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 1934For the quarterly period ended March 31, 2010ORo
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.)2300 Glades Road Suite 202 E

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.  YesþNo 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 oNoþ




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
oNon-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:




63,098,235 shares of Common Stock, $.001 par value as of April 30, 2010












INDEX




PART I. – FINANCIAL INFORMATIONItem 1.
Financial Statements

1Condensed Consolidated Balance Sheets at March 31, 2010 (unaudited) and December 31, 2009


1Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and March 31, 2009 (unaudited)


2Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and March 31, 2009 (unaudited)


3Notes to Condensed Consolidated Financial Statements as of March 31, 2010 (unaudited)


4Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations


11Item 3.
Quantitative and Qualitative Disclosures about Market Risk


14Item 4T.
Controls and Procedures


14PART II. – OTHER INFORMATIONItem 1.
Legal Proceedings


15Item 1A.
Risk Factors


15Item 2.
Unregistered Sales of Equity Securities


16Item 3.
Defaults upon Senior Securities


15Item 4.
(Removed and Reserved)


15Item 5.
Other Information


15Item 6.
Exhibits


16




i


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.
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1.  FINANCIAL STATEMENTS
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETSMARCH 31, 2010 (UNAUDITED) AND DECEMBER 31, 2009March 31,


December 31,2010


2009ASSETSCash

$
825,642


$
1,017,843Accounts receivable, net


750,288



804,382Prepaid expenses


97,516



98,515Total current assets


1,673,446



1,920,740Property and equipment


442,957



386,953Less: accumulated depreciation


255,642



243,475187,316



143,478Other assetsSecurity deposit


206,642



206,642Intangible asset, net


196,481



218,981403,123



425,623Total assets

$
2,263,885


$
2,489,841LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
158,593


$
129,227Accrued expenses


125,871



85,063Total current liabilities


284,463



214,290Total liabilities


284,463



214,290Stockholders' equityPreferred stock, Class A, $.001 par value; 1,000,000 sharesauthorized, 68,770 and 85,220 issued and outstanding, respectively


69



85Preferred stock, Class B, $.001 par value; 1,000,000 sharesauthorized, issued and outstanding


1,000



1,000Preferred stock, Class C, $.001 par value; 460,000 sharesauthorized, issued and outstanding


460



460Common stock, $.001 par value, 70,000,000 shares authorized,61,524,804 and 52,378,794  shares issued and outstanding, respectively


61,525



52,379Additional paid-in capital


37,962,621



35,766,004Accumulated deficit


(36,046,253
)


(33,544,377
)Total stockholders' equity


1,979,422



2,275,551Total liabilities and stockholders' equity

$
2,263,885


$
2,489,841See the accompanying notes to the condensed consolidated financial statements
 
 1


MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)2010


2009Revenue

$
1,428,591


$
1,529,648Direct costs of revenue


1,044,313



1,102,106Sales and marketing expenses


70,982



110,905Recruiting - salaries and costs


437,338



626,698Professional and consulting fees


775,528



304,709General and administration expenses


950,074



826,356Total operating expenses


3,278,235



2,970,774(1,849,645
)


(1,441,126
)Interest expense


-



45Interest income


(11
)


(108
)Other


652,242



39,265Total other expenses, net


652,231



39,202Loss before income taxes


(2,501,876
)


(1,480,328
)Income taxes


-



-Net (loss)

$
(2,501,876
)

$
(1,480,328
)Net loss per common share - basic and fully diluted

$
(0.04
)

$
(0.05
)Weighted average common shares outstanding- basic and fully diluted


57,386,034



29,844,160See the accompanying notes to the condensed consolidated financial statements
 
 2
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)2010


2009Cash flow from operating activitiesNet loss

$
(2,501,876
)

$
(1,480,328
)Adjustments to reconcile net loss to net cashDepreciation and amortization


34,667



20,997Common stock issued for compensation


28,750



-Decrease in fair value of asset held for investment


-



137,779CHANGES IN ASSETS AND LIABILITIESAccounts receivable


54,094



257,163Prepaid expenses


999



30,289Accounts payable and accrued expenses


70,173



(192,084
)Net cash used in operating activities


(2,313,193
)


(1,226,184
)Cash flow from investing activitiesAcquisition of property and equipment


(56,004
)


(55,796
)Net cash provided by (used in) investing activities


(56,004
)


(55,796
)Cash flow from financing activitiesProceeds from issuance of common stock and warrants


2,176,997



790,474Net cash provided by financing activities


2,176,997



790,474Net increase (decrease) in cash and cash equivalents


(192,200
)


(491,506
)Cash and cash equivalents at beginning of year


1,017,843



599,058Cash and cash equivalents at end of year

$
825,642


$
107,552Supplemental disclosure of cash flow information:Cash paid during the period for:Interest

$
11


$
45Taxes

$
-


$
-See the accompanying notes to the condensed consolidated financial statements
  3
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 
 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.
 
 4
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 
 
 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 three months ended March 31, 2010 and 2009 was $70,982 and $110,905, 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.
 
 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 three months ended March 31, 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.
 
 5
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 
 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 RECENT ACCOUNTING PRONOUNCEMENTS
 
 In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-01 “Equity Topic 505 – Accounting for Distributions to Shareholders with Components of Stock and Cash”, which clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share (“EPS”)).  Those distributions should be accounted for and included in EPS calculations in accordance with paragraphs 480-10-25- 14 and 260-10-45-45 through 45-47 of the FASB Accounting Standards codification.  The amendments in this Update also provide a technical correction to the Accounting Standards Codification.  The correction moves guidance that was previously included in the Overview and Background Section to the definition of a stock dividend in the Master Glossary.  That guidance indicates that a stock dividend takes nothing from the property of the corporation and adds nothing to the interests of the stockholders.  It also indicates that the proportional interest of each shareholder remains the same, and is a key factor to consider in determining whether a distribution is a stock dividend.  Management does not believe that this pronouncement will have a material effect on the Company’s financial statements.
 
 In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-02 “Consolidation Topic 810 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification”, which provides amendments to Subtopic 810-10 and related guidance within U.S. GAAP to clarify that the scope of the decrease in ownership provisions of the Subtopic and related guidance applies to the following:
 
 1.           A subsidiary or group of assets that is a business or nonprofit activity
 
 2.           A subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture
 
 3.           An exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity method investee or joint venture).
 
 The amendments in this Update also clarify that the decrease in ownership guidance in Subtopic 810-10 does not apply to the following transactions even if they involve businesses:
 
 1.           Sales of in substance real estate.  Entities should apply the sale of real estate guidance in Subtopics 360-20 (Property, Plant, and Equipment) and 976-605 (Retail/Land) to such transactions.
 
 2.           Conveyances of oil and gas mineral rights.  Entities should apply the mineral property conveyance and related transactions guidance in Subtopic 932-360 (Oil and Gas-Property, Plant, and Equipment) to such transactions.
 
 If a decrease in ownership occurs in a subsidiary that is not a business or nonprofit activity, an entity first needs to consider whether the substance of the transaction causing the decrease in ownership is addressed in other U.S. GAAP, such as transfers of financial assets, revenue recognition, exchanges of nonmonetary assets, sales of in substance real estate, or conveyances of oil and gas mineral rights, and apply that guidance as applicable. If no other guidance exists, an entity should apply the guidance in Subtopic 810-10. Management does not believe that this pronouncement will have a material effect on the Company’s financial statements.
 
 Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
 
 
 6
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 
 NOTE 3 – STOCKHOLDERS' EQUITY
 
 PREFERRED STOCK - A
 
 As of March 31, 2010, the Company has 1,000,000 shares of Preferred Stock A authorized at $0.001 par value and 68,770 were 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.  Holders of the Series A Preferred Stock have no other rights or preferences. As of March 31, 2010, a total of 463,085 shares of Series A Preferred Stock have been converted into 8,798,615 shares of our Common Stock. There were 16,450 shares of Series A Preferred Stock converted into 312,550 shares of Common Stock during the three months ended March 31, 2010.
 
 PREFERRED STOCK - B
 
 As of March 31, 2010, the Company has 1,000,000 shares of Preferred Stock B authorized at $0.001 par value and 1,000,000 issued and outstanding.  Holders of the Series B Preferred Shares shall be entitled to ten votes per share for each Series B Preferred Share beneficially owned on all matters brought to a vote of the holders of the common stock.
 
 PREFERRED STOCK - C
 
 As of March 31, 2010, the Company has 460,000 shares of Series C Preferred Stock authorized, $0.001 par value per share, and 460,000 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 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.  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 March 31, 2010, the Company has 70,000,000 shares of common stock authorized at $0.001 par value and 61,524,804 issued and outstanding.For the three months ended March 31, 2010, sales of 8,708,460 unregistered shares of common stock were made to accredited shareholders for $2,176,997.During the three months ended March 31, 2010, the Company issued 125,000 shares of its common stock for services rendered, at $ 0.23 per share fair market value, for a total cost of $28,750.
 
 7
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 
 NOTE 4 – STOCK OPTIONS AND WARRANTS
 
 No stock options were issued or vested in the three months ended March 31, 2010.  At March 31, 2010, the Company had one stock based compensation plan, which is described below. The Company accounts for the fair value of its grants under this plan in accordance with FASB ASC Topic 718. Under the 2006 Stock Incentive and Compensation Plan, the Company may grant options to its employees. Under this plan, the exercise price of each option equals the market price of the Company's stock on the date of grant and an option's maximum term is 10 years. The options that were granted vest in one third increments commencing one year from the grant date with subsequent vesting at the second and third anniversary of the options grant date. The fair value of each option grant is estimated on the date of the grant using the prospective method of transition as prescribed by FASB ASC Topic 718.
 
 A summary of the status of the Company's stock option/warrant plans as of March 31, 2010 is presented below:
 
 Warrant Grants
 
 In connection with various financings that we have secured, we have outstanding warrants to purchase a total of 6,333,494 shares of our common stock.
 
 No. of Warrants

Grant Date

Exercise Price

Expiration Date3,553,359

2008

$
1.50

2010232,854

2009

$
1.00

20112,547,281

2009

$
0.75

2011
 
 NOTE 5 – PROVISION FOR INCOME TAXES
 
 The Company reported no tax expense or benefit for the three months ended March 31, 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 which are related to the net operating losses. At March 31, 2010, deferred tax assets consist of the following:
 
 2010Deferred tax asset

$
10,619,000Less: valuation allowance


(10,619,000
)Net deferred tax assets

$
0
 
 As of March 31, 2010, the Company had accumulated deficits approximating $28,700,000 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.
 
 8
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 
 NOTE 5 – PROVISION FOR INCOME TAXES (CONTINUED)
 
 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.
 
 9
 
 MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 NOTE 7 – CONSULTING CONTRACTS
 The Company has engaged an investment banking firm to assist with its acquisition financing efforts. The Company pays a monthly fee of $20,000 for advisory services, and would incur a success fee once capital is raised. In addition, the Company from time to time makes use of investor relations firms and consultants to assist with its marketing.
 
 NOTE 8 – STOCK PURCHASE AGREEMENT
 
 On March 12, 2010, Medical Connections Holdings, Inc. (the "Company") entered into a stock purchase agreement ("Stock Purchase Agreement") with the shareholders pursuant to which the Company will acquire all of the issued and outstanding capital stock of Trustaff Management, Inc., an Ohio corporation and its five wholly-owned limited liability companies. Trustaff is a national health care staffing company with approximately 100 corporate staff supporting 500 healthcare professional working at various clients throughout the United States.  Based on financial information provided to the Company, Trustaff had revenues in excess of  $42 million during fiscal 2009, with profits in excess of $4.4 million. Trustaff's executive offices are located in Cincinnati, Ohio.
 
 Under the terms of the Stock Purchase Agreement, the Company expects to pay a purchase price equal to approximately $26 million in cash, with $19.5 million payable in cash at the closing, $4 million payable pursuant to a three year promissory note and $2.5 million will be placed in escrow to be used to fund any indemnification claims relating to certain tax liabilities.  The Company will also issue 1.5 million shares of its common stock to the Trustaff shareholders at the closing.    The purchase price is subject to adjustments following the closing.
 
 At the closing, the Company will also enter into employment agreements with four key employees/founders of Trustaff.  The closing of the transaction, which is currently expected to occur in the third quarter of this calendar year, is subject to customary closing conditions, including the Company's receipt of adequate financing to close the transaction.  There can be no assurances that the Company will be able to close this transaction.
 10
  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., the Company’s 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, the Company’s business is to identify, select and place the best allied health specialists, pharmacists, physicians, nurses and hospital management executives. The Company provides recruiting and staffing services for permanent and temporary positions with options for the clients and candidates to choose the most beneficial working arrangements.





The Company generates 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 completing our due diligence and there can be no assurances that we will be able to close this acquisition.





11





Three Months Ended March 31, 2010 (“first quarter of 2010”) Compared to Three Months Ended March 31, 2009 (“first quarter of 2009”)





Revenue for the first quarter of 2010 was $1,428,591, a decrease of $101,057, or 6.6%, when compared to $1,529,648 in the first quarter of 2009.   The two main components of revenue are permanent placement hires and contract appointments.





Revenue from permanent placement decreased $79,733, or 25.7%, to $230,074 for the first quarter of 2010 from $309,807 in the first quarter of 2009. The decrease in the first quarter of 2010 permanent placement revenue was due to the continuing high unemployment due to the decline in the economy and resultant decline in employment opportunities.





Revenue from contract appointments decreased $21,325, or 1.8%, to $1,198,516 in the first quarter of 2010 from $1,219,841 in the first quarter of 2009. This decrease was the result of the impact that the overall economic decline has had on temporary healthcare appointments.





The cost of sales for contract appointments decreased $47,095, or 4.3%, to $1,044,313 in the first quarter of 2010 from $1,091,408 in the first quarter of 2009. These costs represent personnel salaries, including benefits, temporary housing and travel costs. The gross profit from contract appointments increased to $154,203, (12.9% of revenue) in the first quarter of 2010 from $128,433 (10.5% of revenue) in the first quarter of 2009 due to a larger percentage of revenue being derived from slightly higher margin contracts during the first quarter 2010.





Sales and marketing expenses were $70,982 in the first quarter of 2010, a decrease of $39,923, or 36.0%, from $110,905 in the first quarter of 2009. The decrease is due to expense reductions due to our efforts to realize a better return from our marketing expenditures.





Recruiting salaries and costs decreased $189,360, or 30.3%, to $437,338 in the first quarter of 2010, primarily due to the decline in permanent placement revenue and ongoing adjustments to recruiter commission compensation and staffing levels.





Professional and consulting fees increased $470,819, or 154.6%, to $775,528 in the first quarter of 2010 compared to the comparable period in the prior year, as the Company continued to utilize the services of consultants to assist with certain functions related to business development, finance and compliance.





General and administrative expenses increased $123,718, or 15.0%, to $950,074 in the first quarter of 2010 from $826,356 in the first quarter of 2009.  Included in these expenses in the first quarter 2010 were $22,500 in intangible asset amortization expense, $53,000 in rent expense and $60,000 in legal expenses.





Other expenses (income) for the three months ended March 31, 2010 and 2009 were $652,242 and $39,265, respectively.   Included in these expenses in the first quarter of 2010 were $450,000 in investor relations expense, $139,025 in legal and auditing expenses associated with our pending acquisition and $63,218 in investment banking expense.





Net losses for the first quarter ended March 31, 2010 and March 31, 2009 were $2,501,876 and $1,480,328, respectively.





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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 March 31, 2010, total current assets were $1,673,446 as compared to $1,920,740 on December 31, 2009. The change in total current assets is primarily attributable to a decrease in cash of $192,201 to $825,642 compared to the December 31, 2009 balance of $1,017,843 and a decrease in accounts receivable of $54,094 to $750,288. The reduction in accounts receivable is primarily attributable to the decrease in revenue between the two periods.  Also, total current liabilities increased $70,173 to $284,463 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 hires.





As of March 31, 2010, property and equipment were $187,316 after accumulated depreciation.





For the three month period ended March 31, 2010, we raised $2,176,997 from the sale of 8,708,460 shares of our common stock in private offerings. During this same three month period, we issued 125,000 shares of our common stock for services rendered to us by consultants for a total cost of $28,750, using the fair market value price of $.23 per share.





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 first quarter of 2010.





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.





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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not applicable.
 
 ITEM 4T.  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 communicated to our management 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 March 31, 2010, we sold 8,708,460 shares of our common stock to accredited or sophisticated investors for aggregate gross proceeds of $2,176,997.





During the three month period ended March 31, 2010, there were conversions of 16,450 shares of our Series A preferred stock into 312,550 shares of our common stock.





During this same three month period, we issued 125,000 shares of our common stock for services rendered to us by consultants for a total cost of $28,750, using the fair market value price of $.23 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. 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 Description2.1

Stock Purchase Agreement dated March 12, 2010 by and between Medical Connections Holdings, Inc., Trustaff Management, Inc. and its shareholders. .+ (Portions of Exhibit 2.1 have been omitted pursuant to a request for confidential treatment with the SEC.)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:  May 14, 2010
By:
/s/ Joseph AzzataJoseph Azzata,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.





Date: May 14, 2010
By:
/s/ Joseph AzzataJoseph Azzata,Chief Executive Officer and Director
 
  Date: May 14, 2010
By:
/s/ Brian NeillBrian Neill,Chief Financial Officer


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