Medical Connections Holdings, Inc. - Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

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ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the quarterly period ended: June 30, 2008
or

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the transition period from: _____________ to _____________

———————

MEDICAL CONNECTIONS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

———————


Florida	333-72376	65-0920373
(State or Other Jurisdiction	(Commission	(I.R.S. Employer
of Incorporation)	File Number)	Identification No.)

2300 Glades Road Suite 202 E

Boca Raton, Florida 33431

(Address of Principal Executive Office) (Zip Code)

(561) 353-1110

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

———————


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 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.			ý	Yes	¨	No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer	¨	Accelerated filer			¨
Non-accelerated filer	¨	Smaller reporting company			ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).			¨	Yes	ý	No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

27,619,036 shares of Common Stock, $.001 par value as of August 4, 2008

INDEX

PART I. – FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets at June 30, 2008 (unaudited) and December 31, 2007

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and June 30, 2007 (unaudited)

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and June 30, 2007 (unaudited)

Notes to Consolidated Financial Statements as of June 30, 2008 (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation s

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Item 4T.

Controls and Procedures

PART II. – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults upon Senior Securities

Item 4.

Submission of Matters to a Vote of Security Holders

Item 5.

Other Information

PART 1-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of June 30, 2008 (unaudited) and December 31, 2007


ASSETS
	2008		2007
Current Assets
Cash	$	2,140,460		$	1,319,944
Accounts receivable, net		1,017,009			797,907
Prepaid expenses		38,025			37,806
Total current assets		3,195,494			2,155,657
Property and Equipment
Property and equipment		306,907			295,800
Less: accumulated depreciation		148,993			119,671
Net property and equipment		157,914			176,129
Other Assets
Security deposit		228,540			28,540
Investment		610,000			647,432

Total Assets	$	4,191,948		$	3,007,758

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable	$	42,464		$	89,537
Accrued expenses		55,754			220,555
Note payable		39,528			370,086
Liability for stock to be issued		65,056			65,056
Total current liabilities		202,802			745,234

Total Liabilities		202,802			745,234

Commitments and Contingencies		—			—

Stockholders’ Equity
Preferred stock, Class A, $.001 par value; 1,000,000
shares authorized, 110,948 issued and outstanding		111			119
Preferred stock, Class B, $.001 par value; 1,000,000
shares authorized, 1,000,000 issued and outstanding		1,000			1,000
Common stock, $.001 par value, 70,000,000 shares
authorized, 26,938,576 shares issued and outstanding		26,938			22,487
Additional paid-in capital		25,855,678			20,529,198
Accumulated deficit		(21,894,581	)		(18,290,280	)

Total Stockholders’ Equity		3,989,146			2,262,524

Total Liabilities and Stockholders’ Equity	$	4,191,948		$	3,007,758

See the Accompanying Notes to the Consolidated Financial Statements

MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)


	THREE MONTHS						SIX MONTHS
	2008		2007		2008		2007
OPERATING ACTIVITY
Revenue	$	1,824,074		$	930,964		$	3,490,409		$	2,078,793

Direct costs of revenue		991,149			596,271			1,911,992			1,200,090
Sales and marketing expenses		154,066			97,378			352,227			184,862
General and administrative
expenses		2,423,946			1,404,117			4,830,331			3,141,800

Total Operating Expenses		3,569,161			2,097,766			7,094,550			4,526,752

Loss from Operations		(1,745,087	)		(1,166,802	)		(3,604,141	)		(2,447,959	)

Other (income) expense
Gain on revaluation of derivatives		—			(310,796	)		—			(310,796	)
Interest expense		976			216,190			13,898			491,375
Interest income		(2,640	)		-			(13,735	)		-
Other		—			(5,201	)		—			(5,225	)

Total Other (Income) Expense, net		(1,664	)		(99,747	)		163			175,231


Loss Before Tax Benefits		(1,743,423	)		(1,067,055	)		(3,604,304	)		(2,623,190	)

Tax benefits		—			—			—			—


Net (Loss)	$	(1,743,423	)	$	(1,067,055	)	$	(3,604,304	)	$	(2,623,190	)


Net loss per common share – basic
and fully diluted:	$	(0.07	)	$	(0.10	)	$	(0.15	)	$	(0.31	)

Weighted average common shares
outstanding - basic and
fully diluted		25,652,455			10,441,304			24,589,217			8,408,286

See the Accompanying Notes to the Consolidated Financial Statements

MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Six Months Ended June 30, 2008 and 2007 (Unaudited)


	2008		2007
Cash Flow from Operating Activities
Net (Loss)	$	(3,604,304	)	$	(2,623,190	)
Adjustments to reconcile net (loss) to net cash
Provided by operating activities:
Amortization of debt discount		—			299,175
Increase in fair value derivative		—			72,663
Depreciation		29,322			30,587
Common stock issued for compensation		—			380,000
Decrease in fair value of Investment		37,432			—
Changes in assets and liabilities:					—
Accounts receivable		(219,102	)		(216,511	)
Security deposit		(200,000	)		—
Prepaid expenses		(219	)		—
Accounts payable and accrued expenses		(211,874	)		114,915

Total Adjustments		(564,441	)		680,829

Net Cash (Used in) Operating Activities		(4,168,745	)		(1,942,361	)

Investing Activities
Acquisition of property and equipment		(11,107	)		(43,670	)
Net cash (used in) Investing Activities		(11,107	)		(43,670	)

Financing Activities
Proceeds from issuance of common stock		5,330,923			635,272
Decrease in line of credit		—			(47,810	)
Payment on promissory note		—			(40,000	)
Proceeds from issuance of convertible debentures
Proceeds from issuance of convertible debentures		—			2,136,009
Payment on note payable		(330,558	)		—

Net Cash Provided by Financing Activities		5,000,365			2,683,471

Change in Cash and Cash Equivalents		820,513			697,440

Cash and Cash Equivalents at Beginning of Period		1,319,944			96,252

Cash and Cash Equivalents at End of Period	$	2,140,460		$	793,692

Supplemental Disclosure of Non-Cash information :

Cash Paid During the Period for:
Interest	$	13,898		$	339,136

Common Stock issued for compensation	$	—		$	380,000

See the Accompanying Notes to the Consolidated Financial Statements

MEDICAL CONNECTIONS HOLDINGS, INC.,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

JUNE 30, 2008

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Medical Connections Holdings, Inc., and subsidiaries, (the "Company") is an employment and executive search firm that provides recruiting services to its clients within the healthcare and medical industries. 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.

Medical Connections Holdings, Inc. is the parent company of Medical Connections, Inc. and trades on the NASDAQ OTC B/B as a fully reporting company under the ticker symbol MCTH.

In our opinion, the accompanying consolidated balance sheets and related interim statements of 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 2007 Annual Report on Form 10-KSB. Interim results are not necessarily indicative of results for a full year.

Certain prior period amounts have been reclassified to conform to current-period presentation. These reclassifications had no effect on net loss for the periods presented.

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.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consists principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts are written off when management, on a monthly basis, determines that an account is uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is determined to reduce the Company's receivables to their carrying value, which approximates fair value. The allowance is estimated based on historical collection experience,

specific review of individual customer accounts, and current economic and business conditions. Historically, the Company has not incurred any significant credit related losses.

PROPERTY PLANT AND EQUIPMENT

Equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, three to five years. Reviews are regularly performed to determine whether facts and circumstances exist that indicate the carrying amount of assets may not be recoverable or the useful life is shorter than originally estimated. The Company assesses the recoverability of its equipment by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.

If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives. When equipment is retired or otherwise disposed of, the cost and related accumulated are removed from the accounts and the resulting gain or loss is included in operations.

ADVERTISING

The Company's policy is to expense the costs of advertising and marketing as they are incurred. Advertising expense for the periods ended June 30, 2008 and 2007 was $352,227 and $184,862 respectively.

INCOME TAXES

The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. The Statement requires an asset and liability approach for financial accounting and reporting of income taxes, and the recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting bases and tax bases of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.

STOCK-BASED COMPENSATION

In December 2004 the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No. 123R is a revision of SFAS No. 123 and supersedes APB 25. SFAS No. 123R eliminates the use of the intrinsic value method of accounting and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. On April 14, 2005, the Securities and Exchange Commission adopted a new rule that amended the compliance date to adopt SFAS 123R, effective January 1, 2006. SFAS No. 123R permits companies to adopt its requirements using either a "modified prospective" method or a "modified retrospective" method. Under the "modified prospective" method compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all share-based payments granted after that date, and, based on the requirements of SFAS No. 123R, for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the "modified retrospective" method the requirements are the same as under the "modified prospective" method, except that entities also are allowed to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS No. 123. The Company has chosen to use the "modified prospective" method.

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 quarter ended June 30, 2008 and 2007.

REVENUE RECOGNITION

The Company records its transactions under the accrual method of accounting whereby income recognized when the services are rendered and collection is reasonably assured.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount reported in the balance sheets for cash and cash equivalents, loans payable, line of credit, convertible debentures, promissory note, and liability for stock to be issued approximate fair value because of the immediate or short-term maturity of these financial instruments.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles . SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States. This Statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles . The Company does not expect the adoption of SFAS No. 162 to have a material impact on its interim unaudited condensed consolidated financial statements.

NOTE 3- PROPERTY AND EQUIPMENT

Property and equipment consist of the following at June 30, 2008 and December 31, 2007:


	2008		2007
Leasehold improvements	$	54,512		$	54,512
Office furniture		109,912			107,995
Office equipment		142,484			133,293
Total		306,907			295,800
Less: Accumulated depreciation		(148,993	)		(119,671	)

Net Book Value	$	157,914		$	176, 129

Depreciation expense for the second quarter and six months ended June 30, 2008 and 2007 was $17,059 and $29,322, and $18,475 and $30,587, respectively.

NOTE 4- INVESTMENT

Investment-real estate consists of property located in North Carolina which is held for rent seasonally. During the six months ended June 30, 2008 the Company reduced the carrying value of this investment to the current appraised value, resulting in a $37,432 reduction.

NOTE 5- OPERATING LEASES

In June 2008, the Company entered into a seven-year operating lease for new and larger office space. The lease required a $200,000 security deposit with an occupancy date scheduled after January 2009. The security deposit acts as guarantee for performance under the terms of the lease. Assuming no defaults, the security deposit of $200,000 shall be reduced by $50,000 after expiration of each of the third, fourth, and fifth lease year, with $50,000 remaining as security until lease termination. The Company currently leases office space under a sixty-three month lease commencing January 1, 2005 with a renewal option for a five-year period. There will be approximately two years remaining under the old lease and the Company plans to sub-lease the space. Monthly payments under the current lease are $13,398, for a total of $288,243 in future minimum rental payments. Under the new lease the monthly payments will begin at be $26,078 and will increase by 3% each year. The Company is required to pay property taxes, utilities, insurance and other costs relating to the leased facilities.

The following is a schedule, by year, of future minimum rental payments required under this new operating lease that have initial or remaining non-cancelable lease terms;


For the twelve months ended	Amount Estimated
after the occupancy date
Year 1	$	312,939
Year 2		322,327
Year 3		331,997
Year 4		341,957
Year 5		352,216
Year 6		362,782
Year 7		373,666
Total minimum payments required	$	2,397,884

NOTE 6- LIABILITY FOR STOCK TO BE ISSUED

As of June 30, 2008, the Company has a liability of $65,056 from the purchase of its common stock. Upon the issuance of the common stock the liability will be removed. The Company believes that the stock will be issued with in the next six months.

NOTE 7- NOTE PAYABLE

The Company has an agreement to sell selective accounts receivable invoices. The Company receives 90% of the invoice value at the time of sale and is subject to a discount rate of 1.50% of the net amount if the invoice sold is paid within 40 days. An additional discount of 0.50% is charged for each additional 15 days an invoice remains unpaid. If the invoice remains unpaid after 90 days, the Company is charged back for the unpaid amount. The Company then begins collection procedures. At June 30, 2008, the balance was reduced to $39,528 as a Note Payable.

NOTE 8 - STOCKHOLDERS' EQUITY

On September 30, 2007, the Company obtained the written consent of the stockholders holding a majority of the outstanding voting rights of the Company to amend the Company’s articles of incorporation to provide for the issuance of 75,000,000 shares of capital stock including 5,000,000 shares of preferred stock (which has been previously authorized) and 70,000,000 shares of common stock, $.001 par value. The certificate of amendment to the articles of incorporation was filed with the Florida Secretary of State on March 31, 2008.

PREFERRED STOCK - A

As of June 30, 2008, the Company has 1,000,000 shares of Preferred Stock A authorized at $0.001 par value and 110,948 were issued and outstanding. The Company authorized a dividend of its Series A

convertible preferred stock to the holders of record of its common stock on July 3, 2006 (the “Record Date”). On July 10, 2006 a total of 532,680 shares of our Series A preferred Stock were issued to the record holders as of the Record Date. 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 following December 31, 2006. 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. As of June 30, 2008, a total of 421,732 shares of Series A Preferred Stock have been converted into 8,012,908 shares of our Common Stock. There were no conversions during the second quarter ended June 30, 2008.

PREFERRED STOCK - B

As of June 30, 2008, 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.

COMMON STOCK

As of June 30, 2008, the Company has 70,000,000 shares of Common Stock authorized at $0.001 par value and 26,938,576 issued and outstanding.

NOTE 9 - STOCK OPTIONS

A total of 200,000 stock options were granted to an employee during the six months ended June 30, 2008. No options vested in the six months ending June 30, 2008.

At June 30, 2008, 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 123R and FASB 148. The compensation cost that has been charged against income for this plan is $15,000 for six months ended 2008.

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 Statement No. 148.

A summary of the status of the Company's stock option plans as of June 30 2008 is presented below:

Stock options activity for six months ended June 30, 2008:


	Options	Price
Options outstanding January 1, 2008	—	$	—

Options granted	200,000	$	2.45

Options outstanding June 30, 2008	200,000	$	2.45

Stock options outstanding and exercisable at June 30, 2008 are as follows:


Range of Exercise Price	Shares Outstanding	Options Outstanding
Range of Exercise Price	Shares Outstanding	Weighted Average Exercise Price	Weighted Average Remaining Life
$2.45	200,000	$ 2.45	10.00

NOTE 10 - PROVISION FOR INCOME TAXES

The Company accounts for income taxes using the liability method. At June 30, 2008 deferred tax assets consist of the following:


	2008

Deferred tax asset	$	5,300,000
Less: valuation allowance		(5,300,000	)

Net deferred tax assets	$	—

As of June 30, 2008, the Company had accumulated deficits approximating $15,100,000 available to offset future taxable income through 2026. 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.

NOTE 11 - GOING CONCERN

The accompanying consolidated financial statements have been prepared in accordance with accounting principals 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 12 - CONTINGENCIES

The Company and its subsidiary are subject to various pending or threatened legal proceedings arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, the Company cannot state what the eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, management believes that no current reserves, determined in accordance with SFAS No. 5, “Accounting for Contingencies” (SFAS 5), are required, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

NOTE 13 – CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially expose the Company to concentrations of credit risks consist primarily of trade receivables. The Company has attempted to minimize this risk by monitoring customer’s credit and payment activities.

During the fiscal period June 30, 2008, the Company maintains accounts with a single financial institution. At times during the year, balances in these accounts may exceed the amount insured by the FDIC. Based on the Company’s bank statement balances at June 30, 2008 and 2007, the Company’s balance in excess of FDIC insurance limits was $2,355,373 and $840,907, respectively. In order to minimize its exposure, the Company conducts its business with one of the largest and well-capitalized banks in the United States.

During the fiscal period ended June 30, 2008, no single customer comprised a significant portion of the revenue .

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon the Company. There can be no assurance that future developments affecting the Company will be those anticipated by management. Actual results may differ materially from those included in the forward-looking statements.

Readers are also directed to other risks and uncertainties discussed in other documents filed by the Company with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

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 executive allied health specialists, pharmacists, physicians, nurses and hospital management executives. The Company provides recruiting and staffing services for permanent and temporary positions, with an option for the clients and candidates to decide the best formula for working together. Following the changing dynamics of the healthcare recruiting market, Medical Connections has shifted its niche to emphasize the recruitment of allied health specialists. This shift resulted in a significant increase in placements for physical and occupational therapists. The Company’s future growth will be based on a disciplined recruiting policy of securing the best recruiters in the medical field. Medical Connections is attempting to position itself as a recruiter for permanent positions in the field of allied health, and in furtherance thereof, has secured a roster of clients in both for-profit and not-for-profit organizations.

The Company generates revenues primarily from: permanent placement hires, contract appointments and a temporary to permanent model:

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, Medical Connections receives 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 : Represents an attractive employment option and temporary hires (typically, 13 week contracts) made by healthcare facilities to economically cover short staffing during periods of high seasonal activity, vacations, leaves of absence, etc. This also includes contracts for what is commonly known as “travel positions”, which for allied health professionals, nurses and physicians who are willing to take temporary assignments outside their home region. Under this arrangement, Medical Connections is the employer of record for the healthcare professional and the healthcare facility remits a fee to the Company that includes all employment overhead as well as a surcharge for the service provided. The revenue from this activity comes from the commission and surcharge for the service. This activity represents 70% of all revenue generated by the Company, and, for the six months ended June 30, 2008, follows the dynamics of the medical staffing industry. A shorter version of the contract appointments is a temporary to permanent model, which provides permanent placement hires with greater flexibility, if the healthcare professional and the hiring entity so desire.

Management is working on expanding each of these revenue sources. In addition, revenues may increase as a result of the acquisition of other medical staffing or placement agencies Acquisitions will enable Medical Connections to increase revenues and integrate the acquired company’s operations into our existing business. If successful, Medical Connections will be able to extend its market presence.

Target Market

The target market for Medical Connections is the vast array of non-for-profit and for-profit organizations, companies and healthcare institutions, as well as all medical research facilities in the United States. Other recruiting companies or individual recruiters are also an alternative market for Medical Connections programs, such as split-fee agreements and franchise development.

Companies, which are hired by the hospitals to outsource the facilities’ Human Resource departments, are a natural market for the services of Medical Connections, and at this point they represent 40% of the client base for placements.

Smaller medical recruiting companies and individual recruiters to offer them cost effective technological solutions for their businesses, as well as split agreement partnerships.

Second Quarter Ended June 30, 2008 Compared to Second Quarter Ended June 30, 2007

Revenues increased from $930,964 to $1,824,074. The two main components of revenue are permanent placement hires, including temporary to permanent, and contract appointments. Revenues from permanent placement increased $334,066 or 204% to $497,725 over the prior year. This increase was a result of the Company’s continued disciplined recruiting policy of securing the best recruiters in the medical field and the expansion of the recruiting staff. The revenue from contract appointments increased $559,045 or 73% from 2007 to $1,326,347 in 2008. This increase was the result of continued expansion in the employment option and temporary hires (typically, 13 week contracts) made by healthcare facilities to economically cover short staffing during periods of high seasonal activity, vacations, leaves of absence, etc. The cost of the contract appointments revenue also increased from $596,271 in 2007 to $991,149 in 2008, a 67% increase. These costs represent the personnel salaries including benefits, temporary housing and travel costs. The gross profits from contract appointments increased from $172,640, (22% of revenue) in 2007 to $335,198, (25% of revenue) in 2008.

Sales and Marketing Expenses were $154,066 in 2008, which increased from $97,378 in 2007. The increase in costs represents an expanded presence on internet web pages, job posting boards, and display ads in trade journals.

General and Administrative expenses increased to $2,423,946 in 2008 from $1,404,117 in 2007. During the last twelve months the Company expanded its recruiting staff resulting in the increased placement revenue.

Other (income) expenses net, were ($1,664) in 2008 compared to ($99,747) in 2007. Part of this change was the recording of a gain on the revaluation of derivative of ($310,796) in 2007. No amortization or revaluation was recorded in 2008 as all convertible debt was fully converted in 2007. In addition, interest expense decreased from $216,190 in 2007 to $976 in 2008 as a result of the conversion to equity of the Convertible Debentures in 2007. For more information, see Note 8 Convertible Debentures.

Net Loss for the second quarter ended June 30, 2008 was ($1,743,423) as compared to ($1,067,055) in 2007.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Revenues increased from $2,078,793 to $3,490,409. The two main components of revenue are permanent placement hires, including temporary to permanent, and contract appointments. Revenues from permanent placement increased $431,181 or 72% to $1,031,958 over the prior year. This increase was a

result of the Company’s continued disciplined recruiting policy of securing the best recruiters in the medical field and the expansion of the recruiting staff. The revenue from contract appointments increased $980,435 or 66% from 2007 to $2,458,451 in 2008. This increase was the result of continued expansion in the employment option and temporary hires (typically, 13 week contracts) made by healthcare facilities to economically cover short staffing during periods of high seasonal activity, vacations, leaves of absence, etc. The cost of the contract appointments revenue also increased from $1,200,090 in 2007 to $1,911,992 in 2008, a 59% increase. These costs represent the personnel salaries including benefits, temporary housing and travel costs. The gross profits from contract appointments increased from $277,926, (19% of revenue) in 2007 to $546,459, (22% of revenue) in 2008.

Sales and Marketing Expenses were $352,227 in 2008, which increased from $184,862 in 2007. The increase in costs represents an expanded presence on internet web pages and job posting boards.

General and Administrative expenses increased to $4,830,331 in 2008 from $3,141,800 in 2007. During the last twelve months the Company expanded its recruiting staff resulting in the increased placement revenue.

Other (income) expenses net were $163 in 2008 compared to a net other expenses of $175,231 in 2007. Part of this change was the recording of a gain on the revaluation of derivative of ($310,736) in 2007. No amortization or revaluation was recorded in 2008 as all convertible debt was fully converted in 2007. In addition, interest expense decreased from $491,375 in 2007 to $13,898 in 2008 as a result of the conversion to equity of the Convertible Debentures in 2007. For more information, see Note 8 Convertible Debentures.

Net Loss for the six months ended June 30, 2008 was ($3,604,304) as compared to ($2,623,190) in 2007.

Liquidity and Capital Resources

Due to the operating losses and deficits, our independent auditors in their financial statements 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.

At various dates during the quarter, ended June 30, 2008, we issued a total of 1,858,480 unregistered shares of our Common Stock. Sales of unregistered shares of Common Stock were made to accredited shareholders for $2,323,100 in new capital.

As of June 30, 2008 total current assets were $3,195,494 as compared to $2,155,657 on December 31, 2007. The increase in total current assets is primarily attributable to an increase in cash from $1,319,944 on December 31, 2007 to $2,140,460. Also an increase in accounts receivable of $219,102 from December31, 2007 balance to $1,017,009, which is attributable to the increase in revenue. Total current liabilities decreased $542,432 when compared to December 31, 2007, due to the payment of year end bonus and other accrued expenses of $164,801 and a $330,558 reduction in note payable, as a result of reduced financing activity. Based on the Company’s current cash position, the Company has continued to wind down its activity under its agreement to sell selective accounts receivable invoices, with no anticipated material affect or costs to the Company.

Our other assets and investments include our office equipment and the property located in North Carolina which we hold for rent seasonally and is valued at $610,000. All other assets which we have categorized as Property and Equipment are office furniture, equipment and software directly related to the operations of Medical Connections, Inc.

Critical Accounting Policies

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.

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 periods ended June 30, 2008 and 2007.

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) 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 may differ from those estimates.

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.

Recent Accounting Pronouncements

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

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 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.

ITEM 4T. THE INFORMATION REQUIRED BY ITEM 4T IS CONTAINED IN ITEM 4.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There have been no changes or developments in any legal proceedings which have been filed against the Company. For a complete description of all legal proceedings which may be pending, you are urged to read our Form 10-KSB which was filed with the Securities and Exchange Commission on April 15, 2008.

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-KSB which was filed with the Securities and Exchange Commission on April 15, 2008.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

At various dates during the quarter, we issued a total of 1,858,480 unregistered shares of our Common Stock. Sales of unregistered shares of Common Stock were made to accredited shareholders for $2,323,100 in new capital. There were no conversions of Series A Preferred Shares during the period.

The securities issued in the foregoing transactions were made pursuant to exemptions from registration pursuant to either Section 4(2) or Rule 506 of Regulation D of the Securities Act.

- we gave the purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which we possessed or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of information furnished;

- at a reasonable time prior to the conversion of the preferred shares, we advised the purchaser of the limitations on resale in the manner contained in Rule 502(d)2; and

- neither we nor any person acting on our behalf sold the securities by any form of general solicitation or general advertising;

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted during the period ended June 30, 2008 to a vote of the Company’s securities holders.

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS

No.

Description

3.1

Articles of Incorporation filed with the Florida Secretary of State on May 11, 1999 (incorporated by reference to Exhibit 3.1 of our registration statement on Form SB-2 filed with the SEC on October 29, 2001).

3.2

Amendment to Articles of Incorporation filed with the Florida Secretary of State on June 25, 1999 (incorporated by reference to Exhibit 3.2 of our registration statement on Form SB-2 filed with the SEC on October 29, 2001).

3.3

Articles of Amendment to Articles of Incorporation filed with the Florida Secretary of State on August 10, 1999 (incorporated by reference to Exhibit 3.3 of our registration statement on Form SB-2 filed with the SEC on October 29, 2001).

3.4

Articles of Share Exchange of Webb Mortgage Depot, Inc. with Webb Mortgage Services Corporation and Webb Mortgage Corp. filed with the Florida Secretary of State on March 13, 2000 (incorporated by reference to Exhibit 3.4 of our registration statement on Form SB-2 filed with the SEC on October 29, 2001) (incorporated by reference to Exhibit 3.4 of our registration statement on Form SB-2 filed with the SEC on October 29, 2001).

3.5

Bylaws (incorporated by reference to Exhibit 3.5 of our registration statement on Form SB-2 filed with the SEC on October 29, 2001).

3.6

Amendment to the Articles of Incorporation filed with the Florida Secretary of State (incorporated by reference to Form 8-K filed on December 29, 2005.

3.7

Amendment to the Articles of Incorporation filed with the Florida Secretary of State on March 31, 2008

3.8

Code of Ethics

4.1

Form of Convertible Debenture

4.2

Form of Warrant

10.1

Share for Share Exchange Agreement between the Company and Medical Connections, Inc. filed as an exhibit on Schedule A to the Company’s Definitive Proxy statement filed with the Securities and Exchange Commission on October 7, 2005.

10.2

Employment Agreement between the Company and Anthony Nicolosi

10.3

Employment Agreement between the Company and Joseph Azzata

10.4 *

Office Lease, BRE/BOCA Corporate Center, LLC. and Medical Connections, Inc., June 22, 2008

31.1 *

Certificate of the Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002

31.2 *

Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 .1 *

Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32 .2 *

Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

———————

* Filed Herewith

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

Date: August 12, 2008


	MEDICAL CONNECTIONS HOLDINGS, INC.

	By:	/s/ Joseph Azzata
		Joseph 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.


By:	/s/ Joseph Azzata	Date: August 12, 2008
	Joseph Azzata
	Chief Executive Officer and Director

	/s/ Brian Neill	Date: August 12, 2008
	Brian Neill,
	Chief Financial Officer