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INTERMEDIX HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2010 Accounting for Embedded Credit Derivatives In March 2010, the FASB issued ASU No. 2010 -11, Derivatives and Hedging ('Topic No. 815): Scope Exception Related to Embedded Credit Derivatives (ASU 2010 -11). ASU 2010 -11 clarifies the only form of embedded credit derivative that is exempt from embedded derivative bifurcation requirements is one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in ASU 2010 -11 are effective at the beginning of a reporting entity's first fiscal quarter beginning after June 15, 2010. The adoption of ASU 2010 -11 on July 1, 2010 did not have a material impact on the Company's consolidated financial statements. Accounting for Multiple Deliverable Revenue Arrangements In October 2009, the FASB issued ASU 2009 -13, Revenue Recognition (ASU 2009 -13), which sets forth new accounting standards for revenue recognition for multiple deliverable revenue arrangements. This new authoritative guidance amends previously issued guidance to eliminate the residual method of allocation for multiple deliverable revenue arrangements and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method (RSP). The new authoritative guidance also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes (i) Vendor Specific Objective Evidence (VSOE), if available, (ii) third -party evidence (TPE), if VSOE is not available, and (iii) estimated selling price, if neither VSOE or TPE is available. ASU 2009 -13 will be effective prospectively for revenue arrangements entered into or materially modified by the Company beginning on or after January 1, 2011. (4) Restricted Cash As of December 31, 2010 the Company had $0.5 million of restricted cash representing collateral to secure a letter of credit. Pursuant to the terns of a contract to provide services to a certain municipal client, the Company was required to furnish such letter of credit to assure its performance under the respective contract. (5) Acquisitions EMSystems LLC Pursuant to a Unit Purchase Agreement (UPA) dated April, 26, 2010, a wholly owned subsidiary of the Predecessor acquired all of the issued and outstanding membership units and other equity interests of Systems. The acquisition price of $57.1 million included (i) $54.2 million paid in cash, and (ii) the issuance of $2.9 million in equity units of the Predecessor's Parent LLC in exchange for certain Systems membership units (Systems Rollover Equity). Funding for the acquisition of Systems consisted of (i) $36.0 million in Term Loan and Revolver borrowings under the Predecessor's then existing credit facility, (ii) $18.2 million of cash on hand, and (iii) issuance of $2.9 million in equity units of the Predecessor's Parent LLC as discussed above. Approximately $2.3 million in transaction costs were incurred in connection with the acquisition, $1.1 million of which were associated with securing the additional Term Loan financing described above. 15 (Continued)