UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

000-52621

(Commission file number)

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 York10022

(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 x     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  o
Non-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 10,975,269 shares of the issuer's common stock outstanding as of November 14, 2012.

MIDAS MEDICI GROUP HOLDINGS, INC.

Table of Contents

		Page Number
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011	4
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011 (Unaudited)	5
	Condensed Consolidated Statement of Stockholders’ Equity (Deficit)  for the nine months ended September 30, 2012 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
SIGNATURES		35

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (including the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) and any documents incorporated by reference herein or therein may contain “forward-looking statements”. Forward-looking statements reflect our current view about future beliefs, plans, objectives, goals or expectations. When used in such documents, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements, include, but are not limited to, statements relating to our business goals, business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance.  Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products and services; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize new and improved products and services; our ability to raise capital to fund continuing operations; changes in government regulation; our ability to complete customer transactions and capital raising transactions; and other factors (including the risks contained in the sections of our annual report on Form 10-K entitled “Risk Factors”) relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. 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, DC20549. 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.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this quarterly report and other reports we have filed or will file with the SEC and which are incorporated by reference herein, including statements under the caption “Risk Factors” and “Forward-Looking Statements” in such reports.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Part 1: FINANCIAL INFORMATION

Item 1: Financial Statements

Midas Medici Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands except share and per share amounts)

	September 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,243		$	1,461
Accounts receivable, net of allowance for doubtful accounts of $1,274 and $1,287 as of September 30, 2012 and December 31, 2011, respectively		10,060			11,298
Lease payments receivable, current		2,095			2,091
Lease payments receivable - Westcon, current		4,627			4,000
Inventories		1,212			1,270
Recoverable taxes, current		1,386			1,500
Deferred support costs, current		1,633			4,542
Prepaid expenses and other current assets		1,911			1,490
Current assets held for sale		20,627			28,248
Total current assets		45,794			55,900
Property and equipment, net		5,715			5,824
Lease payments receivable, long-term		2,898			1,663
Lease payments receivable - Westcon, long-term		7,260			10,575
Recoverable taxes, long-term		4,997			5,131
Goodwill		20,779			22,074
Other intangible assets, net		6,289			7,976
Other assets		436			513
Long-term assets held for sale		10,395			12,347
Total assets	$	104,563		$	122,003
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	21,787		$	15,804
Accrued liabilities		13,099			11,279
Westcon capital lease, current		3,062			2,890
Capital leases, current		1,455			1,548
Current maturities of long-term debt and notes payable		11,604			9,603
Current portion of deferred revenue		129			141
Deferred purchase price		3,564			4,791
Purchase price contingency		5,537			2,464
Current liabilities related to assets held for sale		36,846			42,585
Total current liabilities		97,083			91,105
Long-term debt, net of current maturities		4,540			5,419
Westcon capital lease, net of current maturities		4,184			7,071
Capital leases, net of current maturities		865			1,560
Deferred revenue, net of current portion		866			887
Other long-term liabilities		7,024			7,955
Long-term liabilities related to assets held for sale		1,530			1,874
Total liabilities		116,092			115,871
Commitments and Contingencies (Note 10)
Redeemable noncontrolling interests		(544	)		2,267
Stockholders' Equity (Deficit) :
Preferred stock $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of  September 30, 2012 and December 31, 2011		-			-
Common stock $0.001 par value, 40,000,000 shares authorized; 10,975,269 and 9,894,374 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively		11			10
Additional paid-in capital		33,284			30,888
Accumulated deficit		(40,702	)		(23,784	)
Accumulated other comprehensive loss		(3,578	)		(3,249	)
Total stockholders' equity (deficit)		(10,985	)		3,865
Total liabilities and stockholders' equity (deficit)	$	104,563		$	122,003

See the accompanying notes to unaudited condensed consolidated financial statements

4

Midas Medici Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands except share and per share data amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues:
Data center services and solutions	$	7,792		$	3,827		$	19,377		$	3,586
IT infrastructure services		-			326			-			747
IT infrastructure solutions		6,017			7,217			27,544			7,216
Totals		13,809			11,370			46,921			11,549
Operating expenses:
Data center services and solutions		6,405			3,556			15,006			3,588
IT infrastructure services		-			247			-			565
IT infrastructure solutions		4,615			3,733			20,261			3,733
Selling, general and administrative expenses		5,201			6,760			19,636			7,844
Depreciation and amortization expense		800			765			1,988			985
Totals		17,021			15,061			56,891			16,715
Operating loss		(3,212	)		(3,691	)		(9,970	)		(5,166	)
Other income (expenses):
Gain (loss) on change in fair value of purchase price contingency		(693	)		1,648			(2,963	)		1,648
Other (expense) income		(224	)		315			42			660
Interest expense, net		(1,097	)		(830	)		(4,606	)		(1,026	)
Gain (loss) on sale of fixed assets		(68	)		-			84			-
Foreign currency transaction gain (loss)		(249	)		1,564			(386	)		1,564
Loss from continuing operations before income tax benefit (expense)		(5,543	)		(994	)		(17,799	)		(2,320	)
Income tax benefit (expense)		(25	)		360			(101	)		1,535
Loss from continuing operations		(5,568	)		(634	)		(17,900	)		(785	)
Loss from discontinued operations		(72	)		(157	)		(1,773	)		(1,881	)
Consolidated net loss		(5,640	)		(791	)		(19,673	)		(2,666	)
Less: Loss attributable to noncontrolling interests		(1,200	)		(68	)		(2,755	)		(68	)
Net loss attributable to Midas Medici Group Holdings, Inc. and Subsidiaries	$	(4,440	)	$	(723	)	$	(16,918	)	$	(2,598	)
Comprehensive income (loss):
Consolidated net loss	$	(5,640	)	$	(791	)	$	(19,673	)	$	(2,666	)
Foreign currency transaction adjustment		118			1,543			(329	)		1,539
Total comprehensive income (loss)		(5,522	)		752			(20,002	)		(1,127	)
Comprehensive loss attributable to noncontrolling interests		1,200			68			2,755			68
Comprehensive income (loss) attributable to Midas Medici Group Holdings, Inc. and Subsidiaries	$	(4,322	)	$	820		$	(17,247	)	$	(1,059	)
Loss per share:
Loss per common share from continuing operations-basic and diluted	$	(0.40	)	$	(0.06	)	$	(1.45	)	$	(0.09	)
Loss per common share from discontinued operations-basic and diluted	$	(0.00	)	$	(0.02	)	$	(0.17	)	$	(0.25	)
Loss per common share -basic and diluted	$	(0.40	)	$	(0.08	)	$	(1.62	)	$	(0.34	)
Weighted average number of common shares  outstanding - basic and diluted		10,975,269			9,294,538			10,472,393			7,600,139

See the accompanying notes to unaudited condensed consolidated financial statements

5

Midas Medici Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

For the Nine Months Ended September 30, 2012

(In thousands except share and per share amounts)

(Unaudited)

	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’ Equity
	Shares		Amount		Capital		Deficit			Loss			(Deficit)
Balance at January 1, 2012		9,894,374	$	10	$	30,888	$	(23,784	)	$	(3,249	)	$	3,865
Stock and warrants issued in connection with a private placement at $2.25 per share		311,000		-		700		-			-			700
Stock issued in connection with Board of Directors compensation		72,858		-		153		-			-			153
Stock issued in connection with consulting services		14,300		-		28		-			-			28
Stock-based compensation in connection with options		-		-		491		-			-			491
Stock issued in settlement of notes payable  and accrued interest -  related party		682,737		1		1,024		-			-			1,025
Foreign currency translation adjustment				-							(329	)		(329	)
Net loss attributable to Midas Medici Group Holdings, Inc. and Subsidiaries		-		-				(16,918	)		-			(16,918	)
Balance at September 30, 2012		10,975,269	$	11	$	33,284	$	(40,702	)	$	(3,578	)	$	(10,985	)

See the accompanying notes to unaudited condensed consolidated financial statements

6

Midas Medici Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 (In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash Flows From Operating Activities:
Consolidated net loss	$	(19,673	)	$	(2,666	)
Adjustments to reconcile consolidated net loss to net cash    provided by (used in) operating activities:
Depreciation and amortization		3,504			2,970
Amortization of debt discount		981			343
Stock issued in connection with consulting services		28			-
Stock-based compensation		403			987
Loss (gain) on change in fair value of purchase price contingency		2,963			(1,648	)
Gain on sale of fixed assets		(84	)		-
Foreign currency transaction (gain) loss		386			(1,564	)
Deferred income taxes		-			(1,605	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		6,266			5,897
Lease payments receivable		(9	)		-
Inventories		895			(1,223	)
Recoverable taxes		(268	)		-
Deferred support costs		4,561			3,826
Prepaid expenses and other current assets		(1,201	)		-
Other assets		(28	)		(1,324	)
Accounts payable		10,220			1,680
Accrued liabilities		4,313			(5,718	)
Deferred revenue		(2,942	)		(3,120	)
Income taxes payable		(272	)		-
Other long-term liabilities		(332	)		-
Net cash provided by (used in) operating activities		9,711			(3,165	)
Cash Flows From Investing Activities:
Payments on deferred purchase price		(1,148	)		(5,150	)
Capital expenditures		(649	)		(190	)
Proceeds from sale of fixed assets		347			-
Cash received from business acquisitions		-			236
Net cash used in investing activities		(1,450	)		(5,104	)
Cash Flows From Financing Activities:
Proceeds from line of credit		-			3,042
Payments on capital leases		(4,647	)		-
Proceeds from debt		7,546			2,561
Repayments on debt		(11,041	)		(950	)
Proceeds from sale of common stock		700			-
Net cash provided by (used in) financing activities		(7,442	)		4,653
Effect of exchange rate changes on cash		(37	)		(22	)
Net increase (decrease) in cash and cash equivalents		782			(3,638	)
Cash and cash equivalents at beginning of period		1,461			5,030
Cash and cash equivalents at end of period	$	2,243		$	1,392
Supplemental disclosure of cash flow information:
Interest paid	$	5,253		$	400
Income taxes paid	$	190		$	1,034
Non-cash investing and financing activities:
Stock issued in connection with business acquisitions	$	-		$	7,865
Equipment acquired under capital leases	$	165		$	-
Stock issued in settlement of notes payable - related party	$	1,025		$	1,147
Notes payable issued in settlement of trade payables	$	4,551		$	-
Stock-based compensation in settlement of accrued expenses	$	241			-
Stock issued in settlement of asset acquisition	$	-		$	5

See the accompanying notes to unaudited condensed consolidated financial statements

7

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 1 – BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

General

The accompanying unaudited condensed consolidated financial statements of Midas Medici Group Holdings, Inc. formerly Mondo Acquisition I, Inc., and its wholly owned subsidiaries Consonus Technologies, Inc. (“Consonus”), Strategic Technologies, Inc. (“STI”), UtiliPoint International, Inc. (“UTP”), UtiliPoint Analytics, Inc. (“UTPA”), formerly known as WeatherWise Holdings, Inc. (“WUI”) and its majority-owned subsidiaries Cimcorp Comйrcio Internacional e Informбtica S.A., (“Cimcorp SA”), Cimcorp USA, LLC, (“Cimcorp USA”) and Intelligent Project, LLC (“IP”) (collectively “Midas Medici” and the “Company”)  have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The December 31, 2011 condensed consolidated balance sheet has been derived from the audited consolidated financial statements included in the Company’s Form 10-K filed with the SEC on April 16, 2012. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  However, the results from operations for the nine month period ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. The unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2011 consolidated financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC on April 16, 2012.   

Description of Business

Midas Medici is a global 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, infrastructure as a service 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 900 customers through its Consonus, Cimcorp SA, a Brazilian Sociedade Anonima, UTP, and UTPA brands.  The Company currently has one reportable segment given the similarities of the economic characteristics among our product offerings.

Discontinued Operations and Reclassifications

On October 4, 2012, the Company sold substantially all of its assets and liabilities, except for land, building and leasehold improvements, intercompany receivables, intangible assets and certain debt obligations, of STI for a purchase price equal to approximately $20.3 million, of which $13.1 million was paid as cash, $4.9 million in net assumed liabilities and the receipt of 269,802 shares of common stock of Datalink Corporation (“Datalink”), valued at $2.3 million, which is subject to certain post-closing adjustments. The financial results of STI have been reclassified as discontinued operations in the consolidated statements of operations for all of the periods presented. The assets and liabilities of this business are reflected as assets held for sale and liabilities related to assets held for sale in the consolidated balance sheets for all periods presented. The Company estimates that a gain of approximately $21,218, excluding taxes, will be recognized from the sale. See Note 9 for additional information regarding discontinued operations.

Liquidity

The Company’s 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 record amounts that might result from the outcome of this uncertainty of continuing as a going concern.

The Company’s accumulated deficit at September 30, 2012 was $40,702 and it incurred a consolidated net loss of $19,673 for the nine months ended September 30, 2012. On September 30, 2012, the Company had a working capital deficit of $51,289.

The Company’s nine months ended September 30, 2012 revenue grew 306.3% from the nine months ended September 30, 2011 due to the acquisition of the Brazilian operations, which occurred in August 2011, being included for the entire nine month period in 2012 versus two months in 2011. 

8

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 1 – BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS (Continued)

In May 2012, the Company listed on the OTCQX U.S in New York, which management believes will broaden the Company’s options to raise capital.

The Company’s working capital deficit of $51,289 is primarily comprised of the following accounts that impact cash flow for the remainder of 2012: current maturities of long-term debt of $11,604, which include a mortgage note of $1,918 already extended through March 2013; $3,564 in deferred purchase price; $5,537 in purchase price contingency consideration, which the Company believes will be extended in the event it is unable to pay as it becomes due; accounts payable, accounts receivable and accrued other liabilities. As of September 30, 2012, the Company had a total stockholders’ deficit of $10,985.

The cash flow provided by operations of $9,711 during the nine months ended September 30, 2012 was achieved primarily through collection of accounts receivable and extended payment terms with vendors.

During 2012, we took several initiatives which strengthened the Company’s ability to manage its liquidity position and will continue to do so throughout 2012:

· As a result of our recent acquisition of Cimcorp and the relationship Cimcorp maintains with several large financial institutions that have historically and currently provided financing, we believe that the Company has the opportunity to obtain additional working capital lines based on new receivables it creates. In March 2012, the Company procured a new accounts receivable based working capital line for $1,207 from one of those banks.

· In April 2012, the Company entered into a revolving credit facility and promissory note with Knox Lawrence International, LLC and Quotidian, LLC of $2,000 upon which the Company can draw down to support its working capital needs.

· In May 2012, the Company procured a new accounts receivable based working capital line for $1,646 from one of the Company’s Brazilian banks.

· In May 2012, the Company secured a facility agreement with Cisco System Capital Corporation in the amount of $1,100 guaranteed by Cimcorp’s endorsed invoices paid to a supplier.

· In June 2012, the Company secured a working capital loan from a bank in the amount of $750. The Company also entered into another secured working capital loan from the same bank through discounted trade receivables in the amount of $687.  

· On October 4, 2012, the Company sold substantially all of the operating assets of STI for approximately $20,250, of which $13,142 was paid in cash, $4,858 in net assumed liabilities and $2,250 in stock. In addition, the Company repaid debt obligations of $6,551 with the proceeds from the sale. As a result of the sale of substantially all of the operating assets of STI, the Company anticipates the remaining goodwill recorded within the United States geographic segment of $6,358 will be impaired in the fourth quarter, as the remaining U.S. operations were dependent on and closely related to the operations of STI.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If the Company is unable to raise additional capital in the near future, due to the Company’s liquidity problems, management expects that the Company may need to liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. Management cannot provide assurance that the Company will ultimately achieve profitable operations or continue to be cash flow positive, or raise additional debt and/or equity capital. These unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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 unaudited condensed consolidated financial statements.

9

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 2 – BUSINESS COMBINATIONS

Acquisition of Cimcorp, Inc.

On August 2, 2011, Midas Medici completed the acquisition of an 80% interest in Cimcorp, Inc. (“Cimcorp”).  Operating in Brazil since 1988, Cimcorp is primarily a Brazilian systems integrator that provides and manages information technology infrastructure solutions to private and government entities.  Cimcorp helps its customers to plan, build, support and manage their IT infrastructure, including performance management, business continuity and disaster recovery planning, outsourcing and infrastructure as a service.  

At the closing, the Company provided consideration of Seventeen Million Brazilian Reais ($10,987 USD), Eight Million Brazilian Reais ($5,150 USD) of which was paid in cash, Nine Million Reais (net present value $5,395 USD) in cash payable January 27, 2012, Nine Million Brazilian Reais (net present value $2,244 USD) in shares of common stock of the Company equal to 1,297,022 shares of common stock of the Company and a purchase price contingency of $3,593.  The 1,297,022 common shares include certain price protection features for the benefit of the former controlling shareholders (“Shareholders”).  The SPA provides that during the 75-day period (the “Sale Period”) after the 6-month anniversary of the initial closing, if the Shareholders desire to sell the common shares and do not receive at least $4.50 per share, the Shareholders shall have the right to receive from the Company the difference between the price they received per share and $4.50. In the event the Shareholders cannot sell the shares during the Sale Period for at least $2.01 per share or are unable to sell their shares due to the Company’s failure to file its reports with the Securities and Exchange Commission, then the Shareholders shall be entitled to receive from the Company $4.50 per share in exchange for their shares. The Shareholders are prohibited from selling the shares for $2.00 per share or less. The fair value of this purchase price contingency amounting to $3,593 at the date of acquisition is remeasured each reporting period until the liability is settled.  During the nine months ended September 30, 2012, the Company recognized a loss on the change in fair value of the purchase price contingency of $2,963. The Company granted the Shareholders piggyback registration rights with respect to the shares.

Pursuant to the terms of the stock purchase agreement (the “SPA”), the Company was to purchase on January 24, 2012 (but no later than January 27, 2012) an additional 20% of the shares of Cimcorp (“Tranche A”) for a purchase price of Nine Million Brazilian Reais ($5,817 USD), which purchase price is subject to certain adjustments to the Brazil CPI index provided, however, such adjustments are capped at 7%. As a result of this provision, at closing date of August 2, 2011, the Company recorded a liability of $4,497 (net present value at a 15% discount rate) for the obligation to purchase the Tranche A shares of Cimcorp and effectively held an 80% interest in Cimcorp as of the acquisition date. As of September 30, 2012, the Company recorded a liability of $3,564 for the obligation to purchase the Tranche A shares. In February 2012, the Company paid Two Million Brazilian Reais ($1,146 USD) towards the purchase of the Tranche A shares, with the remaining amounts due at the closing of the sale of the Tranche A shares. The Seller and minority shareholders’ of Cimcorp have the right to elect to have the Company purchase the remaining 20% of the shares of Cimcorp (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. In March 2012, the Company entered into an amendment to the SPA which amended the purchase price of the Tranche A shares to Brazilian Reais 7,000,000 from Brazilian Reais 9,000,000, which is the Brazilian Reais 11,000,000 purchase price of the Tranche A shares less Brazilian Reais 2,000,000 of total net debt, as defined in the stock purchase agreement, less Brazilian Reais 2,000,000, which has been previously paid by the Company. In addition, the amendment extended the closing date for the Tranche A shares from January 2012 to July 2012. The amendment also provided for the payment of any interest in arrears on the Tranche A shares on a monthly basis on the last day of the month in which the interest has accrued. The amendment also provides that the purchase price of the Tranche A shares shall be adjusted solely to reflect the payment of an interest in the 3% arrears fine over the outstanding value of the Tranche A shares adjusted price to be paid until the last day of the months of February, March, April, May and June 2012.

In July 2012, the Company entered into a third amendment to the SPA which amends the Sales Period as defined in the SPA to be the period commencing December 3, 2012 through January 31, 2013, the date all obligations of the Company are fulfilled with respect to the shares issued under the SPA as part of the purchase price. The third amendment also provides that the payment of the first installment of the Tranche A Shares Adjusted Price shall be paid by the Company on October 1, 2012 and the second installment of the Tranche A Shares Adjusted Price shall be paid by the Company on December 1, 2012, subject to adjustment based upon the IPCA index as provided in the SPA, as amended. The third amendment also provides for the payment of the unpaid interest accrued from February 2012 through June 2012 upon execution of the third Amendment, which the Company paid. In addition, the Company undertook to use its best efforts to release the shareholders from any obligations relating to the Total Debt as set forth on Schedule 1.1(d) of the SPA. The Company is currently in discussions with the Sellers regarding payment of the first installment of the Tranche A Shares Adjusted Price that was due on October 1, 2012 and not paid.

The Seller’s right to have the Company purchase the remaining 20% of the shares of Cimcorp resulted in recognition of a redeemable non-controlling interest in Cimcorp on the date of acquisition.

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MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 2 – BUSINESS COMBINATIONS (Continued)

The Company has accounted for these acquisitions under the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values. The allocation of the purchase price was based upon management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed.

The financial statements and related footnote disclosures presented for the period prior to the acquisition of a majority interest in Cimcorp, Inc. are those of Midas Medici excluding Cimcorp SA and Cimcorp USA (“Midas”).

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 $16,382 has been allocated as follows (in thousands):

Cash and cash equivalents	$	436
Accounts receivable		9,845
Lease payment receivable		24,827
Taxes recoverable		8,514
Customer relationships		6,497
Customer contracts		1,303
Goodwill		18,852
Fixed assets		788
Other assets		4,443
Accounts payable		(8,723	)
Debt and capital leases		(31,959	)
Other liabilities		(14,141	)
Total		20,682
Redeemable noncontrolling interests		(4,300	)
Purchase price	$	16,382

The purchase includes the acquisition of gross accounts receivable (excluding lease payments receivable) totaling $11,463. The Company estimates that $1,618 of these receivables will not be collected. Therefore, the receivables are recorded at the estimated fair value of $9,845.

Other assets of $4,443 acquired are recorded at their estimated fair value and include deferred costs of $1,964, prepaid expenses and other current assets of $1,965 and deposits of $514. Other liabilities of $14,141 acquired are recorded at their estimated fair value and include accrued liabilities of $3,172, deferred revenue of $1,067, other long-term liabilities of $7,618 and taxes payable of $2,284.

In order to allocate the purchase price of Cimcorp, the Company made estimates and judgments in determining the fair value of the acquired assets and liabilities based on independent appraisal reports as well as its experience with similar assets and liabilities in similar industries. These values were determined based on our estimates or by relying in part upon third-party appraisals conducted by independent appraisal firms. The Company used a discounted cash flow model to determine the value of the intangible assets and to allocate the excess purchase price to the intangible assets and goodwill as appropriate.   

Goodwill recognized from the transaction mainly represented the expected operational and strategic synergies upon the acquisition and intangibles not qualifying for separate recognition. The Company does not expect goodwill to be deductible for tax purposes.

The total acquisition price of $16,382 consists of the following:

Cash	$	5,150
Common stock		2,244
Deferred purchase price		5,395
Purchase price contingency		3,593
Total purchase price	$	16,382

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MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 2 – BUSINESS COMBINATIONS (Continued)

Below is a roll forward of the redeemable non-controlling interest: 

Redeemable non-controlling interests at January 1, 2012	$	2,267
Loss attributable to redeemable non-controlling interests		(2,755	)
Foreign currency transaction loss		(375	)
Amortization discount		319
Redeemable non-controlling interests at September 30, 2012	$	(544	)

Below is a roll forward of the deferred purchase price:

Deferred purchase price at January 1, 2012	$	4,791
Payment		(1,148	)
Amortization discount		41
Interest		124
Foreign currency transaction loss		(244	)
Deferred purchase price at September 30, 2012	$	3,564

Cimcorp’s operations are principally located in Brazil. Accordingly, we have disclosed in Note 15 – Segment Information which includes the revenues and earnings from the Brazil operations since the date of the acquisition.

Pro forma Results

The following table sets forth the unaudited pro forma results of the Company related to the continuing operations as if the reverse acquisition with Consonus Technologies, Inc., and acquisitions of WeatherWise Holdings, Inc., and Cimcorp, Inc. 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			Nine Months Ended
	September 30, 2011			September 30, 2011
Total Revenues	$	15,796		$	45,293
Net Loss	$	(1,450	)	$	(2,696	)
Basic and diluted net loss per common share	$	(0.15	)	$	(0.29	)
Weighted average shares – basic and diluted		9,745,676			9,170,846

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MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 3 – LEASE PAYMENTS RECEIVABLE

Lease payments receivable result from sales-type leases that are discounted to their present values at the prevailing market rates. As of September 30, 2012 and December 31, 2011, amounts receivable under sales-type leases consisted of:

Lease Payments Receivable Under Capital Leases	September 30, 2012			December 31, 2011
	(unaudited)
2012	$	730		$	2,521
2013		2,570			1,476
2014		1,539			358
2015		993			-
2016		321			-
Total lease payments receivable under sales-type leases		6,153			4,355
Less amount representing interest		(1,160	)		(601	)
Net lease payments receivable under sales-type leases		4,993			3,754
Less current portion of lease payments receivable under sales-type leases		(2,095	)		(2,091	)
Long-term lease payments receivable under sales-type leases	$	2,898		$	1,663

The Company has a similar sales-type lease arrangement with Westcon Brasil Ltda. (“Westcon”), a third-party that specializes in buying and selling IT equipment and solutions. This arrangement was completed as part of a lease contract with Cidade Administrativa de Minas Gerais - CAMG (Administrative City of Minas Gerais, one of Brazil’s 26 states). As of September 30, 2012 and December 31, 2011, lease payments receivable under Westcon sales-type lease consisted of:

Lease Payments Receivable Under Westcon Capital Leases	September 30, 2012			December 31, 2011
	(unaudited)
2012	$	1,605		$	6,355
2013		6,430			6,355
2014		6,569			6,355
2015		5			3
Total lease payments receivable under Westcon sales-type leases		14,609			19,068
Less amount representing interest		(2,722	)		(4,493	)
Net lease payments receivable under Westcon sales-type leases		11,887			14,575
Less current portion of lease payments receivable under Westcon sales-type leases		(4,627	)		(4,000	)
Long-term lease payments receivable under Westcon sales-type leases	$	7,260		$	10,575

 Allowance for credit losses on lease receivables

The Company’s allowance for credit losses is based on management’s assessment of the collectability of customer accounts. A considerable amount of judgment is required in order to make this assessment including a detailed analysis of the aging of the lease receivables and the current creditworthiness of the Company’s customers and an analysis of historical bad debts and other adjustments. If there is a deterioration in a major customer’s creditworthiness or defaults higher than historical experience, the estimate of the recoverability of amounts due could be adversely affected. The Company reviews in detail the allowance for doubtful accounts on a quarterly basis and adjusts the allowance estimate to reflect actual performance and any changes in future performance expectations. The Company believes that there is no impairment of the receivables for the sales-type leases. Consequently, there are no allowances for credit losses against the sales-lease receivable balances at September 30, 2012 and December 31, 2011.

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MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS 

At September 30, 2012, the gross carrying amount and accumulated amortization of intangible assets subject to amortization were as follows (unaudited):

	Gross Assets		Accumulated Amortization			Net
Customer relationships	$	5,600	$	(1,349	)	$	4,251
Customer backlog		997		(299	)		698
Content and databases		1,316		(395	)		921
Trade names		529		(159	)		370
Trademark		49		-			49
Total	$	8,491	$	(2,202	)	$	6,289

At December 31, 2011, the gross carrying amount and accumulated amortization of intangible assets subject to amortization were as follows:

	Gross Assets		Accumulated Amortization			Net
Customer relationships	$	6,046	$	(636	)	$	5,410
Customer backlog		1,086		(108	)		978
Content and databases		1,316		(203	)		1,113
Trademark		25		-			25
Trade names		529		(79	)		450
Total	$	9,002	$	(1,026	)	$	7,976

Amortization expenses for the three months ended September 30, 2012 and 2011 amounted to approximately $432 and $622, respectively, and for the nine months ended September 30, 2012 and 2011 amounted to approximately $1,328 and $751, respectively.

The change in the carrying amount of goodwill for the nine months ended September 30, 2012 was as follows:

Balance, December 31, 2011	$	22,074
Foreign currency translation loss		(1,295	)
Balance, September 30, 2012	$	20,779

The carrying amount of 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 that could require a material non-cash charge to our results of operations.

NOTE 5 – ACCRUED LIABILITIES

Accrued liabilities consisted of:

	September 30, 2012		December 31, 2011
	(unaudited)
Accrued expenses	$	3,870	$	1,421
Accrued commission expenses		336		1,246
Accrued interest		343		574
Other taxes payable		370		180
Customer prepayments		74		17
Accrued payroll expenses		2,048		1,969
Sales tax payable		2,813		2,493
Related parties payable		-		249
Other		1,869		1,898
Income taxes payable		1,376		1,232
Total	$	13,099	$	11,279

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MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 6 – LONG – TERM DEBT AND NOTES PAYABLE

Long-term debt consisted of:

	September 30, 2012			December 31, 2011
	(unaudited)
Bank Mortgage Note Payable	$	1,918		$	1,979
Related Party Notes Payable		76			265
Banco Itau Working Capital Loan		1,000			1,148
Banco Safra Working Capital Loans		1,173			1,338
Banco Votorantim Working Capital Loan		955			1,615
Banco Bradesco Working Capital Loans		3,458			4,882
Banco do Brasil  Working Capital Loans		1,926			2,612
Cisco System Capital Corporation - facility agreement		1,013			-
Banco Itau Revolving Line of Credit		492			533
Notes Payable – suppliers		4,067			-
Note Payable		-			436
Certification Partners Promissory Note		-			210
Other		66			4
Subtotal – Principal		16,144			15,022
Less current maturities of long-term debt		(11,604	)		(9,603	)
Total long-term debt	$	4,540		$	5,419

15

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 6 – LONG – TERM DEBT (Continued)

Bank Mortgage Note Payable

The note is payable in equal monthly installments of $27 with an interest rate of 8%. The bank mortgage 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. In March 2012, the bank provided a twelve month extension of the maturity date to March 2013. As of September 30, 2012 and December 31, 2011, the balance outstanding for the bank mortgage note payable was $1,918 and $1,979, respectively.

Related Party Notes Payable

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 note is payable to KLI, an entity of which Nana Baffour, the Company’s CEO, and Johnson Kachidza, the Company’s CFO, are each managing principals.

The note bears an interest at a rate of 6% with minimum payments of $10.5 and matures on April 15, 2014. As of September 30, 2012 and December 31, 2011, the balance outstanding was $76 and $265, respectively.

Banco Itaъ Working Capital Loan

On July 27, 2011, the Company’s subsidiary, Cimcorp, secured a working capital loan from Banco Itaъ in the amount of US $1,866 (R$3,500) at an interest rate of 21.0% per annum. The loan was paid in 10 installments ending in June 2012. As of December 31, 2011, the balance due on the loan was $1,148.

On September 28, 2012, the Company’s subsidiary, Cimcorp, secured a working capital loan from Banco Itaъ in the amount of US $1,000 (R$2,026) at an interest rate of 5.8% per annum and a maturity date of August 2015. This agreement is guaranteed by short-term investments in the amount of $500. As of September 30, 2012, the balance due on the loan was $1,000.  The minimum payment is $84 per month.

Banco Safra Working Capital Loan

On June 21, 2011, the Company’s subsidiary, Cimcorp, secured a working capital loan from Banco Safra in the amount of US $1,529 (R$2,868) at an interest rate of 7.4% plus CDI (interbank deposit certificate – 11.6% at December 31, 2011)  per annum and a maturity date of March 2012.  In March 2012, the Company has renewed the term of the loan through March 2013. This agreement is guaranteed by the accounts receivable related to certain client contracts. In the event of a default, the amount due shall bear a delinquent interest of 12% per annum and a fine of 2%. As of September 30, 2012 and December 31, 2011, the balance due on the loan was $1,173 and $1,338, respectively. The minimum payment is $64 per month.

Banco Votorantim Working Capital Loan

On October 15, 2010, the Company secured a working capital loan from BancoVotorantim in the amount of US $2,132 (R$4,000) at an interest rate of 6.0% plus DI (interbank deposit – 11.6% at December 31, 2011) per annum and a maturity date of January 30, 2014. This loan is secured by Cimcorp’s accounts receivable. As of September 30, 2012 and December 31, 2011, the balance due on the loan was $955 and $1,615, respectively. The minimum payment is $65 per month.

16

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 6 – LONG – TERM DEBT (Continued)

Banco Bradesco Working Capital Loans

On April 13, 2010, the Company secured a working capital loan from Banco Bradesco in the amount of US $207 (R$388) at an interest rate of 16.4% per annum and a maturity date of April 2014. This loan is secured by Cimcorp’s accounts receivable. As of September 30, 2012 and December 31, 2011, the balance due on the loan was $91 and $137, respectively. The minimum payment is $6 per month.

On December 29, 2010, the Company secured another working capital loan from Banco Bradesco in the amount of US $6,508 (R$ 12,000) at an interest rate of 6.8% plus CDI (interbank deposit certificate – 11.6% at December 31, 2011) per annum and a maturity date of November 28, 2014. This loan is also secured by Cimcorp’s accounts receivable. As of September 30, 2012 and December 31, 2011, the balance due on the loan was $3,367 and $4,745, respectively. The minimum payment is $132 per month.

Banco do Brasil Working Capital Loans

On September 9, 2011, the Company’s subsidiary, Cimcorp, secured a working capital loan from Banco do Brasil in the amount of US $1,813 (R$3,400) at an interest rate of 18.9% per annum maturing in August 2014. This loan is guaranteed by Cimcorp’s accounts receivable. As of September 30, 2012 and December 31, 2011, the balance due on the loan was $1,187 and $1,812, respectively. The minimum payment is $604 per year.

On January 25, 2010, the Company’s subsidiary Cimcorp secured a guaranteed account from Banco do Brasil in the amount of US $800 (R$1,500) at an interest rate of 5.611% per annum and plus CDI (interbank deposit certificate - 11.6% at December 31, 2011) per annum and a maturity date of April 13, 2012 with automatic renewal for periods of 90 days. This guaranteed account is secured by guarantees from former shareholders. As of September 30, 2012 and December 31, 2011, the balance due on the loan was $739 and $800, respectively.

Cisco System Capital Corporation - facility agreement

On May 15, 2012, the Company’s subsidiary, Cimcorp, secured a facility agreement with Cisco in the amount of $1,100 at a fixed interest rate of 4.2641% payable in quarterly installments of $89 through May 3, 2015. This facility is guaranteed by Cimcorp’s endorsed invoices paid to a supplier. As of September 30, 2012, the balance due on the loan was $1,013.

Banco Itau Revolving Line of Credit

Cimcorp has the option of using an unsecured revolving line of credit linked to certain Banco Itaъ bank accounts. As of September 30, 2012 and December 31, 2011, the balance outstanding on the line of credit was $492 and $533, respectively. The line of credit does not have a maturity date and has interest rate of 25.3% per annum.

Notes payable - suppliers

In May 2012, the Company entered into short term notes with two suppliers in order to negotiate payment on trade payables totaling $4,551. The notes accrue interest at 1% per month and are payable in monthly installments of $200 with maturity dates of October 30, 2012 and June 15, 2013. As of September 30, 2012, the balance outstanding was $4,067.

Note Payable

In accordance with the acquisition of Cimcorp, Inc., the Company assumed a note payable of US $697(R$1,082) which is payable in four quarterly installments of R$271 with the first installment due on October 20, 2012. The note payable is unsecured and non-interest bearing. During the quarter ended June 30, 2012, the Company repaid the outstanding balance in the note of US $279. As of September 30, 2012 and December 31, 2011, the principal outstanding was US $ 0 (R$0) and US $436 (R$811), respectively.

Certification Partners Promissory Note

On July 22, 2011, the Company entered into a promissory note payable for $400 with a rate of interest at 5%. The principal and accrued interest for the promissory note was due on December 19, 2011. As of September 30 2012 and December 31, 2011, there was no balance and $210, respectively, due on the promissory note.

17

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 7 – CAPITAL LEASES

Cimcorp enters into capital lease arrangements with financial institutions (Banco do Brasil, Bradesco, CIT, Safra and BancoItaъ) for the acquisition of IT related equipment, which, in turn, is subleased to its customers. See Note 3 for sales-type lease payments receivable.

Future minimum payments under capital lease obligations in each of the years subsequent to September 30, 2012 are as follows:

	Amount
Capital lease obligations:
2012	$	593
2013		1,228
2014		512
2015		257
Total minimum lease payments		2,590
Less amount representing interest		(270	)
Net minimum lease payments		2,320
Less current portion of obligations under capital leases		(1,455	)
Long-term obligations under capital leases	$	865

NOTE 8 – INCOME TAXES

The income tax expense for the three months and nine months ended September 30, 2012 of $25 and $101 and the income tax benefit for the three months and nine months ended September 30, 2011 of $360 and $1,535 were primarily based on Company’s estimated effective tax rate. The tax provision for September 30, 2012 was primarily based on estimated annual effective tax rate adjusted for losses in separate jurisdictions for which no tax benefit can be recognized. The tax benefit for September 30, 2011 was primarily driven off of the full year domestic forecasted loss. The Company’s effective tax rate varies from the U.S. Federal statutory rate of 35% due to results of foreign operations that are subject to income taxes at different statutory rates and certain jurisdictions where the Company cannot recognize tax benefits on current losses.

The earliest tax year open to examination by U.S. Federal tax and major state tax jurisdictions is 2008. The statute of limitations for taxes in Brazil is five (5) years and the earliest tax year open to examination by Federal tax and major state tax jurisdictions in Brazil is 2005.

The Company had a liability for unrecognized tax benefits of $42 as of both September 30, 2012 and December 31, 2011, for state income tax matters, and $902 and $970, respectively, for international income tax matters, respectively. We expect that the amount of unrecognized tax benefit may change in the next year; however, it is not expected to have a significant impact on our results of operations, financial position or cash flows.

The Company recognizes interest expense and penalties in selling, general, and administrative expenses. For the three and nine months ended September 30, 2012 the Company recognized approximately $75 and $401, respectively, of interest and penalties.

18

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 8 – INCOME TAXES   (Continued)

Recoverable taxes consisted of:

	September 30, 2012			December 31, 2011
	(unaudited)
Recoverable Federal taxes (1)	$	1,596		$	1,994
Recoverable state tax - ICMS (2)		61			161
Value-added taxes (3)		4,726			4,476
Subtotal		6,383			6,631
Current portion		(1,386	)		(1,500	)
Noncurrent portion	$	4,997		$	5,131

(1) IRPJ: Brazilian Federal income tax.  CSLL: Social contribution on taxable net profits, created to finance social programs and funds.

(2) ICMS: State tax on sales of goods and services.

(3) Value-added taxes (PIS and COFINS) on goods and services sold.

According to Brazilian tax rules, payments made by Federal public entities for rendering of services or acquisition of goods are subject to the following withholding Federal taxes: PIS (turnover tax), COFINS (social contribution on gross revenues), CSLL (social contribution on net profits) and IRPJ (corporate income tax). The rates applicable to each tax are: (a) PIS: 0.65%; (b) COFINS: 3%; (c) CSLL: 1% and (d) IRRF: 1.2% (acquisition of goods) or 4.8% (rendering of services).

In general, the amounts of withholding taxes correspond to a fraction of the total amount due by Cimcorp of the same taxes. In other words, the amounts of withholding taxes will be deemed as an initial and partial payment of the same taxes, and will be deductible from the total amount of the same Federal taxes due by Cimcorp within the taxable period.

Cimcorp is allowed to offset the amount previously withheld of Federal taxes over payments made by Federal public entities (recoverable taxes) with the amount due each month of the same taxes.

NOTE 9 – ASSETS AND LIABILITIES OF BUSINESS HELD FOR SALE AND DISCONTINUED OPERATIONS

On October 2, 2012, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Datalink, STI Acquisition Corp., a wholly-owned subsidiary of Datalink (“Buyer”), and STI, a wholly-owned subsidiary of the Company. Pursuant to the Agreement, the Company and STI sold the business and substantially all of the assets of STI to Datalink for an aggregate purchase price of $20,250, of which $13,142 was paid in cash, $4,858 in net assumed liabilities and the receipt of 269,802 shares of common stock of Datalink, valued at $2,250.  Datalink assumed approximately $20.9 million of STI’s liabilities and acquired approximately $16.0 million of assets. The transactions contemplated by the Agreement were completed on October 4, 2012 and the Company estimates a gain of approximately $21,218, excluding taxes, will be recognized from the sale (See Note 17). As a result of the sale of substantially all of the operating assets of STI, the Company anticipates the remaining goodwill recorded within the United States geographic segment of $6,358 will be impaired in the fourth quarter, as the remaining U.S. operations were dependent on and closely related to the operations of STI.

These condensed consolidated financial statements and accompanying notes included in this report include disclosure of the results of operations for the North Carolina-based business.  Accordingly, the financial position and results of operations related to these assets have been reclassified as assets held for sale and liabilities related to assets held for sale in the consolidated balance sheets and as discontinued operations in the consolidated statements of operations.

19

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 9 – ASSETS AND LIABILITIES OF BUSINESS HELD FOR SALE AND DISCONTINUED OPERATIONS   (Continued)

The components of the assets held for sale and liabilities related to assets held for sale as of September 30, 2012 and December 31, 2011 and the components of income from discontinued operations are as follows (in thousands):

	September 30, 2012		December 31, 2011
	(unaudited)		(unaudited)
Assets held for sale:
Accounts receivable	$	11,950	$	17,076
Inventories		1,203		2,143
Deferred costs, current		7,042		8,502
Prepaid expenses and other current assets		432		527
Current assets held for sale		20,627		28,248
Property and equipment, net		464		493
Goodwill		3,765		3,765
Other intangible assets, net		5,163		6,643
Deferred costs, net of current portion		1,003		1,446
Long-term assets held for sale		10,395		12,347
Total assets held for sale	$	31,022	$	40,595
Liabilities related to assets held for sale:
Accounts payable	$	19,494	$	21,011
Accrued liabilities		830		1,292
Capital leases, current		5		66
Current maturities of long-term debt		6,119		7,202
Current portion of deferred revenue		10,398		13,014
Current liabilities related to assets held for sale		36,846		42,585
Capital leases, net of current maturities		18		-
Deferred revenue, net of current portion		1,512		1,874
Long-term liabilities related to assets held for sale		1,530		1,874
Total liabilities related to assets held for sale	$	38,376	$	44,459

	Three months ended
	September 30, 2012			September 30, 2011
Total revenues	$	15,659		$	12,556
Total expenses (1)		15,731			12,713
Total loss from discontinued operations	$	(72	)	$	(157	)

	Nine months ended
	September 30, 2012			September 30, 2011
Total revenues	$	46,596		$	40,402
Total expenses (2)		48,369			42,283
Total loss from discontinued operations	$	(1,773	)	$	(1,881	)

(1) Included in total expenses is depreciation of $550 and $650 for the three months ended September 30, 2012 and 2011, respectively.

(2) Included in total expenses is depreciation of $1,670 and $1,985 for the nine months ended September 30, 2012 and 2011, respectively.

20

DAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 10 – COMMITMENTS AND CONTINGENCIES

	September 30, 2012		December 31, 2011
	(unaudited)
ISS tax claims (1)	$	2,737	$	3,052
Labor related claims (2)		1,485		1,529
Other		56		57
Totals	$	4,278	$	4,638

(1)  ISS Tax Claims

The municipality of Sao Paulo has several tax claims alleging that the Company’s subsidiary Cimcorp owes ISS (service taxes – Imposto Sobre Serviзos) on services rendered by the Company’s subsidiary, to customers within the municipality. The Company’s subsidiary, has recorded a provision of $2,737 and $3,052 at September 30, 2012 and December 31, 2011, respectively, representing the portion of the claims, including accrued interest and penalties, deemed to be probable of payment upon ultimate settlement.

The Company’s subsidiary recognizes accrued interest in interest expense and penalties in selling, general, and administrative expenses. During the three and nine months ended September 30, 2012, the Company’s subsidiary recognized $205 and $142 in interest and penalties, respectively.

(2)  Labor

Labor contingencies refer to labor claims for, among other things, overtime, wage equivalence and work conditions. The amounts recorded by the Company have been assessed as probable by its legal advisors. The Company has recorded $1,485 and $1,529 as of September 30, 2012 and December 31, 2011, respectively that our legal advisors assessed as probable.

All contingent obligations are classified as long-term and included in other long-term liabilities in the unaudited condensed consolidated balance sheets as the Company does not expect to pay any of these amounts in fiscal 2012.

(3)  Legal Proceedings

On December 16, 2010, Empresa Brasileira de Correios e Telйgrafos – ECT, an administrative body commenced an action against several parties including Cimcorp, the Company’s subsidiary, for alleged bidding irregularities. The action arose out an investigation by local authorities into certain bids for projects. The report of the administrative proceeding alleged that Cimcorp may have acted in collusion with other companies to manipulate the bidding price for certain projects. On July 27, 2011, the Brazilian Post imposed a suspension of the right of Cimcorp to contract with the Empresa Brasileira de Correios e Telйgrafos - ECT for a period of five years (maximum penalty provided by law 8,666/93). Cimcorp has administratively appealed the penalty, which is pending judgment.

On August 12, 2011, Cimcorp also filed a writ of mandamus, before the Federal Court of Distrito Federal which was assigned to a Judge in the 13th Federal Court of Distrito Federal, requesting the annulment of the administrative proceeding and suspension of the effects of the administrative ruling. On September 13, 2011, the Judge of the 13th Federal Court of Distrito Federal granted a preliminary injunction to suspend the effects of the administrative ruling, which lifted the penalty applied against Cimcorp.  The ground for such lifting was that there is no evidence in the administrative proceeding that justifies the application of penalty imposed on Cimcorp. The Judge ruled that the administrative authority of Empresa Brasileira de Correios e Telégrafos - ECT neither justified its decision nor acted with proportionality and reasonableness when fixing the penalty. The merit of this writ of mandamus is still pending judgment.

On January 27, 2012, a public civil suit was filed by the Federal Public Prosecutor’s Office related to the above matter. The suit, filed in the Federal Court of Distrito Federal and being processed at the 4th Federal Court of Distrito Federal against Cimcorp and several other defendants. The suit requests the reimbursement of $1,640 (equivalent to R$2,860), application of a fine in the amount of US $3,280 (equivalent to R$5,720) and prohibition on contracting with the Public Administration for a term of five years. No preliminary relief was requested by the Federal Public Prosecutor’s Office. The term for filing of a defense has not yet started to elapse. The Company intends to vigorously defend this action.

21

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 11 – COMMON STOCK

In March 2012, the Company raised $700 by issuing 311,000 shares of the Company’s common stock and 311,000 warrants exercisable at $3.15 per share.

On March 20, 2012, the Company issued 72,858 common shares to its board of directors as compensation and 4,300 common shares to Ansacha Capital for services rendered.

On April 20, 2012, the Company issued 10,000 common shares to Sichenzia Ross Friedman Ference, LLP, the Company’s counsel for services rendered.

On May 30, 2012, in a related party transaction, the Company issued 682,737 common shares to KLI and Quotidian in connection with the Note Exchange Agreement converting 60% of KLI and Quotidian’s outstanding balance, including accrued interest on certain Notes issued in August 2011.

NOTE 12 – STOCK-BASED COMPENSATION

Stock Options

A summary of the Company’s stock option plan at September 30, 2012 and changes during the nine months ended September 30, 2012 are as follows (in thousands except share and per share amounts):

	Number of Shares			Weighted Average Exercise Price		Average Remaining Contractual Terms		Aggregate Intrinsic Value
Outstanding and expected to vest at December 31, 2011		876,384		$	14.98		3.3		-
Granted		572,900			1.14		4.6		-
Forfeited or expired		(1,256	)		13.25				-
Outstanding and expected to vest at September 30, 2012		1,448,028		$	6.43		2.5		-

1,373,028 outstanding options at September 30, 2012 are exercisable. As of September 30, 2012, there is $59 of unrecognized compensation cost related to outstanding stock options. There were 572,900 options granted during the nine months ended September 30, 2012 at a fair value of $557.

The following assumptions were used to estimate the fair value of options granted during the nine months ended September 30, 2012 using the Black-Scholes option-pricing model:

Risk-free interest rate at grant date	0.74	%
Expected stock price volatility	142.76	%
Expected dividend payout	-
Expected option life-years	5

Warrants

A summary of the Company’s warrant activity and changes during the nine months ended September 30, 2012 are as follows:

	Number of Shares		Weighted Average Exercise Price		Average Aggregate Contractual Terms		Aggregate Intrinsic Value
Outstanding at December 31, 2011		12,800	$	6.00		3.13
Warrants issued		311,000		3.15		4.82
Outstanding at September 30, 2012		323,800	$	3.26		4.75	$	-

All outstanding warrants at September 30, 2012 are exercisable. No warrants were issued in the three months ended September 30, 2012.

22

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 13 – RELATED PARTY TRANSACTIONS

KLI Settlement Agreement

On April 4, 2011, the Company entered into a Settlement Agreement and Release with KLI, pursuant to which all outstanding notes and outstanding amounts owed to KLI by the Company and certain of its subsidiaries were aggregated and repaid as follows: (a) $490 was paid in cash, (b) 331,825 shares were issued to KLI as partial payment and (c) a promissory note in the amount of $370 payable over a 36 month period at an interest rate of 6% per annum was issued to KLI. As of September 30, 2012 and December 31, 2011, the outstanding balance was $76 and $265, respectively.

Subordinated Note and Common Stock private placement

On July 29, 2011, the Company entered into a Securities Purchase Agreement for the sale of an aggregate of up to $4,500 in subordinated secured promissory notes and 1,500,000 shares of common stock of the Company.  Each purchaser received 33,333 shares for each $100 promissory note purchased.  KLI and Quotidian Capital, LLC, entities of which Nana Baffour, the Company’s CEO, and Johnson Kachidza, the Company’s CFO, are each managing principals purchased $1,525 in promissory notes in this transaction and subscribed for 508,333 shares of the Company’s common stock in connection with the purchase of the promissory notes.

Note Exchange Agreement

On May 14, 2012, the Company entered into a Note Exchange Agreement with each of KLI and Quotidian for the conversion of 60% of the outstanding balance, including accrued interest, of certain notes issued to KLI and Quotidian in August 2011, at a conversion price of $1.50. Pursuant to the note exchange agreements with each of KLI and Quotidian, the Company issued 402,819 and 279,918 shares of its common stock to KLI and Quotidian, respectively. After giving effect to the conversion, as of September 30, 2012 and December 31, 2011, the outstanding balance of the Notes held by KLI and Quotidian is approximately $459 and $280, respectively. Nana Baffour, CEO, and Johnson Kachidza, President, are managing principals of KLI and Quotidian.

Pursuant to the disposition on October 4, 2012 of substantially all the operating assets and liabilities of STI by the Company, the outstanding balance of the notes was paid off.

NOTE 14 – 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 restricted 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, including options and warrants, are excluded from the computation if their effect is anti-dilutive.

For the three months and nine months ended September 30, 2012 and 2011, the diluted earnings (loss) per common share does not include the dilutive effect of 323,800 and 12,800 warrants, respectively, and excludes all outstanding stock options of 1,448,028 and 891,269, respectively, due to the Company reporting net losses.

23

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 15 - SEGMENT INFORMATION 

The Company has one reportable business segment which is operated in three geographic locations. Those geographic operations are the United States, Brazil and Czech Republic.

Information as of and for the three months ended September 30, 2012 and 2011 concerning principal geographic areas is presented below according to the area where the activity is taking place.

	2012												2011
	United States			Brazil			Czech Republic			Total			United States			Brazil			Czech Republic		Total
Revenues	$	263		$	13,503		$	43		$	13,809		$	-		$	11,250		$	120	$	11,370
Operating Income ( Loss)		(917	)		(2,286	)		(9	)		(3,212	)		(3,667	)		(37	)		13		(3,691	)
Goodwill		6,358			14,421			-			20,779			6,359			19,943			-		26,302
Total Assets		42,475			61,951			137			104,563			46,510			74,269			149		120,928
Capital Expenditures		167			5			-			172			78			42			-		120

Information as of and for the nine months ended September 30, 2012 and 2011 concerning principal geographic areas is presented below according to the area where the activity is taking place.

	2012											2011
	United States			Brazil			Czech Republic		Total			United States			Brazil			Czech Republic		Total
Revenues	$	690		$	46,015		$	216	$	46,921		$	4		$	11,250		$	295	$	11,549
Operating Income ( Loss)		(3,589	)		(6,444	)		63		(9,970	)		(5,142	)		(37	)		13		(5,166	)
Goodwill		6,358			14,421			-		20,779			6,359			19,943			-		26,302
Total Assets		42,475			61,951			137		104,563			46,510			74,269			149		120,928
Capital Expenditures		467			347			-		814			148			42			-		190

The Brazil operations included in the segment information report the revenues and earnings generated from our acquisition of Cimcorp, Inc. on August 2, 2011 (See Note 2).

NOTE 16 – FAIR VALUE MEASUREMENTS

ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

24

MIDAS MEDICI GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands)

NOTE 16 – FAIR VALUE MEASUREMENTS   (Continued)
 

The table below summarizes the fair values of Company’s financial liabilities that are measured on a recurring basis at fair value as of September 30, 2012:

	Level 1		Level 2		Level 3		Total
Purchase price contingency	$	5,537	$	-	$	-	$	5,537
Total liabilities	$	5,537	$	-	$	-	$	5,537

The table below summarizes the fair values of Company’s financial liabilities that are measured on a recurring basis at fair value as of December 31, 2011:

	Level 1		Level 2		Level 3		Total
Purchase price contingency	$	2,464	$	-	$	-	$	2,464
Total liabilities	$	2,464	$	-	$	-	$	2,464

The purchase price contingency is fair valued based upon the difference between the closing price of the Company stock and $4.50 per share redemption price of the Company stock at each reporting date.

NOTE 17 – SUBSEQUENT EVENTS

On October 2, 2012, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Datalink, STI Acquisition Corp., a wholly-owned subsidiary of Datalink (“Buyer”), and STI, a wholly-owned subsidiary of the Company. Pursuant to the Agreement, the Company and STI sold the business and substantially all of the assets of STI to Datalink for an aggregate purchase price of $20,250, of which $13,142 was paid in cash, $4,858 in net assumed liabilities and the receipt of 269,802 shares of common stock of Datalink, valued at $2,250. Datalink assumed approximately $20.9 million of STI’s liabilities and acquired approximately $16.0 million of assets. The transactions contemplated by the Agreement were completed on October 4, 2012 and the Company estimates a gain of approximately $21,218, excluding taxes, will be recognized from the sale. As a result of the sale of substantially all of the operating assets of STI, the Company anticipates the remaining goodwill recorded within the United States geographic segment of $6,358 will be impaired in the fourth quarter, as the remaining U.S. operations were dependent on and closely related to the operations of STI.

STI retained ownership of the office building and real property located in Cary, North Carolina. STI and Buyer subsequently entered into a lease agreement for the use of office space for a term of three years.

The Agreement contains standard indemnification clauses except neither party will be responsible for any indemnification for breach of any representation or warranty (other than certain representations and warranties) until the aggregate losses incurred exceeds $125,000 and provided that if any such losses exceed $125,000 such party shall be responsible for all such losses which in the aggregate will not exceed $2,025,000. Two Hundred Forty-Two Thousand Eight Hundred Five (242,805) of the shares acquired by the Company are held in escrow for a period of one year to satisfy any indemnification claims against the Company.

The Agreement contains standard representations and warranties, confidentiality clause and non-solicitation clause. The Agreement contains a non-compete clause whereby the Company is not permitted to compete within the United States in certain business lines for a period of three years, except for the provision of managed services to clients who either have less than 100 full- time employees or less than $25 million in annual revenues.

On October 4, 2012, the Company entered into a promissory note with a supplier totaling $3,500.   The note is payable in thirty five (35) equal monthly installments of $108 with an interest rate of 5.25% per annum.  The promissory note is collateralized by a security interest in the Datalink common shares received by the Company upon the sale of STI.   The Datalink common shares are restricted shares which are subject to terms of an escrow agreement with an initial value of $2,250 as of October 4, 2012.   In addition, the supplier obtained a second security interest in the office building and real property located in Cary, North Carolina.

25

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

(Dollar amounts in thousands)

Business Overview

We are a global provider of comprehensive information technology solutions to medium sized and large commercial enterprises and government institutions in the United States and Brazil. Our solutions comprise data center and cloud computing enabling hardware, software and services. Our services include virtualization, cloud and managed services, storage and archiving solutions, smart grid services, business process outsourcing, and data center services. As part of these services, we offer customized solutions for business continuity, back-up and recovery, capacity on-demand, regulatory compliance and data center best practice methodologies as well as infrastructure as a service (“IaaS”) and software as a service (“SaaS”). Our customers utilize our solutions to optimize their current and planned investments in IT infrastructure and data centers. We believe the breadth of our service offering and our consultative approach to working with clients distinguishes us from other providers.

We have developed an infrastructure that enables us to deliver our IT solutions and services agnostic as to technology platform and location through a flexible, customer-focused delivery model which spans three data center environments: customer-owned, co-location, and the cloud. By optimizing our customer’s use of secure, energy efficient and reliable data centers combined with a comprehensive suite of related IT infrastructure services, we are able to offer our customers highly customized solutions to address their critical needs of data center availability, data management, data security, business continuity disaster recovery and data center consolidation, as well as a variety of other related managed services.

We serve clients across multiple industry verticals including financial services, government, manufacturing, pharmaceutical, telecommunications, technology, education, utilities, healthcare and consumer goods. Some of our larger customers in the US include The International Monetary Fund, Freepoint Commodities, State of North Carolina, and Avaya, and some of our larger customers in Brazil include Companhia De Tecnologia da Inf. do Estado de  Minas Gerais -Prodemge, Banco do Brasil S.A., CEMIG Distribuiзгo S.A., Banco Central Do Brasil – BACEN and MG Secretaria de Estado de Fazenda. Utilipoint, our utilities focused offering, currently provides energy industry consulting services and proprietary research. Our highly experienced consultants leverage direct industry experience to advise utilities along the range of the utility industry value chain and we intend to take advantage of those relationships to offer utility vertical focused solutions around our core data center and managed services offerings.

As of September 30, 2012, Midas Medici had 329 employees located in the United States, Brazil and Europe.  Midas Medici is headquartered in New York City with regional offices in Cary, NC, Albuquerque, NM, Pittsburgh, PA and maintains international operations through its offices in Brno, Czech Republic and Belo Horizonte, Vitoria, Salvador, Brasilia, Curitiba, Florianopolis, Porto Alegre, Rio de Janeiro, and Sao Paulo, Brazil.

A key element of our growth strategy is to expand our business in Brazil through organic growth and strategic acquisitions as well as seek US acquisitions. 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. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

On October 4, 2012, the Company sold substantially all of the operating assets of Strategic Technologies, Inc. (“STI”) for $20,250.   Accordingly, the financial position and results of operations related to these assets have been reclassified as assets held for sale and liabilities related to assets held for sale and discontinued operations, respectively. The Company estimates a gain of approximately $21,218, excluding taxes, will be recognized from the sale. As a result of the sale of substantially all of the operating assets of STI, the Company anticipates the remaining goodwill recorded within the United States geographic segment of $6,358 will be impaired in the fourth quarter, as the remaining U.S. operations were dependent on and closely related to the operations of STI.

On August 2, 2011, the Company completed the acquisition of an 80% interest in Cimcorp, pursuant to the terms of the Stock Purchase Agreement (“SPA”), as amended, among the Company, Cairene Investments, Ltd. (the “Seller”), and certain shareholders (the “Shareholders”), Cimcorp, Cimcorp Comйrcio Internacional e Informбtica S.A., a Brazilian Sociedade Anфnima, Cimcorp Comércio e Serviços Tecnológicos e Informática Ltda., a Brazilian limited liability company, and Cimcorp USA, LLC, a Florida limited liability company.

At the closing, the Company provided consideration of Seventeen Million Brazilian Reais ($10,987 USD), Eight Million Brazilian Reais ($5,150 USD) of which was paid in cash, Nine Million Brazilian Reais (net present value $5,395 USD) in cash payable on January 27, 2012, Nine Million Brazilian Reais (net present value $2,244 USD) in shares of common stock of the Company equal to 1,297,022 shares of common stock of the Company and a purchase price contingency of $3,593.  The 1,297,022 common shares include certain price protection features for the benefit of the former controlling shareholders (“Shareholders”).  The SPA provides that during the 75-day period (the “Sale Period”) after the 6-month anniversary of the initial closing, if the Shareholders desire to sell the common shares and do not receive at least $4.50 per share, the Shareholders shall have the right to receive from the Company the difference between the price they received per share and $4.50. In the event the Shareholders cannot sell the shares during the Sale Period for at least $2.01 per share or are unable to sell their shares due to the Company’s failure to file its reports with the Securities and Exchange Commission, then the Shareholders shall be entitled to receive from the Company $4.50 per share in exchange for their shares. The Shareholders are prohibited from selling the shares for $2.00 per share or less. The fair value of this purchase price contingency amounting to $3,593 at the date of acquisition is remeasured each reporting period until the liability is settled.  During the nine months ended September 30, 2012, the Company recognized a loss on the change in fair value of the purchase price contingency of $2,963. The Company granted the Shareholders piggyback registration rights with respect to the shares.

26

(Dollar amounts in thousands)

Pursuant to the terms of the stock purchase agreement, the Company was to purchase on January 24, 2012 (but no later than January 27, 2012) an additional 20% of the shares of Cimcorp (“Tranche A”) for a purchase price of Nine Million Brazilian Reais ($5,817 USD), which purchase price is subject to certain adjustments to the Brazil CPI index provided, however, such adjustments are capped at 7%. As a result of this provision, at closing date of August 2, 2011, the Company recorded a liability of $4,497 (net present value at a 15% discount rate) for the obligation to purchase the Tranche A shares of Cimcorp and effectively held an 80% interest in Cimcorp as of the acquisition date. As of September 30, 2012, the Company recorded a liability of $3,564 for the obligation to purchase the Tranche A shares. In February 2012, the Company paid Two Million Brazilian Reais ($1,146 USD) towards the purchase of the Tranche A shares, with the remaining amounts due at the closing of the sale of the Tranche A shares. The Seller and minority shareholders’ of Cimcorp have the right to elect to have the Company purchase the remaining 20% of the shares of Cimcorp (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. In March 2012, the Company entered into an amendment to the stock purchase agreement which amended the purchase price of the Tranche A shares to Seven Million Brazilian Reais from Nine Million Reais which is the Eleven Million Brazilian Reais purchase price of the Tranche A shares less Two Million Brazilian Reais of total net debt, as defined in the stock purchase agreement, less Two Million Brazilian Reais which has been previously paid by the Company. In addition, the amendment extended the closing date for the Tranche A shares from January 2012 to July 2012. The amendment also provided for the payment of any interest in arrears on the Tranche A shares on a monthly basis on the last day of the month in which the interest has accrued. The amendment also provides that the purchase price of the Tranche A shares shall be adjusted solely to reflect the payment of the interest of 3% in arrears as a penalty calculated over the outstanding value of the Tranche A shares adjusted price to be paid until the last day of the months of February, March, April, May and June 2012.

In July 2012, the Company entered into a third amendment to the SPA which amends the Sales Period as defined in the SPA to be the period commencing December 3, 2012 through January 31, 2013, the date all obligations of the Company are fulfilled with respect to the shares issued under the SPA as part of the purchase price. The third amendment also provides that the payment of the first installment of the Tranche A Shares Adjusted Price shall be paid by the Company on October 1, 2012 and the second installment of the Tranche A Shares Adjusted Price shall be paid by the Company on December 1, 2012, subject to adjustment based upon the IPCA index as provided in the SPA, as amended. The third amendment also provides for the payment of the unpaid interest accrued from February 2012 through June 2012 upon execution of the third Amendment, which the Company paid. In addition, the Company undertook to use its best efforts to release the shareholders from any obligations relating to the Total Debt as set forth on Schedule 1.1(d) of the SPA. The Company is currently in discussions with the Sellers regarding payment of the first installment of the Tranche A Shares Adjusted Price that was due on October 1, 2012 and not paid.

On June 8, 2011, Midas Medici completed its acquisition of the assets of Energy Hedge Fund Center, LLC, 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 for a total purchase price of $30. The Company issued 1,430 shares of its common stock in relation to this transaction.

On May 3, 2011, the Company completed the acquisition of WeatherWise, an energy-efficiency analytics company, pursuant to the terms of an Agreement and Plan with Weather Wise, and MMGH WW Acquisition Sub, Inc., our wholly owned subsidiary, dated as of March 29, 2011 for a total purchase price of $268. At the closing of the Merger Agreement, MMGH WW Acquisition Sub, Inc. merged with and into WeatherWise and WeatherWise became our wholly-owned subsidiary. As part of the merger, WeatherWise was rebranded “UtiliPoint Analytics,” allowing Midas to further leverage its Consonus and UtiliPoint brands to verticalize Midas into the utility sector.

On February 28, 2011, we completed the acquisition of Consonus pursuant to the terms of the Agreement and Plan of Merger with Consonus, and MMGH Acquisition Corp., our wholly-owned subsidiary dated as of April 30, 2010. Pursuant to the Merger Agreement effective February 28, 2011, MMGH Acquisition Corp. 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” for a total purchase price of $5,236.

Consonus provides innovative data center solutions to medium sized and large 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.

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(Dollar amounts in thousands)

Revenue

Our revenue is predominantly generated through data center services and IT infrastructure solutions and services, consulting and other revenue. Data center services are comprised primarily of hosting, bandwidth, managed infrastructure, managed services, software and maintenance support services. IT infrastructure solutions and services include primarily the sale 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 of 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) to increase as we increase our revenues. Cost of revenues also consist of costs incurred to provide services to clients and 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.

Our gross profit percentage is affected by a variety of factors, including competition, the mix and average selling prices of our products and services, our pricing policies, the cost of hardware products, the cost of labor and materials. Our gross profit percentage could be adversely affected by price declines or pricing discounts if we are unable to reduce costs on existing products and fail to introduce new products with higher margins.  Our gross profit percentage for any particular quarter could be adversely affected if we do not complete a sufficient level of sales of higher-margin products by the end of the quarter. Many of our customers do not finalize purchasing decisions until the final weeks or days of a quarter, so a delay in even one large order of a high-margin product could significantly reduce our total gross profit percentage for that quarter.

Currently, IT infrastructure solutions typically have a lower gross profit as a percentage of revenue than our services due to the cost of various hardware products.

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

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011 (Dollars in Thousands)

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

Revenues. Revenues for the three months ended September 30, 2012 totaled $13,809 compared to $11,370 for the three months ended September 30, 2011. The increase in revenues is attributable to the Company’s acquisition of CIMCORP. The three months ended September 30, 2011 includes only two months of the Brazil operations given the acquisition closed on August 1, 2011. Our Brazil operations contributed $11,250 in revenues in the three months ended September 30, 2011 (or 98.9% of total revenues) compared to $13,503 in the three months ended September 30, 2012 (or 97.8% of total revenues).

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(Dollar amounts in thousands)

Cost of revenues. Cost of revenues for the three months ended September 30, 2012 were $11,020, or 79.8% of revenue, compared to $7,536 or 66.3% of revenue for the three months ended September 30, 2011. Cost of revenues is our largest category of operating expenses, representing 64.7% of our total operating expenses for the three months ended September 30, 2012. The increase in cost of revenues was primarily due to the fact that the three months ended September 30, 2011 includes only two months of our Brazil operations relative to the comparable period resulting from our Brazil acquisition. Our Brazil operations contributed $7,226 or 95.9% of total cost of revenues in the three months ended September 30, 2011 compared to $10,734 in the three months ended September 30, 2012 or 97.4% of total cost of revenues. The increase in the cost of sales margin from 66.3% at September 30, 2011 to 79.8% at September 30, 2012 was due to the lower margins realized in our Brazil operations in the infrastructure services and solutions.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2012 were $5,201 compared to $6,760 for the three-months ended September 30, 2011. Selling, general and administrative expenses for the three months ended September 30, 2011 were impacted by professional service fees and other expenses related to the Company’s merger and acquisition activities. A significant portion of our selling, general and administrative expenses consists of personnel costs such as salaries, commissions, bonuses, non-cash stock based compensation, deferred compensation expense or income and temporary personnel costs. Our SG&A included non-cash stock based compensation of $41 in the three months ended September 30, 2012 for board of directors’ compensation and consulting services. Selling, general and administrative expenses also include costs of our facilities, utility expense, professional fees, sales and marketing expenses, auditing and consulting, and taxes and fines accruals from contingent tax and labor provisions.

Operating loss. For the three months ended September 30, 2012, our operating loss totaled $3,212 compared to an operating loss of $3,691 for the three months ended September 30, 2011. Our operating loss for the three months ended September 30, 2011 was impacted by professional service fees and other expenses related to the Company’s merger and acquisition activities.

Other income (expense). Other income (expense) for the three months ended September 30, 2012 consisted of a foreign currency transaction loss of $249, loss on sale of fixed assets of $68, a loss on the change in fair value of the purchase price contingency of $693 and other expense of $224. As of September 30, 2012, the carrying amount of the purchase price contingency was $5,537.

Interest and tax expense. For the three months ended September 30, 2012, interest expense was $1,097 compared to $830 for the three months ended September 30, 2011. Tax provisions resulted in a tax expense of $25 and a tax benefit of $360 for the three months ended September 30, 2012, and 2011, respectively. The tax expense of $25 is due to pre-tax income from a subsidiary of our Brazil operations.

Loss from discontinued operations. For the three months ended September 30, 2012, our loss from discontinued operations was $72 compared to a loss of $157 for the three months ended September 30, 2011.  Revenues from discontinued operations for the three months ended September 30, 2012 were $15,659 compared to revenues of $12,556 for the three months ended September 30, 2011. Cost of revenues totaled $11,773 and $8,814 for the three months ended September 30, 2012 and 2011, respectively.  Selling, general and administrative expenses for the three months ended September 30, 2012 and 2011 were $3,342 and $2,897, respectively.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011 (Dollars in Thousands)

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

Revenues. Revenues for the nine months ended September 30, 2012 totaled $46,921 compared to $11,549 for the nine months ended September 30, 2011. The increase in revenues is attributable to the Company’s acquisition of CIMCORP, which occurred in August of 2011. Our operations in Brazil contributed $46,015 in revenue during the nine months ended September 30, 2012, which contributed about 98.1% to our total consolidated revenues. Our Brazil revenues were $11,250 for the nine months ended September 30, 2011, which is for two months of our Brazil operations as the acquisition closed in August 2011.

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(Dollar amounts in thousands)

Cost of revenues. Cost of revenues for the nine months ended September 30, 2012 were $35,267, or 75.2% of revenue, compared to $7,886 or 68.3% of revenue for the nine months ended September 30, 2011. Cost of revenues is our largest category of operating expenses, representing 62.0% of our total operating expenses for the nine months ended September 30, 2012. The increase in cost of revenues was primarily due to the increase in revenues from the comparable period resulting from our Brazil acquisition. We had $34,341 in total cost of revenues from our operations in Brazil for the nine-month period ended September 30, 2012, which contributed about 97.4% to our total consolidated cost of revenues. The increase in the cost of sales margin from 68.3% at September 30, 2011 to 75.2% at September 30, 2012 was due to the lower margins realized in our Brazil operations in the infrastructure services and solutions.

Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended September 30, 2012 were $19,636 compared to $7,844 for the nine months ended September 30, 2011. The increase in selling, general and administrative expenses from the comparable period was primarily due to our acquisition of our Brazil operations. We recorded $16,685 and $3, 480 in SG&A for our Brazil operations for the nine months ended September 30, 2012 and 2011, respectively, which contributed about 85.0% to our total consolidated selling, general and administrative expenses for the nine months ended September 30, 2012. A significant portion of our selling, general and administrative expenses consists of personnel costs such as salaries, commissions, bonuses, a non-cash stock based compensation, deferred compensation expense or income and temporary personnel costs. Our SG&A includes non-cash stock based compensation of $491 for the nine months ended September 30, 2012 for board of directors’ compensation and consulting services. Selling, general and administrative expenses also include costs of our facilities, utility expense, professional fees, sales and marketing expenses, auditing and consulting and taxes and fines accruals from contingent tax and labor provision, which contributed to an increase in our SG&A compared to the same period in 2011.

Operating loss. For the nine months ended September 30, 2012, our operating loss totaled $9,970 compared to an operating loss of $5,166 for the nine months ended September 30, 2011. Our operating loss increased by $4,804 (or 93.0%) as a result of an increase in our operating costs of $40,176 (or 240.3%) offset by an increase in revenues of $35,372 (or 306.3%), primarily driven by the acquisition of our Brazil operations which impacted the nine months ended September 30, 2012. Our Brazil operations were acquired in August 2011.

Other income (expense). Other income (expenses) for the nine months ended September 30, 2012 consisted of a foreign currency transaction loss of $386, a gain on the sale of fixed assets of $84, a loss on the change in fair value of the purchase price contingency of $2,963, offset by other income of $42.

Interest and tax expense. For the nine months ended September 30, 2012, interest expense was $4,606 compared to $1,026 for the nine months ended September 30, 2011. The increase in interest expense is a result of assumed and new debt and leases from our Brazil operations. Tax provisions resulted in a tax expense of $101 and a tax benefit of $1,535 for the nine months ended September 30, 2012 and 2011, respectively. The tax expense of $101 is due to pre-tax income from a subsidiary of our Brazil operations.

Loss from discontinued operations. For the nine months ended September 30, 2012, the loss from discontinued operations was $1,773 compared to a loss of $1,881 for the nine months ended September 30, 2011.  Revenues from discontinued operations for the nine months ended September 30, 2012 were $46,596 compared to revenues of $40,402 for the nine months ended September 30, 2011. Cost of revenues totaled $34,706 and $28,779 for the nine months ended September 30, 2012 and 2011, respectively.  Selling, general and administrative expenses for the nine months ended September 30, 2012 and 2011 were $11,003 and $11,097, respectively.

Liquidity and capital resources

The Company’s 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 record amounts that might result from the outcome of this uncertainty of continuing as a going concern.

The Company’s accumulated deficit at September 30, 2012 was $40,702 and it incurred a consolidated net loss of $19,673 for the nine months ended September 30, 2012. On September 30, 2012, the Company had a working capital deficit of $51,289.

The Company’s nine months ended September 30, 2012 revenue grew 306.3% from the nine months ended September 30, 2011 due to the acquisition of the Brazilian operations, which occurred in August 2011, being included for the entire nine month period in 2012 versus two months in 2011. 

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(Dollar amounts in thousands)

In May 2012, the Company listed on the OTCQX U.S in New York, which management believes will broaden the Company’s options to raise capital.

The Company’s working capital deficit of $51,289 is primarily comprised of the following accounts that impact cash flow for the remainder of 2012: current maturities of long-term debt of $11,604, which include a mortgage note of $1,918 already extended through March 2013; $3,564 in deferred revenue; $5,537 of deferred purchase price contingency consideration, which the Company believes will be extended in the event it is unable to pay as it becomes due; accounts payable, accounts receivable and accrued other liabilities. As of September 30, 2012, the Company had a total stockholders’ deficit of $10,985.

The cash flow provided by operations of $9,711 during the nine months ended September 30, 2012 was achieved primarily through collection of accounts receivable and extended payment terms with vendors.

During 2012, we took several initiatives which strengthened the Company’s ability to manage its liquidity position and will continue to do so throughout 2012:

· As a result of our recent acquisition of Cimcorp and the relationship Cimcorp maintains with several large financial institutions that have historically and currently provided financing, we believe that the Company has the opportunity to obtain additional working capital lines based on new receivables it creates. In March 2012, the Company procured a new accounts receivable based working capital line for $1,207 from one of those banks.

· In April 2012, the Company entered into a revolving credit facility and promissory note with Knox Lawrence International, LLC and Quotidian, LLC of $2,000 upon which the Company can draw down to support its working capital needs.

· In May 2012, the Company procured a new accounts receivable based working capital line for $1,646 from one of the Company’s Brazilian banks.

· In May 2012, the Company secured a facility agreement with Cisco System Capital Corporation in the amount of $1,100 guaranteed by Cimcorp’s endorsed invoices paid to a supplier.

· In June 2012, the Company secured a working capital loan from a bank in the amount of $750. The Company also entered into another secured working capital loan from the same bank through discounted trade receivables in the amount of $687.  

· On October 4, 2012, the Company sold substantially all of the operating assets of STI for approximately $20,250, of which $13,142 was paid in cash, $4,858 in net assumed liabilities and $2,250 in stock. In addition, the Company repaid debt obligations of $6,551 with the proceeds from the sale. As a result of the sale of substantially all of the operating assets of STI, the Company anticipates the remaining goodwill recorded within the United States geographic segment of $6,358 will be impaired in the fourth quarter, as the remaining U.S. operations were dependent on and closely related to the operations of STI.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If the Company is unable to raise additional capital in the near future, due to the Company’s liquidity problems, management expects that the Company may need to liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. These unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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(Dollar amounts in thousands)

Critical Accounting Policies

As discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, we consider our policies on revenue recognition, long-lived assets and business combinations to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. There have been no changes in our critical accounting policies during the nine months ended September 30, 2012.

Recent Accounting Pronouncements

See Note 1 – Basis of Presentation and Description of Business.

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. 

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 include without limitation controls and procedures designed to ensure 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.

Management has evaluated the adequacy of its disclosure controls and procedures and has determined that consistent with its prior disclosures in its prior Form 10-K and Form 10-Q, disclosure controls and procedures were not effective as of September 30, 2012. The lack of effectiveness of the Company’s disclosure controls and procedures was due to a deficiency in sufficient expertise as of September 30, 2012 among the Company’s accounting staff as well as a deficiency in its closing processes as it pertains to identifying all journal entries in the financial statement preparation process. Management believes that these material weaknesses are primarily due to the need to continue integrating the Company’s recent acquisitions. The Company has recently hired a controller for its Brazilian operations with approximately 20 years’ experience with a Big Four accounting firm, to strengthen its accounting staff. Additionally, the Company has recently hired a controller for the US operations with approximately 15 years of corporate and Big Four accounting firm experience, to strengthen its accounting staff.

We intend to devote resources to remediate any deficiencies we have discovered and improve our internal control over financial reporting and we believe that these key additions will help mitigate and eventually remediate the material weaknesses described above. Our management intends to develop a plan to correct the primary issues that led to this material weakness by implementing additional review and reconciliation procedures. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.

Notwithstanding the foregoing, we believe that the accompanying financial statements presented in this Form 10-Q fairly present our financial condition and results of operations for the periods indicated in all material respects.

(b) Changes in internal controls

During our fiscal quarter ended September 30, 2012, there were no changes in our internal control over financial reporting that could have a material effect on, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

(Dollar amounts in thousands)

Item 1.  Legal Proceedings

On December 16, 2010, Empresa Brasileira de Correios e Telйgrafos – ECT, an administrative body, commenced an action against several parties including Cimcorp, the Company’s subsidiary, for alleged bidding irregularities. The action arose out an investigation by local authorities into certain bids for projects. The report of the administrative proceeding alleged that Cimcorp may have acted in collusion with other companies to manipulate the bidding price for certain projects. On July 27, 2011, the Brazilian Post office authority imposed a suspension of the right of Cimcorp to contract with the Empresa Brasileira de Correios e Telйgrafos - ECT for a period of five years (maximum penalty provided by law 8,666/93). Cimcorp has administratively appealed the penalty, which is pending judgment.

On August 12, 2011, Cimcorp also filed a writ of mandamus, before the Federal Court of Distrito Federal which was assigned to a Judge in the 13th Federal Court of Distrito Federal, requesting the annulment of the administrative proceeding and suspension of the effects of the administrative ruling. On September 13, 2011, the Judge of the 13th Federal Court of Distrito Federal granted a preliminary injunction to suspend the effects of the administrative ruling, which lifted the penalty applied against Cimcorp.  The ground for such lifting was that there is no evidence in the administrative proceeding that justifies the application of penalty imposed on Cimcorp. The Judge ruled that the administrative authority of Empresa Brasileira de Correios e Telégrafos - ECT neither justified its decision nor acted with proportionality and reasonableness when fixing the penalty. The merit of this writ of mandamus is still pending judgment.

On January 27, 2012, a public civil suit was filed by the Federal Public Prosecutor’s Office related to the same matter. The suit, filed in the Federal Court of Distrito Federal and being processed at the 4th Federal Court of Distrito Federal against Cimcorp and several other defendants. The suit requests the reimbursement of $1,640 (equivalent to R$2,860), application of a fine in the amount of $3,280 (equivalent to R$5,720) and prohibition on contracting with the Public Administration for a term of five years. No preliminary relief was requested by the Federal Public Prosecutor’s Office. The term for filing of a defense has not yet started to elapse. The Company intends to vigorously defend this action.

Item 1A.  Risk Factors

Not applicable

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.  Defaults Upon Senior Securities

None

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Item 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

None

Item 6.  Exhibits

Exhibit Number	Description of Exhibit
2.1	Asset Purchase Agreement dated as of October 2, 2012 by and Datalink Corporation, STI Acquisition Corp., Strategic Technologies, Inc. and Midas Medici Group Holdings, Inc. (Incorporated by reference to the current report on Form 8-K filed with the Securities and Exchange Commission on October 9, 2012)
31.1	Certifications of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended
31.2	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 amended
32.1	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 2002
32.2	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
EX-101.INS	XBRL INSTANCE DOCUMENT
EX-101.SCH	XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB	XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Midas Medici Group Holdings, Inc.
Date: November 14, 2012	By:	/s/ Nana Baffour
		Nana Baffour
		Chief Executive Officer (Principal Executive Officer)

Date: November 14, 2012	By:	/s/ Johnson Kachidza
		Johnson Kachidza
		Chief Financial Officer (Principal Financial Officer and Accounting Officer)

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