10-Q 1 mcth_10q.htm QUARTERLY REPORT mcth_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2010
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                     to                    
 
 
Commission File No.  333-72376
 
MEDICAL CONNECTIONS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
Florida
 
65-0920373
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
      
4800 T Rex Avenue Suite 310
Boca Raton, Florida
 
33431
 (Address of principal executive office)    (Zip Code)
 
Registrant’s telephone number, including area code:  (561) 353-1110

 
Former name, former address and former fiscal year, if changed since last report.
 
Indicate by a 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 1934 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 þ  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, 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 þ
 
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
(Do not check if smaller reporting company)
o
Smaller reporting company
þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)   Yes o  No þ 
 
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:
 
 81,825,209 shares of Common Stock, $.001 par value as of November 4, 2010
 


 
 

 

INDEX
 
 
PART I. – FINANCIAL INFORMATION
     
         
Item 1.  Financial Statements     1  
           
  Condensed Consolidated Balance Sheets at September 30, 2010 (unaudited) and December 31, 2009     1  
           
  Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2010 and September 30, 2009 (unaudited)     2  
           
  Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2010 and September 30, 2009 (unaudited)     3  
           
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and September 30, 2009 (unaudited)     4  
           
  Notes to Condensed Consolidated Financial Statements as of September 30, 2010 (unaudited)     5  
           
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations     9  
           
Item 3.  Quantitative and Qualitative Disclosures about Market Risk     12  
           
Item 4. Controls and Procedures     12  
           
  PART II. – OTHER INFORMATION        
           
Item 1.   Legal Proceedings     13  
           
Item 1A. Risk Factors     13  
           
Item 2.  Unregistered Sales of Equity Securities     13  
           
Item 3.  Defaults upon Senior Securities     13  
           
Item 4.  (Removed and Reserved)     13  
           
Item 5.  Other Information     13  
           
Item 6.  Exhibits      14  

 
i

 
                                                   
PART I – FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
 ASSETS
           
             
 Cash
  $ 459,949     $ 1,017,843  
 Accounts receivable, net
    1,359,051       804,382  
 Prepaid expenses
    3,995       98,515  
 Total current assets
    1,822,995       1,920,740  
                 
 Property and equipment
    917,314       386,953  
     Less: accumulated depreciation
    281,426       243,475  
      635,888       143,478  
                 
 Other assets
               
 Security deposit
    206,642       206,642  
 Intangible asset, net
    151,481       218,981  
      358,123       425,623  
                 
 Total assets
  $ 2,817,006     $ 2,489,841  
                 
 LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
 Current liabilities
               
 Accounts payable
  $ 421,233     $ 129,227  
 Accrued expenses
    232,241       85,063  
 Total current liabilities
    653,473       214,290  
                 
 Total liabilities
    653,473       214,290  
                 
 Stockholders' equity
               
   Preferred stock, Class A, $.001 par value; 1,000,000 shares
               
     authorized, 55,845 and 85,220 issued and outstanding, respectively
    56       85  
   Preferred stock, Class B, $.001 par value; 500,000 shares
               
     authorized, issued and outstanding
    500       1,000  
   Preferred stock, Class C, $.001 par value; 1,200,000 shares
               
     authorized, issued and outstanding
    1,200       460  
   Common stock, $.001 par value, 125,000,000 shares authorized,
               
  76,989,972 and 52,378,794  shares issued and outstanding, respectively
    76,990       52,379  
   Additional paid-in capital
    41,350,829       35,766,004  
   Accumulated deficit
    (39,266,042 )     (33,544,377 )
 Total stockholders' equity
    2,163,533       2,275,551  
                 
 Total liabilities and stockholders' equity
  $ 2,817,006     $ 2,489,841  
 
See the accompanying notes to the condensed consolidated financial statements
 
 
1

 
 
MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009  (UNAUDITED)
 
   
2010
   
2009
 
 Revenue
  $ 2,264,713     $ 1,552,899  
                 
 Direct costs of revenue
    1,755,751       1,080,345  
 Sales and marketing expenses
    30,552       65,439  
 Recruiting - salaries and costs
    420,800       576,576  
 Professional and consulting fees
    224,375       681,232  
 General and administration expenses
    819,505       908,272  
                 
 Total operating expenses
    3,250,983       3,311,864  
                 
      (986,271 )     (1,758,965 )
                 
                 
 Interest expense
    -       10  
 Interest income
    (1 )     (19 )
 Other
    198,366       166,031  
                 
 Total other expenses, net
    198,365       166,022  
                 
 Loss before income taxes
    (1,184,636 )     (1,924,987 )
                 
 Income taxes
    -       -  
                 
 Net (loss)
  $ (1,184,636 )   $ (1,924,987 )
                 
 Net loss per common share - basic and fully diluted
  $ (0.02 )   $ (0.05 )
                 
Weighted average common shares outstanding                
   - basic and fully diluted
    75,231,815       38,743,431  
 
See the accompanying notes to the condensed consolidated financial statements

 
2

 
 
MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009  (UNAUDITED)
 
   
2010
   
2009
 
 Revenue
  $ 5,603,505     $ 4,637,862  
                 
 Direct costs of revenue
    4,214,657       3,343,357  
 Sales and marketing expenses
    141,786       276,170  
 Recruiting - salaries and costs
    1,276,756       1,717,809  
 Professional and consulting fees
    1,722,052       1,574,855  
 General and administration expenses
    2,783,085       2,598,717  
                 
 Total operating expenses
    10,138,336       9,510,908  
                 
      (4,534,832 )     (4,873,046 )
                 
                 
 Interest expense
    -       71  
 Interest income
    (17 )     (161 )
 Other
    1,190,294       268,862  
                 
 Total other expenses, net
    1,190,277       268,772  
                 
 Loss before income taxes
    (5,725,109 )     (5,141,818 )
                 
 Income taxes
    -       -  
                 
 Net (loss)
  $ (5,725,109 )   $ (5,141,818 )
                 
 Net loss per common share - basic and fully diluted   $ (0.09 )   $ (0.15 )
                 
Weighted average common shares outstanding                
   - basic and fully diluted
    66,661,779       33,986,137  
 
See the accompanying notes to the condensed consolidated financial statements
 
3

 

MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
 
   
2010
   
2009
 
Cash flow from operating activities
           
Net loss
  $ (5,725,109 )   $ (5,141,818 )
                 
Adjustments to reconcile net loss to net cash
               
Depreciation and amortization
    108,894       76,115  
Common stock issued for compensation
    275,000       372,198  
Common stock issued for common stock
    -       (271,481 )
CHANGES IN ASSETS AND LIABILITIES
               
Accounts receivable
    (554,669 )     163,853  
Security deposit
    -       21,898  
Prepaid expenses
    94,520       75,148  
Accounts payable and accrued expenses
    439,184       (168,382 )
                 
Net cash used in operating activities
    (5,362,180 )     (4,872,469 )
                 
Cash flow from investing activities
               
Proceeds from sale of investment property
            400,000  
Acquisition of property and equipment
    (530,361 )     (55,796 )
Net cash provided by (used in) investing activities
    (530,361 )     344,204  
                 
Cash flow from financing activities
               
Proceeds from issuance of common stock and warrants
    5,334,648       4,605,964  
Net cash provided by financing activities
    5,334,648       4,605,964  
                 
Net increase (decrease) in cash and cash equivalents
    (557,893 )     77,699  
                 
Cash and cash equivalents at beginning of year
    1,017,843       599,058  
                 
Cash and cash equivalents at end of year
  $ 459,949     $ 676,757  
                 
Supplemental disclosure of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ -     $ 71  
Taxes
  $ -     $ -  
 
See the accompanying notes to the condensed consolidated financial statements

 
4

 

 
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
 
Medical Connections Holdings, Inc. and its subsidiaries, (the "Company") is an employment and executive search firm that provides recruiting services to its clients within the healthcare and medical industries throughout the United States. The Company was formed in Florida for the purpose of specializing in the recruitment and placement of healthcare professionals in a variety of employment settings.
 
In our opinion, the accompanying condensed consolidated balance sheets and related interim statements of condensed consolidated operations and cash flows include the adjustments (consisting of normal and recurring items) necessary for their fair presentation in conformity with United States generally accepted accounting principles ("GAAP") and represent our accounts after the elimination of inter-company transactions. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates. The unaudited information included in this Form 10-Q should be read in conjunction with the consolidated financial statements contained in our 2009 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for a full year.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Medical Connections Holdings, Inc., and its wholly-owned subsidiaries. All material inter-company transactions and balances have been eliminated in consolidation.
 
USE OF ESTIMATES

           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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING

The Company's policy is to expense the costs of advertising and marketing as they are incurred. Advertising expense for the nine months ended September 30, 2010 and 2009 was $141,786 and $276,170, respectively.
 
INCOME TAXES
 
We account for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes.  Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.
 
 
5

 

ASC 740-10 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

COMMON STOCK ISSUED FOR OTHER THAN CASH

Services purchased and other transactions settled in the Company's common stock are recorded at the estimated fair value of the stock issued if that value is more readily determinable than the fair value of the consideration received.

INCOME (LOSS) PER SHARE OF COMMON STOCK

Income (Loss) per share: Basic loss per share excludes dilution and is computed by dividing the loss attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the loss of the Company. Diluted loss per share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding for the period and dilutive potential common shares outstanding unless consideration of such dilutive potential common shares would result in anti-dilution. Common stock equivalents were not considered in the calculation of diluted loss per share as their effect would have been anti-dilutive for the nine months ended September 30, 2010 and 2009.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, loans payable, lines of credit, convertible debentures and promissory notes approximate fair value because of the immediate or short-term maturity of these financial instruments.


NOTE 3 - STOCKHOLDERS' EQUITY

 PREFERRED STOCK - A

As of September 30, 2010, the Company has 1,000,000 shares of Series A Preferred Stock authorized, par value of $0.001 per share and 55,845 shares issued and outstanding.   Each holder of the Series A Preferred Stock may convert each share of Preferred Stock into nineteen (19) shares (the “Conversion Ratio”) of the Company’s Common Stock at any time. The Conversion Ratio is subject to adjustment in the event of any recapitalization or reorganization.  The Holders of the Series A Preferred Stock are required to tender the Series A Preferred Stock Certificate to the Company for redemption prior to issuance of any shares of Common Stock. Until such shares of Series A Preferred Shares are exchanged for the Company’s Common Shares, each holder of a Series A Preferred Share shall be entitled to one vote per share on all matters which are brought to a vote of the holders of our Common Stock at an annual or special meeting (or pursuant to written consent).  Holders of the Series A Preferred Stock have no other rights or preferences. As of September 30, 2010, a total of 476,010 shares of Series A Preferred Stock have been converted into 9,044,190 shares of our Common Stock. There were 550 shares of Series A Preferred Stock converted into 10,450 shares of Common Stock during the three months ended September 30, 2010.
 
 PREFERRED STOCK - B

As of September 30, 2010, the Company has 500,000 shares of Preferred Stock B authorized, par value of $0.001 per share, and 500,000 shares issued and outstanding.  Each share of Series B Preferred Stock has 10 votes per share and will vote together with holders of the Company's common stock, Series A Preferred Stock and Series C Preferred Stock as a single class on all matters presented to the Company's shareholders at an annual or special meeting (or pursuant to written consent), except with respect to the matters relating to the election of directors and as otherwise required by Florida law. The Series B Preferred Stock does not have any dividend or liquidation preferences.
 
 
6

 
 
PREFERRED STOCK - C
 
As of September 30, 2010, the Company has 1,200,000 shares of Series C Preferred Stock authorized, $0.001 par value per share, and 1,200,000 shares issued and outstanding.  Each share of Series C Preferred Stock has 100 votes per share and will vote together with holders of the Company's common stock, Series A Preferred Stock and Series B Preferred Stock as a single class on all matters presented to the Company's shareholders at an annual or special meeting (or pursuant to written consent), except with respect to the matters relating to the election of directors and as otherwise required by Florida law.  The holders of a majority of shares of the Company's Series C Preferred Stock will have the right to appoint a majority of the directors serving on the Company's Board. The Series C Preferred Stock does not have any dividend or liquidation preferences.  
 
COMMON STOCK
 
As of September 30, 2010, the Company has 125,000,000 shares of Common Stock authorized at a par value of $0.001 par value and 76,989,972 issued and outstanding. For the three months ended September 30, 2010, the Company sold 3,232,553 shares of its Common Stock in a private offering for aggregate proceeds of $788,366. During the three months ended September 30, 2010, the Company issued 1,550,000 shares of its Common Stock for services rendered, at $ 0.105 per share fair market value, for a total cost of $162,750.
 
NOTE 4 - STOCK OPTIONS AND WARRANTS
 
At September 30, 2010, the Company had one stock based compensation plan, the Medical Connections Holdings, Inc. 2010 Stock Incentive Plan (“2010 Plan”).   The Company accounts for the fair value of its grants under the 2010 Plan in accordance with FASB ASC Topic 718.  In June 2010, the Company's shareholders approved the 2010 Plan pursuant to an information statement. The 2010 Plan provides for the granting of up to 10 million shares of the Company's common stock through a variety of stock-based and cash-based awards to eligible individuals. The stock based awards include stock options, restricted stock grants, stock appreciation rights, performance shares and performance units. Employees of the Company and its subsidiaries, members of the Board of Directors, independent consultants and advisors are eligible to participate in the 2010 Plan. The granting and vesting of stock and cash-based awards under the 2010 Plan is authorized by the Company’s Board of Directors or a committee of the Board of Directors.  The Company issued an aggregate of 1.5 million shares of its common stock under the 2010 Plan to three executives in the three months ended September 30, 2010.
 
Warrant Grants

In connection with various financings that we have secured, we have outstanding warrants to purchase a total of 8,723,894 shares of our common stock.
 
No. of
Warrants
 
Grant
Date
 
Exercise
Price
 
Expiration
Date
  3,553,359   2008   $ 1.50   2010
  232,854   2009   $ 1.00   2011
  2,547,281   2009   $ 0.75   2011
  2,390,400   2010   $ 0.01   2012
 
 
7

 
 
NOTE 5 - PROVISION FOR INCOME TAXES

The Company reported no tax expense or benefit for the nine months ended September 30, 2010 due to the net operating losses incurred during the period and a valuation allowance established against 100% of the Company’s deferred tax assets. At September 30, 2010 deferred tax assets consist of the following:
 
 
 
2010
 
         Deferred tax asset
  $ 11,130,000  
         
         Less: valuation allowance
    (11,130,000 )
         
         Net deferred tax assets
  $ 0  
 
As of September 30, 2010, the Company had accumulated deficits approximating $31,800,000 available to offset future taxable income through 2027. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in the future period.
 
Management has assessed the realization of the net deferred tax assets and has determined that it is more likely than not that the  Company’s deferred tax assets for its  net operating loss carry forwards will not be realized. Due to the uncertainty of their realization, a valuation allowance of 100% continues to be provided against those net operating loss carry forwards.
 
The Company adopted the provisions of ASC 740, previously FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes.  The statute of limitations is still open on years 2007 and subsequent. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than–not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date the Company applied ASC 740 to all tax positions for which the statute of limitations remained open. As a result of the implementation of ASC 740, the Company did not recognize an increase in the liability for uncertain tax positions.
 
The Company is subject to income taxes in the U.S. federal jurisdiction and a number of state jurisdictions, including the state of Florida. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for the years before 2007.
 
NOTE 6- GOING CONCERN

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has sustained operating losses and its revenue stream is not sufficient to fund expenses at this time. The Company has issued stock to continue to fund operations. The Company's continued existence is dependent upon its ability to generate sufficient cash flows from equity financing and product revenues. These items raise substantial doubt about the Company's ability to continue as a going concern.

In view of these matters, realization of the assets of the Company is dependent upon the Company's ability to meet its financial requirements and the success of future operations. These consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
 
NOTE 7 – SUBSEQUENT EVENTS

On October 25, 2010, the Company received $2.5 million in capital from the sale of common stock to an investment group. The capital will be used for acquisitions, working capital and other corporate purposes.
 
 
8

 
 
In this Quarterly Report on Form 10-Q, the terms "Company," "we," "us," and "our" refer to Medical Connections Holdings, Inc.  and  its wholly-owned and majority-owned subsidiaries.
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward Looking Statements
 
                This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding  industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, those risks described in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission (“SEC”) on March 30, 2010, and the risks discussed in other SEC filings. These risks and uncertainties, as well as other risks and uncertainties, could cause our actual results to differ significantly from management’s expectations. The forward-looking statements included in this report reflect the beliefs of our management on the date of this report. We undertake no obligation to update publicly any forward-looking statements for any reason.
 
General                      

Medical Connections Inc., our wholly owned subsidiary, is a national provider for medical recruitment and staffing services.  Established in 2002 to satisfy the increasing need for qualified healthcare professionals, our business is to identify, select and place the best allied health specialists, pharmacists, physicians, nurses and hospital management executives. We provide recruiting and staffing services for permanent and temporary positions with options for the clients and candidates to choose the most beneficial working arrangements.

We generate revenues primarily from permanent placement hires and contract appointments:

  
Permanent Placement Hires: This activity includes the hiring of allied health professionals, nurses, physicians, pharmacists and other medical personnel to be employed in healthcare or research facilities. Under this arrangement, we receive a placement fee ranging from 10% to 30% of the employee’s initial annual salary, or a negotiated fee, which is predetermined based upon medical specialty.
 
  
Contract Appointments: This represents temporary hires (typically, 13 week contracts) made by healthcare facilities to economically cover short staffing during periods of high-seasonal activity, vacations, leave of absences, etc. This also includes contracts for what is commonly known as “travel positions,” which are for allied health professionals, nurses or physicians who are willing to take temporary assignments outside their home region. Under this arrangement, we are the employer of record for the healthcare professional. The healthcare facility remits a fee to us that include all employment overhead, as well as a surcharge for the service. The revenue from this activity comes from the commission and surcharge for the service.

Potential Acquisitions:  We may expand our operations through the acquisition of other medical staffing or placement agencies   Acquisitions would enable us to increase revenue and to integrate the acquired company’s operations into our existing business.  If successful, we will be able to extend our market presence.  On March 12, 2010, we entered into a stock purchase agreement to acquire all of the issued and outstanding capital stock of Trustaff Management, Inc., an Ohio corporation and its five wholly-owned limited liabilities companies.  We are in the process of satisfying other closing conditions and there can be no assurances that we will be able to close this acquisition.
 
 
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Three Months Ended September 30, 2010 (“third quarter of 2010”) Compared to Three Months Ended September 30, 2009 (“third quarter of 2009”)

Revenue for the third quarter of 2010 was $2,264,713, an increase of $711,814, or 45.8%, when compared to $1,552,899 in the third quarter of 2009.   The two main components of revenue are permanent placement hires and contract appointments.

Revenue from permanent placement decreased $57,015, or 18.5%, to $250,561 for the third quarter of 2010 from $307,576 in the third quarter of 2009. The decrease in permanent placement hires in the third quarter of 2010 was due to the ongoing unemployment picture that has resulted in employers not yet being willing or able to make permanent hires.

Revenue from contract appointments increased $768,829, or 61.7%, to $2,014,152 in the third quarter of 2010 from $1,245,323 in the third quarter of 2009. This increase is attributable to improvements in the overall hiring of temporary staffing to fill employment needs of skilled healthcare facilities.

Direct costs associated with contract appointments increased $671,530, or 62.1%, to $1,753,000 in the third quarter of 2010 from $1,081,470 in the third quarter of 2009. These costs represent personnel salaries and benefits, temporary housing and travel costs. The gross profit from contract appointments increased to $261,152 in the third quarter of 2010 from $163,853 in the third quarter of 2009.

           Sales and marketing expenses were $30,552 in the third quarter of 2010, a decrease of $34,887, or 53.3%, from $65,439 in the third quarter of 2009. The decrease is due to ongoing efforts to reduce overhead and maximize returns from our marketing expenditures.

Recruiting salaries and costs decreased $155,776, or 27.0%, to $420,800 in the third quarter of 2010, due to ongoing adjustments to recruiter commission compensation.

Professional and consulting fees decreased $456,857, or 67.1%, to $224,375 in the third quarter of 2010 compared to the comparable period in the prior year, as the Company relied less on consultants to assist with services related to business development, finance and compliance.

General and administrative expenses decreased $88,767, or 9.8%, to $819,505 in the third quarter of 2010 from $908,272 in the third quarter of 2009.

Other expenses (income) for the third quarters of 2010 and 2009 were $198,366 and $166,031, respectively.   Included in these expenses in the third quarter of 2010 was $165,299 in investor relations expense, $13,067 in legal and auditing expenses associated with our pending acquisitions and $20,000 in investment banking expense.

Net losses for the third quarters ended September 30, 2010 and September 30, 2009 were $1,184,636 and $1,924,987, respectively.
 
Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
 
Revenue for the period was $5,603,505, an increase of $965,643, or 20.8%, when compared to $4,637,862 in revenue for the same period one year ago.  Revenue from permanent placement decreased 7.1%, or $59,420, from the $842,550 for the nine months ended September 30, 2009.  The decrease in permanent placement hires so far in 2010 was due to the ongoing unemployment picture that has resulted in employers not yet being willing or able to make permanent hires.

Revenue from contract appointments increased 27.0% to $4,820,373 in the nine months ended September 30, 2010 from $3,795,312 in revenue one year ago.  This increase is attributable to improvements in the overall hiring of temporary staffing to fill employment needs of skilled healthcare facilities.
 
 
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The direct costs associated with contract appointments increased $875,645 or 26.3%, to $4,209,156 for the nine months ended September 30, 2010 from $3,333,511 for the nine months ended September 30, 2009. These costs represent personnel salaries and benefits, temporary housing and travel costs. The gross profit from contract appointments increased to $611,217 in the nine months ended September 30, 2010 from $461,801 in the nine months ended September 30, 2009.

Sales and marketing expenses were $141,786 in the nine months ended September 30, 2010, a decrease of $134,384, or 48.7%, from $276,170 in the nine months ended September 30, 2009. The decrease is due to our ongoing efforts to maximize returns from our marketing expenditures.

Recruiting salaries and costs decreased $441,053, or 25.7%, to $1,276,756 in the nine months ended September 30, 2010, primarily due to ongoing adjustments to recruiter commission compensation.

Professional and consulting fees increased $147,197, or 9.3%, to $1,722,052 in the nine months ended September 30, 2010 compared to the comparable period in the prior year, as the Company continued to utilize consultants to assist with services related to business development, finance, and compliance.

General and administrative expenses increased $184,368, or 7.1%, to $2,783,085 in the nine months ended September 30, 2010 from $2,598,717 in the nine months ended September 30, 2009. Additional expenses incurred during the first nine months of 2010 were $30,000 in rent expense, $87,000 in depreciation and leasehold improvements amortization, and $125,000 in legal expense.

Other expenses (income) for the nine months ended September 30, 2010 and 2009 were $1,190,294 and $268,862, respectively.  Included in these expenses in 2010 were $795,000 in investor relations expense, $252,000 in legal and auditing expenses associated with our pending acquisition and $143,000 in investing banking expense.

Net losses for the nine months ended September 30, 2010 and 2009 were $5,725,109 and $5,141,818 respectively.

Liquidity and Capital Resources

Due to the operating losses and deficits, our independent auditors in their audit opinion have raised doubts about our ability to continue as a going concern. Despite these historical losses, management believes that it will be able to satisfy ongoing operating expenses. Management has done so to date by raising capital through the sale of the Company’s common stock. It will continue to do so, and/or seek third party financing, until such time as revenues from operations satisfy operating expenses.  There can be no assurance that a market for its stock or third party financing will be available, or if available, will be offered on terms that will not adversely impact our shareholders.

As of September 30, 2010, total current assets were $1,822,995 as compared to $1,920,740 on December 31, 2009. Total current liabilities increased $439,184 to $653,473 when compared to the $214,290 balance as of December 31, 2009.  The change is attributable to the timing of payments to vendors and temporary contract hires.

As of September 30, 2010, property and equipment were $635,888 after accumulated depreciation.
 
For the three month period ended September 30, 2010, we raised $788,366 from the sale of 3,232,553 shares of our common stock in private offerings.
 
Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ from these estimates under different assumptions or conditions. The impact and any associated risks related to these policies on our business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 Significant Accounting Policies and Related Information, in the Notes to Consolidated Financial Statements for the year ended December 31, 2009, included in our 2009 Annual Report. There have been no significant changes to our critical accounting policies in the third quarter of 2010.
 
 
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Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements. We do not anticipate entering into any off-balance sheet arrangements during the next 12 months.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

             Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

(a)           Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and determined that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.  The evaluation considered the procedures designed to ensure that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)           Changes in Internal Control over Financial Reporting

During the period covered by this Quarterly Report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 13d-15(d) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(c)            Inherent Limitations of Disclosure Controls and Internal Controls over Financial Reporting

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation or effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
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PART II. OTHER INFORMATION

 
ITEM 1.   LEGAL PROCEEDINGS.
 
None

ITEM 1A.  RISK FACTORS.

There has been no material changes in the risk factors associated with the Company’s operations since the filing of the Company’s Form 10-K which was filed with the Securities and Exchange Commission on March 30, 2010. 
 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES
 
During the three month period ended September 30, 2010, we sold 3,232,553 shares of our common stock to accredited or sophisticated investors for aggregate gross proceeds of $788,366.
 
During the three month period ended September 30, 2010, there were conversions of 550 shares of our Series A preferred stock into 10,450 shares of our common stock. These shares were issued in reliance upon the exemption from registration contained in Section 3(a)(9) of the Securities Act.   Each holder of the Series A preferred stock may convert each share of preferred stock into nineteen (19) shares of the Company’s common stock at any time.
 
During this same three month period, we issued 1,500,000 shares of our common stock as bonus payments for services rendered to us by three executives for a total expense of $112,500, using the fair market value price of $0.075 per share. We also issued 50,000 shares of common stock to a new member of our board of directors for a total expense of $3,750, using the fair market value price of $.075 per share.
 
These securities were issued in transactions that were exempt from registration under Regulation D Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”), as transactions by an issuer not involving a public offering, except as described above.  The Company's common stock issued upon conversion of the Series A preferred stock was also issued. All of the investors were knowledgeable, sophisticated and had access to comprehensive information about the Company and represented their intention to acquire the securities for investment only and not with a view to distribute or sell the securities. The Company placed legends on the securities stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
 None
 
ITEM 4.   (REMOVED AND RESERVED)
 
 Not Applicable.
 
ITEM 5.  OTHER INFORMATION
 
None
 
 
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ITEM 6.   EXHIBITS
 
 
 
Exhibit
No.
   Exhibit Description
10.1   Employment Agreement dated July 30, 2010 between Medical Connection Holdings, Inc. and Jeffrey Rosenfeld (incorporated by reference from Exhibit 10.1 in the Company's Form 8-K filed with the SEC on August 2, 2010). 
     
10.2   Separation and Release Agreement dated July 16, 2010 between Medical Connection Holdings, Inc. and Joseph Azzata (incorporated by reference from Exhibit 10.2 in the Company's Form 8-K filed with the SEC on July 21, 2010). 
     
31.1  
Certification by the Chief Executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
     
31.2   Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. + 
     
32.1   Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +
     
32.2   Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. + 

+ Filed herewith
 
 
 
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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
 
 
  MEDICAL CONNECTIONS HOLDINGS, INC.  
       
Date:  November 12, 2010
By:  
/s/ Jeffrey Rosenfeld  
    Jeffrey Rosenfeld,  
    Chief Executive Officer and Director  
       
                                                              
         In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
By:        
  /s/ Jeffrey Rosenfeld    Date:  November 12, 2010  
  Jeffrey Rosenfeld,      
  Chief Executive Officer and Director      
  (Principal Executive Officer)      
         
         
  /s/ Brian Neill   Date:  November 12, 2010  
  Brian Neill,      
  Chief Financial Officer      
  (Principal Financial Officer)      
 
 
 
 
 
 
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