues in the
Division of Corporation Finance clarifies the requirements as they
relate to the disclosure of off-balance sheet transactions to require
disclosure of "all material off-balance sheet transactions,
arrangements, obligations (including contingent obligations), and other
relationships of the registrant with unconsolidated entities or other
persons, that have a material current or future effect on financial
condition, changes in financial condition, results of operations,
capital expenditures, capital resources, or significant components of
revenues or expenses." It appears to us that the holders of the
warrants would qualify as "other persons" in this situation, and that
you should revise your discussion to provide the disclosures as
outlined in Item 303(c)(1) of Regulation S-B.
The company believes that the warrants issued to consultants in 2005 do
not qualify as off-balance sheet arrangements pursuant to Item
303(c)(2)(iii) of Regulation S-B for the reasons set forth below.
First, Item 303(c)(2) defines "off-balance sheet arrangement" as "any
transaction, agreement or other contractual arrangement to which an
entity unconsolidated with the small business issuer is a party, under
which the small business issuer has" one or more specified types of
obligations or interests. The warrants issued to consultants were not
issued under an arrangement to which an entity unconsolidated with the
company was a party. The consulting agreements were between the company
and the applicable consultant exclusively. No other entity
unconsolidated with the company was a party to the consulting
agreements or arrangements. The company acknowledges that Section J.l.
of the Current Accounting and Disclosure Issues in the Division of
Corporation Finance (CADI) references "unconsolidated entities or other
persons," however Item 303(c)(2) refers only to entities unconsolidated
with the issuer and makes no reference to "other persons." The company
notes that the CADI most likely intended the word "unconsolidated" to
modify both "entities" and "other persons."
Securities and Exchange Commission
January 16, 2006
Page 3
Second, Item 303(c)(2) provides that disclosure is required if the
off-balance sheet arrangement has or is reasonably likely to have a
current or future effect on the company's financial condition, revenues
or other financial criteria that are material to investors. In Release
No. 33-8182, "Disclosure in Management's Discussion and Analysis about
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations,"
the Commission states under Section III.B. that "If management
concludes that the known trend, demand, commitment, event or
uncertainty is not reasonably likely to occur, then no disclosure is
required in MD&A." All of the consulting agreements pursuant to which
the warrants in question were issued terminated on December 31, 2005
and all stock compensation expense associated with the issuance of the
warrants was recognized in full by December 31, 2005. As a result,
there is no event or uncertainty that may occur in the future with
regard to the consulting agreements or the warrants issued thereunder.
Third, the Commission notes in Section II.B.1. of Release 33-8182 that
a concern many commenters had with respect to the proposed definition
of "off-balance sheet arrangement" is that the proposed definition
included routine transactions that would not typically be considered
off-balance sheet arrangements, such as "...employment agreements,
consulting contracts" and other similar agreements. The Commission
stated that it agreed to modify the proposed definition to its current
form so as "to eliminate disclosure of routine arrangements that could
obscure more meaningful information." Since the arrangements at issue
were all consulting arrangements governed by standard consulting
agreements, the company believes that the consulting arrangements are
not within the types of transactions for which the Commission was
seeking disclosure.
Finally, the CADI states in Section J.1. that the definition of
off-balance sheet arrangement "primarily targets the means through
which registrants typically structure off-balance sheet transactions or
otherwise incur risks of loss that are not fully transparent to
investors." The consulting arrangements to which the company is a party
are standard consulting arrangements not involving transactions or
risks of loss that are not transparent to investors. To the extent the
consulting arrangements reflect trends or other information about the
company that may be material to investors, the company believes such
information is properly disclosed in an understandable manner in both
the comparison of financial results and liquidity and capital resources
sections of its MD&A.
As a result of each of the above reasons individually and in the
aggregate, the company believes that the warrants issued to the
consultants in June 2005 do not qualify as off-balance sheet
arrangements pursuant to Item 303(c)(2)(iii) of Regulation S-B.
Securities and Exchange Commission
January 16, 2006
Page 4
Our CARExpress Healthcare Solution, page 42
Overview, page 42
3. Refer to prior comment 5 and your response. We reissue the comment.
The company has further revised this section to simplify and clarify
the disclosure.
Aggregate Option/SAR Exercises in Last Fiscal Year, page 74
4. With a view toward disclosure, please tell us the basis for your belief
that the fair market value at December 31, 2005 is $0.40 per share for
purposes of disclosing the value of unexercised in-the-money options.
We note the offering price of $1.50 per share.
The company has revised this section to reflect the offering price of
$1.50 per share.
Exhibits
5. Refer to prior comment 15 and your response. We reissue the comment.
The company has refiled this exhibit with a current date.
Interim Financial Statements, page F-23
Note 1. Basis of Financial Statement Presentation, page F-28
6. Please refer to prior comment 12 from our December 22, 2005 letter. SAB
Topic 13.A.3.f discusses the appropriate revenue recognition method for
non-refundable up-front fees, including fees received for delivery of
products or services (see Question 1 of that bulletin). With respect to
the non-refundable up-front fee you charge to customers for shipping
them the membership package, we note that you record this fee ratably
over a one-month period (the initial membership period) and not over
the expected customer life. It appears that the delivery fee has no
utility to your customer separate and independent of your performance
of the other elements of the arrangement. Therefore, in the absence of
your continuing involvement under the arrangement, the customer would
not have paid the fee.
Assuming that your arrangements qualify as single units of accounting
under EITF Issue 00-21, unless the up-front fee is in exchange for
products delivered or services performed that represent the culmination
of a separate earnings process, the deferral of the fee is appropriate
(see Question 1 of the bulletin).
The delivery of the membership package does not appear to be a discrete
earnings event and your customer may ascribe a significantly lower, and
perhaps no, value to the delivery element in the absence of your
performance of other contract elements. Also, we note that you do not
sell the delivery service separately. If true, the earnings process is
completed by performing under the terms of the arrangement, not simply
by delivering the membership package. In such circumstances, the staff
believes that up-front fees, even if nonrefundable, are earned as the
products and/or services are delivered and/or performed over the term
of the arrangement or the expected period of performance and generally
should be deferred and recognized systematically over the periods that
the fees are earned.
Securities and Exchange Commission
January 16, 2006
Page 5
That is, under SAB Topic 13.A.3.f, the revenue recognition period
should "extend beyond the initial contractual period if the
relationship with the customer is expected to extend beyond the initial
term and the customer continues to benefit from the payment of the
up-front fee (e.g., if subsequent renewals are priced at a bargain to
the initial up-front fee)." As such, revenue would be recognized over
the contractual term of the arrangement or the expected period during
which the services will be performed, whichever is longer.
The company acknowledges that non-refundable up-front fees and monthly
membership fees qualify as single units of accounting under EITF Issue
00-21. The company also acknowledges that the up-front fees should be
deferred and recognized systematically over the longer of the
contractual term of the arrangement or the expected period during which
the services will be performed if the relationship with the customer is
expected to extend beyond the initial term and the customer continues
to benefit from the payment of the up-front fee.
The company notes its response to prior Comment No. 12 from the Staff's
December 22, 2005 letter. The company's members may cancel their
membership at the end of the initial monthly membership period and are
not contractually obligated to continue the membership for additional
monthly membership periods. As noted in "MD&A - Operational Metrics,"
the company has been selling its CARExpress membership programs for
only a short period of time and has generated only a minimal number of
members to date. Its ability to evaluate its member retention rates is
hampered by the relatively little information available to it for
evaluation. As a result, the company is unable to accurately estimate
what period beyond the initial contractual period members are expected
to continue to benefit from the payment of the up-front fee.
Attached as "Exhibit A" to this letter is a SAB 99 analysis prepared by
our independent auditors. This analysis provides a comparison of: (i)
the revenues generated by the company for the 9 months ended September
30, 2005 under the company's current method of recognizing shipping and
handling fees on a straight-line basis over the initial monthly
membership period, versus (ii) the revenues generated by the company
for the 9 months ended September 30, 2005 if the shipping and handling
fees are recognized on a straight-line basis assuming the company's
members continue to benefit from the payment of the up-front fee for a
period of 3 months. No comparison is provided for the 12 months ended
December 31, 2004 and 2003, respectively, as the company did not
receive any shipping and handling fees during those years. Under
alternative (i), the company generated revenues of $83,658, whereas
under alternative (ii), the company generated revenues of $83,037,
representing a difference of $621. Carrying this analysis through to
some of the company's other principal financial criteria, under
alternative (i), the company had net assets of $486,329 and total
liabilities of $142,818 at September 30, 2005, and had a net loss of
$3,179,090 for the 9 months ended September 30, 2005, whereas under
alternative (ii), the company had net assets of $485,708 and total
liabilities of $143,439 at September 30, 2005, and had a net loss of
$3,179,711 for the 9 months ended September 30, 2005. Both the company
and its independent auditors believe that this difference is immaterial
with respect to the company's revenues as well as the other financial
criteria.
Securities and Exchange Commission
January 16, 2006
Page 6
The company will reconsider its ability to accurately estimate what
period beyond the initial contractual period members are expected to
continue to benefit from the payment of the up-front fees during the
course of the preparation of its audited financial statements for the
year ended December 31, 2005. In the event the company is able to
accurately estimate the period its members benefit from its programs,
the company will recognize the shipping and handling fees over this
period rather than over the initial monthly membership period.
Item 28 - Undertakings, page II-11
7. Please revise to include all applicable undertakings required by Reg.
S-B Item 512, as revised effective December 1, 2005. See Release
33-8591 for additional guidance.
The company has revised the document to include all applicable
undertakings required by Regulation S-B Item 512 as requested.
* * * * *
The company believes that it has adequately responded to the SEC's
comments. Please feel free to contact me by phone at (215) 682-7114 ext. 102 or
by fax at (215) 682-7116 if you have any questions regarding this letter or if
you have any additional comments.
Very truly yours,
/s/ Alex Soufflas
Alex Soufflas
General Counsel
cc: Thomas A. Jones
Thomas Dyer
Kate Tillan
Exhibit A
National Health Partners, Inc.
SAB 99 Analysis
September 30, 2005
Revenue Net Loss Equity Liabilities
--------------------------------------------------
As Reported 83,658 (3,179,090) 486,329 142,818
As Recomputed 83,037 (3,179,711) 485,708 143,439
Dollar Difference (621) (621) (621) 621
Percentage Difference -0.74% 0.02% -0.13% 0.43%
Based on the analysis of the difference, the Company has concluded that the
difference is immaterial to both the balance sheet and the statement of
operations for the nine months ended September 30, 2005.