Attached files
| file | filename |
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| EX-32.1 - CERTIFICATION - MEDICAL CONNECTIONS HOLDINGS, INC. | mcth_ex321.htm |
| EX-31.2 - CERTIFICATION - MEDICAL CONNECTIONS HOLDINGS, INC. | mcth_ex312.htm |
| EX-31.1 - CERTIFICATION - MEDICAL CONNECTIONS HOLDINGS, INC. | mcth_ex311.htm |
| EX-32.2 - CERTIFICATION - MEDICAL CONNECTIONS HOLDINGS, INC. | mcth_ex322.htm |
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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 | |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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| 4800 T Rex Avenue Suite 310
Boca Raton, Florida
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33431
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| (Address of principal executive office) | (Zip Code) | |
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Registrant’s telephone number, including area code:
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(561) 353-1110
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Former name, former address and former fiscal year, if changed since last report.
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
(Do not check if smaller reporting company)
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o
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Smaller reporting company
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þ
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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:
113,755,674 shares of Common Stock, $.001 par value as of April 25, 2011
INDEX
2
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MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010
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March 31,
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December 31,
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2011
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2010
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ASSETS
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Cash
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$ | 1,129,451 | $ | 1,698,030 | ||||
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Accounts receivable, net
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1,278,699 | 1,352,506 | ||||||
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Prepaid expenses
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1,997 | 2,996 | ||||||
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Total current assets
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2,410,147 | 3,053,532 | ||||||
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Property and equipment
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800,923 | 919,763 | ||||||
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Less: accumulated depreciation
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221,283 | 313,772 | ||||||
| 579,640 | 605,991 | |||||||
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Other assets
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Security deposit
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200,000 | 200,000 | ||||||
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Intangible asset, net of amortization of $165,000 & $142,500, respectively
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106,481 | 128,981 | ||||||
| 306,481 | 328,981 | |||||||
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Total assets
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$ | 3,296,268 | $ | 3,988,504 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities
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Accounts payable
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$ | 314,740 | $ | 324,824 | ||||
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Accrued expenses
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223,299 | 174,802 | ||||||
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Total current liabilities
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538,039 | 499,626 | ||||||
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Total liabilities
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538,039 | 499,626 | ||||||
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| Stockholders' equity | ||||||||
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Preferred stock, Class A, $.001 par value; 1,000,000 shares authorized, 55,461 issued and outstanding
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55 | 55 | ||||||
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Preferred stock, Class B, $.001 par value; 1,000,000 shares authorized, 500,000 issued and outstanding
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500 | 500 | ||||||
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Preferred stock, Class C, $.001 par value; 1,200,000 shares authorized, issued and outstanding
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1,200 | 1,200 | ||||||
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Common stock, $.001 par value, 200,000,000 shares authorized, 113,755,674 and 111,503,958 shares issued and outstanding, respectively
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113,756 | 111,504 | ||||||
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Additional paid-in capital
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44,838,207 | 44,703,680 | ||||||
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Accumulated deficit
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(42,195,489 | ) | (41,328,061 | ) | ||||
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Total stockholders' equity
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2,758,229 | 3,488,878 | ||||||
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Total liabilities and stockholders' equity
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$ | 3,296,268 | $ | 3,988,504 | ||||
See the accompanying notes to the condensed consolidated financial statements
3
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MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)
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2011
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2010
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Revenue
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$ | 2,030,639 | $ | 1,428,591 | ||||
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Direct costs of revenue
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1,558,307 | 1,044,313 | ||||||
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Sales and marketing expenses
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47,111 | 70,982 | ||||||
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Recruiting - salaries and costs
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369,790 | 437,338 | ||||||
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Professional and consulting fees
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95,879 | 145,478 | ||||||
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General and administration expenses
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711,597 | 950,074 | ||||||
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Total operating expenses
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2,782,684 | 2,648,185 | ||||||
| (752,046 | ) | (1,219,595 | ) | |||||
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Interest income
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- | (11 | ) | |||||
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Non operating expenses:
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Investor relations
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92,127 | 1,080,050 | ||||||
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Acquisitions
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23,250 | 139,025 | ||||||
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Investment banking
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- | 63,217 | ||||||
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Total non-operating expenses
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115,377 | 1,282,281 | ||||||
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Loss before income taxes
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(867,423 | ) | (2,501,876 | ) | ||||
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Income taxes
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- | - | ||||||
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Net (loss)
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$ | (867,423 | ) | $ | (2,501,876 | ) | ||
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Net loss per common share - basic and fully diluted
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$ | (0.01 | ) | $ | (0.04 | ) | ||
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Weighted average common shares outstanding
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- basic and fully diluted
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111,703,232 | 57,386,034 | ||||||
See the accompanying notes to the condensed consolidated financial statements
4
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MEDICAL CONNECTIONS HOLDINGS, INC., AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)
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2011
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2010
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Cash flow from operating activities
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Net loss
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$ | (867,423 | ) | $ | (2,501,876 | ) | ||
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Adjustments to reconcile net loss to net cash
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Depreciation and amortization
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51,540 | 34,667 | ||||||
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Common stock issued for compensation
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- | 28,750 | ||||||
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CHANGES IN ASSETS AND LIABILITIES
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Accounts receivable
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73,801 | 54,094 | ||||||
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Prepaid expenses
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999 | 999 | ||||||
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Accounts payable and accrued expenses
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38,413 | 70,173 | ||||||
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Net cash used in operating activities
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(702,670 | ) | (2,313,193 | ) | ||||
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Cash flow from investing activities
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Acquisition of property and equipment
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(2,689 | ) | (56,004 | ) | ||||
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Net cash used in investing activities
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(2,689 | ) | (56,004 | ) | ||||
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Cash flow from financing activities
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Proceeds from issuance of common stock and warrants
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136,780 | 2,176,997 | ||||||
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Payment on loan payable
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- | - | ||||||
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Net cash provided by financing activities
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136,780 | 2,176,997 | ||||||
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Net decrease in cash and cash equivalents
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(568,579 | ) | (192,200 | ) | ||||
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Cash and cash equivalents at beginning of period
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1,698,030 | 1,017,843 | ||||||
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Cash and cash equivalents at end of period
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$ | 1,129,451 | $ | 825,642 | ||||
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Supplemental disclosure of cash flow information:
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Cash paid during the period for:
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Interest
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$ | - | $ | 11 | ||||
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Taxes
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$ | - | $ | - | ||||
See the accompanying notes to the condensed consolidated financial statements
5
Medical Connections Holding, Inc and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2011
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Medical Connections Holdings, Inc. and its wholly-owned subsidiary, (the "Company") is a healthcare staffing company which provides staffing services for allied professionals and nurses to our clients on a national basis. We provide recruiting and staffing services for permanent and temporary positions, with an option for the clients and candidates to choose the most beneficial working arrangements.
The Company operates under a holding company structure and has one direct wholly-owned operating subsidiary, Medical Connections, Inc., a Florida corporation ("Medical Connections") which was formed in 2002. In December 2005, the Company acquired control of Webb Mortgage Depot, Inc. ("WMD"), a reporting company and predecessor to the Company which was formed in May 1999, pursuant to a share exchange agreement and changed WMD's name to Medical Connections Holdings, Inc.
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 2010 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 subsidiary. All material inter-company transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
6
ALLOWANCES FOR DOUBTFUL ACCOUNTS / SALES ALLOWANCE
Accounts are written off when management determines that an account is uncollectible. Recoveries of accounts previously written off are recorded when received. Estimated allowances for doubtful accounts ($50,000) are determined to reduce the Company's receivables to their carrying value, which approximates fair value. Estimated allowances for sale’s “falloffs” ($60,000) provide for that portion of permanent placement revenue that may be discounted after a reasonable period of time. All allowances are estimated based on historical collection experience, specific review of individual customer accounts, and current economic and business conditions. A roll forward of the allowance of doubtful accounts is as follows:
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Balance, January 1, 2011
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$ | 110,000 | ||
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Additions:
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Bad debt expense
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5,339 | |||
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Sales allowance
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92,053 | |||
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Deductions:
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Write offs
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(97,392 | ) | ||
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Balance, March 31, 2011
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$ | 110,000 |
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, 2011 and 2010 was $47,111 and $70,982, 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.
7
EARNINGS (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 periods ended March 31, 2011 and 2010.
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. The Company recognizes revenue from permanent placement services when invoiced which is typically within 30-45 days from the date the candidate has agreed to commence employment. Invoices for these services are rendered after a candidate has been selected, the candidate has accepted the position, and the contracting employer has offered and accepted the terms of the candidate’s employment. Adjustments to the fee for these services occur if the candidate’s performance is not satisfactory or if the candidate does not commence work requiring the company to find a replacement candidate. Contract appointments 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 is earned from the commission and surcharge for the service which is billed and recognized off of weekly time cards.
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, mortgage payable, and liability for stock to be issued approximate fair value because of the immediate or short-term maturity of these financial instruments.
RECLASSIFICATIONS
Certain amounts in 2010 were reclassified to conform to the 2011 presentation. These reclassifications had no effect on net loss for the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.
8
NOTE 3 - STOCKHOLDERS' EQUITY
SERIES A PREFERRED STOCK
As of March 31, 2011, the Company had 1,000,000 shares of Series A Preferred Stock authorized, $0.001 par value per share, and 55,461 shares 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 at an annual or special meeting (or pursuant to a written consent), except with respect to the election of directors and as otherwise required by Florida law. Holders of the Series A Preferred Stock have no other rights or preferences. As of March 31, 2011, a total of 477,269 shares of Series A Preferred Stock have been converted into 9,068,111 shares of our Common Stock. There were no shares of Series A Preferred Stock converted into Common Stock during the three months ended March 31, 2011.
SERIES B PREFERRED STOCK
As of March 31, 2011, the Company has 1,000,000 shares of Series B Preferred Stock authorized, $0.001 par value per share, and 500,000 shares issued and outstanding. The par value per share of Series B Preferred Stock is $0.001. Each share of Series B Preferred Stock has 10 votes per share and will vote together with holders of the Company's common stock and Series C Preferred Stock as a single class on all matters presented to the Company's shareholders at an annual or special meeting (or pursuant to written consent), except with respect to the matters relating to the election of directors or as otherwise required by Florida law. The Series B Preferred Stock does not have any dividend or liquidation preferences and is not convertible into shares of the Company’s Common Stock.
SERIES C PREFERRED STOCK
As of March 31, 2011, the Company has 1,200,000 shares of Series C Preferred Stock authorized, $0.001 par value per share, and 1,200,000 shares issued and outstanding. Each share of Series C Preferred Stock has 100 votes per share and will vote together with holders of the Company's common stock 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 or as otherwise required by Florida law. The holders of a majority of shares of the Company's Series C Preferred Stock will have the right to appoint a majority of the directors serving on the Company's Board. The Series C Preferred Stock does not have any dividend or liquidation preferences and is not convertible into shares of the Company’s Common Stock.
COMMON STOCK
As of March 31, 2011, the Company has 200,000,000 shares of common stock authorized, $0.001 par value per share, and 113,755,674 issued and outstanding.
During 2011, the Company sold 2,137,430 shares of its common stock for total net proceeds of $136,780.
9
NOTE 4 - STOCK OPTIONS AND WARRANTS
At March 31, 2011, the Company had one stock option plan, its 2010 Stock Option Plan ("Plan"). We have reserved an aggregate of ten million shares of common stock for issuance under the Plan, which provides for the granting of options, restricted stock, stock appreciation rights, performance shares and performance units to our employees, consultants and non-employee directors.
The Company accounts for the fair value of its grants under this plan in accordance with ASC-718. The compensation cost that has been charged against income for this plan is $0 for the three months ended March 31, 2011 and 2010, respectively.
There were no stock options outstanding and exercisable at March 31, 2011.
Warrant Grants
In connection with various equity financings that we have secured, we have outstanding warrants to purchase a total of 6,127,494 shares of our common stock.
| No. of Warrants | Grant Date | Exercise Price | Expiration Date |
| 232,854 | 2009 | $1.00 | 2011 |
| 2,547,281 | 2009 | $0.75 | 2011 |
| 2,233,000 | 2010 | $0.01 | 2012 |
NOTE 5 - PROVISION FOR INCOME TAXES
The Company reported no tax expense or benefit for the three months ended March 31, 2011 due to the net operating losses incurred during the period and a valuation allowance established against 100% of the Company’s deferred tax assets. At March 31, 2011 and December 31, 2010 deferred tax assets consist of the following:
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2011
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2010
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Deferred tax asset
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$ | 10,800,000 | $ | 10,540,000 | ||||
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Less: valuation allowance
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(10,800,000 | ) | (10,540,000 | ) | ||||
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Net deferred tax assets
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$ | 0 | $ | 0 | ||||
As of December 31, 2010, the Company had accumulated deficits approximating $31,000,000 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.
Management has assessed the realization of the net deferred tax assets and has determined that it is more likely than not that the Company’s deferred tax assets for its net operating loss carry forwards will not be realized. Due to the uncertainty of their realization, a valuation allowance of 100% continues to be provided against those net operating loss carry forwards.
The Company adopted the provisions of ASC 740, previously FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on January 1, 2007. Previously the Company has accounted for tax contingencies in accordance with Statement of Financial Accounting Standards 5, Accounting for Contingencies. 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.
10
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 – 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 customers’ credit and payment activities.
During the three months ended March 31, 2011, the Company maintained accounts with a single financial institution. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, all noninterest-bearing transaction accounts are provided with unlimited insurance coverage. Therefore, the Company has no risk exposure during the term of the Act, which currently is set to expire December 31, 2012. 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 three months ended March 31, 2011 and 2010, no single customer comprised a significant portion of revenue.
NOTE 7 - 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 has little recurring revenues to sustain its operations. The revenue stream is not sufficient to fund expenses at this time. 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. The Company's continued existence is dependent upon its ability to generate sufficient cash flows from equity financing and product revenues. The Company has issued stock to continue to fund company operations.
NOTE 8 - CONTINGENCIES
Legal Proceedings:
On March 23, 2011, the Company was served with a complaint filed by Nightingale Nurses, LLC ("Nightingale") that alleges that the Company breached the terms of a mutual confidentiality agreement between the Company and Nightingale, including the confidentiality and non-solicitation provisions. Nightingale also alleges that the Company hired certain former employees of Nightingale in violation of loyalty pledges that the employees signed with Nightingale. On April 13, 2011, the trial judge entered a Pre-Hearing Order establishing an expedited discovery schedule for this matter. Currently expedited discovery is being conducted in anticipation of a June 10, 2011 Calendar Call at which the Court is likely to set an evidentiary hearing on Nightingale's Motion for Preliminary Injunction. The Company believes the allegations in the complaint are without merit and intends to vigorously defend itself against Nightingale's allegations.
In December 2010, the Company and Anthony Nicolosi were served with a Cease and Desist Order (the "Order"), with a Notice of Right To Hearing, from the Alabama Securities Commission styled "In the Matter of Medical Connections Holdings, Inc., Anthony Nicolosi," (Adm. Order No. CD-2010-0062). The Order requires the cessation of offering or selling securities into, within or from the State of Alabama during the pendency of the Order. The Cease and Desist Order alleges that Mr. Nicolosi omitted material facts in the sale of a security to single Alabama investor and violated the agent registration requirements in Alabama. The Company made a rescission offer to the Alabama investor which included information that the Alabama Securities Commission alleged should have been disclosed to the investor relating to the name change of Mr. Nicolosi and his regulatory history concerning a disciplinary proceeding instituted by FINRA and settled by means of an Acceptance Waiver and Consent. The Alabama investor rejected the rescission offer. The Company had an informal meeting with the Alabama Securities Commission in March 2011 in the process of attempting to resolve the matter. There has been no adjudication as to the truth of the allegations upon which the Order was based.
The Company and certain of its subsidiaries 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 current reserves, determined in accordance with ASC-450, (formerly SFAS No. 5, “Accounting for Contingencies”), are adequate, 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.
11
In this Quarterly Report on Form 10-Q, the terms "Company," "we," "us," and "our" refer to Medical Connections Holdings, Inc. and its wholly-owned and majority-owned subsidiaries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, those risks described in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2011, 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
We are a healthcare staffing company which provides staffing services for allied professionals and nurses to our clients on a national basis. We provide recruiting and staffing services for permanent and temporary positions, with an option for the clients and candidates to choose the most beneficial working arrangements.
We operate under a holding company structure and currently have one direct wholly-owned operating subsidiary, Medical Connections, Inc., a Florida corporation ("Medical Connections") which was formed in 2002. In December 2005, we acquired control of Webb Mortgage Depot, Inc. ("WMD"), a reporting company and predecessor to the Company which was formed in May 1999, pursuant to a share exchange agreement and changed WMD's name to Medical Connections Holdings, Inc.
Our executive offices are located at 4800 T-Rex Ave., Suite 310, Boca Raton, FL 33431 and our telephone number is 1-800-681-2056.
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Executive Overview
We generate revenues primarily from travel contract appointments and permanent placement hires:
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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.
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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.
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For the three months ended March 31, 2011, our revenue was $ $2,030,639, derived primarily from allied travel contacts, and our net loss was $867,423 or $(0.01) per share. Loss from operations was $752,046 for the three months ended March 31, 2011 which was a 38.3% improvement compared to operating results in the first quarter of 2010.
However, due to the operating losses and deficits, our independent auditors have raised doubts about our ability to continue as a going concern in their report on our financial statements for 2010. Despite historical losses, we believe that we will be able to satisfy ongoing operating expenses. We have done so to-date by raising capital through the sale of our common stock. We will continue to do so, and/or consider other alternatives for raising capital, including but not limited to the sale of preferred stock or debt securities and/or seek financing from third party lenders, until such time as revenues from operations satisfy operating expenses. There can be no assurance that we will be able to raise capital, a market for our stock or third-party financing will be available, or if available, will be offered on terms that will not adversely impact our shareholders.
We manage our day-to-day operations by focusing on key metrics such as number of orders placed, gross margins on each contract, number of hours worked and profitability of each contract. We also closely monitor our accounts receivables, to make sure we are within contract payment terms. Sales staff are given specific goals by which their performance is consistently measured.
Our goal is to continue to grow the Company both organically and by acquisition. Organically, we will need to continue to attain new nationwide contracts with healthcare facilities and to locate and place qualified allied and nursing professionals into these facilities. With acquisitions, we will need to locate other allied/nursing staffing companies whose business matches our own in order to successfully integrate operations. Both efforts have challenges associated with them. Organic growth will require us to obtain new contracts and professionals daily and to do so in an economy that remains lackluster. With acquisitions, we will need to locate, purchase, and integrate a similar sized company or companies with a similar business model in order to maximize the accretiveness of the transaction. There can be no assurances that we will be able to implement such plans.
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Three Months Ended March 31, 2011 (“first quarter of 2011”) Compared to Three Months Ended March 31, 2010 (“first quarter of 2010”)
Revenue for the first quarter of 2011 was $2,030,639, an increase of $602,048, or 42.1%, when compared to $1,428,591 in the first quarter of 2010. The two main components of revenue are contract pointments and permanent placement hires.
Revenue from contract appointments increased $688,162, or 57.4%, to $1,886,678 in the first quarter of 2011 from $1,198,516 in the first quarter of 2010. The increase is reflective of the ongoing operational improvements being made by the Company combined with the gradually improving employment picture for temporary hires.
Revenue from permanent placement decreased $86,113, or 37.4%, to $143,961 for the first quarter of 2011 from $230,074 in the first quarter of 2010. The decrease in permanent placement hires in the first quarter of 2011 was due to the ongoing uncertainty with employers regarding the hiring of permanent employees.
Direct costs associated with contract appointments increased $513,493, or 49.2%, to $1,557,806 in the first quarter of 2011 from $1,044,313 in the first quarter of 2010. These costs represent personnel salaries and benefits, temporary housing and travel costs. The gross profit from contract appointments increased to $328,872 in the first quarter of 2011 from $154,203 in the first quarter of 2010.
Sales and marketing expenses were $47,111 in the first quarter of 2011, a decrease of $23,871, or 33.6%, from $70,982 in the first quarter of 2010. The decrease is due to further reductions in general advertising during the period.
Recruiting salaries and costs decreased $67,548, or 15.4%, to $369,790 in the first quarter of 2011, due to ongoing improvements to recruiter staffing and compensation levels.
Professional and consulting fees decreased $49,599, or 34.1%, to $95,879 in the first quarter of 2011 compared to the comparable period in the prior year due to further reductions in the use of outside services and consultants.
General and administrative expenses decreased $238,477, or 25.1%, to $711,597 in the first quarter of 2011 from $950,074 in the first quarter of 2010. The decrease in the first quarter 2011 was attributable to lower staffing levels in management and the elimination of rent expense for both the lease of the prior office space and the new office space while the build-out of the new office space was being completed.
Non-operating expenses in the first quarter 2011 were $115,377, a decrease of $1,166,904, or 91.0%, when compared to the $1,282,281 in the first quarter of 2010. The decrease in non-operating expense was directly related to the decrease in investor relations expenses, acquisition-related expenses and investment banking fees.
Net losses for first quarters ended March 31, 2011 and March 31, 2010 were $867,423 and $2,501,876, respectively.
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Liquidity and Capital Resources
As of March 31, 2011, total current assets were $2,410,147 as compared to $3,053,532 on December 31, 2010. The decrease in total current assets was attributable to the use of cash for operating activities during the first quarter of 2011. Total current liabilities remained relatively static at $538,039 when compared to the $499,626 balance as of December 31, 2010.
As of March 31, 2011, property and equipment were $579,640 after accumulated depreciation.
For the three month period ended March 31, 2011, we raised $136,780 from the sale of 2,137,430 shares of our common stock in private offerings.
Net cash used in operating activities was $702,670 in the first quarter of 2011 compared to $2.31 million for the same period in 2010. This change principally results from our decreased net loss from operations and lower investor relations expense.
Net cash flow used in investment activities was $2,689 in the first quarter of 2011 compared with $56,004 for the same period in 2010 principally provided from the sale of investment property.
Net cash provided by financing activities in the first quarter of fiscal 2011 was $136,780 compared to $2.17 million in the first quarter of fiscal 2010.
Our corporate headquarters are located at 4800 T-Rex Avenue, Suite 310, Boca Raton, Florida 33431. We operate Medical Connections, Inc. from this office. We lease approximately 10,000 square feet of space with a monthly base rent expense of $14,245. Additionally, operating expenses and taxes are approximately $7,400 per month. Our current lease expires on May 15, 2016.
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 included in our Form 10-K for the year ended December 31, 2010 filed on March 31, 2011 with the Securities and Exchange Commission. There have been no significant changes to our critical accounting policies in the first quarter of 2011.
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 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and determined that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation considered the procedures designed to ensure that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
During the period covered by this Quarterly Report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 13d-15(d) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
(c) Inherent Limitations of Disclosure Controls and Internal Controls over Financial Reporting
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation or effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 8 — Contingencies in the Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM I of this Quarterly Report for information about legal proceedings in which we are involved.
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 31, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
During the three month period ended March 31, 2011, we sold 2,137,430 shares of our common stock to accredited or sophisticated investors for aggregate gross proceeds of $136,780. These securities were issued in transactions that were exempt from registration under Regulation D Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”), as transactions by an issuer not involving a public offering, except as described above. The Company's common stock issued upon conversion of the Series A preferred stock was also issued. All of the investors were knowledgeable, sophisticated and had access to comprehensive information about the Company and represented their intention to acquire the securities for investment only and not with a view to distribute or sell the securities. The Company placed legends on the securities stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. (REMOVED AND RESERVED)
Not Applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
| Exhibit No. | Exhibit Description | |
| 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. | |||
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Date: May 13, 2011
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By:
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/s/ Jeffrey Rosenfeld | |
| Jeffrey Rosenfeld, | |||
| Chief Executive Officer and Director | |||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: |
/s/ Jeffrey Rosenfeld
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By: |
/s/ Brian Neill
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Jeffrey Rosenfeld,
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Brian Neill,
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Chief Executive Officer and Director
(Principal Executive Officer)
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Chief Financial Officer
(Principal Financial/Accounting Officer)
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| Date: May 13, 2011 | Date: May 13, 2011 |
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