UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q


(Mark One)





x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2011





o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





For the transition period from ________________ to _______________





000-52621


(Commission file number)








Midas Medici Logo


Midas Medici Group Holdings, Inc.


(Exact name of registrant as specified in its charter)





Delaware

37-1532843(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)








445 Park Avenue, 20th Floor


New York, New York 10022


(Address of principal executive offices)





(212) 792-0920


(Issuer's telephone number)





N/A


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





Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 x    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 during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.   Yes o     No o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer o
Accelerated filer  oNon-accelerated filer   o  (Do not check if a smaller reporting company)
Smaller reporting company  x





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





There were 9,840,091 shares of the issuer's common stock outstanding as of August 10, 2011.





1





MIDAS MEDICI GROUP HOLDINGS, INC.





Index








PART I.
FINANCIAL INFORMATION
Page

NumberItem 1.
Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (Unaudited)
4Condensed Consolidated Statement of Equity for the six months ended June 30, 2011 (Unaudited)
5Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)
6Notes to Condensed Consolidated Financial Statements (Unaudited)
7Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
22Item 3.
Quantitative and Qualitative Disclosures about Market Risk
29Item 4.
Controls and Procedures
29PART II.
OTHER INFORMATIONItem 1.
Legal Proceedings
30Item1A.
Risk Factors
30Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30Item 3.
Defaults Upon Senior Securities
30Item 4.
(Removed and Reserved)
30Item 5.
Other Information
30Item 6.
Exhibits
30SIGNATURES

31




2


Midas Medici Group Holdings, Inc. and SubsidiariesCondensed Consolidated Balance Sheets(In thousands except share amounts)June 30,


December 31,ASSETS

2011


2010(unaudited)


(Note 1)Current assets:Cash and cash equivalents

$
851


$
5,030Accounts receivable, net of allowance for doubtfulaccounts of $322 and $498, respectively


7,278



11,729Current portion of prepaid data center services costs


7,861



9,298Current deferred tax assets, net


622



622Prepaid expenses and other current assets


479



688Total current assets


17,091



27,367Property and equipment, net


5,851



5,474Goodwill


9,811



3,765Other intangible assets, net


10,167



9,022Prepaid data center services costs, net of current portion


953



860Totals

$
43,873


$
46,488LIABILITIES AND  EQUITYCurrent liabilities:Accounts payable

$
11,863


$
14,643Accrued liabilities


3,828



5,042Current maturities of long-term debt


2,317



2,238Current portion of deferred revenue


12,364



14,887Total current liabilities


30,372



36,810Long-term debt, net of current maturities


194



79Deferred revenue, net of current portion


1,448



1,290Deferred tax liabilities


1,276



2,551Total liabilities


33,290



40,730Commitments and contingenciesEquity:Equity of Midas Medici Group Holdings, Inc. and Subsidiaries:Preferred stock $0.001 par value, 10,000,000 shares authorized, noshares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively


-



-Common stock $0.001 par value, 40,000,000 shares authorized,  8,301,021 issued and  7,876,021 outstanding at June 30, 2011 and 4,808,167 issued and outstanding as of December 31, 2010, respectively


8



5Treasury stock, at cost, 425,000 shares at June 30, 2011 and no shares at December 31, 2010


-



-Additional paid-in capital


26,431



19,598Accumulated deficit


(15,684
)


(13,809
)Accumulated other comprehensive loss


(40
)


(36
)Total stockholders' equity of Midas Medici Group Holdings, Inc. and Subsidiaries


10,715



5,758Non-controlling interest


(132
)


-Total equity


10,583



5,758Totals

$
43,873


$
46,488See accompanying notes to unaudited condensed consolidated financial statements


3


Midas Medici Group Holdings, Inc. and SubsidiariesCondensed Consolidated Statements of Operations(In thousands except, share and per share amounts)  Three Months Ended June 30,


Six Months Ended June 30,2011


2010


2011


2010(unaudited)


(unaudited)


(unaudited)


(unaudited)RevenuesData center services and solutions

$
7,102


$
7,891


$
14,168


$
15,439IT infrastructure services


1,483



865



2,335



1,762IT infrastructure solutions


6,603



6,474



11,522



9,626Totals


15,188



15,230



28,025



26,827Operating expenses:Data center services and solutions


4,821



5,115



9,679



10,228IT infrastructure services


887



603



1,501



1,224IT infrastructure solutions


5,079



4,974



9,135



7,426Selling, general and administrative expenses


4,971



4,929



9,284



9,982Depreciation and amortization expense


830



826



1,555



1,667Impairment loss - Goodwill (Note 5)


-



16,261







16,261Totals


16,588



32,708



31,154



46,788Loss from continuing operations


(1,400
)


(17,478
)


(3,129
)


(19,961
)Other income


345



-



345



-Interest expense, net


(125
)


(568
)


(266
)


(1,099
)Loss before income tax expense


(1,180
)


(18,046
)


(3,050
)


(21,060
)Income tax expense


(417
)


(346
)


(1,175
)


(731
)Loss from continuing operations


(763
)


(17,700
)


(1,875
)


(20,329
)Income from discontinued operations


-



805



-



1,700Income tax expense


-



346



-



731Income from discontinued operations


-



459



-



969Net loss


(763
)


(17,241
)


(1,875
)


(19,360
)Less:  Net loss attributable to non-controlling interest


-



-



-



-Net loss attrinutable to Midas Medici Group Holdings, Inc. and Subsidiaries

$
(763
)

$
(17,241
)

$
(1,875
)

$
(19,360
)Loss per share:Continuing operations - basic and diluted

$
(0.10
)

$
(4.16
)

$
(0.32
)

$
(4.78
)Discontinued operations - basic and diluted


-


$
0.11


$
-


$
0.23Loss per common share - basic and diluted

$
(0.10
)

$
(4.05
)

$
(0.32
)

$
(4.55
)Weighted average number of common sharesoutstanding - basic and diluted


7,729,692



4,259,751



5,809,859



4,251,756






See accompanying notes to unaudited condensed consolidated financial statements





4




Midas Medici Group Holdings, Inc. and SubsidiariesCondensed Consolidated Statements of EquityFor The Six Months Ended June 30, 2011(in thousands, except share amounts)Unaudited  AccumulatedAdditional











Other


TotalCommon Stock


Paid-in Capital


Treasury Stock


Accumulated


Comprehensive


Stockholders'


Noncontrolling


TotalShares


Amount





Shares


Amount


Deficit


Loss


Equity


Interest


EquityBalance at December 31, 2010


4,808,167


$
5


$
19,598



-


$
-


$
(13,809
)

$
(36
)

$
5,758


$
-


$
5,758Stock-based compensation










44



















44







44Stock issuance in settlement of debt


366,608







1,151



















1,151







1,151Stock issuance for Energy Hedge Fund Center acquisition


1,430







5



















5







5Stock issuance for Weather Wise acquisition


113,300







268



















268







268Effect of reverse merger adjustments


3,011,516



3



5,365



(425,000
)


-



-



-



5,368



(132
)


5,236Net loss


-



-



-



-



-



(1,875
)


-



(1,875
)


-



(1,875
)Comprehensive income


-



-



-



-



-



-



(4
)


(4
)


-



(4
)Balance at June 30, 2011


8,301,021


$
8


$
26,431



(425,000
)

$
-


$
(15,684
)

$
(40
)

$
10,715


$
(132
)

$
10,583




See accompanying notes to unaudited condensed consolidated financial statements





5




Midas Medici Group Holdings, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows(In thousands)Six Months Ended June 30,2011


2010(unaudited)


(unaudited)Operating activities:Net loss

$
(1,875
)

$
(19,360
)Adjustments to reconcile net loss to net cash(used in) provided by operating activities:Depreciation and amortization


1,555



2,377Impairment charge


-



16,261Noncash interest


(4
)


164Stock-based compensation


44



166Deferred income taxes


(1,275
)


-Changes in operating assets and liabilities:Accounts receivable


4,877



5,118Prepaid expenses and other current assets and prepaid data center services costs


1,566



919Accounts payable


(3,587
)


368Accrued liabilities


(1,487
)


1,009Income taxes payable


(994
)


(1,326
)Deferred revenue


(2,508
)


(3,383
)Net cash (used in) provided by operating activities


(3,688
)


2,313Investing activities:Capital expenditures


(70
)


(507
)Cash received from acquisitions


16



-Net cash used in investing activities


(54
)


(507
)Financing activities:Proceeds from line of credit


-



3,342Payments on line of credit


-



(4,032
)Proceeds from debt


-



490Repayments on long-term debt


(436
)


(1,363
)Repayment of loan fees


-



(52
)Proceeds from issuance of common stock


8Repurchase of common stock


-



(134
)Net cash used in financing activities


(428
)


(1,749
)Effect of exchange rate changes on cash


(9
)


-Net (decrease) increase in cash and cash equivalents


(4,179
)


57Cash and cash equivalents at beginning of period


5,030



501Cash and cash equivalents at end of period

$
851


$
558Supplemental disclosure of cash flow information:Interest paid

$
290


$
1,485Income taxes paid

$
1,011


$
-See accompanying notes to unaudited condensed consolidated financial statements


6




MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - HISTORY, BASIS OF PRESENTATION AND BUSINESS DESCRIPTION





History





Midas Medici Group Holdings, Inc, formerly Mondo Acquisition I, Inc. (“Midas Medici”), was incorporated in the State of Delaware on October 30, 2006 for the purpose of raising capital that is intended to be used in connection with its business plans including a possible merger, acquisition or other business combination with an operating business. On May 15, 2009, Mondo Management Corp., the then sole shareholder, and Midas Medici Group, Inc. entered into a Purchase Agreement.  Pursuant to the Purchase Agreement, Mondo Management Corp. sold  to Midas Medici Group 1,000,000 previously  issued  and outstanding  shares  of  Mondo Management Corp.'s restricted common stock, comprising 100% of  the  issued  and outstanding  capital  stock  of the Company. The execution of the Purchase Agreement resulted in a change in control of the Company, both in its shareholding and management. Effective May 22, 2009, the Company changed its name to Midas Medici Group Holdings, Inc.





Basis of Presentation (Reverse-Acquisition)





On February 28, 2011, Midas Medici completed an acquisition (the "Merger") of Consonus Technologies, Inc. (“Consonus”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) with Consonus, and MMGH Acquisition Corp., a wholly-owned subsidiary of the Company (“MMGH”) dated as of April 30, 2010.   For accounting purposes, Consonus was identified as the acquiring entity and Midas as the acquired entity.    The merger was accounted for using the purchase method of accounting for financial reporting purposes. The purchase method requires the identification of the acquiring entity based on the criteria of Accounting Standards Codification (“ASC”) 805-10-55-12, “Accounting for Business Combinations”.   Under purchase accounting, the assets and liabilities of an acquired company (Midas Medici) as of the effective date of the acquisition were recorded at their respective fair values and added to those of the acquiring company. Accordingly, the condensed consolidated financial statements and related footnote disclosures presented for the period prior to the Merger are those of Consonus and its subsidiaries alone. The financial statements as of December 31, 2010 and for the three months and six months ended June 30, 2011 and 2010 include the operations and cash flows of Consonus and its subsidiaries through February 28, 2011 and the combined operations and cash flows of Consonus and its subsidiaries and Midas Medici subsequent to that date.





The common stock of Consonus has been retrospectively adjusted to reflect the exchange ratio of 1.33 Midas Medici common shares for each share of Consonus common stock as established in the Merger Agreement.





The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the Company has condensed or omitted certain information and footnote disclosures that are included in our annual financial statements. These condensed unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Consonus Technologies, Inc. and the related notes for the year ended December 31, 2010 which is included in our current on Form 8-K/A filed with the Securities and Exchange Commission on April 26, 2011. These condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which consist of normal, recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.





The accompanying financial statements present on a consolidated basis the accounts of the Midas Medici and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.





Liquidity




Our unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business and, accordingly, no adjustments have been made to recorded amounts that might result from the outcome of this uncertainty. Our accumulated deficit at June 30, 2011 was $15,684, and we incurred a net loss of $1,875 for the six months ended June 30, 2011.  On June 30, 2011, we had working capital deficit of $13,281.


7





MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


While we have raised funds to meet our working capital and financing needs in the past, additional financing may be required in order to conduct operations and implement our acquisition strategy over the next twelve months. We expect to raise sufficient capital resources to meet our projected cash flow deficits through the next twelve months.  We cannot predict whether this new financing will be in the form of equity or debt. There can be no assurance that additional funds will be available on terms acceptable to the Company and its stockholders, or at all.





Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.  Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.  However, if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition, and we will have to adjust our planned operations and development on a more limited scale.





Our liquidity may also be adversely affected by the current economic conditions, including consumer spending, the ability to collect our accounts receivable and our ability to obtain working capital.





Description of Business





As a result of recent acquisitions, Midas Medici is currently comprised of Consonus Technologies, Inc. (“Consonus”), Strategic Technologies, Inc. (“STI”), Utilipoint International, Inc. (“UTP”), Weather Wise Holdings, Inc. (“WUI”) which are wholly owned subsidiaries and Intelligent Project, LLC (“IP”), which is a 60% owned subsidiary (collectively “The Company”).




Midas Medici is a green Information Technology (“IT”) company that supplies mid-sized and select enterprises and institutions with leading-edge IT solutions in the fields of virtualization, cloud computing and data management, as well as working with utilities and other institutions to transform the electric grid through digital technologies. Midas serves its client base of over 700+ customers through its Consonus (“Consonus”) and Utilipoint International Inc. (“UtiliPoint”) brands.





Across all of its business initiatives, Midas Medici works with its customers by optimizing IT and data center investments, cutting energy usage and preventing data loss, all while maximizing productivity. Through an experienced management team, Midas is positioning itself to take advantage of the high-growth IT industry through its unique specialized services at the intersection of energy and technology.





Through its Consonus brand, Midas Medici offers a variety of solutions that optimize IT infrastructure and data center investments. Experts deliver innovative data protection, disaster recovery, virtualization, and asset management solutions for mid-size and select large enterprises. Midas Medici is able to deliver its IT solutions and services without the constraints of technology and location through a flexible delivery model which spans three datacenter environments: customer-owned, co-location, and the cloud. These secure, energy efficient and reliable data centers combined with its ability to offer a comprehensive suite of related IT infrastructure services allows Midas Medici to offer its customers customized solutions to address their critical needs of data center availability, data manageability, disaster recovery and data center consolidation, as well as a variety of other related managed services.





Midas Medici’s data center related services and solutions primarily enable business continuity, back-up and recovery, capacity-on-demand, regulatory compliance (such as email archiving), virtualization, cloud computing, data center best practice methodologies and software as a service. Midas Medici also provides managed hosting, maintenance and support for all of its solutions, as well as related strategic IT consulting services, IT technical support services and project management assistance to support people, processes, and technologies surrounding its services.





Additionally, Midas Medici provides custom research and management, technology and policy consulting services to utilities, investors, regulators, and energy industry service providers both domestically and internationally. Midas Medici helps clients conceive, develop, implement and improve Smart Grid and other energy solutions that address the efficiency, reliability and security of the generation, transmission, and distribution of electricity to end users.





NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES





Use of Estimates





The preparation of  unaudited condensed 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 as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accounting estimates are used in determining, among other items, the assessment of recoverability of long-lived assets; the recognition and measurement of current and deferred income tax assets and liabilities (including the measurement of uncertain tax positions); allowance for doubtful accounts; and, the valuation and recognition of stock-based compensation. Accordingly, actual results could differ from those estimates.




8


MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Revenue Recognition





The Company derives revenues from data center services, IT infrastructure solutions and consulting services.





Data center services are comprised of managed infrastructure, managed services and maintenance support services. IT infrastructure solutions and consulting services include the resale of hardware and software, along with consulting, integration and training services.





The Company recognizes revenue when all of the following conditions are satisfied: there is persuasive evidence of an arrangement; delivery has occurred; the collection of fees is probable; and the amount of fees to be paid by the customer is fixed or determinable. Delivery does not occur until products have been shipped or services have been provided and risk of loss has transferred to the client.





When the Company provides a combination of the above referenced products or services to its customers, recognition of revenues for the hardware and related maintenance services component is evaluated to determine if any software included in the arrangement is not essential to the functionality of the hardware based on accounting guidance related to“Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software.”  Hardware and related elements qualify for separation when the services have value on a stand-alone basis, objective and verifiable evidence of fair value of the separate elements exists and, in arrangements that include a general right of refund relative to the delivered element, performance of the undelivered element is considered probable and substantially in its control. Fair value is determined principally by reference to relevant third-party evidence of fair value. Such third-party information is readily available since the Company primarily resells products offered by its vendors. The application of the appropriate accounting guidance to the Company’s sales requires judgment and is dependent upon the specific transaction. The Company recognizes revenues from the sale of hardware products at the time of sale provided the revenue recognition criteria are met and any undelivered elements qualify for separation.





In arrangements that include multiple elements, including software licenses, maintenance and/or professional services, the Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has stand alone value and delivery of the undelivered element is probable and within our control.  The Company determines the best estimated selling price ("ESP") of each element in an arrangement based on a selling price hierarchy. The best estimated selling price for a deliverable is based on its vendor specific objective evidence ("VSOE"), if available, third party evidence ("TPE"), if VSOE is not available, or ESP, if neither VSOE nor TPE is available.  Total arrangement fees will be allocated to each element using the relative selling price method.





Consulting services revenue is recognized as the services are rendered. Revenues generated from fixed price arrangements are recognized using the proportional performance method, measured principally by the total labor hours incurred as a percentage of estimated total labor hours. For fixed price contracts when the current estimates of total contract revenue and contract cost indicate a loss, the estimated loss is recognized in the period the loss becomes evident.  Consulting services rendered under Time and Materials contracts (“T&M”) are billed at a set hourly rate.  Project related expenses are passed through at cost to clients.   Revenue from T&M contracts are recognized as billed (clients are billed monthly) unless the project has a major deliverable(s) associated with it, in which case the revenue is deferred until the major deliverable(s) is provided.




The Company also generates revenue from it Bundled Service Agreements (“BSA”). BSAs are packages of services that clients subscribe to, typically on an annual contract basis.  BSA revenue is recognized over the subscription period, or in the case of corporate contracts as the hours is utilized, reflecting the pattern of provision of service.




Another source of revenue for the Company is its Events and Sponsorships. The Company hosts events such as conferences.  These events include revenues from sponsorships and registration fees which are recognized in the month of the event.  Revenues from sponsors of the Company’s AMI MDM forum are recognized over the annual subscription period.





Unbilled services are recorded for consulting services revenue recognized to date that has not yet been billed to customers. In general, amounts become billable upon the achievement of contractual milestones or in accordance with predetermined payment schedules. Unbilled services are generally billable to customers within one year from the respective balance sheet date.





Revenue also consists of monthly fees for data center services and solutions including managed infrastructure and managed services and is included within “data center services” revenue in the accompanying consolidated statements of operations. Revenue from managed infrastructure and managed services is billed and recognized over the term of the contract which is generally one to three years. Installation fees associated with managed infrastructure and managed services revenue is billed at the time the installation service is provided and recognized over the estimated term of the related contract or customer relationship. Costs incurred related to installation are capitalized and amortized over the estimated term of the related contract or customer relationship.




The Company’s deferred revenue consists primarily of amounts received from or billed to clients in conjunction with maintenance contracts, BSAs, T&M and fixed price contracts for which revenue is recognized over time or upon completion of contract deliverables.




9


MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Cash and Cash Equivalents





The Company considers all short-term investments with original maturities of three months or less to be cash equivalents.





Allowance for Doubtful Accounts





Accounts receivable consist primarily of amounts due to the Company from its normal business activities. Accounts receivable amounts are determined to be past due when the amount is overdue based on contractual terms. The Company maintains an allowance for doubtful accounts to reflect the expected uncollectability of accounts receivable based on past collection history and specific risks identified among uncollected amounts. Accounts receivable are charged off against the allowance for doubtful accounts when the Company determines that the receivable will not be collected. The Company performs ongoing credit evaluations of its customers.





Concentration of Credit Risk, Supply Risk and Economic Conditions





Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.  The Company maintains its cash and cash equivalents with high-credit quality financial institutions.  At times, such amounts may exceed federally insured limits. As of June 30, 2011, these excess balances totaled $428.





As of June 30, 2011 and December 31, 2010, one customer comprised approximately 13% and 12% of consolidated accounts receivable, respectively.




Approximately 96% and 99%, respectively, of the Company's hardware and software purchases for the six months ended June 30, 2011 and 2010 were from one vendor and approximately 73% and 77% of accounts payable at June 30, 2011 and December 31, 2010, respectively, were due to this vendor. Approximately 96% and 99%, respectively, of the Company's total IT infrastructure solutions revenues for the six months ended June 30, 2011 and 2010 are related to re-sales of this supplier's products.





Prepaid Data Center Services Costs





Prepaid data center services costs represent the unused portion of the maintenance support the Company has contracted with software and hardware vendors. These costs are amortized to costs of data center services ratably over the term of the related contracts. Prepaid data center services costs also represent costs incurred related to installation of customers in our data centers and are capitalized and amortized over the estimated life of the customer relationship. These costs are amortized to costs of infrastructure solutions.





Property and equipment





Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:





Buildings
30-40 yearsComputers, software and equipment
3-15 yearsOffice furniture and equipment
7-10 years





Property and equipment held under capital leases and leasehold improvements are amortized based on the straight-line method over the shorter of the lease term or estimated life of the assets. Maintenance and repairs which neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred.





Long-lived Assets





Property, equipment and definite lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.





The Company uses the non-amortization approach to account for purchased goodwill and certain intangibles. Under the non-amortization approach, goodwill and certain intangibles are not amortized into results of operations, but instead are reviewed for impairment at least annually and written down and charged to operations only in the periods in which the recorded values of goodwill or certain intangibles exceed their fair value. The Company has elected to perform its annual impairment test as of December 31 of each calendar year. An interim goodwill impairment test would be performed if an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying amount.





10





MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








Fair Value of Financial Instruments





The carrying amounts of financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses; debt obligations revolving credit facility and debt approximate their fair values due to their short-term nature and variable interest rate on the revolving credit facility.  Management believes that the Company’s debt obligations in general bear interest at rates which approximate prevailing market rates for instruments with similar characteristics and, accordingly, the carrying values for these instruments approximate fair value.





Stock-Based Compensation





The cost resulting from all share based payment transactions are required to be recognized in the financial statements using the fair value method. The benefits of tax deductions in excess of recognized compensation cost are required to be reported as a financing cash flow, rather than as an operating cash flow. The Company will recognize excess tax benefits when those benefits reduce current income taxes payable. The Company has elected to use the Black-Scholes Merton option pricing model to determine the fair value of options granted.




Income Taxes





The Company utilizes the asset and liability method of accounting for income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities, and net operating loss and tax credit carry-forwards, utilizing enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect of any future change in income tax rates is recognized in the period that includes the enactment date. The Company provides a valuation allowance for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefit or if future deductibility is uncertain.





The Company accounts for uncertain tax positions in accordance with ASC 740-10.   ASC 740-10-25 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.





See Note 8 for further discussion of the Company’s accounting for income taxes





Segment Reporting





Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision making group, in deciding the method to allocate resources and assess performance.





Non-controlling Interest





Non-controlling interest consists of the minority owned portion of the Company’s 60% owned subsidiary, The Intelligent Project LLC (“IP”).





Discontinued Operations





The condensed consolidated financial statements and accompanying notes included in these financial statements include disclosure of the results of operations for the Utah based data center assets which were sold on October 1, 2010.  Accordingly, the results of operations related to these assets have been classified as discontinued operations in the condensed consolidated statements of operations.  See Note 7 for additional information regarding discontinued operations.





Foreign Currency Translation and Transactions





The U.S. dollar is the reporting currency for all periods presented. The financial information for the Company outside the United States is measured using the local currency as the functional currency. Assets and liabilities for the Company’s foreign subsidiary are translated into U.S. dollars at the exchange rate in effect on the respective balance sheet dates, and revenues and expenses are translated into U.S. dollars based on the average rate of exchange for the corresponding period. Exchange rate differences resulting from translation adjustments are accounted for as a component of accumulated other comprehensive income. Gains and (losses) from foreign currency transactions are reflected in the consolidated statements of operations under the line item selling, general and administrative expense. The foreign currency transaction (loss) gain was $(11) and $0 for the three months ended June 30, 2011 and 2010, respectively. The foreign currency transaction (loss) gain was $(9) and $0 for the six months ended June 30, 2011 and 2010, respectively. Such foreign currency transactions include primarily billings denominated in foreign currencies by the Company’s U.S. subsidiary, which are reported based on the applicable exchange rate in effect on the balance sheet date.





Reclassifications





Certain amounts in the condensed consolidated financial statements of the prior years have been reclassified to conform to the current year presentation for comparative purposes. As discussed in Note 7, the Company has reclassified certain prior year amounts related to its discontinued operations.





Recently Issued Accounting Standards





Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.




11


MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3 – REVERSE ACQUISITION AND BUSINESS COMBINATIONS




On February 28, 2011, Midas Medici completed the acquisition of Consonus pursuant to the terms of the Merger Agreement with Consonus, and MMGH dated as of April 30, 2010.  Pursuant to the Merger Agreement effective February 28, 2011, MMGH merged with and into Consonus and Consonus became Midas Medici’s wholly-owned subsidiary.





The merger was accounted for using the purchase method of accounting for financial reporting purposes. The acquisition method requires the identification of the acquiring entity based on the criteria of ASC 805-10-55-12, “Accounting for Business Combinations”.   Based on an analysis of the relative voting rights in the combined entity after the business combination and the composition of the board of directors  and the relative size (measured in assets, revenues, or earnings), the Merger was accounted for as a reverse acquisition.  For accounting purposes, Consonus was identified as the acquiring entity and Midas as the acquired entity.   Under purchase accounting, the assets and liabilities of an acquired company (Midas Medici) as of the effective date of the acquisition were recorded at their respective fair values and added to those of the acquiring company. Accordingly, the financial statements and related footnote disclosures presented for the period prior to the Merger are those of Consonus and its subsidiaries alone. The financial statements as of December 31, 2010 and for the six months ended June 30, 2011 and 2010 include the operations and cash flows of Consonus and its subsidiaries through February 28, 2011 and the combined operations and cash flows of Consonus and its subsidiaries and Midas after that date.





In accordance with the Merger, each Consonus stockholder received, in exchange for each share of Consonus common stock held or deemed to be held by such stockholder immediately prior to the closing of the merger on February 28, 2011, approximately 1.33 shares of Midas Medici, resulting in Consonus stockholders owning approximately 66% of the fully-diluted shares of the combined company.  Midas Medici stock options were also exchanged for outstanding stock options of Consonus at the same exchange ratio.




The Company has accounted for acquisition-related costs of $254 in selling, general and administrative expenses in the condensed consolidated statement of operations.





The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.  The total acquisition price of $5,236 has been allocated as follows (in thousands):




Cash

$
9Accounts receivable


185Furniture, equipment and improvements


6Goodwill


6,046Content and databases


1,316Trade name


529Deferred tax asset


1,278Customer base intangible asset


630Other assets


28Current liabilities


(2,538
)Related party notes


(1,288
)Deferred tax liabilitis


(965
)Total purchase price

$
5,236




Goodwill and other intangible assets represent the excess of the purchase price over the fair value of the net tangible assets acquired.   For income tax reporting purposes, the goodwill and other intangibles assets identified above are non-deductible.
 
 As a result of the Merger the Company acquired approximately $3,400 of net operating loss carry-forwards.   In the three months ended June 30, 2011 the Company determined that all of the acquired loss carry-forwards can be used in future years to offset potential taxable income and that there are no Internal Revenue Code Section 382 limitations with respect to the availability of the acquired net operating loss carry-forwards assumed from the Merger. As a result of this determination, the Company recorded $1,278 of deferred tax assets with a corresponding reduction in goodwill.
 
 On May 3, 2011 the Company completed its acquisition of WUI in an all-stock transaction consisting of 113,300 shares of the Company’s common shares valued at $2.01 per share. WUI is an analytical and data modeling software company that specializes in providing customized consumer energy products including SetYourBill (SM) payment systems, WeatherProofBill® fixed bill and capped bill products, EnerCheck® energy efficiency and carbon footprint reporting, and billing support services.
 12
  MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.  The total acquisition price of $268 has been allocated as follows (in thousands):




Cash

$
16Furniture, equipment and improvements


526Current liabilities


(274
)Total purchase price

$
268


The following table sets forth the unaudited pro forma results of the Company as if the Merger and acquisition of WUI had taken place on the first day of the period presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies always been combined.




Three Months Ended


Six Months EndedJune 30, 2011


June 30, 2010


June 30, 2011


June 30, 2010Total revenues

$
15,248


$
15,719


$
28,370


$
27,884Net loss

$
(851
)

$
(18,075
)

$
(2,269
)

$
(21,345
)Basic and diluted net (loss) per common share

$
(0.11
)

$
(2.59
)

$
(0.34
)

$
(3.06
)Weighted average shares — basic and diluted


7,777,099



6,979,600



6,748,032



6,971,605
 On June 8, 2011 Midas Medici completed its acquisition of the assets of Energy Hedge Fund Center, LLC, (“EHFC”) a web portal and community for clients interested in hedge funds in the energy and commodity sectors, in a transaction consisting of 1,430 shares of the Company’s common stock, $15 in cash and $11 in forgiveness of debt.




13





MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS







NOTE 4 – PROPERTY AND EQUIPMENT, NET





As of June 30, 2011 and December 31, 2010, property and equipment, net consisted of (in thousands):




June 30,


December 31,2011


2010Buildings

$
4,483


$
4,051Land


1,150



1,150Leasehold improvements


48



48Computer software and equipment


2,229



2,079Office furniture and equipment


670



634Construction in process


131



114Total property and equipment


8,711



8,076Less accumulated depreciation


(2,860
)


(2,602
)Total property and equipment, net

$
5,851


$
5,474


Depreciation expense from continuing operations for the three months ended June 30, 2011 and June 30, 2010 amounted to approximately $112 and $135, respectively and for the six months ended June 30, 2011 and 2010 amounted to approximately $225 and $296, respectively.





NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS





As of June 30, 2011 and December 31, 2010, intangible assets consist of (in thousands):




June 30,


December 31,2011


2010Definite-lived intangible assets:Customer relationships

$
16,630


$
16,000Developed technology


2,000



2,000Content and databases


1,316



-Trade name


529



-Total


20,475



18,000Less accumulated amortization


(10,308
)


(8,978
)$
10,167


$
9,022Indefinite-lived intangible assets:Goodwill

$
9,811


$
3,765





Amortization expenses from continuing operations for the three months ended June 30, 2011 and 2010 amounted to approximately $718 and $691, respectively, and for the six months ended June 30, 2011 and 2010 amounted to approximately $1,330 and $1,371, respectively.
 
 In the three months ended June 30, 2011 the Company determined that all of the acquired loss carry-forwards can be used in future years to offset potential taxable income.  The estimated fair value of the Company’s goodwill was adjusted by $1,278 during the three months ended June 30, 2011 as a result.
 
 The estimated fair value of our goodwill could change if the Company is unable to achieve operating results at the levels that have been forecasted, the market valuation of our business decreases based on transactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by the Company. These changes could result in an impairment of the existing goodwill balance that could require a material non-cash charge to our results of operations.
  14


MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   The estimated future amortization expense of the intangibles as of June 30, 2011:


2012

$
2,6612013


2,2642014


1,9072015


1,6232016


1,272Thereafter


440Total

$
10,167
  NOTE 6 – LONG-TERM DEBT





As of June 30, 2011 and December 31, 2010, long-term debt consists of (in thousands):





June 30,


December 31,2011


2010Bank mortgage note payable with interest at 8% payable in equal monthly installments of $23,526 through February 2011.  On March 25, 2011, the Bank provided a six month extension of the maturity date until September 2011.   The note is collateralized by a first deed of trust on STI's office building, assignment of all leases, and a security interest in all fixtures and equipment.

$
2,030


$
2,088Related party notes


321



-Capital lease and other obligations


160



229Totals


2,511



2,317Less current maturities of long-term debt


(2,317
)


(2,238
)Total long-term debt

$
194


$
79


Bank Mortgage Notes Payable





The bank mortgage note is collateralized by a first deed of trust on Consonus’s office building, assignment of all leases and a security interest in all fixtures and equipment.  Additional borrowings received under the revised note were used to fund anticipated capital expenditures.   As of March 25, 2011, the bank provided a six month extension of the maturity date from February 2011 to September 2011.


15





MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






Related Party Notes





In accordance with the reverse merger acquisition on February 28, 2011, the Company assumed $1,288 unsecured notes payable and $243 accrued liabilities due to current and former shareholders of Midas Medici. On April 6, 2011, Midas Medici satisfied the outstanding balance of the notes payable and accrued liabilities through a $370 promissory note, a payment of $490 and issuance of 331,825 shares of the Company’s common stock. The notes had maturity dates between January 15, 2014 and December 31, 2014 and accrued interest at rates ranging from 4% to 12% per annum.


Also assumed in the reverse merger was a Senior Subordinated Debenture to Bruce R. Robinson Trust in the principal amount of $447.  The Debenture provided for payment of interest in the amount of 12% per annum. The Debenture was due to mature on January 1, 2010 was extended through September 30, 2010 and the Company negotiated to settle the amounts owed in 2011.  The Company settled the Debenture with a payment of $250 and the issuance of 22,222 shares of the Company’s common stock.





NOTE 7 –DISCONTINUED OPERATIONS





On October 1, 2010, the Company executed on a sale of its Utah-based data center assets.  Proceeds from the sale included a cash payment at closing of approximately $43,500 and a potential earn-out payment of up to $8,500 in February 2012, contingent on certain criteria related to business performance.





The condensed consolidated financial statements and accompanying notes include disclosure of the results of operations for the Utah-based data center assets.  Accordingly, the results of operations related to these assets have been classified as discontinued operations in the condensed consolidated statements of operations for the three and six months ended June 30, 2010.





The components of income from discontinued operations for the three and six months ended June 30, 2010 are as follows (in thousands):





Three Months Ended June 30,


Six Months Ended June 30,2010


2010Revenue:Data center services and solutions

$
3,114


$
6,348IT infrastructure services


70



141Totals


3,184



6,489Operating expenses:Cost of data center services and solutions


1,251



2,514Cost of IT infrastructure services


47



94Selling, general and administrative expenses


443



897Depreciation and amortization expense


357



710Totals


2,098



4,215Income from discontinued operations


1,086



2,274Interest expense, net


(281
)


(574
)Income from discontinued operations before income tax


805



1,700Income tax expense


346



731Income from discontinued operations

$
459


$
969
 
  16
  MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 – INCOME TAXES





The income tax benefit for continuing operations for the three months ended June 30, 2011 of $417 and for the six months ended June 30, 2011 of $1,175 and income tax benefit for continuing operations of $346 for the three months ended June 30, 2010 and of $731 for the six months ended June 30, 2010, respectively, was primarily based on our estimated annual effective tax rate. The tax benefit was primarily driven off of the full year forecasted loss. The deferred tax assets created from the forecasted loss can be used to offset the already established deferred tax liabilities in future years.  The effective tax rate in 2011 varies from the U.S. federal statutory rate of 35% due to state taxes and permanent book to tax differences.





As a result of the Merger the Company acquired approximately $3,400 of net operating loss carry-forwards.   In the three months ended June 30, 2011 the Company determined that all of the acquired loss carry-forwards can be used in future years to offset potential taxable income.





At both June 30, 2011 and December 31, 2010, the Company had a liability for unrecognized tax benefits of $1,175 and $353 for both federal and state income tax matters. The liability for unrecognized tax benefits has been reduced in the current three months ended June 30, 2011 due to the settlement of an Internal Revenue Service examination. If the remaining unrecognized tax benefits are ultimately recognized it would not be expected to have a material impact on the effective tax rate.





The Company accounts for interest and penalties related to unrecognized tax benefits as part of our provision for federal, foreign, and state income taxes. No accruals for such interest were made during the first or second quarters of 2011 and 2010.  No penalties have been accrued on any of the unrecognized tax benefits.





The earliest tax year open to examination by federal tax and major state tax jurisdictions is 2007. We completed a U.S. income tax audit by the Internal Revenue Service of the 2008 tax year in April 2011.   A $584 net operating loss adjustment was proposed by the Internal Revenue Service and accepted by the Company.  This was reflected in our December 31, 2010 tax provision.  No other income tax audits are currently underway.




NOTE 9 – STOCK-BASED COMPENSATION





Stock Options





A summary of the Company’s stock option plan at June 30, 2011 and changes during the six months ended are as follows (in thousands except share and per share amounts):




Number of Shares


Average Exercise Price


Average Remaining Contractual Terms


Aggregate Intrinsic ValueShares


Exercise Price


Terms


ValueOutstanding at January 1, 2011


61,468


$
14.98Issued as a result of the merger


441,707


$
2.38Forfeited or expired


(4,155
)

$
18.24Outstanding at June 30, 2011


499,020


$
3.78



2.4


$
-


Prior to the Merger (see Note 3), the Company had stock options outstanding. Under the terms of the Merger, each option to acquire shares of Consonus common stock that was outstanding under each stock option plan was exchanged for options to acquire shares of Midas Medici at the rate of 1.33 a share. The exercise price of the exchanged options was adjusted for the exchange ratio, with all other provisions of the options remaining unchanged.
 
 All outstanding options at June 30, 2011 are exercisable. As of June 30, 2011, there is zero unrecognized compensation cost related to outstanding stock options because all options were fully vested. There were no options granted during the periods ended June 30, 2011 and 2010.


17




MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Warrants





A summary of the Company’s warrant activity and changes during the six months ended June 30, 2011 are as follows:





AverageAverage


Remaining


AggregateNumber of


Exercise


Contractual


IntrinsicShares


Price


Terms


ValueOutstanding at January 1, 2011


-



-Warrants issued as a result of the merger


12,800


$
6.00Outstanding at June 30, 2011


12,800


$
6.00



3.64


$
-





All outstanding warrants at June 30, 2011 are exercisable.





Restricted Shares





A summary of the Company’s outstanding non-vested restricted shares at June 30, 2011 and for the six months then ended are as follows:





Number of Shares


Grant Date Fair ValueNonvested Restricted SharesNonvested at January 1, 2011


29,672


$
6.77Granted


-



-Vested


-



-Forfeited


(19,781
)


6.77Nonvested at June 30, 2011


9,891


$
6.77





Prior to the Merger (see Note 3), the Company had restricted shares outstanding. The restricted shares of Consonus common stock that were outstanding under each stock option plan was exchanged based upon the merger exchange rate 1.33 a share.




SARs





The Company has awarded Stock Appreciation Rights (“SARs”) to three of its independent directors and certain executives in exchange for services rendered by them to the Company or a Subsidiary.  At January 1, 2010, there were 31,234 SARs outstanding at an average base price of $4.97.  An additional 11,010 were issued in 2010 at an average base price of $6.62.  At June 30, 2011 42,244 SARs are outstanding.  No exercise event has occurred and, accordingly, there have been no expense or liabilities recognized related to these SARs for the three and six months ended and as of June 30, 2011.   “Exercise Event” is defined as: (i) any merger or consolidation to which the Company is a party so long as, as a result of such merger or consolidation, the Company’s majority stockholder, KLI, owns less than 25% of the stock in the surviving or resulting entity or its parent entity; (ii) the sale by the stockholders of the Company, in a single transaction or series of related transactions, of all of the stock of the Company or, if less than all, an amount of stock such that, as a result of the sale, KLI is the owner of less than 25% of the outstanding voting power of the Company; (iii) the sale of all or substantially all of the assets of the Company to an unrelated third party; or (iv) such other time for the allowance of the exercise of SARs as may be recommended by the Committee and approved by the Board.




18




MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 – RELATED PARTY TRANSACTIONS





Expense Reimbursement Agreement





On August 7, 2010, the Company entered into an Expense Reimbursement Agreement (the “Reimbursement Agreement”) with KLI. Pursuant to the Reimbursement Agreement, KLI is authorized to incur up to $350,000 in certain expenses and obligations on behalf of the Company and the Company agreed to reimburse KLI for such expenses and obligations promptly after delivery of invoices for such expenses. The Reimbursement Agreement has a term of one year, subject to earlier termination upon 30 days’ written notice by either party. KLI also allocates expenses for rent and office services to the Company.
 
 NOTE 11 – COMMITMENTS AND CONTINGENCIES





Employment Agreements





Effective July 16, 2009, we entered into employment agreements with two key executive officers which agreements contain the same terms and provisions. The agreements provide for an initial term of five years which shall be automatically extended for successive one year periods unless terminated.





The employment agreements provide for an annual base salary of $250,000 which shall be increased to $350,000 on the earlier to occur of the third anniversary of the agreements or the Company publicly reports consolidated annual gross revenues of at least $100,000,000.  In addition, the executives will each be entitled to an annual bonus targeted between 0% to 250% of the base salary during the first 3 years of the term of the Agreements and thereafter, at a target to be determined in good faith by the Company’s board of directors.





In the event of the executives’ death while employed by the Company, the agreements shall automatically terminate and any unvested equity compensation shall vest immediately and any vested warrants may be exercised on the earlier of the warrant’s expiration or 18 months after the death. In the event of the executives' death or if the agreement is terminated due to a disability or for cause (as defined in the agreements), any unpaid compensation, prorata bonus or bonus options earned and any amounts owed to the executives shall be paid by us. In addition, if the agreements are terminated due to the disability of the executive, any unvested equity compensation shall vest immediately and any vested warrants may be exercised on the earlier of the warrant’s expiration or 18 months after such termination. In the event the executive’s employment is terminated without cause, the executives shall be entitled to receive, in a lump sum payment, the base salary, the maximum bonus and options that would have been paid to the executives if the agreements had not been terminated or for 12 months, whichever is greater. In addition, any unpaid compensation, pro rata bonus or bonus options earned and any amounts owed to the executives shall be paid by us and any unvested equity compensation shall vest immediately and any vested warrants may be exercised on the earlier of the warrant’s expiration or 18 months after the termination. In the event of the executives’ resignation without good reason (as defined in the agreement), or retirement, the executives shall be entitled to receive any unpaid compensation, pro rata bonus or bonus options earned and any amounts owed to the executives.


19





MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


As a method to retain senior management in the event of a change of control, the agreements also provide that upon the closing of a transaction that constitutes a “liquidity event”, as such term is defined in the agreements, each executive shall be entitled to receive a transaction bonus equal to 2.99 times his then current base salary, provided that he remains employed with the Company on the closing of such liquidity event, unless his employment is terminated without cause or he resigns for good reason. Liquidity events include any consolidation or merger, acquisition of beneficial ownership of more than 50% of the voting shares of the Company, or any sale, lease or transfer of all or substantially all of the Company’s assets.  The transaction bonus was waived at the time of the Consonus merger.





NOTE 12 – EARNINGS (LOSS) PER SHARE





Basic earnings (loss) per common share are computed using the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per common share are computed using the weighted average number of common shares outstanding and common stock equivalents with the assumption that all common stock equivalents were converted at the beginning of the year.  Options, warrants and unvested shares are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.  Common stock equivalents are excluded from the computation if their effect is anti-dilutive or, for options and warrants, if the exercise price exceeds the tradable value of the underlying stock.





For the three and six months ended June 30, 2011 and 2010, the dilutive earnings (loss) per common share does not include the dilutive effect of 9,891 and 75,337 non-vested restricted shares, respectively, and 12,800 and 381,514 warrants, respectively, and excludes all outstanding stock options of 499,020 and 36,805, respectively, due to the Company reporting losses from continuing operations.





NOTE 13– SUBSEQUENT EVENTS





On August 2, 2011, the Company completed the acquisition of a 60% interest (the “Closing”) in Cimcorp, Inc., (“Cimcorp”) pursuant to the terms of the Stock Purchase Agreement (the “SPA”), as amended, among the Company,  Cairene Investments, Ltd. (the “Seller”), and certain shareholders  (the “Shareholders”), Cimcorp, Cimcorp Comércio Internacional E Informática S.A., a Brazilian sociedade anônima, Cimcorp Comércio E Serviços Tecnológicos E Informática Ltda., a Brazilian limitada, and Cimcorp USA, LLC, a Florida limited liability company.





At the closing, the Company provided consideration of Seventeen Million Brazilian Reais ($10,862 USD), Eight Million Brazilian Reais ($5,112 USD) which was paid in cash and Nine Million Brazilian Reais ($5,750 USD) in shares of common stock of the Company equal to 1,297,022 shares of common stock of the Company.





Pursuant to the terms of the SPA, the Company will purchase on January 24, 2012 (but no later than January 27, 2012) an additional 20% of the shares of Cayman Co (“Tranche A”) for a purchase price of Nine Million Brazilian Reais ($5,750 USD), which purchase price shall be subject to certain adjustment to the Brazil CPI index provided that such adjustment shall be capped at 7%. The Company shall have the right to purchase an additional 20% of the shares of Cayman Co at any time during the 12 and 24 month anniversary of the initial closing at a purchase price of Nine Million Brazilian Reais ($5,750), subject to certain adjustments as set forth in the SPA. The Seller shall have the right to elect to have the Company purchase the remaining 20% of the shares of Cayman Co. (the “Tranche B”) 30 days after the 24 month anniversary of the initial closing. The SPA provides that in the event the Company undergoes a Change in Control, as defined, or transfers more than 50% of the shares of Cayman Co, the purchase of Tranches A and B shall be accelerated.





On July 29, 2011, the Company entered into a Commercial Financing Agreement (the “CFA”) with Porter Capital Corporation (“Porter Capital”) whereby Porter Capital can purchase a maximum of $3,000,000 of the Company’s eligible accounts receivable without recourse. The term of the CFA is for a period of two years, with automatic one-year extensions at the option of the Company and interest payable at the prime rate plus 2% on an annualized basis charged daily and due monthly. Under the terms of the CFA, a default shall be deemed to have occurred upon the occurrence of certain events specified in the CFA including, but not limited to (i) the Company’s failure to pay any indebtedness or obligation to Porter Capital when due, (ii) breach of any term, provision, warranty or representation under the CFA or any agreement between the Company and CapitalPartners Leasing, LLC and/or Porter Bridge Loan Company, Inc. (“Porter Bridge”) or any obligation of the Company to CapitalPartners Leasing, LLC and/or Porter Bridge, (iii) any insolvency, bankruptcy, or dissolution of the Company or any guarantor, or (iv) the occurrence of a default in connection with the Company’s obligations to Knox Lawrence International, LLC (“KLI”), as Agent, on behalf of the Purchasers under the Securities Purchase Agreement (defined below). The Company’s CEO, Nana Baffour and its CFO, Johnson Kachidza, are the managing principals of KLI.


In connection with the CFA, the Company entered into a Security Agreement, pursuant to which the Company granted a security interest to Porter Capital in all their accounts receivable and, essentially, all of their other assets. In addition, the Company executed a Performance Covenant and Waiver, guaranteeing the performance by the Company of its obligations under the CFA.  Also, as part of the financing with Porter Capital, the Company borrowed from Porter Capital $244,000, represented by a one-year Promissory Note with interest accruing at prime plus 10.75%.  As security under the Promissory Note, the Company granted Porter Bridge a first lien mortgage encumbering improved real property located in Pittsburgh, Pennsylvania (the “Pittsburgh Property”).




20




MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


On July 29, 2011, the Company entered into a Security Purchase Agreement (the “Security Purchase Agreement”) for the sale of an aggregate of up to $4,500 in subordinated secured promissory notes (the “Notes”) and 1,500,000 shares of common stock of the Company.  Each purchaser can purchase 33,333 shares at $.01 per share for each $100 note purchased.  The fair value of the shares will be recorded as a debt discount and accreted using the effective interest method over the term of the Notes.  Interest shall accrue at a rate of 16% per annum and is payable quarterly on July 31, October 31, January 31 and April 30 of each year commencing on July 31, 2012. Through August 15, 2011, the Company sold $1,900 of notes and 633,331 shares of the Company’s common stock of whichKLI and Quotidian Capital, LLC (“Quotidian”), an entity of which Nana Baffour, the Company’s CEO and Johnson Kachidza, the Company’s CFO are each managing principals. Pursuant purchased an aggregate of $1,475 in subordinated secured promissory notes (the “Notes”) and 491,667 shares of common stock of the Company.  The notes provide for payment of interest in the amount of 16% per annum with interest payable quarterly on July 31, October 31, January 31 and April 30 each year until the note is paid in full. The unpaid principal balance and all accrued but unpaid interest are due and payable on the earlier of (i) the consummation of a Company Equity Offering or (ii) on July 31, 2013. KLI and Quotidian purchased shares at an agreed upon 33,333 shares at $.01 per share for each $100,000 note purchased.  Under the terms of the notes, a default shall be deemed to have occurred upon occurrence of certain events specified in the Notes including, but not limited to (i) the failure of the Company to make any required payment of principal and interest due under the Notes more than five days after such payment is due ; (ii) the filing of a petition by the Company seeking to avail itself of the protection of any federal or state bankruptcy, insolvency, or similar law or the initiation of any such proceeding against the Company which is not dismissed within sixty days following the filing thereof; (iii) the making of a general assignment by the Company for the benefit of the Company’s creditors; or (iv) the Company’s consent to any material modification of the loan with Porter Capital including any increase in the total principal amount outstanding of such loan to an excess of $3.2 million and any increase in the interest rates of such loan.
 
 The Company entered into a Registration Rights Agreement with each Purchaser, pursuant to which the Company granted each Purchaser piggy back registration rights with respect to the shares purchased pursuant to the Security Purchase Agreement.








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





FORWARD LOOKING STATEMENTS





FORWARD LOOKING STATEMENTS





This Quarterly Report on Form 10-Q (including the section regarding Management's Discussion and Analysis or Plan of Operation) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.





Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our Management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading "Risks Factors" discussed in our Annual Report on Form 10-K which was filed with the SEC on April 4, 2011. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We file reports with the Securities and Exchange Commission ("SEC"). Our electronic filings with the United States Securities and Exchange Commission (including our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports) are available free of charge on the Securities and Exchange Commission’s website at http://www.sec.gov. You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.





We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.





References in this Form 10-Q to “we”, “us”, “our”, “Midas Medici “and similar words refer to Midas Medici Group Holdings Inc. and its wholly-owned subsidiaries, Consonus Technologies, Inc. (“Consonus”) and Utilipoint International, Inc. (“Utilipoint”) and its subsidiary, The Intelligent Project (“IP”), unless the context indicates otherwise.





Overview





Midas Medici is a green Information Technology (“IT”) company that supplies mid-sized and select enterprises and institutions with leading-edge IT solutions in the fields of virtualization, cloud computing and data management, as well as working with utilities and other institutions to transform the electric grid through digital technologies. Midas serves its client base of over 700+ customers through its Consonus and Utilipoint brands.





Across all of its business initiatives, Midas Medici works with its customers by optimizing IT and data center investments, cutting energy usage and preventing data loss, all while maximizing productivity. Through a management team with decades of experience, Midas Medici is positioning itself to take advantage of the high-growth IT industry through its unique specialized services at the intersection of energy and technology.





Through its Consonus brand, Midas Medici offers a variety of solutions that optimize IT infrastructure and data center investments. Seasoned experts deliver innovative data protection, disaster recovery, virtualization, and asset management solutions for mid- size and select large enterprises. Midas is able to deliver its IT solutions and services without the constraints of technology and location through a flexible delivery model which spans three datacenter environments: customer-owned, co-location, and the cloud. These highly secure, energy efficient and reliable data centers combined with its ability to offer a comprehensive suite of related IT infrastructure services gives Midas Medici an ability to offer its customers customized solutions to address their critical needs of data center availability, data manageability, disaster recovery and data center consolidation, as well as a variety of other related managed services.





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Midas Medici’s data center related services and solutions primarily enable business continuity, back-up and recovery, capacity-on-demand, regulatory compliance (such as email archiving), virtualization, cloud computing, data center best practice methodologies and software as a service. Midas Medici also provides managed hosting, maintenance and support for all of its solutions, as well as related strategic IT consulting services, IT technical support services and project management assistance to support people, processes, and technologies surrounding its services.





Additionally, Midas Medici provides custom research and management, technology and policy consulting services to utilities, investors, regulators, and energy industry service providers both domestically and internationally. Midas provides services along the following practice areas: (1) Smart Meter Deployment; (2) Energy Investments & Business Planning; (3) CommodityPoint; (4) Meter-to-Cash; (5) Pricing & Demand Response; and (6) Public & Regulatory Issues Management. Midas Medici helps clients conceive, develop, implement and improve Smart Grid and other energy solutions that address the efficiency, reliability and security of the generation, transmission, and distribution of electricity to end users. We believe this diverse pool of intellectual capital will enable Midas Medici to penetrate the Utility vertical.





Representing the top names in IT infrastructure through its Consonus brand, Midas Medici has been providing data center virtualization for over 10 years. Consonus directly supports all solutions with award-winning 24x7x365 Customer Care for a wide range of hardware and software manufacturers.





As of June 30, 2011, Midas Medici has 107 employees located in the United States and Europe.  Midas Medici is headquartered in New York City with regional offices in Cary, NC, Albuquerque, NM, and maintains international operations through its office in Brno, Czech Republic.





Mergers and Acquisitions





A key element of our growth strategy is to pursue acquisitions. We plan to continue to acquire businesses if and when opportunities arise. We expect future acquisitions to also be accounted for as purchases and therefore generate goodwill and other intangible assets. We expect to incur additional debt for future acquisitions and, in some cases, to use our stock as acquisition consideration in addition to, or in lieu of, cash. Any issuance of stock may have a dilutive effect on our stock outstanding.





On February 28, 2011, we completed the acquisition of Consonus Technologies, Inc. (“Consonus”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) with Consonus, and MMGH Acquisition Corp., our wholly-owned subsidiary (the “Merger Sub”) dated as of April 30, 2010.  Pursuant to the Merger Agreement effective February 28, 2011, Merger Sub merged with and into Consonus and Consonus became our wholly-owned subsidiary.





With the acquisition of Consonus on February 28, 2011, the Merger was accounted for as a reverse merger and recapitalization which resulted in Midas Medici being the “legal acquirer” and Consonus the “accounting acquirer.





Consonus provides innovative data center solutions to medium sized and larger enterprises focused on virtualization, energy efficiency and data center optimization. Its highly secure, energy efficient and reliable data centers combined with its ability to offer a comprehensive suite of related IT infrastructure services gives it an ability to offer its customers customized solutions to address their critical needs of data center availability, data manageability, disaster recovery and data center consolidation, as well as a variety of other related managed services.





Consonus’ data center related services and solutions primarily enable business continuity, back-up and recovery, capacity-on-demand, regulatory compliance (such as email archiving), virtualization, cloud computing, data center best practice methodologies and software as a service. Additionally, it provides managed hosting, maintenance and support for all of its solutions, as well as related consulting and advisory services.





On May 3, 2011, the acquisition of WUI was completed in an all-stock transaction.  With its proprietary technology, WeatherWise specializes in providing customized consumer energy products including SetYourBill SM payment systems, WeatherProofBill® fixed bill and capped bill products, EnerCheck® energy efficiency and carbon footprint reporting, and billing support services. The acquisition of WeatherWise and its sophisticated software and analytical capabilities will allow Midas to more effectively increase participation in the digitization of the electrical grid and offerings of energy efficient IT infrastructure for data centers while enhancing the Company’s future growth potential.  As part of the merger, WeatherWise will be rebranded “UtiliPoint Analytics,” allowing Midas to further leverage its Consonus and UtiliPoint brands as it sets out to monetize WeatherWise’s intellectual property and sophisticated technologies.
 
 On June 8, 2011, Midas Medici completed its acquisition of the assets of Energy Hedge Fund Center, LLC (“EHFC”), a web portal and community for clients interested in hedge funds in the energy and commodity sectors, in a stock, cash and forgiveness of debt transaction. The Company issued 1,430 shares of its common stock in relation to this transaction.




23





Revenue





Our revenue is predominantly generated through data center services and IT infrastructure solutions and services, time-and-materials contracts, bundled service agreements, fixed-price contracts and other revenue.  Data center services are comprised of hosting, bandwidth, managed infrastructure, managed services and maintenance support services. IT infrastructure solutions and services include the resale of hardware and software, along with consulting, integration and training services.





Our revenue mix varies from year to year due to numerous factors, including our business strategies and the procurement activities of our clients. Unless the content requires otherwise, we use the term “contracts” to refer to contracts and any task orders or delivery orders issued under a contract.





Cost of revenues





Our cost of revenues consist of personnel costs, cost of sales from vendors with whom we are reselling their hardware and software, allocated lease and building costs, electricity costs and bandwidth. Payroll costs are expected to increase as employees are given increased compensation based on merit. We also expect our other costs (such as cost of revenue of hardware and software, electricity and bandwidth) to increase as we increase our revenues. We are expecting electricity costs to increase with expected rate increases charged by our power suppliers. We have also recently signed several new customer bandwidth contracts that will require us to increase our bandwidth usage. However, this increase in usage also allows us to negotiate better pricing on a per unit basis. Cost of revenues also consist of costs incurred to provide services to clients, the most significant of which are employee salaries and benefits, reimbursable project expenses associated with fringe benefits, all relating to specific client engagements. Cost of revenues also include the costs of subcontractors and outside consultants, third-party materials and any other related cost of revenues, such as travel expenses.





Selling, general and administrative





Our selling expenses consist primarily of compensation and commissions for our sales and marketing personnel. They also include advertising expenses, trade shows, public relations and other promotional materials. General and administrative expenses include personnel compensation and related personnel costs, professional services not allocated to other areas, insurance fees, franchise and property taxes, and other expenses not allocated to cost of revenue. We also anticipate that we will incur additional expenses related to professional services and insurance fees necessary to meet the requirement of being a public company.  Selling, general and administrative (“SG&A”) expenses include our management, facilities and infrastructure costs, as well as salaries and associated fringe benefits, not directly related to client engagements. Among the functions covered by these expenses are marketing, business and corporate development, bids and proposals, facilities, information technology and systems, contracts administration, accounting, treasury, human resources, legal, corporate governance and executive and senior management.





Results of Operations





The following discussion highlights results from our comparison of consolidated statements of operations for the periods indicated.





Three months ended June 30, 2011 compared to three months ended June 30, 2010 (dollars in thousands)


Three Months Ended June 30,2011


2010(unaudited)


(unaudited)RevenuesData center services and solutions

$
7,102


$
7,891IT infrastructure services


1,483



865IT infrastructure solutions


6,603



6,474Totals


15,188



15,230Operating expenses:Data center services and solutions


4,821



5,115IT infrastructure services


887



603IT infrastructure solutions


5,079



4,974Selling, general and administrative expenses


4,971



4,929Depreciation and amortization expense


830



826Impairment loss - Goodwill


-



16,261Totals


16,588



32,708Loss from continuing operations


(1,400
)


(17,478
)Other income


345



-Interest expense, net


(125
)


(568
)Loss before income tax expense


(1,180
)


(18,046
)Income tax benefit


(417
)


(346
)Loss from continuing operations


(763
)


(17,700
)Income from discontinued operations


-



805Income tax expense


-



346Income from discontinued operations






459Net loss


(763
)


(17,241
)Less:  Net loss attributable to non-controlling interest


-



-Net loss attrinutable to Midas Medici Group Holdings, Inc. and Subsidiaries

$
(763
)

$
(17,241
)
 Revenues. Revenues for the three months ended June 30, 2011 were $15,188, compared to $15,230 for the three months ended June 30, 2010. The decrease in revenues was primarily due to decreased data center services and solutions related to the Company’s inability to sell renewal support for Sun product offset by the Company's clients’ increased spending on infrastructure services as a result of the Company’s merger with Utilipoint, increased spending on infrastructure solutions (primarily a sale of approximately $700 to a new customer)..


Cost of revenues. Cost of revenues for the three months ended June 30, 2011 were $10,787, or 71% of revenue, compared to $10,692 or 70% of revenue, for the three months ended June 30, 2010. The increase in our margins are a result of increased vendor rebates in addition to increased Infrastructure Solutions revenues which is supported by a fixed labor cost.  An increase in revenue based on the same cost structure results in increased margins.
 
 Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2011 were $4,971, compared to $4,929 for the three months ended June 30, 2010. Selling, general and administrative expenses increased slightly primarily due to increased acquisition expenses of approximately $300 offset by a decrease in payroll expenses of approximately $210.


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Operating loss. For the three months ended June 30, 2011, losses from continuing operations totaled $1,400, compared to an operating loss from continuing operations of $17,478 for the three months ended June 30, 2010. Loss from operations decreased primarily due to a goodwill impairment charge of $16,261 that was recognized in June 2010.
 
 Other income.Other income for the three months ended June 30, 2011 was $345 and consists of a referral fee that the Company has earned.
 
 Interest and tax expense. For the three months ended June 30, 2011, interest expense was $125, compared to $568 for the three months ended June 30, 2010. The decrease in interest expense is a result of a reduction in debt of $24,766. Tax provisions for continuing operations for the three months ended June 30, 2011 resulted in a tax benefit of approximately $417 and approximately $346 for the three months ended June 30, 2010.





Six months ended June 30, 2011 compared to six months ended June 30, 2010 (dollars in thousands)


Six Months Ended June 30,2011


2010(unaudited)


(unaudited)RevenuesData center services and solutions

$
14,168


$
15,439IT infrastructure services


2,335



1,762IT infrastructure solutions


11,522



9,626Totals


28,025



26,827Operating expenses:Data center services and solutions


9,679



10,228IT infrastructure services


1,501



1,224IT infrastructure solutions


9,135



7,426Selling, general and administrative expenses


9,284



9,982Depreciation and amortization expense


1,555



1,667Impairment loss - Goodwill






16,261Totals


31,154



46,788Loss from continuing operations


(3,129
)


(19,961
)Other income


345



-Interest expense, net


(266
)


(1,099
)Loss before income tax expense


(3,050
)


(21,060
)Income tax benefit


(1,175
)


(731
)Loss from continuing operations


(1,875
)


(20,329
)Income from discontinued operations


-



1,700Income tax expense


-



731Income from discontinued operations






969Net loss


(1,875
)


(19,360
)Less:  Net loss attributable to non-controlling interest


-



-Net loss attrinutable to Midas Medici Group Holdings, Inc. and Subsidiaries

$
(1,875
)

$
(19,360
)
 Revenues. Revenues for the six months ended June 30, 2011 were $28,025, compared to $26,827 for the six months ended June 30, 2010. The increase in revenues was primarily due to Company's clients’ increased spending on infrastructure solutions and services.  The increase in infrastructure services was primarily due to revenues derived from the Utilipoint acquisition of $419. In addition, infrastructure solutions revenue from a new customer accounted for $1,074 of the increase in that product line.
 
 Cost of revenues. Cost of revenues for the six months ended June 30, 2011 were $20,315, or 72.5% of revenue, compared to $18,879 or 70.4% of revenue, for the six months ended June 30, 2010. The decrease in our margins as a percentage of revenue are a result of reductions in higher margin product sales in addition to a large product deal that occurred in 2011. Product sales result in lower margins than do service contracts or consulting sales.
 
 Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2011 were $9,284, compared to $9,982 for the six months ended June 30, 2010. Selling, general and administrative expenses decreased primarily due to decreased compensation of $1,127 as a result of a reduction in headcount offset by increased acquisition related costs of $805.


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Operating loss. For the six months ended June 30, 2011, losses from continuing operations totaled $3,129, compared to an operating loss of $19,961 for the six months ended June 30, 2010. Loss from continuing operations decreased primarily due to a goodwill impairment charge that was recognized in June, 2010.
 
 Other income.Other income for the six months ended June 30, 2011 was $345 and consists of a referral fee that the Company has earned.
 
 Interest and tax expense. For the six months ended June 30, 2011, interest expense was $266, compared to $1,099 for the six months ended June 30, 2010. The decrease in interest expense is a result of a reduction in debt of $24,766. Tax provisions for the six months ended June 30, 2011 resulted in a tax benefit of $1,175 and $731 related to continuing operations for the six months ended June 30, 2010.


Liquidity and Capital Resources (dollars in thousands)





At June 30, 2011, we had cash and cash equivalents of $851 and working capital deficiency of $8,778, excluding prepaid data center costs and deferred revenue.
 
 Cash flow used in operations was $3,688 for the six months ended June 30, 2011 and cash generated by operations was $2,313 for the six months ended June 30, 2010. The increase in cash flow used by operations resulted from the net loss from operations of $1,875 which is primarily due to federal, state and franchise taxes, acquisition expenses and payment of vendor related and other liabilities. Additionally, the Company used $3,588 for payments to vendors for the six months ended June 30, 2011 versus cash provided related to an increase in accounts payable of $368 for the six months ended June 30, 2010.  Additionally, the Company recognized a decrease in accrued liabilities of $1,487 for the six months ended June 30, 2011 versus an increase of $1,009 for the same period ended 2010. The decrease in accrued expense was primarily due to the payment of accrued legal, audit and interest expense.
 
 Net cash used in investing activities was $54 and $507 for the six months ended June 30, 2011 and 2010, respectively.
 
 Cash used in financing activities was $428 and $1,749 for the six months ended June 30, 2011 and 2010, respectively. The decrease is a result of reduced financing activity during the six months ended June 30, 2011 primarily related to payment of $436 on long term-debt versus payments of $1,363 for the six months ended June 30, 2010. The Company had a reduction in debt outstanding of $24,766 for the period ended June 30, 2011 as compared to June 30, 2010.
 
 Our unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business and, accordingly, no adjustments have been made to recorded amounts that might result from the outcome of this uncertainty. Our accumulated deficit at June 30, 2011 was $15,684, and we incurred a net loss of $1,875 for the six months ended June 30, 2011.  On June 30, 2011, we had working capital deficit of $13,281.
 
 While we have raised funds to meet our working capital and financing needs in the past, additional financing may be required in order to conduct operations and implement our acquisition strategy over the next twelve months. We expect to raise sufficient capital resources to meet our projected cash flow deficits through the next twelve months.  We cannot predict whether this new financing will be in the form of equity or debt. There can be no assurance that additional funds will be available on terms acceptable to the Company and its stockholders, or at all.
 
 Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.  Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.  However, if we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition, and we will have to adjust our planned operations and development on a more limited scale.
 
 Our liquidity may also be adversely affected by the current economic conditions, including consumer spending, the ability to collect our accounts receivable and our ability to obtain working capital. There is no assurance that additional funds will be available on terms acceptable to the Company and its stockholders, or at all.


Impact of our initial public offering





In February 2010, we completed an initial public offering pursuant to which we sold 256,000 shares of common stock for gross proceeds of $1,280,000 (net proceeds available to the Company after deducting underwriting discount and commissions was $1,177,600). Over the long term, our results of operations will be affected by the costs of being a public entity, including changes in board and executive compensation, the costs of compliance with the Sarbanes-Oxley Act of 2002, the costs of complying with the Security Exchange Commission (“SEC”) requirements, and increased insurance, accounting and legal costs. These costs are not reflected in our historical results for periods prior to becoming a public company.


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Critical Accounting Policies and Significant Judgments and Estimates





Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We review our estimates on an ongoing basis, including those related to allowances for doubtful accounts, certain revenue recognition related to contract deliverables, valuation allowances for deferred tax assets, rates at which deferred tax assets and liabilities are expected to be recorded or settled, accruals for paid time off and the estimated labor utilization rate used to determine cost of services of our foreign subsidiary. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.




Our management believes the following accounting policies and estimates are most critical to aid you in understanding and evaluating our reported financial results.





Revenue Recognition





The Company derives revenues from data center services, IT infrastructure solutions and consulting services.





Data center services are comprised of managed infrastructure, managed services and maintenance support services. IT infrastructure solutions and consulting services include the resale of hardware and software, along with consulting, integration and training services.





The Company recognizes revenue when all of the following conditions are satisfied: there is persuasive evidence of an arrangement; delivery has occurred; the collection of fees is probable; and the amount of fees to be paid by the customer is fixed or determinable. Delivery does not occur until products have been shipped or services have been provided and risk of loss has transferred to the client.





When the Company provides a combination of the above referenced products or services to its customers, recognition of revenues for the hardware and related maintenance services component is evaluated to determine if any software included in the arrangement is not essential to the functionality of the hardware based on accounting guidance related to“Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software.”  Hardware and related elements qualify for separation when the services have value on a stand-alone basis, objective and verifiable evidence of fair value of the separate elements exists and, in arrangements that include a general right of refund relative to the delivered element, performance of the undelivered element is considered probable and substantially in its control. Fair value is determined principally by reference to relevant third-party evidence of fair value. Such third-party information is readily available since the Company primarily resells products offered by its vendors. The application of the appropriate accounting guidance to the Company’s sales requires judgment and is dependent upon the specific transaction. The Company recognizes revenues from the sale of hardware products at the time of sale provided the revenue recognition criteria are met and any undelivered elements qualify for separation.





In arrangements that include multiple elements, including software licenses, maintenance and/or professional services, the Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within our control.  The Company determines the best estimated selling price ("ESP") of each element in an arrangement based on a selling price hierarchy. The best estimated selling price for a deliverable is based on its vendor specific objective evidence ("VSOE"), if available, third party evidence ("TPE"), if VSOE is not available, or ESP, if neither VSOE nor TPE is available.  Total arrangement fees will be allocated to each element using the relative selling price method.





Maintenance contract revenue is deferred and recognized ratably over the contractual period. The deferred revenue consists primarily of the unamortized balance of product maintenance. Occasionally, the Company resells maintenance contracts to certain customers in which the Company assumes an agency relationship. For such contracts, the Company generally has no further obligation to the customer beyond the billing and collection of the maintenance contract amount. These agent maintenance contracts are established between the vendor and the customer and the Company has no obligation to provide the maintenance services. In such arrangements, the Company recognizes the net fees retained as revenues at the time of sale with no associated cost of sales.




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Consulting services revenue is recognized as the services are rendered. Revenues generated from fixed price arrangements are recognized using the proportional performance method, measured principally by the total labor hours incurred as a percentage of estimated total labor hours. For fixed price contracts when the current estimates of total contract revenue and contract cost indicate a loss, the estimated loss is recognized in the period the loss becomes evident.  Consulting services rendered under Time and Materials contracts (“T&M”) are billed at a set hourly rate.  Project related expenses are passed through at cost to clients.   Revenue from T&M contracts are recognized as billed (clients are billed monthly) unless the project has a major deliverable(s) associated with it, in which case the revenue is deferred until the major deliverable(s) is provided.





The Company also generates revenue from it Bundled Service Agreements (“BSA”). BSAs are packages of services that clients subscribe to, typically on an annual contract basis.  BSA revenue is recognized over the subscription period, or in the case of corporate contracts as the hours is utilized, reflecting the pattern of provision of service.





Another source of revenue for the Company is its Events and Sponsorships. The Company hosts events such as conferences.  These events include revenues from sponsorships and registration fees which are recognized in the month of the event.  Revenues from sponsors of the AMI MDM forum are recognized over the annual subscription period.





Unbilled services are recorded for consulting services revenue recognized to date that has not yet been billed to customers. In general, amounts become billable upon the achievement of contractual milestones or in accordance with predetermined payment schedules. Unbilled services are generally billable to customers within one year from the respective balance sheet date.





Revenue also consists of monthly fees for data center services and solutions including managed infrastructure and managed services and is included within “data center services” revenue in the accompanying consolidated statements of operations. Revenue from managed infrastructure and managed services is billed and recognized over the term of the contract which is generally one to six years. Installation fees associated with managed infrastructure and managed services revenue is billed at the time the installation service is provided and recognized over the estimated term of the related contract or customer relationship. Costs incurred related to installation are capitalized and amortized over the estimated term of the related contract or customer relationship.





The Company’s deferred revenue consists primarily of amounts received from or billed to clients in conjunction with maintenance contracts, BSAs, T&M and fixed price contracts for which revenue is recognized over time or upon completion of contract deliverables.





Recent Accounting Pronouncements





See recently adopted and issued accounting standards in Part I, Item 1. Financial Statements, Note 2 - Significant Accounting Policies.





Effects of Inflation





We generally have been able to price our contracts in a manner to accommodate the rates of inflation experienced in recent years, although we cannot be sure that we will be able to do so in the future.





Off-Balance Sheet Arrangements





We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.





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Item 3.    Quantitative and Qualitative Disclosures about Market Risk.





Not applicable.





Item 4.   Controls and Procedures.





(a) Evaluation of Disclosure Controls and Procedures





We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.





The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report and have concluded that the Company’s disclosure controls and procedures were not effective.  Based upon that evaluation and due to the material weakness existing in our internal controls as of December 31, 2010 (as described in the Company's form 10-K) which has not been fully remediated as of June 30, 2011, we have concluded that as of June 30, 2011, our disclosure controls and procedures were not effective.





(b) Changes in internal controls





During our fiscal quarter ended June 30, 2011, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





29





Part II.
OTHER INFORMATIONItem 1.
Legal ProceedingsNone.Item 1A.
Risk FactorsNot applicable.Item 2.
Unregistered Sales of Equity Securities and Use of ProceedsNoneItem 3.
Defaults Upon Senior SecuritiesNone.Item 4.
(Removed and Reserved)Item 5.
Other InformationNone.Item 6.
Exhibits





(a)
Exhibits





Exhibit Number

Description of Exhibit31.1

Certifications of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended31.2

Certifications of Principal Financial and Accounting Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended32.1

Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

Certifications of Principal and Accounting Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





30





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.





Midas Medici Group Holdings, Inc.August 15, 2011
By:
/s/ Nana BaffourNana BaffourChief Executive Officer (Principal Executive Officer)/s/ Johnson KachidzaJohnson KachidzaChief Financial Officer (Principal Financial and Accounting Officer)