UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K





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




For
the Fiscal Year Ended December 31, 2009




Commission
File Number: 000-51552




ATS
CORPORATION


(Exact
Name of Registrant As Specified in Its Charter)





Delaware
                
                11-3747850(State
      or Other Jurisdiction of
                  Incorporation
      or Organization)
                
                (I.R.S.
      Employer
                  Identification
      Number)





7925
      Jones Branch Drive
                  McLean,
      Virginia
                
                22102(Address
      of Principal Executive Offices)
                
                (Zip
      Code)




(571)
766-2400




(Registrant’s
Telephone Number, Including Area Code)




Securities
Registered Pursuant to Section 12(b) of the Act: None




Securities
Registered Pursuant to Section 12(g) of the Act:





Title
      of Each Class
              
              Name
      of Exchange on Which RegisteredCommon
      Stock, $0.0001 par value
              
              AMEX




Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ̈Nox




Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes ̈Nox




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
 ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during one preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No
 ̈




Indicate by a check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.x




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





Large
      accelerated filer o
              
              Accelerated
      filer o
              
              Non-accelerated
      filer o
              
              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




As of
June 30, 2009, the aggregate market value of the registrant’s Common Stock held
by non-affiliates of the registrant was $14.0 million, based on the closing
sales price of the registrant’s Common Stock on the OTC Bulletin Board on that
date.  The registrant’s common stock subsequently ceased trading on
the OTC Bulletin Board and commenced trading on the NYSE AMEX LLC on January 5,
2010.




As of
March 23, 2010, 22,553,702
shares of the registrant’s common stock, $0.0001 par value, were
outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




Part III
incorporates information by reference from the definitive proxy statement for
the Annual Meeting of Stockholders expected to be held May 18,
2010.







ATS
CORPORATION


For
the Fiscal Year Ended December 31, 2009




TABLE
OF CONTENTS





PagePART
      IItem
      1.
                          Business
                          
                          
                          1Item
      1A.
                          Risk
      Factors
                          
                          
                          9Item
      1B.
                          Unresolved
      Staff Comments
                          
                          
                          19Item
      2.
                          Properties
                          
                          
                          19Item
      3.
                          Legal
      Proceedings
                          
                          
                          19PART
      IIItem
      5.
                          Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                          
                          
                          20Item
      6.
                          Selected
      Financial Data
                          
                          
                          23Item
      7.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          
                          
                          25Item
      7A.
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          
                          
                          32Item
      8.
                          Financial
      Statements and Supplementary Data
                          
                          
                          32Item
      9.
                          Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                          
                          
                          32Item
      9A.
                          Controls
      and Procedures
                          
                          
                          32Item
      9B.
                          Other
      Information
                          
                          
                          33PART
      IIIItem
      10.
                          Directors,
      Executive Officers and Corporate Governance
                          
                          
                          34Item
      11.
                          Executive
      Compensation
                          
                          
                          34Item
      12.
                          Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                          
                          
                          34Item
      13.
                          Certain
      Relationships and Related Transactions, and Director
      Independence
                          
                          
                          34Item
      14.
                          Principal
      Accountant Fees and Services
                          
                          
                          34PART
      IVItem
      15.
                          Exhibits
      and Financial Statement Schedules
                          
                          
                          35


i




FORWARD-LOOKING
STATEMENTS




Some of
the statements in this Annual Report on Form 10-K constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify these statements by
forward-looking words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” and “would” or
similar words. You should read statements that contain these words carefully
because they discuss our future expectations, contain projections of our future
results of operations or of our financial position, or state other
forward-looking information. The factors listed in Item 1A of Part I of this
Annual Report on Form 10-K, captioned “Risk Factors,” as well as any cautionary
language in this Annual Report on Form 10-K, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements, including
but not limited to:





•
              risks related to the government
      contracting industry, including possible changes in government spending
      priorities,
      especially during periods when the government faces significant budget
      challenges;


•
              risks related to our business,
      including our dependence on contracts with U.S. Federal Government
      agencies and departments and continued good relations, and being
      successful in competitive bidding, with those
      customers;


•
              uncertainties as to whether
      revenue corresponding to our contract backlog will actually be
      received;


•
              risks related to the
      implementation of our strategic plan, including the ability to identify,
      finance and complete acquisitions and the integration and performance of
      acquired businesses; and


•
              other risks and uncertainties
      disclosed in our filings with the Securities and Exchange
      Commission.




Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Annual Report on Form 10-K.
We undertake no obligation to update these forward- looking statements, even if
our situation changes in the future.




The terms
“we,” “our” and “ATSC” as used throughout this Annual Report on Form 10-K refer
to ATS Corporation and its consolidated subsidiaries, unless otherwise
indicated.


ii




Item
1. Business




INFORMATION
ABOUT ATS CORPORATION (“ATSC”)




Our
Business




Organizational
Structure




As of
December 31, 2007, ATS Corporation (“ATSC”) consolidated all of its subsidiaries
into Advanced Technology Systems, Inc. (“ATSI”) under the holding company ATSC.
The consolidated financial statements include the accounts of ATSC and ATSI
(collectively, the “Company”).




Warrant
Expiration




The
2,980,175 warrants that were outstanding on January 1, 2009 expired,
unexercised, on October 19, 2009.




Line
of Credit




ATSC has
a three-year, secured credit facility with Bank of America, N.A. and Citizens
Bank (the “Credit Agreement”) which provides for borrowing up to $50 million,
with an expiration date of June 4, 2010 (the “Agreement”). The interest rate is
based on LIBOR plus the applicable rate ranging from 200 to 350 basis points
depending on the Company’s consolidated leverage ratio. The Company pays a fee
in the amount of .20% to .375% on the unused portion of the facility, based on
its consolidated leverage ratio, as defined in the Agreement. Any outstanding
balances under the facility are due on the expiration date. The Agreement places
certain restrictions on the Company’s ability to make acquisitions. It also
requires the Company to reduce the principal amount on its loan outstanding by
between 50% to 100% of the net cash proceeds from the sale or issuance of equity
interests.  At December 31, 2009, the Company was in compliance with
its covenant agreements. The Company is currently in discussion with Bank of
America and other lenders regarding renewing the current facility or
establishing a new one.




Employment
Agreements




On May 5,
2009, the Company and Dr. Edward H. Bersoff, the Company’s Chairman, President
and Chief Executive Officer, amended Dr. Bersoff’s employment agreement,
extending his employment term as Chief Executive Officer through December 31,
2011. The Company originally entered into an employment agreement with Dr.
Bersoff on March 19, 2007, who had been serving in that capacity since January
16, 2007. In addition, the Company has entered into employment agreements with
certain key employees that provide for severance payments in the event of
termination.




Personnel




ATSI
employs approximately 612 personnel, of which 547 are full-time
employees.




INFORMATION
ABOUT ATSI




Available
Information




We
maintain an internet website at http://www.atsc.com. We make
available our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to such reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, and other information related to us, free of charge, on this site as
soon as reasonably practicable after we electronically file those documents
with, or otherwise furnish them to, the Securities and Exchange Commission. Our
internet website and the information contained therein or connected thereto are
not intended to be incorporated into this Annual Report on Form
10-K.




Regulation




We are
subject to various statutes and regulations applicable to government contracts
generally and defense contracts specifically. These statutes and regulations
carry substantial penalty provisions including suspension or debarment from
government contracting or subcontracting for a period of time, if we are found
to have violated these regulations. Among the causes for debarment are
violations of various statutes, including those related to procurement
integrity, export control, government security regulations, employment
practices, the protection of the environment, the accuracy of records, and the
recording of costs. We carefully monitor all of our contracts and contractual
efforts to minimize the possibility of any violation of these
regulations.


1




As a
government contractor, we are subject to government audits, inquiries and
investigations. We have experienced minimal audit adjustments to our incurred
costs as a result of these audits. The Defense Contract Audit Agency (“DCAA”)
has completed its audit of ATSI contracts through the fiscal year ended October
31, 2005, and we are subject to audit and adjustment on our performance during
subsequent years.




Overview




ATSI
provides software and systems development, systems integration, information
technology infrastructure and outsourcing, information sharing, and consulting
services primarily to U.S. government agencies. As part of its complete systems
life-cycle approach, ATSI offers its clients an integrated full-service
information technology infrastructure outsourcing solution that allows an agency
to focus on its core mission while reducing costs and maintaining system
uptime.




ATSI,
founded in 1978, originally focused on mainframe applications development and
was awarded one of its first prime contracts in 1981 from the Department of
Housing and Urban Development (“HUD”), to develop the Computerized Homes
Underwriting Management System, a system for tracking and monitoring home
mortgages. By 1985, as technology evolved, ATSI’s relationship with HUD evolved
as well, and ATSI was tasked to design and implement various Local Area Network,
or LAN, applications to meet the complex needs of the agency. ATSI expanded its
expertise into enterprise architecture and system implementation services during
its design of HUD’s multi-tiered extranet application, FHA Connection, which
consists of several smaller subsystems with a diverse mix of multi-tiered
architectures in a web-driven solution. Throughout the 1990s, ATSI began to
accelerate its business development efforts with other federal agencies in an
effort to diversify its client concentration outside HUD and provide additional
avenues for growth. For example, ATSI cross-sold its HUD applications
development expertise to the Resolution Trust Corporation, or RTC, an agency
created to manage the savings and loan crisis, to provide both applications
development and database administration. As the savings and loan crisis was
resolved, ATSI leveraged its past performance record at RTC to win a contract to
develop the Federal Deposit Insurance Corporation’s first internet and intranet
sites.




Through
the 2007 acquisitions of RISI, PMG and NSS, we expanded our client base,
personnel and service offerings. These acquisitions expanded our federal network
system integration, maritime security, and commercial applications development
capabilities, as well as broadened our customer base to include the U.S. Coast
Guard and Blue Cross Blue Shield, among many others.




Although
ATSI’s service offerings have evolved over time to incorporate new technologies
and integrate acquired businesses, a majority of ATSI’s projects encompass the
following technology services:




•
                software and systems
      development;
 •
                systems
      integration;
 •
                information technology
      infrastructure and
outsourcing;
 •
                information sharing;
      and
 •
                consulting.




2




Software
and Systems Development
  ATSI
develops custom software applications and systems by applying industry standard
best practices, agile development methodologies, and state of the art software
tooling. ATSI has over 30 years of experience building and implementing leading
edge financial, administrative/tracking and document/records management systems
for federal civilian agency and Department of Defense (“DoD”) clients. As a
result of its development efforts, ATSI has built a strong understanding of its
clients’ information technology infrastructures, favorably positioning it to
identify opportunities for additional application development and systems
upgrades.
  To create
the best solutions for clients, ATSI utilizes its expertise in the following
areas:
 
 •
              full life cycle application
      development;
 
 •
              legacy
      migration/modernization;
 
 •
              database
      architecture/implementation;
 
 •
              system
      maintenance;
 
 •
              Independent Verification and
      Validation (IV&V);
 
 •
              multi-platform
      deployment;
 
 •
              requirements management;
      and
 
 •
              certification and accreditation
      support.
  ATSI’s
full suite of software engineering capabilities favorably positions ATSI to meet
its clients’ desire to engage contractors who can evaluate the feasibility of
commercial off the shelf or COTS-based software solutions and, when necessary,
develop custom applications that modify those solutions to meet overall system
requirements. Additionally, ATSI has developed numerous custom software
solutions for clients requiring technical specifications that are more demanding
than those offered by a COTS solution.
  Web-Based
Software Implementations
  ATSI’s
software and systems engineers have extensive experience designing web-based
applications and database solutions. ATSI offers web-based solutions that
include:
 
 •
              public key infrastructure, or
      PKI;
 
 •
              virtual private network, or
      VPN;
 
 •
              single
      sign-on;
 
 •
              performance monitoring;
      and
 
 •
              clustering/load balancing and
      business-to-business, or B2B,
  applications.
  ATSI
develops web-enabled systems that allow agencies to manage their intellectual
capital by providing interactive web ties to robust database and mainframe
architectures. Additionally, ATSI develops intranet portals allowing
organizations to share information and communicate across a LAN, Wide Area
Network (“WAN”) or the Internet.
  Legacy
Migration/Modernization
  ATSI
provides software and systems migration planning. ATSI utilizes a collaborative
approach to systems implementation, often working with clients to design systems
requirements and select “best-of-breed” technologies to meet mission objectives.
After identifying the proper solutions, ATSI works with clients to identify
issues that may arise during a systems migration and map out migration and
implementation schedules. ATSI also focuses on identifying potential issues
impacting system uptime, connectivity and data availability. ATSI’s software and
systems engineers then work with a client to address ways to alleviate concerns
and minimize the impact on daily operations.
  3
  Database
Architecture/Implementation
  ATSI
combines broad experience in administering databases with a focused attention to
suggesting and implementing database applications and solutions. ATSI is
involved in all stages of the database management life cycle, including
assessment of functional requirements, development of database requirements, and
assistance in vendor selection. ATSI has expertise in highly-complex database
design and optimization, data modeling, distributed databases, advanced
architectures performance tuning, backup and recovery planning, application
administration planning and operational administration. ATSI supports all phases
of a database’s life cycle and typically acts as a vendor-neutral advisor,
allowing ATSI to offer its clients the database application that best addresses
a system’s specific requirements. In addition, ATSI has designed and built
custom database systems, using object-oriented analysis and design
techniques.
  Systems
Integration
  ATSI
performs comprehensive systems integration and installation services in support
of its developed software systems, as well as network and hardware upgrades
using COTS technologies. ATSI’s professionals analyze a client’s existing
information systems, applications and platforms and design a solution that
sustains or extends system performance and availability. As part of its work in
this area, ATSI leverages its past experience and deep technical expertise to
evaluate competing solutions. ATSI then develops systems based on the cost and
requirements of a client. Finally, ATSI integrates the system into existing
enterprise architectures to create a seamless application for clients. Many of
ATSI’s software development projects involve a substantial degree of legacy
system integration and have served to further deepen ATSI’s technical
capabilities with legacy systems integration and migration.
  To create
the best solutions for clients, ATSI utilizes its expertise in the following
areas:
 
 •
              COTS
      integration;
 
 •
              website
      management;
 
 •
              enterprise
      architecture;
 
 •
              interoperability;
      and
 
 •
              documents/records
      management.
  Information
Technology Infrastructure and Outsourcing
  ATSI
provides a full range of infrastructure management services from small email or
web server administration contracts to larger completely outsourced managed
services. ATSI offers creative solutions to operational issues such as help desk
operations, Service Level Agreement (SLA) management, proactive server
monitoring and response, and server virtualization/consolidation. The
methodology leverages the Information Technology Infrastructure Library (ITIL)
framework, and Project Management Body of Knowledge (PMBOK) ensures the most
efficient and comprehensive deployment of services.
  The
primary components of ATSI’s infrastructure and outsourcing services
are:
 
 •
              managed
      services;
 
 •
              hosting;
 
 •
              service/help
      desk;
 
 •
              continuity of operations
      (COOP)/disaster recovery
(DR);
 
 •
              messaging/workflow
      administration;
 
 •
              technology
      assessments;
 
 •
              network
      operations;
 
 •
              server
      administration;
 
 •
              SLA
      management;
 
 •
              database
      administration;
 
 •
              desktop
      architecture;
 
 •
              IT audit and
      assessment;
 
 •
              virtualization;
 
 •
              video
      teleconferencing;
 
 •
              risk assessment and management;
      and
 
 •
              information
      security.
  4
  Managed
Services
  ATSI
provides a suite of enterprise information technology infrastructure support
services that enables its clients to focus on their core missions. ATSI’s
information technology staff works with clients to help plan, deploy, manage,
and maintain their entire information technology infrastructure. ATSI’s systems
and services are focused on ensuring that clients’ enterprise solutions have the
availability, reliability, performance, and support required for long-term
success.
  Service/Help
Desk
  ATSI’s
complete outsourced information technology and infrastructure management
solution includes the provision of network-essential help desk functions. The
ability to accurately identify, capture and report network problems is critical
to ATSI’s ability to manage networks and recommend system upgrades.
  Information
Security
  ATSI
provides a full range of security and risk management services that proactively
ensure the safety of information, networks and systems.
  Information
Sharing
  ATSI
develops and deploys complex information sharing systems, connecting
organizations at all levels of government and giving secure, immediate access to
information and communications. ATSI delivers customized applications using open
standards, approaches and methodologies. These solutions use service-oriented
architectures, customer reference architectures, web services, the Global XML
data models, and Federal Information Processing Standard (FIPS) 140-2 for
wireless access to allow customers to communicate with existing legacy systems
while migrating to new technologies.
  To create
the best solutions for clients, ATSI utilizes its expertise in the following
areas:
 
 •
              intergovernmental
      systems;
 
 •
              classified and sensitive
      data;
 
 •
              managing integrated regional
      information sharing;
 
 •
              global positioning systems;
      and
 
 •
              remote portable real-time data
      access.
  Consulting
  ATSI
delivers a wide range of consulting services, including the following
areas:
 
 •
              technology
      consulting;
 
 •
              business
      consulting;
 
 •
              security
      consulting;
 
 •
              business process re-engineering
      (BPR);
 
 •
              training/eLearning;
      and
 
 •
              IT planning and
      strategy.
  Technology
Consulting
  ATSI’s
technology consulting services are based on industry standard best practices and
focused on services that are geared towards application lifecycle development,
starting from requirements down through testing, deployment, and maintenance.
These services are oriented toward the technical delivery of a solution or the
technical enablement of an organization to be competent in delivering technical
solutions. Sample offerings in this service line include: Process/Tools support
surrounding the IBM/Rational technology, Requirements Management with Use Cases
consulting, Test Driven Development, Model Driven Development, and Agile Process
consulting.
  5
  Business
Consulting
  ATSI
provides business consulting services to a broad range of clients through its
team of highly-experienced subject matter experts. These experts provide
financial institutions with business and technology best practices in matters
relating to high volume transaction processing, financial accounting, cash and
securities clearance, and fixed income trading. As part of its consulting
services, ATSI’s professionals provide a full life-cycle of software development
consulting services from business analysis, through requirements gathering,
detailed design, development, testing and training support. These services are
often performed in conjunction with the implementation of an entire solution or
system redesign project. Additionally, ATSI provides property and casualty
insurance companies with business and technology consulting services and
solutions. These range from system selection and implementation to business
process analysis and redesign. ATSI offers comprehensive project management and
quality assurance services needed to ensure a successful system
implementation.
  Security
Consulting
  ATSI’s
security consulting services provide a “best value” management to clients within
the Department of Defense and Department of Homeland Security, leveraging a deep
experience in safety and security assessments.
  Business
Process Re-engineering
  ATSI has
developed a comprehensive and sophisticated strategic information technology
consulting practice to assist clients with redesigning their business processes.
ATSI helps clients identify and implement changes that can significantly improve
performance, cost-effectiveness, quality, and client satisfaction. ATSI’s
multi-disciplined consultants are typically engaged by senior agency officials
to assist with the development of programs and policies that support overall
strategic organizational goals.
  Information
Technology Planning and Strategy
  ATSI’s
strategic planning practice supports the modeling, simulation and prototyping of
information technology and network systems and solutions that help clients
maximize their investments in those systems. As part of its efforts, ATSI
engages in feasibility studies, strategic planning, systems development
consulting, quality assurance, project management, organizational assessment,
system and transition planning and acquisition support for clients. ATSI also
provides data modeling services that allow clients to analyze how investments in
software and systems architecture will impact the overall system, database and
network performance. ATSI uses its data modeling capabilities to assist clients
with operations research, system analysis, systems engineering, cost-benefit
analyses and statistics on operating performance.
  Professional
Staffing Services
  ATSI
provides business and information technology staffing services for nearly all of
the technical and functional disciplines at financial institutions with specific
focus on business/data analysts and database professionals. ATSI’s professionals
possess significant technical and domain knowledge developed through years of
working with many of the largest financial services firms. ATSI employs a
dedicated recruiting staff to ensure ATSI has a full staff of professionals
ready to quickly meet clients’ needs. Our professional staffing services to
financial institutions include the following:
 
 •
              12EE/Java
      development;
 
 •
              client-server C/C++
      development;
 
 •
              systems
      administration;
 
 •
              mortgage industry business
      analysis;
 
 •
              project
      management;
 
 •
              P&C industry business
      analysis;
 
 •
              Oracle and Sybase database
      administration; and
 
 •
              systems
      testing.
  6
  Customers
and Contract Types
  The
following schedule presents the breakdown of revenue by customer type for the
years ended December 31, 2009 and 2008.
 
 Year Ended December 31,2009
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2008Civilian
      Agencies
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                46.9
                                                                                                                                                %
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                39.3
                                                                                                                                                %Defense
      and Homeland Security Agencies
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                31.5
                                                                                                                                                %
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                33.7
                                                                                                                                                %Commercial
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                18.9
                                                                                                                                                %
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                24.4
                                                                                                                                                %State/Local
      Government
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.7
                                                                                                                                                %
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.6
                                                                                                                                                %Total
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                100.0
                                                                                                                                                %
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                100.0
                                                                                                                                                %
  We derive
substantially all of our revenue from professional and technical services.
During 2009, ATSI’s largest customers in terms of revenue were HUD, the Federal
National Mortgage Association (“Fannie Mae”), the Pension Benefit Guaranty
Corporation (“PBGC”) and the Office of the Undersecretary of Defense (“OUSD”)
representing 19%, 10%, 8% and 8% of its total revenue, respectively. In 2008,
HUD, Fannie Mae, and the U.S. Coast Guard represented the largest revenue
percentages at 17%, 10%, and 10%, respectively.
  We
generate revenue from contracts with various payment arrangements, including
time and materials contracts and fixed-price contracts. During the year ended
December 31, 2009, revenue from these contract types were approximately 68% and
32%, respectively, of total revenue. During the year ended December 31, 2008,
revenue from these contract types were approximately 63% and 37%, respectively,
of total revenue. We have engaged in cost-reimbursable contracts in prior years,
but did not do so in either 2009 or 2008.
  We
derived revenue as a prime contractor and subcontractor as follows for the years
ended December 31, 2009 and 2008.
 
 Year Ended December 31,2009
                                                      
                                                      
                                                      2008Prime
                                                      
                                                      
                                                      74.9
                                                      %
                                                      
                                                      
                                                      79.7
                                                      %Sub
                                                      
                                                      
                                                      25.1
                                                      %
                                                      
                                                      
                                                      20.3
                                                      %Total
                                                      
                                                      
                                                      100.0
                                                      %
                                                      
                                                      
                                                      100.0
                                                      %
  Our most
significant expense is direct costs, which consist primarily of project
personnel salaries and benefits, and direct expenses incurred to complete
projects. The number of professional and technical personnel assigned to a
project will vary according to the size, complexity, duration, and demands of
the project. As of December 31, 2009, 525 of our 612 total personnel worked on
our contracts.
  General
and administrative expenses consist primarily of costs associated with our
executive management, finance and administrative groups, human resources, sales
and marketing personnel, and costs associated with marketing and bidding on
future projects, unassigned professional and technical personnel, personnel
training, occupancy costs, travel and all other branch and corporate
costs.
  Other
income consists primarily of interest income earned on our cash and cash
equivalents.
  Contract
Backlog
  We define
backlog as the future revenue we expect to receive from our contracts and other
engagements. We generally include in backlog the estimated revenue represented
by contract options that have been priced, though not exercised. We do not
include any estimate of revenue relating to potential future delivery orders
that might be awarded under our General Services Administration Multiple Award
Schedule contracts, other Indefinite Delivery/Indefinite Quantity (“IDIQ”)
contracts, or other contract vehicles that are also held by a large number of
firms, an order under which potential further delivery orders or task orders might be
issued by any of a large number of different agencies and are likely to be
subject to a competitive bidding process. At December 31, 2009, our backlog was
approximately $167 million, of which $61 million was funded. At December 31,
2008, our backlog was approximately $178 million, of which $53 million was
funded. The decrease from December 31, 2008 is the result of a number of
contracts which are in the last year of a multi-year award.  The
recognition of revenue over the life of these contracts has reduced the backlog
to a lesser figure. Re-competitions on these contracts are anticipated to occur
which, if ATSC is successful, would increase our backlog
substantially.
  7
  We
currently estimate that 49% of our current backlog will be recognized as revenue
in 2010. Our backlog includes orders under contracts that in some cases extend
for several years, with the latest expiring in 2014.
  We cannot
guarantee that we will recognize any revenue from our backlog. The federal
government has the prerogative to cancel any contract or delivery order at any
time. Most of our contracts and delivery orders have cancellation terms that
would permit us to recover all or a portion of our incurred costs and potential
fees in such cases. Backlog varies considerably from time to time as current
contracts or delivery orders are executed and new contracts or delivery orders
under existing contacts are won. Our estimate of the portion of the backlog as
of December 31, 2009 from which we expect to recognize revenue during fiscal
year 2010 is likely to change because the receipt and timing of any revenue is
subject to various contingencies, many of which are beyond our
control.
  Subcontractors
  When we
act as a prime contractor, we derive revenue primarily through our own direct
labor services, but also through the efforts of our subcontractors. As part of
the contract bidding process, we may enter into teaming agreements with
subcontractors to enhance our ability to bid on large, complex engagements or to
more completely address a particular client’s requirements. Teaming agreements
and subcontracting relationships are useful because they permit us to compete
more effectively on a wider range of projects as a prime contractor. In
addition, we may engage a subcontractor to perform a discrete task on a project,
or a subcontractor may approach us because of our position as a prime
contractor. When we are a prime contractor on an engagement, we are ultimately
responsible for the overall engagement, as well as the performance of our
subcontractors. Revenue derived from work performed by subcontractors
represented approximately 37% and 39% of our revenue for fiscal years 2009 and
2008, respectively. No single subcontractor performed work that accounted for
more than 5% of our revenue during either the 2009 or the 2008 fiscal
years.
  Competition
  The
information technology services industry is a large and highly competitive
market. ATSI competes for contracts based on its strong client relationships,
successful past performance record, significant technical expertise and
specialized knowledge. ATSI often competes against both the large defense
contractors and specialized information technology consulting and outsourcing
firms. Many of these competitors are large, well-established companies that have
broader geographic scope and greater financial and other resources than ATSI.
ATSI’s competitors include Lockheed Martin Corporation, Northrop Grumman
Corporation, Science Applications International Corporation (“SAIC”), IBM,
Computer Sciences Corporation, Dynamics Research Corporation, ManTech
International Corporation, NCI Inc., Stanley, Inc., CACI International, Inc.,
SRA International, Inc., and Accenture Ltd. We expect competition in the U.S.
government information technology services sector to increase in the
future.
  Employees
  At
February 5, 2010, ATSI had 612 personnel, including 547 full-time employees and
65 part-time employees, as well as 131 independent contractors. ATSI’s future
success will depend significantly on its ability to attract, retain and motivate
qualified personnel. ATSI is not a party to any collective bargaining agreement
and has not experienced any strikes or work stoppages. ATSI considers its
relationship with its employees to be satisfactory.
  8
  Item
1A. Risk Factors
  Risks
Related to Our Business and Operations
  The
loss or impairment of ATSI’s relationship with the U.S. government and its
agencies could adversely affect our business.
  ATSI
derived approximately 81% and 78% of its total revenue in fiscal years 2009 and
2008, respectively, from contracts with the U.S. government and
government-sponsored enterprises. We expect that U.S. government contracts will
continue to be a significant source of revenue for the foreseeable future. If
ATSI or any of its partners is suspended or prohibited from contracting with the
U.S. government generally or any agency or related entity, if ATSI’s reputation
or relationship with government agencies is impaired, or if the U.S. government
or any agency or related entity ceased doing business with them or significantly
decreases the amount of business it does with them, our business, prospects,
financial condition and operating results could be significantly
impaired.
  Changes
by the U.S. government in its spending priorities may cause a reduction in the
demand for the products or services that we may ultimately offer, which could
adversely affect our business.
  Changes
in the U.S. government budgetary priorities could directly affect our financial
performance. Government expenditures tend to fluctuate based on a variety of
political, economic and social factors. This is particularly true in
circumstances such as the current political and economic climate. A significant
decline in government expenditures, or a shift of expenditures away from
programs we support, or a change in U.S. government contracting policies causing
its agencies to reduce their expenditures under contracts, to exercise their
right to terminate contracts at any time without penalty, not to exercise
options to renew contracts or to delay or not enter into new contracts, could
adversely affect our business, prospects, financial condition or operating
results.
  The
U.S. government may reform its procurement or other practices in a manner
adverse to us.
  Because
we derive a significant portion of our revenue from contracts with the U.S.
government or its agencies, we believe that the success and development of our
business will depend on its continued successful participation in federal
contracting programs. The U.S. government may reform its procurement practices
or adopt new contracting rules and regulations, including cost accounting
standards, that could be costly to satisfy or that could impair our ability to
obtain new contracts. It also could adopt new contracting methods to General
Services Administration, or GSA, or other government-wide contracts, or adopt
new standards for contract awards intended to achieve certain socio-economic or
other policy objectives, such as establishing new set-aside programs for small
or minority-owned businesses. In addition, the U.S. government may face
restrictions from new legislation or regulations, as well as pressure from
government employees and their unions, on the nature and amount of services the
U.S. government may obtain from private contractors. These changes could impair
our ability to obtain new contracts. Any new contracting methods could be costly
or administratively difficult for us to implement and, as a result, could harm
our operating results.
  9
  Government
contracts are usually awarded through a competitive bidding process that entails
risks not present in other circumstances.
  A
significant portion of our contracts and task orders with the U.S. government is
awarded through a competitive bidding process. We expect that much of the
business we seek in the foreseeable future will continue to be awarded through
competitive bidding. Budgetary pressures and changes in the procurement process
have caused many government clients to increasingly purchase goods and services
through indefinite delivery/indefinite quantity, or ID/IQ, contracts, GSA
schedule contracts and other government-wide acquisition contracts, or GWACs.
These contracts, some of which are awarded to multiple contractors, have
increased competition and pricing pressure, requiring us to make sustained
post-award efforts to realize revenue under each such contract. Competitive
bidding presents a number of risks, including without limitation:
 
 •
              the need to bid on programs in
      advance of the completion of their design, which may result in unforeseen
      technological difficulties and cost
  overruns;
 
 •
              the substantial cost and
      managerial time and effort that we may spend to prepare bids and proposals
      for contracts that may not be awarded to
  us;
 
 •
              the need to estimate accurately
      the resources and cost structure that will be required to service any
      contract we award; and
 
 •
              the expense and delay that may
      arise if our or our teaming partners’ competitors protest or challenge
      contract awards made to us or our teaming partners pursuant to competitive
      bidding, and the risk that any such protest or challenge could result in
      the resubmission of bids on modified specifications, or in the
      termination, reduction or modification of the awarded
      contract.
  If we are
unable to consistently win new contract awards over any extended period, our
business and prospects will be adversely affected, and that could cause our
actual results to be adversely affected. In addition, upon the expiration of a
contract, if the client requires further services of the type provided by the
contract, there is frequently a competitive rebidding process. There can be no
assurance that we will win any particular bid, or that we will be able to
replace business lost upon expiration or completion of a contract, and the
termination or non-renewal of any of our significant contracts could cause our
actual results to be adversely affected.
  Restrictions
on or other changes to the U.S. government’s use of service contracts may harm
our operating results.
  We derive
a significant amount of our revenue from service contracts with the U.S.
government. The U.S. government may face restrictions from new legislation,
regulations or government union pressures, on the nature and amount of services
the government may obtain from private contractors. Any reduction in the
government’s use of private contractors to provide federal services would
adversely impact our business.
  Our
contracts with the U.S. government and its agencies are subject to audits and
cost adjustments.
  U.S.
government agencies, including the Defense Contract Audit Agency, or the DCAA,
routinely audit and investigate government contracts and government contractors’
incurred costs, administrative processes and systems. These agencies review our
performance on contracts, pricing practices, cost structure and compliance with
applicable laws, regulations and standards. They also review our compliance with
government regulations and policies and the adequacy of our internal control
systems and policies, including our purchase, property, estimation, compensation
and management information systems. Any costs found to be improperly allocated
to a specific contract will not be reimbursed, and any such costs already
reimbursed must be refunded. Moreover, if any of the administrative processes
and systems are found not to comply with requirements, we may be subjected to
increased government scrutiny and approval that could delay or otherwise
adversely affect our ability to compete for or perform contracts. Therefore, an
unfavorable outcome by an audit by the DCAA or another government agency could
cause actual results to be adversely affected and differ materially from those
anticipated. If a government investigation uncovers improper or illegal
activities, we may be subject to civil and criminal penalties and administrative
sanctions, including termination of contracts, forfeitures of profits,
suspension of payments, fines and suspension or debarment from doing business
with the U.S. government. In addition, we could suffer serious reputational harm
if allegations of impropriety were made against us. Each of these results could
cause our actual results to be adversely affected.
  10
  A
portion of our business depends upon obtaining and maintaining required security
clearances, and our failure to do so could result in termination of certain of
our contracts or cause us to be unable to bid or rebid on certain
contracts.
  Some U.S.
government contracts require our employees to maintain various levels of
security clearances, and we may be required to maintain certain facility
security clearances complying with U.S. government requirements.
  Obtaining
and maintaining security clearances for employees involves a lengthy process,
and it is difficult to identify, recruit and retain employees who already hold
security clearances. If our employees are unable to obtain or retain security
clearances or if such employees who hold security clearances terminate their
employment with us, the customer whose work requires cleared employees could
terminate the contract or decide not to renew it upon expiration. To the extent
we are not able to engage employees with the required security clearances for a
particular contract, we may not be able to bid on or win new contracts, or
effectively re-bid on expiring contracts, which could adversely affect our
business.
  In
addition, we expect that some of the contracts on which we bid will require us
to demonstrate our ability to obtain facility security clearances and perform
work with employees who hold specified types of security clearances. A facility
security clearance is an administrative determination that a particular facility
is eligible for access to classified information or an award of a classified
contract. A contractor or prospective contractor must meet certain eligibility
requirements before it can be processed for facility security clearance.
Contracts may be awarded prior to the issuance of a facility security clearance,
and in such cases the contractor is processed for facility security clearance at
the appropriate level and must meet the eligibility requirements for access to
classified information. Our ability to obtain and maintain facility security
clearances has a direct impact on our ability to compete for and perform U.S.
government contracts, the performance of which requires access to classified
information. We do not expect potential acquisitions to endanger our facility
clearances. However, to the extent that any acquisition or merger contemplated
by us might adversely impact our eligibility for facility security clearance,
the U.S. government could revoke our facility security clearance if we are
unable to address adequately concerns regarding potential unauthorized access to
classified information.
  We
may not receive the full amounts authorized under the contracts included in our
backlog, which could reduce our revenue in future periods.
  Our
backlog consists of funded backlog, which is based on amounts actually obligated
by a client for payment of goods and services, and unfunded backlog, which is
based upon management’s estimate of the future potential of our existing
contracts and task orders, including options, to generate revenue. Our unfunded
backlog may not result in actual revenue in any particular period, or at all,
which could cause our actual results to differ materially from those
anticipated.
  Without
additional Congressional appropriations, some of the contracts included in our
backlog will remain unfunded, which could significantly harm our
prospects.
  Although
many of our U.S. government contracts require performance over a period of
years, Congress often appropriates funds for these contracts one year at a time.
As a result, our contracts typically are only partially funded at any point
during their term, and all or some of the work intended to be performed under
the contracts will remain unfunded pending subsequent Congressional
appropriations and the obligation of additional funds to the contract by the
procuring agency. Nevertheless, we estimate our share of the contract values,
including values based on the assumed exercise of options relating to these
contracts, in calculating the amount of our backlog. Because we may not receive
the full amount we expect under a contract, our estimate of our backlog may be
inaccurate.
  Loss
of our GSA contracts or GWACs could impair our ability to attract new
business.
  We are a
prime contractor under several GSA contracts, blanket purchase agreements, and
GWAC schedule contracts. Our ability to continue to provide services under these
contracts will continue to be important to our business because of the multiple
opportunities for new engagements each contract provides. If we were to lose our
position as prime contractor on one or more of these contracts, we could lose
substantial revenue and our operating results could be adversely affected. Our
GSA contracts and other GWACs have an initial term of five or more years, with
multiple options exercisable at the government client’s discretion to extend the
contract for one or more years. There can be no assurances that government
clients will continue to exercise the options remaining on our current
contracts, nor can we be assured that future clients will exercise options on
any contracts we may receive.
  11
  We
are required to comply with complex procurement laws and regulations, and the
cost of compliance with these laws and regulations, as well as penalties and
sanctions for any non-compliance could adversely affect our
business.
  We are
required to comply with laws and regulations relating to the administration and
performance of U.S. government contracts, which affect how we do business with
our customers and impose added costs on our business. If a government review or
investigation uncovers improper or illegal activities, we may be subject to
civil and criminal penalties and administrative sanctions, including termination
of contracts, forfeiture of profits, suspension of payments, fines and
suspension or debarment from doing business with U.S. government agencies, any
of which could materially adversely affect our business, prospects, financial
condition or operating results.
  U.S.
government contracts often contain provisions that are unfavorable, which could
adversely affect our business.
  U.S.
government contracts contain provisions and are subject to laws and regulations
that give the U.S. government rights and remedies not typically found in
commercial contracts, including, without limitation, allowing the U.S.
government to:
 
 •
              terminate existing contracts for
      convenience, as well as for
default;
 
 •
              establish limitations on future
      services that can be offered to prospective clients based on conflict of
      interest regulations;
 
 •
              reduce or modify contracts or
      subcontracts;
 
 •
              cancel multi-year contracts and
      related orders if funds for contract performance for any subsequent year
      become unavailable;
 
 •
              decline to exercise an option to
      renew a multi-year contract;
 
 •
              claim intellectual property
      rights in products provided by us;
and
 
 •
              suspend or bar us from doing
      business with the federal government or with a governmental
      agency.
  If a
government client terminates one of our contracts for convenience, we may
recover only our incurred or committed costs, settlement expenses, and profit on
work completed prior to the termination. If a federal government client were to
unexpectedly terminate, cancel, or decline to exercise an option to renew with
respect to one or more of our significant contracts or suspend or debar us from
doing business with government agencies, our revenue and operating results could
be materially harmed.
  Our
failure to comply with complex procurement laws and regulations could cause us
to lose business and subject us to a variety of penalties.
  We must
comply with laws and regulations relating to the formation, administration, and
performance of federal government contracts, which affect how we do business
with our government clients and may impose added costs on our business. Among
the most significant regulations are:
 
 •
              the Federal Acquisition
      Regulation, and agency regulations analogous or supplemental to the
      Federal Acquisition Regulation, which comprehensively regulate the
      formation, administration, and performance of government contracts,
      including provisions relating to the avoidance of conflicts of interest
      and intra-organizational conflicts of
  interest;
 
 •
              the Truth in Negotiations Act,
      which requires certification and disclosure of all cost and pricing data
      in connection with some contract
  negotiations;
 
 •
              the Contractor Business Ethics
      Compliance Program and Disclosure Requirements, which requires contractors
      to disclose credible evidence of certain crimes, violations of civil False
      Claims Act (“FCA”), or a significant
  overpayment;
 
 •
              the Procurement Integrity Act,
      which requires evaluation of ethical conflicts surrounding procurement
      activity and establishing certain employment restrictions for individuals
      who participate in the procurement
  process;
  •
              the Cost Accounting Standards,
      which impose accounting requirements that govern our right to
      reimbursement under some cost-based government
      contracts;
 
 •
              laws, regulations, and executive
      orders restricting the use and dissemination of information classified for
      national security purposes and the exportation of specified products,
      technologies, and technical
data;
 
 •
              laws surrounding lobbying
      activities a corporation may engage in and operation of a Political Action
      Committee established to support corporate interests;
      and
 
 •
              compliance with antitrust
      laws.
  12
  If a
government review or investigation uncovers improper or illegal activities, we
may be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeiture of profits, harm to our
reputation, suspension of payments, fines, and suspension or debarment from
doing business with federal government agencies. The government may in the
future reform its procurement practices or adopt new contracting rules and
regulations, including cost accounting standards, that could be costly to
satisfy or that could impair our ability to obtain new contracts. Any failure to
comply with applicable laws and regulations could result in contract
termination, price or fee reductions, or suspension or debarment from
contracting with the federal government, each of which could lead to a material
reduction in our revenue.
  The
markets we compete in are highly competitive, and many of the companies we
compete against have substantially greater resources.
  The
markets in which we operate include a large number of participants and are
highly competitive. Many of our competitors may compete more effectively than we
can because they are larger, better financed and better known companies than us.
In order to stay competitive in our industry, we must also keep pace with
changing technologies and client preferences. If we are unable to differentiate
our services from those of our competitors, our revenue may be adversely
affected. In addition, our competitors have established relationships among
themselves or with third parties to increase their ability to address client
needs. As a result, new competitors or alliances among competitors may emerge
and compete more effectively than we can. There is also a significant industry
trend towards consolidation, which may result in the emergence of companies that
are better able to compete against us. The results of these competitive
pressures could cause our business to be adversely affected.
  Our
failure to attract and retain qualified employees, including our senior
management team, may adversely affect our business.
  Our
continued success depends to a substantial degree on our ability to recruit and
retain the technically skilled personnel we need to serve our clients
effectively. Our business involves the development of tailored solutions for our
clients, a process that relies heavily upon the expertise and services of
employees. Accordingly, our employees are our most valuable resource.
Competition for skilled personnel in the information technology services
industry is intense, and technology service companies often experience high
attrition among their skilled employees. There is a shortage of people capable
of filling these positions, and they are likely to remain a limited resource for
the foreseeable future. Recruiting and training these personnel requires
substantial resources. Our failure to attract and retain technical personnel
could increase our costs of performing our contractual obligations, reduce our
ability to efficiently satisfy our clients’ needs, limit our ability to win new
business and constrain our future growth.
  If
we are unable to fund our capital expenditures, we may not be able to continue
to develop new offerings and services, which could have a material adverse
effect on our business.
  In order
to fund our capital expenditures, we may be required to incur borrowings or
raise capital through the sale of debt or equity securities. Our ability to
access the capital markets for future offerings may be limited by our financial
condition at the time of any such offering, as well as by adverse market
conditions resulting from, among other things, general economic conditions and
contingencies and uncertainties that are beyond our control. Our failure to
obtain the funds for necessary future capital expenditures would limit our
ability to develop new offerings and services and could have a material adverse
effect on our business, results of operations and financial
condition.
  Our
employees may engage in misconduct or other improper activities, which could
harm our business.
  We are
exposed to the risk that employee fraud or other misconduct could occur.
Misconduct by employees could include intentional failures to comply with
federal government procurement regulations, engaging in unauthorized activities,
seeking reimbursement for improper expenses or falsifying time records. Employee
misconduct could also involve the improper use of our clients’ sensitive or
classified information, which could result in regulatory sanctions against us
and serious harm to our reputation. It is not always possible to deter employee
misconduct, and the precautions we take to prevent and detect this activity may
not be effective in controlling unknown or unmanaged risks or losses, which
could harm our business.
  13
  We
may be unable to protect or enforce our intellectual property
rights.
  The
protection of our trade secrets, proprietary know-how, technological
innovations, other proprietary information and other intellectual property
protections in the U.S. and other countries may be critical to our success. We
may rely on a combination of copyright, trademark, trade secret laws and
contractual restrictions to protect any proprietary technology or other rights
we may have or acquire. Despite our efforts, we may not be able to prevent
misappropriation of those proprietary rights or deter independent development of
technologies that compete with us. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, or to
determine the validity and scope of the proprietary rights of others. It is also
possible that third parties may claim we have infringed their patent, trademark,
copyright or other proprietary rights. Claims or litigation, with or without
merit, could result in substantial costs and diversions of resources, either of
which could have a material adverse effect on our competitive position and
business.
  We
may be harmed by intellectual property infringement claims.
  We may
become subject to claims from our employees and third parties who assert that
intellectual property we use in delivering services and business solutions to
our clients infringe upon intellectual property rights of such employees or
third parties. Our employees develop much of the intellectual property that we
use to provide our services and business solutions to our clients, but we also
license technology from other vendors. All of our employees with access to
proprietary information execute nondisclosure agreements with the Company. If
our vendors, employees, or third parties assert claims that we or our clients
are infringing on their intellectual property, we could incur substantial costs
to defend those claims. In addition, if any of these infringement claims is
ultimately successful, we could be required to:
 
 •
              cease selling and using products
      and services that incorporate the challenged intellectual
      property;
 
 •
              obtain a license or additional
      licenses from our vendors or other third parties;
    and
 
 •
              redesign our products and
      services that rely on the challenged intellectual
      property.
  Any of
these outcomes could further adversely affect our operating
results.
  Our
quarterly revenue, operating results and profitability could be
volatile.
  Our
quarterly revenue, operating results and profitability may fluctuate
significantly and unpredictably in the future.
  Factors
which may contribute to the volatility of quarterly revenue, operating results
or profitability include:
 
 •
              fluctuations in revenue earned on
      contracts;
 
 •
              commencement, completion, and
      termination of contracts during any particular
    quarter;
 
 •
              variable purchasing patterns
      under GSA Schedule contracts, and agency-specific ID/IQ
      contracts;
 
 •
              additions and departures of key
      personnel;
  •
              changes in our staff utilization
      rates;
 
 •
              timing of significant costs,
      investments and/or receipt of incentive
  fees;
 
 •
              strategic decisions by us and our
      competitors, such as acquisitions, divestitures, spin-offs, joint
      ventures, strategic investments, and changes in business
      strategy;
 
 •
              contract mix and the extent of
      use of subcontractors;
 
 •
              changes in policy and budgetary
      measures that adversely affect government contracts;
      and
 
 •
              any seasonality of our
      business.
  Therefore,
period-to-period comparisons of our operating results may not be a good
indicator of our future performance. Our quarterly operating results may not
meet the expectations of securities analysts or investors, which in turn may
have an adverse affect on the market price of our common stock.
  Furthermore,
reductions in revenue in a particular quarter could lead to lower profitability
in that quarter because a relatively large amount of our expenses are fixed in
the short-term. We may incur significant operating expenses during the start-up
and early stages of large contracts and may not receive corresponding payments
or revenue in that same quarter. We may also incur significant or unanticipated
expenses or both when contracts expire, are terminated, or are not renewed. In
addition, payments due to us from government agencies and departments may be
delayed due to billing cycles, as a result of failures of governmental budgets
to gain Congressional and administration approval in a timely manner, and for
other reasons.
  14
  If
subcontractors on our prime contracts are able to secure positions as prime
contractors, we may lose revenue.
  For each
of the past several years, as the GSA Schedule contracts have increasingly been
used as contract vehicles, we have received substantial revenue from government
clients relating to work performed by other firms acting as subcontractors to
us. In some cases, companies that have not held GSA Schedule contracts have
approached us in our capacity as a prime contractor, seeking to perform services
as our subcontractor for a government client. Some of the providers that are
currently acting as subcontractors to us may in the future secure positions as
prime contractors upon renewal of a GSA Schedule contract. If one or more of our
current subcontractors is awarded prime contractor status in the future, it
could reduce or eliminate our revenue for the work they were performing as
subcontractors to us. Revenue derived from work performed by ATSI’s
subcontractors for fiscal years 2009 and 2008 represented 37% and 39% of our GSA
Schedule gross revenue, respectively.
  If our
subcontractors fail to perform their contractual obligations, our performance as
a prime contractor and our ability to obtain future business could be materially
and adversely impacted.
  Our
performance of government contracts may involve the issuance of subcontracts to
other companies upon which we rely to perform all or a portion of the work. We
are obligated to deliver to our clients. A failure by one or more of our
subcontractors to satisfactorily deliver on a timely basis the agreed-upon
supplies and/or perform the agreed-upon services may materially and adversely
affect our ability to perform our obligations as a prime
contractor.
  In
extreme cases, a subcontractor’s performance deficiency could result in the
government terminating our contract for default. A default termination could
expose us to liability for excess costs of reprocurement by the government and
have a material adverse effect on our ability to compete for future contracts
and task orders.
  We
sometimes incur costs before a contract is executed or appropriately modified.
To the extent a suitable contract or modification is not later signed and these
costs are not reimbursed, our revenue and profits will be reduced.
  When
circumstances warrant, we sometimes incur expenses and perform work without a
signed contract or appropriate modification to an existing contract to cover
such expenses or work. When we do so, we are working “at-risk,” and there is a
chance that the subsequent contract or modification will not ensue, or if it
does, that it will not allow us to be paid for the expenses already incurred or
work already performed or both.
  In such
cases, we have generally been successful in obtaining the required contract or
modification, but any failure to do so in the future could adversely affect
operating results.
  We
may lose money or incur financial penalties if we agree to provide services
under a performance-based contract arrangement.
  Under
certain performance-based contract arrangements, we are paid only to the extent
our customer actually realizes savings or achieves some other performance-based
improvements that result from our services. In addition, we may also incur
certain penalties. Performance-based contracts could impose substantial costs
and risks, including:
 
 •
              the need to accurately understand
      and estimate in advance the improved performance that might result from
      our services;
 
 •
              the lack of experience both we
      and our primary customers have in using this type of contract arrangement;
      and
 
 •
              the requirement that we incur
      significant expenses with no guarantee of recovering these expenses or
      realizing a profit in the
future.
  Even if
we successfully execute a performance-based contract, our interim operating
results and cash flows may be negatively affected by the fact that we may be
required to incur significant up-front expenses prior to realizing any related
revenue.
  If
we are unable to manage our growth, our business may be adversely
affected.
  Executing
our growth strategy may place significant demands on our management, as well as
on our administrative, operational and financial resources. If we sustain
significant growth, we must improve our operational, financial and management
information systems and expand, motivate and manage our workforce. If we are
unable to do so, or if new systems that we implement to assist in managing any
future growth do not produce the expected benefits, our business, prospects,
financial condition or operating results could be adversely
affected.
  15
  Risks
Associated with Our Acquisitions
  We
may not be successful in identifying acquisition candidates and, if we undertake
acquisitions, they could be expensive, increase our costs or liabilities, or
disrupt our business. Additionally, if we are unable to successfully integrate
companies we acquire, our revenue and operating results may be
impaired.
  One of
our strategies is to augment our organic growth through acquisitions. In
addition to our acquisition of ATSI, we have completed three acquisitions of
complementary companies in the last three years. We may not be able to identify
suitable acquisition candidates at prices that we consider appropriate or to
finance acquisitions on terms that are satisfactory to us. Acquisitions of
businesses or other material operations may require additional debt or equity
financing, resulting in leverage or dilution of ownership. Additionally,
negotiations of potential acquisitions and the integration of acquired business
operations could disrupt our business by diverting management attention away
from day-to-day operations and we may not be able to successfully integrate the
companies we acquire. We also may not realize cost efficiencies or synergies
that we anticipated when selecting our acquisition candidates. Acquired
companies may have liabilities or adverse operating issues that we fail to
discover through due diligence. Any costs, liabilities, or disruptions
associated with future acquisitions could harm our operating results. In
addition, following the integration of acquired companies, we may experience
increased attrition, including but not limited to key employees of acquired
companies, which could reduce our future revenue.
  As
a result of our acquisitions, we have substantial amounts of goodwill and
intangible assets, and changes in future business conditions could cause these
assets to become impaired, requiring substantial write-downs that would
adversely affect our financial results.
  Our acquisitions involved purchase
prices well in excess of net tangible asset values, resulting in the creation of
a significant amount of goodwill and other intangible assets. As of December 31,
2009, goodwill and purchased intangibles accounted for approximately $55 million
and $6 million, or approximately 60% and 7%, respectively, of our total assets.
We plan to continue acquiring businesses if and when opportunities arise,
further increasing these amounts. To the extent that we determine that such an
asset has been impaired, we will write down its carrying value on our balance
sheet and book an impairment charge in our statement of
operations.
  The
Company evaluates goodwill for impairment at least annually or more frequently
depending on specific events or when evidence of potential impairment exists.
The annual impairment test is based on several factors requiring judgment.
Principally, a significant decrease in expected revenue from customers, or
contract backlog or increases in operating expenses could have a significant
impact on our operating results and cash flow, as well as our stock price,
indicating a potential impairment of recorded goodwill. The adverse economic
climate and changes in the scope of work with existing customers, particularly
in the commercial sector, led to a non-cash impairment charge of $57 million
during the year ended December 31, 2008. If economic conditions should
deteriorate in the future, causing further decline to the business, then
additional impairments could occur. The Company will continue to monitor the
recoverability of the carrying value of its goodwill and other long-lived
assets. See Critical Accounting Policies, Estimates, and Judgments in Part III,
Item 7.
  We
amortize finite lived intangible assets over their estimated useful lives, and
also review them for impairment. If, as a result of acquisitions or otherwise,
the amount of intangible assets being amortized increases or decreases, so will
our amortization charges in future periods.
  Businesses
that we acquire may have greater-than-expected liabilities for which we become
responsible.
  Businesses
we acquire may have liabilities or adverse operating issues, or both, that we
fail to discover through due diligence or the extent of which we underestimate
prior to the acquisition.  For example, to the extent that any
business we acquire or any prior owners, employees, or agents of any acquired
businesses or properties:  (i) failed to comply with or otherwise
violated applicable laws, rules, or regulations; (ii) failed to fulfill or
disclose their obligations, contractual or otherwise, to applicable government
authorities, their customers, suppliers, or others; or (iii) incurred
environmental, tax, or other liabilities, we, as the successor owner, may be
financially responsible for these violations and failures and may suffer harm to
our reputation and otherwise be adversely affected.  An acquired
business may have problems with internal controls over financial reporting,
which could be difficult for us to discover during our due diligence process and
could in turn lead us to have significant deficiencies or material weaknesses in
our own internal controls over financial reporting.  These and any
other costs, liabilities, and disruptions associated with any of our past
acquisitions and any future acquisitions could harm our operating
results.
  16


If
the benefits of our various acquisitions do not meet the expectations of
financial or industry analysts, the market price of our common stock may
continue to be depressed or decline.
  The
market price of our common stock may decline as a result of our acquisitions
if:
  •
              we do not achieve the perceived
      benefits of the acquisitions as rapidly as, or to the extent anticipated
      by, financial or industry analysts;
or
 
 •
              the effect of the acquisitions on
      our financial results is not consistent with the expectations of financial
      or industry analysts.
  Accordingly,
investors may experience a loss as a result of a depressed stock
price.
  Members
of our board of directors may have conflicts of interest that could hinder our
ability to make acquisitions.
  One of
our growth strategies is to make selective acquisitions of complementary
businesses. Two of our directors, Messrs. Jacks and Schulte, are principals of
CM Equity Partners, a sponsor of private equity funds. Some of these funds are
focused on investments in, among other things, businesses in the federal
services sector. Messrs. Jacks and Schulte also serve on the boards of a number
of CM Equity Partners portfolio companies and, with Dr. Bersoff, are members of
the board of directors of ICF International, Inc., a diversified federal
services business that plans to grow in part through acquisitions. It is
possible that CM Equity Partners and related funds and portfolio companies and
ICF International, Inc. could be interested in acquiring businesses that we
would also be interested in, and these relationships could hinder our ability to
carry out our acquisition strategy.
  If
third parties bring claims against us or if any of the entities we have acquired
have breached any of their representations, warranties or covenants set forth in
the acquisition agreement for each respective transaction, we may not be
adequately indemnified for any losses arising.
  Although
the stock purchase and merger agreements governing our acquisitions generally
provide that the selling party will indemnify us for losses arising from a
breach of the representations, warranties and covenants by the selling party set
forth in the stock purchase or merger agreement, such indemnification is
limited, in general terms, to aggregate monetary amounts with deductibles. In
addition, with some exceptions, the survival period for claims under the stock
purchase and merger agreements are limited to specific periods of time. We will
be prevented from seeking indemnification for most claims above the aggregate
threshold or arising after the applicable survival period.
  Risks
Associated With Management
  Loss
of our President and Chief Executive Officer could hurt our operations and our
expansion efforts.
  We rely
heavily on our President and Chief Executive Officer, Dr. Edward H. Bersoff. The
loss of Dr. Bersoff could have an adverse effect on us because we rely on his
extensive experience and contacts in the government services industry. We have
entered into an employment agreement with Dr. Bersoff and amended this agreement
in May 2009 to extend his employment term as Chief Executive Officer through
December 31, 2011.
  Risks
Related to Our Capital Structure
  Because
we do not currently intend to pay dividends on our common stock, stockholders
will benefit from an investment in our common stock only if it appreciates in
value.
  We have
never declared nor paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in the operations and
expansion of our business. As a result, we do not anticipate paying cash
dividends in the foreseeable future. Any future determination as to the
declaration and payment of cash dividends will be at the discretion of our board
of directors and will depend on factors our board of directors deems relevant,
including, among others, our results of operations, financial condition and cash
requirements, business prospects, and the terms of our credit facilities and
other financing arrangements. It is likely that the debt financing arrangements
we put into place will prohibit us from declaring or paying dividends without
the consent of our lenders. Accordingly, realization of a gain on stockholders’
investments will depend on the appreciation of the price of our common stock.
There is no guarantee that our common stock will appreciate in value or even
maintain the price at which stockholders purchased their shares.
  Our
debt includes covenants that restrict our activities and create the risk of
defaults, which could impair the value of our stock.
  Our debt
financing arrangements contain a number of significant covenants that, among
other things, restrict our ability to dispose of assets; incur additional
indebtedness; make capital expenditures; pay dividends; create liens on assets;
enter into leases, investments and acquisitions; engage in mergers and
consolidations; engage in certain transactions with affiliates; and otherwise
restrict corporate activities (including change of control and asset sale
transactions). In addition, our financing arrangements require us to maintain
specified financial ratios and comply with financial tests, some of which may
become more restrictive over time. The failure to fulfill the requirements of
debt covenants, if not cured through performance or an amendment of the
financing arrangements, could have the consequences of a default described in
the risk factor below. There is no assurance that we will be able to fulfill our
debt covenants, maintain these ratios, or comply with these financial tests in
the future, nor is there any assurance that we will not be in default under our
financial arrangements in the future.
  17
  A
default under our debt could lead to a bankruptcy or other financial
restructuring that would significantly adversely affect the value of our
stock.
  In the
event of a default under our financing arrangements, the lenders could, among
other things, (i) declare all amounts borrowed to be due and payable, together
with accrued and unpaid interest, (ii) terminate their commitments to make
further loans, and (iii) proceed against the collateral securing the obligations
owed to them. Our senior debt is secured by substantially all of our assets.
Defaults under additional indebtedness we incur in the future could have these
and other effects. Any such default could have a significant adverse effect on
the value of our stock.
  A default
under our debt could lead to our bankruptcy, insolvency, financial restructuring
or liquidation. In any such event, our stockholders would be entitled to share
ratably in our assets available for distribution only after the payment in full
to the holders of all of our debt and other liabilities. There can be no
assurance that, in any such bankruptcy, insolvency, financial restructuring or
liquidation, stockholders would receive any distribution
whatsoever.
  Risks
Associated with Sarbanes-Oxley Act Compliance
  Section
404 of the Sarbanes-Oxley Act of 2002 requires us to document and test the
effectiveness of our internal controls over financial reporting in accordance
with an established Committee of Sponsoring Organizations of the Treadway
Commission internal control framework and to report on our conclusion as to the
effectiveness of our internal controls.
  Although
we believe the existing controls over financial reporting are designed and
operating effectively, we cannot be certain that we will be able to maintain
adequate internal controls over our financial processes and reporting in the
future. Any failure to implement required new and improved controls, or
difficulties encountered in their implementation could harm our operating
results or cause us to fail to meet our reporting obligations.
  18
  Item
1B. Unresolved Staff Comments
  None.
  Item
2. Properties
  Our
headquarters is currently located at 7925 Jones Branch Drive, in McLean,
Virginia, a suburb of Washington, D.C. Our headquarters’ lease is for 58,082
square feet, which terminates on May 31, 2019. All corporate functions are at
this location, with approximately 45.6% of our full-time employees located at
our headquarters and other company offices and the other 54.4% located at client
sites. The base rent of the property is $136,432 per month, subject to an
increase of 2.5% on each anniversary date of the commencement of the lease. The
term lease is for ten years, with a right to extend the term for two renewal
terms of five years each and an option to cancel the lease without penalty after
seven years.
  We also
have facilities in Alexandria, Virginia; Groton, Connecticut; Columbia, South
Carolina; Richmond, Virginia; Indianapolis, Indiana; Huntsville, Alabama; Kansas
City, Missouri; and Cincinnati, Ohio. ATSI does not own any real property; all
of its offices are in leased premises.  The Company believes that its
facilities are suitable for the Company’s operations and generally provide
sufficient capacity to meet the Company’s needs.
  Item
3. Legal Proceedings
  From time
to time, we are involved in various legal matters and proceedings concerning
matters arising in the ordinary course of business. Other than possibly the
matters discussed below, we currently believe that any ultimate liability
arising out of these matters and proceedings will not have a material adverse
effect on our financial position, results of operations or cash
flows.
  We were a
defendant in Maximus, Inc. vs. Advanced Technology Systems, Inc., previously
pending in the Connecticut Superior Court, Complex Litigation Docket. The
lawsuit regarded breach of contract and other claims related to a subcontract
between Maximus and ATSI associated with a prime contract between Maximus and
the State of Connecticut. Based on the complaint filed in the suit, Maximus
sought damages in excess of $3.5 million. The case was filed in August
2007.
  In
January of 2009, the case was consolidated for discovery purposes with an action
brought by the State of Connecticut against Maximus relating to the prime
contract.  As of February 23, 2010, the State of Connecticut advised
Maximus that it was accepting Maximus' settlement offer.  We, in turn,
have agreed to the financial terms of a settlement with Maximus.  As
of this time, we, Maximus, and the State of Connecticut are negotiating other
terms of the settlement with a view towards memorializing the settlement into a
final written agreement.  In accordance with the terms of the expected
settlement, ATSC has recorded a $1.5 million loss contingency.
  Further,
based on the claims asserted in the lawsuit, we have made an indemnification
demand against the former principal owners of ATSI under the stock purchase
agreement governing the transaction in which the Company (then Federal Services
Acquisition Corporation) acquired ATSI.
  Following
the indemnification demand, the former principal owners of ATSI brought an
arbitration against us with the American Arbitration Association claiming that
the former owners do not owe us any indemnification obligations for the Maximus
lawsuit or the Maximus subcontract. At our request, the arbitration was stayed
pending the outcome of the Maximus lawsuit described
above.   Once the Maximus lawsuit has been fully resolved, we
intend to pursue our indemnification claim against the former principal owners
of ATSI.
  19
  PART
II
  Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  Market
Information
  The
following table sets forth, for the calendar quarter indicated, the quarterly
high and low bid information of the Company’s common stock as reported on the
OTC Bulletin Board in 2009 and 2008. Our common stock began trading on December
5, 2005. The quotations listed below reflect interdealer prices, without retail
markup, markdown or commission, and may not necessarily represent actual
transactions. All outstanding warrants expired on October 19, 2009 and no
warrants were traded during the period September 1, 2009 to October 19, 2009.
Our stock began trading on the AMEX Exchange on January 5, 2010.
  Common Stock
                                            (ATCT)
                                          
                                          Warrants
                                            (ATCTW)
                                          
                                          Units
                                            (ATCTU)2009
                                          
                                          High
                                          
                                          Low
                                          
                                          High
                                          
                                          Low
                                          
                                          High
                                          
                                          LowFirst
      Quarter
                                          
                                          $
                                          1.45
                                          
                                          $
                                          1.30
                                          
                                          $
                                          0.01
                                          
                                          $
                                          0.01
                                          
                                          $
                                          2.50
                                          
                                          $
                                          2.50Second
      Quarter
                                          
                                          $
                                          2.09
                                          
                                          $
                                          1.10
                                          
                                          $
                                          0.01
                                          
                                          $
                                          0.01
                                          
                                          $
                                          2.50
                                          
                                          $
                                          2.50Third
      Quarter
                                          
                                          $
                                          2.29
                                          
                                          $
                                          1.96
                                          
                                          $
                                          0.01
                                          
                                          $
                                          0.01
                                          
                                          $
                                          2.50
                                          
                                          $
                                          2.50Fourth
      Quarter
                                          
                                          $
                                          2.50
                                          
                                          $
                                          2.20
                                          
                                          $
                                          NA
                                          
                                          $
                                          NA
                                          
                                          $
                                          2.50
                                          
                                          $
                                          2.50
  Common Stock
                                            (ATCT)
                                          
                                          Warrants
                                            (ATCTW)
                                          
                                          Units
                                            (ATCTU)2008
                                          
                                          High
                                          
                                          Low
                                          
                                          High
                                          
                                          Low
                                          
                                          High
                                          
                                          LowFirst
      Quarter
                                          
                                          $
                                          3.60
                                          
                                          $
                                          2.39
                                          
                                          $
                                          0.34
                                          
                                          $
                                          0.09
                                          
                                          $
                                          4.10
                                          
                                          $
                                          2.68Second
      Quarter
                                          
                                          $
                                          2.75
                                          
                                          $
                                          1.65
                                          
                                          $
                                          0.20
                                          
                                          $
                                          0.09
                                          
                                          $
                                          2.68
                                          
                                          $
                                          2.46Third
      Quarter
                                          
                                          $
                                          2.10
                                          
                                          $
                                          1.25
                                          
                                          $
                                          0.14
                                          
                                          $
                                          0.01
                                          
                                          $
                                          2.46
                                          
                                          $
                                          1.10Fourth
      Quarter
                                          
                                          $
                                          1.65
                                          
                                          $
                                          0.91
                                          
                                          $
                                          0.01
                                          
                                          $
                                          0.01
                                          
                                          $
                                          2.50
                                          
                                          $
                                          1.50
  The
closing price of the Company’s common stock on March 23, 2010 was $3.24.
  Holders
of Common Stock
  As of
February 26, 2010, there were approximately 255 holders of record of our common
stock. The number of shareholders of record is not representative of the number
of beneficial stockholders due to the fact that many shares are held by
depositories, brokers, or nominees.
  Dividend
Policy
  We have
never declared nor paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in the operations and
expansion of our business. As a result, we do not anticipate paying cash
dividends in the foreseeable future. Any future determination as to the
declaration and payment of cash dividends will be at the discretion of our board
of directors and will depend on factors our board of directors deems relevant,
including among others, our results of operations, financial condition and cash
requirements, business prospects, and the terms of our credit facilities and
other financing arrangements. It is likely that the debt financing arrangements
we put into place in connection with our acquisitions will prohibit us from
declaring or paying dividends without the consent of our
lenders.
  20
  Issuance
of Unregistered Securities
  All
unregistered shares issued during the fiscal years 2009 and 2008 were issued in
connection with Board of Directors’ fees.
 
 Method
                                                        
                                                        Date
                                                        
                                                        Number of
                                                          Shares Issued
                                                        
                                                        Value of
                                                          Shares Issued
                                                        
                                                        Securities ExemptionBoard
      of Directors’ Fees
                                                        
                                                        
                                                        1/11/2008
                                                        
                                                        
                                                        
                                                        9,999
                                                        
                                                        $
                                                        35,496
                                                        
                                                        Section
      4(2) of the Securities ActBoard
      of Directors’ Fees
                                                        
                                                        
                                                        5/7/2008
                                                        
                                                        
                                                        
                                                        62,606
                                                        
                                                        
                                                        143,994
                                                        
                                                        Section
      4(2) of the Securities ActTotal
      Shares Issued during the year ended December 31, 2008
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        72,605
                                                        
                                                        $
                                                        179,490
                                                        
                                                        Section
      4(2) of the Securities ActBoard
      of Directors’ Fees
                                                        
                                                        
                                                        05/07/2009
                                                        
                                                        
                                                        
                                                        59,332
                                                        
                                                        
                                                        88,998
                                                        
                                                        Section
      4(2) of the Securities ActBoard
      of Directors’ Fees
                                                        
                                                        
                                                        06/01/2009
                                                        
                                                        
                                                        
                                                        14,142
                                                        
                                                        
                                                        24,749
                                                        
                                                        Section
      4(2) of the Securities ActTotal
      Shares Issued during the two-year period ended December 31,
      2009
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        146,079
                                                        
                                                        $
                                                        293,237
                                                        
                                                        Section
      4(2) of the Securities Act
  Purchases
of Equity Securities
  On
February 12, 2009, the Board of Directors approved a repurchase program
authorizing the Company to purchase up to 2.0 million shares of Company common
stock for not more than $3 million, in the open market from time to time over a
twelve-month period. The timing of the share repurchases under the program is at
the discretion of the Company and will depend on a variety of factors, including
market conditions and bank approvals and may be suspended or discontinued at any
time. Common stock acquired through the repurchase program will be held by the
Company as treasury shares and may be used for general corporate purposes,
including re-issuances in connection with acquisitions, employee stock option
exercises or other employee stock plans. On August 10, 2009, the Board of
Directors extended the repurchase program for an additional two
years.
  ATSC
repurchased approximately 403,000 shares of common stock for approximately
$937,000 during 2009 as part of the repurchase program approved. The Company
currently has approximately 22.5 million shares outstanding.
 (a)
                                
                                (b)
                                
                                (c)
                                
                                (d)Month
                                
                                Total number
                                  ofshares
                                  purchased
                                
                                Average
                                  price paid
                                  per share
                                
                                Total number of
                                  shares purchased
                                  aspart of
                                  repurchase
                                  program
                                
                                Maximum number
                                  ofshares that may
                                  yetbe purchased
                                  underthe
                                  repurchaseprogramAugust
                                
                                
                                1,505
                                
                                $
                                2.24
                                
                                
                                1,505
                                
                                
                                1,998,495September
                                
                                
                                373
                                
                                
                                2.26
                                
                                
                                1,878
                                
                                
                                1,998,122October
                                
                                
                                360
                                
                                
                                2.24
                                
                                
                                2,238
                                
                                
                                1,997,762December
                                
                                
                                400,900
                                
                                
                                2.32
                                
                                
                                403,138
                                
                                
                                1,596,862Total
      Shares Purchased
                                
                                
                                403,138
                                
                                
                                2.32
  21
  Stock
Performance Graph
  The
following graph compares the cumulative total stockholder return on our common
stock from December 5, 2005 (the first trading date of our common stock) through
December 31, 2009, with the cumulative total return on (i) the Russell 2000
stock index and (ii) a Peer Group Index composed of other federal government
service providers with whom we compete: CACI International, Inc., Dynamics
Research Corp., ManTech International Corp., NCI, Inc., Stanley, Inc., and SRA
International, Inc. The comparison also assumes that all dividends are
reinvested. The historical information set forth below is not necessarily
indicative of future performance.
  
  Assumes
$100 Invested on Dec. 5, 2005
 Assumes
Dividend Reinvested
 Fiscal
Year Ended Dec. 31, 2009
 
 12/31/05
                          
                          
                          12/31/06
                          
                          
                          12/31/07
                          
                          
                          12/31/08
                          
                          
                          12/31/09ATSC
                          
                          $
                          100.75
                          
                          
                          $
                          106.23
                          
                          
                          $
                          67.92
                          
                          
                          $
                          19.81
                          
                          
                          $
                          46.79Peer
      Group Index
                          
                          $
                          106.01
                          
                          
                          $
                          105.78
                          
                          
                          $
                          128.16
                          
                          
                          $
                          147.14
                          
                          
                          $
                          135.59Russell
      2000 Index
                          
                          $
                          98.06
                          
                          
                          $
                          114.72
                          
                          
                          $
                          111.57
                          
                          
                          $
                          72.75
                          
                          
                          $
                          91.09
  22
  Item
6. Selected Financial Data
  The
following is a summary of selected statement of income data and balance sheet
data for each period indicated. The selected financial data for the years ended
December 31, 2009 and December 31, 2008 are derived from our audited financial
statements and related notes.
  The
selected financial data presented below should be read in conjunction with our
consolidated financial statements and the notes to our consolidated financial
statements and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” included in this Annual Report on Form 10-K.
  Income
Statement Data
 
 For the Year
                              Ended
                              December 31,
                              2009
                            
                            
                            For the Year
                              Ended
                              December 31,
                              2008
                            
                            
                            For the Year
                              Ended
                              December 31,
                              2007Revenue
                            
                            $
                            118,658,939
                            
                            
                            $
                            131,548,557
                            
                            
                            $
                            106,887,039Operating
      cost
                            
                            
                            (109,052,344
                            )
                            
                            
                            (125,848,663
                            )
                            
                            
                            (105,813,129
                            )Impairment
      expense
                            
                            
                            —
                            
                            
                            
                            (56,772,541
                            )
                            
                            
                            —Net
      income (loss)
                            
                            $
                            3,127,843
                            
                            
                            $
                            (49,828,415
                            )
                            
                            $
                            (6,553,729
                            )Weighted
      average shares outstanding
                            
                            
                            22,669,066
                            
                            
                            
                            21,231,654
                            
                            
                            
                            18,848,722Net
      income (loss) per share – basic
                            
                            $
                            0.14
                            
                            
                            $
                            (2.35
                            )
                            
                            $
                            (0.35
                            )Weighted-average
      shares and equivalent shares outstanding
                            
                            
                            22,766,840
                            
                            
                            
                            21,231,654
                            
                            
                            
                            18,848,722Net
      income (loss) per share – diluted
                            
                            $
                            0.14
                            
                            
                            $
                            (2.35
                            )
                            
                            $
                            (0.35
                            )
  Balance
Sheet Data
 
 December 31,
                                  2009
                                
                                
                                December 31,
                                  2008
                                
                                
                                December 31,
                                  2007Total
      assets
                                
                                $
                                93,269,674
                                
                                
                                $
                                106,369,553
                                
                                
                                $
                                169,024,091Total
      long-term debt
                                
                                
                                —
                                
                                
                                
                                34,493,303
                                
                                
                                
                                46,692,036Total
      liabilities
                                
                                
                                43,479,683
                                
                                
                                
                                60,458,097
                                
                                
                                
                                73,688,777Net
      working capital
                                
                                
                                (13,577,416
                                )
                                
                                
                                10,676,737
                                
                                
                                
                                16,702,478Stockholders’
      equity
                                
                                
                                49,789,991
                                
                                
                                
                                45,911,456
                                
                                
                                
                                95,335,314
  23
  Non-GAAP
Financial Measures – EBITDA
  In
evaluating our operating performance, management uses certain non-GAAP financial
measures to supplement the consolidated financial statements prepared under
generally accepted accounting principles in the United States (“GAAP”). More
specifically, we use the following non-GAAP financial measure: Earnings Before
Interest, Taxes, Depreciation, and Amortization (“EBITDA”). EBITDA is a non-GAAP
measure defined as GAAP net income plus interest expense, income taxes,
depreciation and amortization, and impairment charges.  Adjusted
EBITDA is defined as EBITDA adjusted for one-time severance expenses and the
litigation-related loss contingency, neither expected to be reflected in our
ongoing performance. We have provided EBITDA because we believe it is comparable
to similar measures of financial performance in comparable companies and may be
of assistance to investors in evaluating companies on a consistent basis, as
well as enhancing an understanding of our operating results.  EBITDA
is not a recognized term under U.S. GAAP and does not purport to be an
alternative to net income as a measure of operating performance or the cash
flows from operating activities as a measure of liquidity.
  December 31,
                                      2009
                                    
                                    December 31,
                                      2008Net
      income (loss)
                                    
                                    $
                                    3,127,843
                                    
                                    
                                    $
                                    (49,828,415
                                    )Adjustments:Depreciation
                                    
                                    
                                    836,133
                                    
                                    
                                    
                                    1,254,287Amortization
      of intangibles
                                    
                                    
                                    2,201,888
                                    
                                    
                                    
                                    5,190,229Loss
      on impairment
                                    
                                    
                                    —
                                    
                                    
                                    
                                    56,772,541Interest
                                    
                                    
                                    2,859,462
                                    
                                    
                                    
                                    3,427,859Taxes
                                    
                                    
                                    2,180,727
                                    
                                    
                                    
                                    (4,642,464
                                    )EBITDA
                                    
                                    $
                                    11,206,053
                                    
                                    
                                    $
                                    12,174,037Severance
                                    
                                    
                                    383,211
                                    
                                    
                                    
                                    890,519Loss
      Contingency
                                    
                                    
                                    1,500,000
                                    
                                    
                                    
                                    —Adjusted
      EBITDA
                                    
                                    $
                                    13,089,264
                                    
                                    
                                    $
                                    13,064,556
  24
  Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation
  You
should read the following discussion and analysis in conjunction with our
financial statements and the related notes included elsewhere in this Form 10-K.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties, and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth under “Risk
Factors” and elsewhere in this Form 10-K.
  About
This Management’s Discussion and Analysis
  The
discussion and analysis that follows is organized to:
 
 •
              provide an overview of our
      business;
 
 •
              explain the year-over-year trends
      in our results of
operations;
 
 •
              describe our liquidity and
      capital resources; and
 
 •
              explain our critical accounting
      policies and describe certain line items of our statements of
      operations.
  Readers
who are not familiar with our company or the financial statements of federal
government information technology services providers should closely review the
“Operations Overview” and the “Critical Accounting Policies and Significant
Estimates” sections appearing within this discussion and analysis. These
sections provide background information that may help readers in understanding
and analyzing our financial information.
  2009
Overview
  During
2009 the Company continued to refine its market position amid the opportunities
provided by the acquisitions made in 2007, and streamlined its processes and
operations. The following significant events occurred during 2009:
  ·
              While
      revenue decreased by 10%, income from operations increased to $9.9 million
      or 8.4% of revenue.
  ·
              The
      Company generated $12.9 million in operating cash
  flows.
  ·
              The
      Company received an arbitration award in the amount of $3.8 million for
      working capital purchase price adjustments related to the ATSI
      acquisition.
  ·
              Cost
      savings associated with labor utilization improvements together with
      process improvements in administrative areas resulted in labor cost
      savings of $3.7 million.
  ·
              Short term debt was paid down
      $16.0 million utilizing the $12.9 million positive operating cash flow and
      the $3.8 million arbitration
award.
  Operations
Overview
  We work
with the federal government under two primary contract types: time-and-materials
and fixed-price contracts. Most of our revenue is generated based on services
provided either by our employees or subcontractors. To a lesser degree, the
revenue we earn includes reimbursable travel and other items to support the
project. Thus, once we win new business, the key to delivering the revenue is
through hiring new employees to meet customer requirements, retaining our
employees, and ensuring that we deploy them on direct-billable jobs. Therefore,
we closely monitor hiring success, attrition trends, and direct labor
utilization. Since we earn higher profits from the labor services that our
employees provide compared with subcontracted efforts and other reimbursable
items, we seek to optimize our labor content on the contracts we
win.
  Direct
costs includes labor, or the salaries and wages of our employees, plus fringe
benefits; the costs of subcontracted labor and outside consultants; third-party
materials; and other direct costs such as travel incurred to support contract
efforts. Since we earn higher profits on our own labor services, we expect the
ratio of cost of services to revenue to decline when our labor services mix
increases relative to subcontracted labor or third-party materials. Conversely,
as subcontracted labor or third-party materials purchases for customers increase
relative to our own labor services, we expect the ratio of cost of services to
revenue to increase. As we continue to bid and win larger contracts, our own
labor services component could decrease. Typically, the larger contracts are
broader in scope and require more diverse capabilities, thus resulting in more
subcontracted labor. In addition, we can face hiring challenges in staffing
larger contracts. While these factors could lead to a higher ratio of cost of
services to revenue, the economics of these larger jobs are nonetheless
generally favorable because they increase income, broaden our revenue base, and
have a favorable return on invested capital.
  25
  Depreciation and amortization expenses
are affected by the level of our annual capital expenditures and the amount of
identified intangible assets related to acquisitions. We do not presently
foresee significant changes in our capital expenditure requirements. As we
continue to make selected strategic acquisitions, the amortization of identified
intangible assets may increase as a percentage of our revenue. We evaluate our
intangible assets for impairment annually. During 2009 there was no impairment
to intangible assets while an impairment charge of $8.0 million was recorded to
intangible assets in 2008, as a component of the overall $56.8 million
impairment charge.
  Our
operating income, or revenue minus direct costs, selling, general and
administrative expenses, and depreciation and amortization, and thus our
operating margin, or the ratio of operating income to revenue, is driven by the
mix and execution on our contracts, how we manage our costs, and the
amortization charges resulting from acquisitions.
 Our cash
position is driven primarily by the level of cash flows from operations, capital
expenditures, and borrowings or payment on our credit facility.
  Contract
Backlog
  Future
growth is dependent upon the strength of our target markets, our ability to
identify opportunities, and our ability to successfully bid and win new
contracts. The following table summarizes our contract backlog at the end of the
2009 and 2008 years: (in thousands)
 
 Year Ended December 31,2009
                                          
                                          2008Backlog:Funded
                                          
                                          $
                                          60,980
                                          
                                          $
                                          53,116Unfunded
                                          
                                          
                                          105,822
                                          
                                          
                                          125,322Total
      backlog
                                          
                                          $
                                          166,802
                                          
                                          $
                                          178,438
  Our total
backlog of approximately $167 million as of December 31, 2009 represented a 7%
decrease over the fiscal year 2008 backlog, which was approximately $178 million
as of December 31, 2008. This decrease is related to procedural changes in the
way that the Federal Government awards contracts which have reduced the number
of months that contracts are awarded in advance. We currently estimate that 49%
of our current backlog will be recognized as revenue in 2010.
 
 Contract
Mix
  Contract
profit margins are generally affected by the type of contract. We can typically
earn higher profits on fixed-price and time-and-materials contracts than
cost-reimbursable contracts. Thus, an important part of growing our operating
income is to increase the amount of services delivered under fixed-price and
time-and-materials contracts. We did not have any cost-reimbursable contracts
for either 2009 or 2008 but we were awarded a cost-reimbursable contract in
December 2009 that will begin in 2010. The following table summarizes our
historical contract mix, measured as a percentage of total revenue, for the
periods indicated:
 
 Year Ended
                                        December 31,
                                        2009
                                      
                                      Year Ended
                                        December 31,
                                        2008Time-and-materials
                                      
                                      
                                      68
                                      %
                                      
                                      63
                                      %Fixed-price
                                      
                                      
                                      32
                                      %
                                      
                                      37
                                      %Totals
                                      
                                      
                                      100
                                      %
                                      
                                      100
                                      %
  Critical
Accounting Policies and Significant Estimates
  Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires that management make estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ significantly from those
estimates.
  We
believe the following critical accounting policies affect the more significant
estimates and judgments used in the preparation of our financial
statements.
  26
  Revenue
Recognition
  The
Company recognizes revenue when persuasive evidence of an arrangement exists,
services have been rendered or goods delivered, the contract price is fixed or
determinable, and collectability is reasonably assured. The Company’s revenue
historically is derived from primarily three different types of contractual
arrangements: time-and-materials contracts, fixed-price contracts and, to a
lesser extent, cost-plus-fee contracts. Revenue on time-and-material contracts
is recognized based on the actual hours performed at the contracted billable
rates for services provided, plus materials’ cost for products delivered to the
customer, and costs incurred on behalf of the customer. Revenue on fixed-price
contracts is recognized ratably over the period of performance or on
percentage-of-completion depending on the nature of services to be provided
under the contract. Revenue on cost-plus-fee contracts is recognized to the
extent of costs incurred, plus an estimate of the applicable fees earned. Fixed
fees under cost-plus-fee contracts are recorded as earned in proportion to the
allowable costs incurred in performance of the contract. For cost-plus-fee
contracts that include performance based fee incentives, the Company recognizes
the relevant portion of the expected fee to be awarded by the customer at the
time such fee can be reasonably estimated, based on factors such as the
Company’s prior award experience and communications with the customer regarding
performance. We did not have any cost-plus-fee contracts in 2009 or 2008, but we
do for 2010.
  The Company’s fixed price contracts are
either maintenance and support services based or require some level of
customization. Revenue is recognized ratably over the contract period for
maintenance and support contracts. In accordance with Accounting Standards
Codification (“ASC”) 985-605-25, “Revenue Recognition - Software” (ASC
985-605-25)(formerly American Institute of Certified Public Accountants
(“AICPA”) Statement of Position (“SOP”) 97-2, Software Revenue Recognition), for
contracts that involve software design, customization, or integration,
management applies contract accounting pursuant to the provisions of ASC
985-605-35, “Revenue Recognition – Construction and Production-type Contracts”
(ASC 985-605-35 )(formerly SOP 81-1,Accounting for
Performance of Construction-Type and Certain Production-Type
Contracts). Revenue for
such arrangements is recognized on the percentage-of-completion method using
costs incurred in relation to total estimated project costs.
  Contract
costs include labor, material, subcontracting costs, and allocated allowable
selling, general and administrative costs. Revenue recognition requires judgment
in estimating the revenue and associated costs, assessing risk in performance,
and evaluating technical issues. The Company may estimate award fees and
incentive fees or penalties in recognizing revenue based on anticipated awards
or when there is sufficient information to determine.
  On
federal government contracts, the Company allocates costs to contracts
consistent with the federal procurement regulations. The direct and selling,
general and administrative costs associated with these contracts are subject to
government audit by DCAA. Management does not anticipate any material adjustment
to the consolidated financial statements in subsequent periods for audits not
yet performed. The incurred cost audits have been completed through the fiscal
year ended October 31, 2005 for ATSI.
  Contract
revenue recognition inherently involves estimation. Examples of estimates
include the contemplated level of effort to accomplish the tasks under the
contract, the costs of the effort, and an ongoing assessment of the Company’s
progress toward completing the contract. From time to time, as part of its
standard management process, facts develop that require the Company to revise
our estimated total contract costs. To the extent that a revised estimate
affects contract profit or revenue previously recognized, the Company records
the cumulative effect of the revision in the period in which the revision
becomes known. The full amount of an anticipated loss on any type of contract is
recognized in the period in which it becomes probable and can be reasonably
estimated. Under certain circumstances, the Company may elect to work at-risk
prior to receiving an executed contract document. The Company has a formal
procedure for authorizing any such at risk work to be incurred. Revenue
associated with such work is recognized only when it can be reliably estimated
and realization is probable.
  Goodwill
and Other Purchased Intangible Assets
  Goodwill
represents the excess of costs over fair value of net assets of businesses
acquired. Other purchased intangible assets include the fair value of items such
as customer contracts, backlog and customer relationships. ASC Topic 350,
Intangibles, Goodwill and Other (ASC 350), (formerly Statement of Financial
Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets(“FAS 142”)), establishes financial accounting and reporting for acquired
goodwill and other intangible assets. Goodwill and intangible assets acquired in
a purchase business combination and determined to have an indefinite useful life
are not amortized, but rather tested for impairment on an annual basis or at an
interim date in the event of a triggering event. Purchased intangible assets
with a definite useful life are amortized on a straight-line basis over their
estimated useful lives.
  The
Company performs an annual impairment test for goodwill. For purposes of this
testing, management concluded that there is only one reporting unit. The
Company’s testing approach utilizes a discounted cash flow analysis and market
based approaches to determine the fair value of the reporting unit for
comparison to the corresponding carrying value. If the carrying value exceeds
the estimated fair value of the business, an impairment would be required to be
reported.
  27
  The
Company performed its 2009 annual impairment test during the third quarter in
connection with the preparation of its September 30, 2009 interim financial
statements. We determined that a discounted cash flow analysis combined with a
market based approach utilizing level 2 data pursuant to ASC Topic 820-25 Fair
Value Measurements and Disclosures (“ASC 820-25”), (Formerly SFAS No. 157, Fair
Value Measurements (“FAS 157”)) was the most appropriate valuation methodology
to use in our analysis as it reflects ATSC’s unique business characteristics and
forward earnings potential. Based on an updated outlook for the Company, we
concluded that the estimated fair value of the Company significantly exceeded
its book value as of the valuation date. As a result of this analysis,
management concluded that goodwill was not impaired.
  Similarly,
the Company conducted a test in 2008 and concluded that goodwill was impaired by
$48.8 million. Prior to recording the goodwill impairment charges, the Company
tested the purchased intangible assets and other long-lived assets as required
by ASC 350-05 and the carrying value of the customer-related intangibles was
determined to be impaired by $8.0 million. The impairment was recognized in the
third quarter of 2008. The impairment charge was primarily driven by the income
method approach, a discounted cash flow analysis. The total impairment charge
was approximately $57 million. A significant portion of the goodwill and
intangible assets had no tax basis. As such, the deferred tax benefit resulting
from the impairment charge was $6.0 million, or 10.6% of the impairment charge.
See Part IV Item 15 and Note 8 for details of this transaction.
  Long-Lived
Assets (Excluding Goodwill)
  The
Company reviews long-lived assets for impairment. If circumstances indicate the
carrying value of the asset may not be fully recoverable, a loss is recognized
at the time impairment exists and a permanent reduction in the carrying value of
the asset is recorded. As noted above, the Company recorded an impairment charge
of approximately $8 million related to customer-related intangible assets for
the year ended December 31, 2008. The Company did not record an impairment
charge in 2009.
  Income
Taxes
  Deferred
income taxes are provided for the differences between the basis of assets and
liabilities for financial reporting and income tax purposes. Deferred tax assets
and liabilities are measured using tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
  We make
certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of
certain tax assets and liabilities, which principally arise from differences in
the timing of recognition of revenue and expense for tax and financial statement
purposes. We also evaluate the likelihood of recoverability of deferred tax
assets, and adjust any valuation allowances accordingly. Considerations with
respect to the recoverability of deferred tax assets include the period of
expiration of the tax asset, planned use of the tax asset, and historical and
projected taxable income, as well as tax liabilities for the tax jurisdiction to
which the tax asset relates. Valuation allowances are evaluated periodically and
will be subject to change in each future reporting period as a result of changes
in one or more of these factors. Effective January 1, 2007, the Company adopted
FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, (now ASC Topic 740-10, Income Taxes). ASC Topic 740-10 prescribes
a more-likely-than-not threshold of financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This interpretation also provides guidance on de-recognition of income tax
assets and liabilities, classification of current and deferred tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures. There was no significant impact from the adoption of this standard.
As of December 31, 2009, the Company did not have any material gross
unrecognized tax benefits or liabilities.
  Derivatives
and Interest Rate Swaps
  The
Company accounts for derivative instruments and hedging activities in accordance
with ASC Topic 815, Derivatives and Hedging (ASC 815), (formerly SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities). Accordingly, derivatives are
recognized as either assets or liabilities in the consolidated balance sheet,
and gains and losses are recognized based on changes in the fair values. Per ASC
815, the fair value of an interest rate swap is based on the net present value
of its net projected cash flows, which are a Level 2 input under ASC 820-25.
Gains and losses on derivatives designated or deemed to be an effective hedge
are recognized, net of tax in accumulated other comprehensive income (loss) in
the accompanying consolidated financial statements. As an offset to gains or
losses recognized in comprehensive income a gross asset or liability is
recognized, as well as an appropriate deferred tax liability or asset. Gains and
losses on derivatives that are not designated or intended to be an effective
hedge are recorded to operations. The classification of gains and losses
resulting from the changes in fair values is dependent on the intended use of
the derivative and its resulting designation. The Company uses the change in
variable cash flow method to measure the effectiveness of its
hedges.
  28
  Results
of Operations
  The
following table sets forth the results of operations as a percent of revenue for
the years ended December 31, 2009 and December 31, 2008.
 
 Year to Year Change2009
                                                          
                                                          
                                                          2008
                                                          
                                                          
                                                          2009
                                                          
                                                          
                                                          2008
                                                          
                                                          
                                                          2008 to 2009Dollars
                                                          
                                                          
                                                          Percent of
                                                            Revenue
                                                          
                                                          
                                                          Change in
                                                            Dollars
                                                          
                                                          
                                                          Percentage
                                                            ChangeStatement
      of income:Revenue
                                                          
                                                          $
                                                          118,658,939
                                                          
                                                          
                                                          $
                                                          131,548,557
                                                          
                                                          
                                                          
                                                          100.0
                                                          %
                                                          
                                                          
                                                          100.0
                                                          %
                                                          
                                                          $
                                                          (12,889,618
                                                          )
                                                          
                                                          
                                                          (9.8
                                                          )%Operating
      costs and expensesDirect
      costs
                                                          
                                                          
                                                          80,349,485
                                                          
                                                          
                                                          
                                                          88,476,707
                                                          
                                                          
                                                          
                                                          67.7
                                                          %
                                                          
                                                          
                                                          67.3
                                                          %
                                                          
                                                          
                                                          (8,127,222
                                                          )
                                                          
                                                          
                                                          (9.2
                                                          )%Selling,
      general and administrative expenses
                                                          
                                                          
                                                          25,664,838
                                                          
                                                          
                                                          
                                                          30,927,440
                                                          
                                                          
                                                          
                                                          21.6
                                                          %
                                                          
                                                          
                                                          23.5
                                                          %
                                                          
                                                          
                                                          (5,262,602
                                                          )
                                                          
                                                          
                                                          (17.0
                                                          )%Depreciation
      and amortization
                                                          
                                                          
                                                          3,038,021
                                                          
                                                          
                                                          
                                                          6,444,516
                                                          
                                                          
                                                          
                                                          2.6
                                                          %
                                                          
                                                          
                                                          4.9
                                                          %
                                                          
                                                          
                                                          (3,406,495
                                                          )
                                                          
                                                          
                                                          (52.9
                                                          )%Impairment
      charge
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          56,772,541
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          43.2
                                                          %
                                                          
                                                          
                                                          (56,772,541
                                                          )
                                                          
                                                          
                                                          (100.0
                                                          )%Total
      operating costs and expenses
                                                          
                                                          
                                                          109,052,344
                                                          
                                                          
                                                          
                                                          182,621,204
                                                          
                                                          
                                                          
                                                          91.9
                                                          %
                                                          
                                                          
                                                          138.8
                                                          %
                                                          
                                                          
                                                          (73,568,860
                                                          )
                                                          
                                                          
                                                          (40.3
                                                          )%Operating
      income (loss)
                                                          
                                                          
                                                          9,606,595
                                                          
                                                          
                                                          
                                                          (51,072,647
                                                          )
                                                          
                                                          
                                                          8.1
                                                          %
                                                          
                                                          
                                                          (38.8
                                                          )%
                                                          
                                                          
                                                          60,679,242
                                                          )
                                                          
                                                          
                                                          N/AOther
      income (expense)Interest
      (expense) income, net
                                                          
                                                          
                                                          (2,859,462
                                                          )
                                                          
                                                          
                                                          (3,427,859
                                                          )
                                                          
                                                          
                                                          (2.4
                                                          )%
                                                          
                                                          
                                                          (2.6
                                                          )%
                                                          
                                                          
                                                          568,397
                                                          
                                                          
                                                          
                                                          (16.6
                                                          )%Other
      (expense) income
                                                          
                                                          
                                                          (1,438,563
                                                          )
                                                          
                                                          
                                                          29,627
                                                          
                                                          
                                                          
                                                          (1.2
                                                          )%
                                                          
                                                          
                                                          0.0
                                                          %
                                                          
                                                          
                                                          (1,468,190
                                                          )
                                                          
                                                          NAIncome
      (loss) before income taxes
                                                          
                                                          
                                                          5,308,570
                                                          
                                                          
                                                          
                                                          (54,470,879
                                                          )
                                                          
                                                          
                                                          4.5
                                                          %
                                                          
                                                          
                                                          (41.4
                                                          )%
                                                          
                                                          
                                                          59,779,449
                                                          
                                                          
                                                          
                                                          N/AIncome
      tax expense (benefit)
                                                          
                                                          
                                                          2,180,727
                                                          
                                                          
                                                          
                                                          (4,642,464
                                                          )
                                                          
                                                          
                                                          1.8
                                                          %
                                                          
                                                          
                                                          (3.5
                                                          )%
                                                          
                                                          
                                                          6,823,191
                                                          
                                                          
                                                          
                                                          N/ANet
      income (loss)
                                                          
                                                          $
                                                          3,127,843
                                                          
                                                          
                                                          $
                                                          (49,828,415
                                                          )
                                                          
                                                          
                                                          2.6
                                                          %
                                                          
                                                          
                                                          (37.9
                                                          )%
                                                          
                                                          $
                                                          52,956,258
                                                          
                                                          
                                                          
                                                          N/A
  Revenue.   The
Company’s revenue decreased 9.8% to $118.7 million in the year ended December
31, 2009, compared to $131.5 million in the year ended December 31, 2008. This
$12.8 million decrease in revenue is attributable to two significant areas; the
commercial and public safety sector and the federal civilian
sector.
  Approximately
$6.7 million, or 52.3% of the overall $12.8 million decrease, is associated with
the commercial and public safety markets.  The major decreases were
associated with contract work at Fannie Mae, the commercial insurance and
services markets and the public safety products and services.  Revenue
associated with efforts at Fannie Mae decreased by $2.0 million, or 14.6%, to
$11.7 million in 2009 compared to $13.7 million in 2008. This was driven by
staffing reductions at Fannie Mae.  This in turn resulted in ATSC
staffing reductions at Fannie Mae in the fourth quarter of 2008, which affected
results in 2009.   While this reduction to staff was temporary,
ATSC did not recover to the pre-reduction staffing levels until the second
quarter of 2009. Revenue associated with the commercial insurance business
decreased by $2.2 million, or 42.3%, to $3.0 million in 2009 compared to $5.2
million in 2008. This was primarily related to efforts on two development
contracts that ended in 2008.  In addition, revenue associated with
the commercial services area decreased $1.3 million, or 15.3%, to $7.2 million
in 2009 from $8.5 million in 2008. This reduction was directly related to
changes in service contracts with Care First and IBM. Revenue also decreased
$1.1 million related to the public safety products and services.
  The
federal civilian revenue decreased by $6.1 million, representing 47.7% of the
overall $12.8 million decrease in 2009.  There was a $7.4 million
decrease associated with work at the US Coast Guard to $5.7 million in 2009
compared to $13.1 million in 2008.  This customer utilized a set-aside
procurement for small business entities which made ATSC ineligible to bid as a
prime on these tasks.  While ATSC was a partner on the winning team,
due to the set-aside, ATSC could only participate as a minority team member in
these efforts.  These decreases were partially offset by new awards
with HUD, PBGC and the government security agencies which showed a net increase
of $1.3 million, or 1.0%, over 2008.
  Direct Costs.   The
Company had $80.3 million in direct costs in the year ended December 31, 2009,
compared to $88.5 million in direct costs in the year ended December 31, 2008.
This 9% decrease is directly attributable to an 8% decrease in direct labor
costs in the year ended December 31, 2009 in connection with our reduced revenue
of 9.8% over the year ended December 31, 2008.
  29
  Selling, General and Administrative
Expenses.   For the year ended December 31, 2009, the Company
had $25.7 million of selling, general and administrative expenses, compared to
$30.9 million for the year ended December 31, 2008. The decrease of $5.2 million
is the full year result of cost saving initiatives put in place in
2008.  Labor utilization improvement efforts together with process
improvements in administrative areas resulted in indirect labor and the
associated fringe benefits decreasing by $3.7 million to $14.5 million from
$18.2 million.  In addition, facilities costs decreased by $0.9
million to $2.3 million in 2009 compared to $3.2 million in 2008 as a result of
consolidating operations in a new headquarters facility.  Finally,
legal fees decreased by $0.4 million to $0.9 million in 2009 compared to $1.3
million in 2008 due to the elimination of ongoing legal fees associated with the
arbitration surrounding the net working capital claim that was finalized in
early 2009.
  Depreciation.
  Depreciation expense for the year ended December 31, 2009 was $0.8
million compared to $1.3 million in 2008. The decrease was primarily due to the
depreciation associated with the write-off of leasehold improvements from the
former ATSC headquarters and short-lived computer equipment acquired during the
acquisition of ATSI by ATSC approaching the end of its depreciable
life.
  Amortization of Intangible
Assets.   Amortization expense for the year ended December 31,
2009 was $2.2 million compared to $5.2 million in 2008. The reduction is
attributable to the lower carrying value of intangible assets, and thus the
lower amortization expense as a result of the impairment charge recognized in
September 2008.
  Impairment Charge.
  The Company performed an impairment analysis in September
2009.  Management concluded from this analysis that no impairment had
occurred in 2009, compared to an impairment charge in the amount of $56.8
million in the year ended December 31, 2008.
  Interest (Expense) Income.
  Interest expense decreased by $0.5 million to $2.9 million in the
year ended December 31, 2009, compared to interest expense of $3.4 million for
the year ended December 31, 2008. This decrease was a result of the pay down of
debt by $15.9 million to $21.2 million at December 31, 2009 from $37.1 million
at December 31, 2008.
  Other (Expense) Income.For
the year ended December 31, 2009 the Company recognized a loss contingency in
the amount of $1.5 million related to the Maximus litigation.  Based
on recent settlement discussions as outlined in Note 20, management has
concluded that a $1.5 million loss is probable.
  Income (Loss) Before Income
Taxes.   The loss before income taxes for the year ended
December 31, 2008 was attributable to the impairment charge of $56.8 million. No
such charge was recognized for the year ended December 31,
2009.  Income before taxes was 4.7% of revenue for the year ended
December 31, 2009.  Income before taxes and excluding the impairment
charge was 1.8% of revenue for the year ended December 31, 2008.  This
improvement was primarily driven by the improvements in selling, general and
administrative expenses and reduced costs associated with the amortization of
intangible assets.
  Provision for Income Taxes.
  The provision for income tax was an expense of $2.2 million for the
year ended December 31, 2009 and a benefit of $4.6 million for the year ended
December 31, 2008. The effective income tax rates in fiscal years 2009 and 2008
were 41.1% and 8.5%, respectively. The difference in the tax rates was heavily
influenced by the impairment expense in fiscal 2008, a substantial portion of
such was not deductible for tax purposes.
  Financial
Condition, Liquidity and Capital Resources
  Financial Condition.
  Total assets decreased $13.1 million to $93.3 million as of December
31, 2009 compared to $106.4 million as of December 31, 2008, primarily due to a
$6.8 million reduction in receivables as a result of improved collections and
$3.8 million from the resolution of a working capital adjustment which decreased
the carrying value of goodwill. Proceeds were used to pay down our credit
facility.
  Our total
liabilities decreased $17.0 million to $43.5 million as of December 31, 2009
from $60.5 million as of December 31, 2008. The decrease was due primarily to
decreases in our debt, which we were able to pay down over the course of 2009 in
connection with our strong operating cash flow as discussed in more detail
below.
  Liquidity and Capital
Resources.   Our primary liquidity needs are to finance the
costs of operations, acquire capital assets and to make selective strategic
acquisitions. We expect to meet our short-term requirements through funds
generated from operations and from a credit facility with Bank of America and
Citizens Bank, which was initially signed on June 4, 2007, and subsequently
raised to $50.0 million. As part of the agreement, we are required to meet
certain financial covenants which are tested every quarter. As of December 31,
2009, we were in compliance with all covenants. Our cash requirements to fund
acquisitions will be funded by cash generated from operations in addition to the
credit facility. This credit facility expires in June 2010. Based on discussions
with various banks, management believes we will obtain new financing under terms
similar to the existing facility. As of December 31, 2009 and December 31, 2008,
we had an $18.7 million and $32.6 million outstanding balance on the credit
facility, respectively.
  30
  Net cash
provided by operating activities was $12.9 million for the twelve months ended
December 31, 2009, while net cash provided by operating activities for December
31, 2008 was $10.6 million. Cash provided by operating activities is primarily
driven by operating income (excluding the non-cash impairment charge), adjusted
for working capital changes, which were principally changes in accounts
receivable, income taxes receivable and accrued expenses.
  Net cash
provided by investing activities was $3.7 million for the twelve months ended
December 31, 2009, primarily due to the settlement of purchase price escrows as
described above. During the twelve months ended December 31, 2008, net cash used
in investing activities was $1.2 million.
  Net cash
used in financing activities was $16.7 million for the twelve months ended
December 31, 2009. During the twelve months ended December 31, 2009, we used
$2.2 million to pay down notes payable associated with our acquisitions and
$13.9 million to pay down our line of credit and $0.9 million to repurchase
treasury stock.
  We expect
to retain future earnings, if any, for use in the operation and expansion of our
business and do not anticipate paying any cash dividends in the foreseeable
future.
  As of the
close of business on March 23, 2010, we had cash on hand of approximately $240,298.
  Under
some of our fixed-price contracts, we receive advance payments for work to be
performed in future months. If we do not perform the work, the unearned portion
of these advances will be returned to our clients.
  Although
we believe that funds generated by operations and available under our credit
facility will be sufficient to fund our operations, additional capital, in the
form of additional senior credit, other debt, or equity, would be needed to
finance a significant additional acquisition.
  Seasonality
  In
general, our business is not seasonal, although our revenue is affected by
summer and holiday seasons due to the significance of labor on our sales.
Variations in our business may also occur at the expirations or initialization
of major contracts. With the Federal Government’s fiscal year ending on
September 30 it is not uncommon for government agencies to award additional
tasks or complete other contract actions during September in order to commit any
remaining budgeted funds. In addition, when the Federal budget has not been
approved before the fiscal year end, the agencies are funded under a continuing
resolution that allows them to continue to operate, but does not enable them to
fund new spending initiatives.
  Off-Balance
Sheet Arrangements
  As of
December 31, 2009, we did not have any off-balance sheet
arrangements.
  Contractual
Obligations
  The
following table summarizes our contractual obligations as of December 31, 2009
that require us to make future cash payments. For contractual obligations, we
included payments that we have an unconditional obligation to
make.
 
 (In Thousands)Total
                                                                                                            
                                                                                                            Less than
                                                                                                              One Year
                                                                                                            
                                                                                                            One to
                                                                                                              Three Years
                                                                                                            
                                                                                                            Three to
                                                                                                              Five Years
                                                                                                            
                                                                                                            More than
                                                                                                              Five YearsOperating
      Leases
                                                                                                            
                                                                                                            
                                                                                                            15,845
                                                                                                            
                                                                                                            
                                                                                                            2,132
                                                                                                            
                                                                                                            
                                                                                                            3,480
                                                                                                            
                                                                                                            
                                                                                                            3,622
                                                                                                            
                                                                                                            
                                                                                                            6,611Total
                                                                                                            
                                                                                                            $
                                                                                                            15,845
                                                                                                            
                                                                                                            $
                                                                                                            2,132
                                                                                                            
                                                                                                            $
                                                                                                            3,480
                                                                                                            
                                                                                                            $
                                                                                                            3,622
                                                                                                            
                                                                                                            $
                                                                                                            6,611
  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. Under our time and materials
contracts, labor rates are usually adjusted annually by predetermined escalation
factors. Our cost reimbursable contracts automatically adjust for changes in
cost. Under our fixed-price contracts, we include a predetermined escalation
factor. Generally, we have not been adversely affected by
inflation.
  Recent
Accounting Pronouncements
  See Note 3.
  31
  Item
7A. Quantitative and Qualitative Disclosures About Market Risk
  We are
exposed to certain financial market risks, the most predominant being
fluctuations in interest rates for borrowings under our credit facility. In
order to manage interest rate fluctuation exposure on the bank debt, the Company
entered into an interest rate swap agreement with Bank of America on November 9,
2007 providing the Company an ability to eliminate the variability of interest
expense based on fluctuating rates on a $35 million notional amount of debt. The
purpose of the derivative instrument is to hedge cash flows and not for trading
purposes. As of December 31, 2009, we had an outstanding balance of $18.7
million under our line of credit. The Company records cash payments and receipts
related to its interest rate swap as adjustments to interest expense and as a
component of operating cash flow. (See Note 11.)
  Item
8. Financial Statements and Supplementary Data
  Reference
is made to our financial statements beginning on page F-1 of this Annual Report
on Form 10-K.
  Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  We had no
disagreements with our accountants on accounting principles or financial
statement disclosures.
  Item
9A. Controls and Procedures
  Disclosure
Controls and Procedures
  As of
December 31, 2009, under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer, we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities
Exchange Act of 1934, as amended (Exchange Act). Based on this evaluation, our
Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures as defined by Rule 13a-15(e) of the Exchange
Act were effective as of December 31, 2009. However, in evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
  Disclosure
controls and procedures are designed with the objective of ensuring that
information required to be disclosed in our reports filed or submitted under the
Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures are also designed with the objective
of ensuring that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure.
  Management’s
Annual Report on Internal Control Over Financial Reporting
  Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Management is required to assess the effectiveness of our
internal control over financial reporting as of the end of each fiscal year and
report based on that assessment whether our internal control over financial
reporting was effective. Internal control over financial reporting is a process
designed by, or under the supervision of, our Chief Executive Officer and Chief
Financial Officer, and effected by our Board of Directors, our management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance
with generally accepted accounting principles and includes those policies and
procedures that:
  ·  pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
 
 ·  provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of management or our Board of Directors;
and
 
 ·  provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material adverse
effect on our financial statements.
  32
  Limitations
on the Effectiveness of Controls
  Because
of the inherent limitations in all control systems, no assessment of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management’s override of the control. The design of any
system of controls 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;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
  Assessment
of Effectiveness of Disclosure Controls Over Financial Reporting
  Our
management, including our Chief Executive Officer and Chief Financial Officer,
conducted an assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2009, based on the criteria set forth in
the framework in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Our management
determined that our internal control over financial reporting was effective as
of December 31, 2009.
  Management,
including our principal executive officer and our principal financial officer,
do not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal
control over financial reporting pursuant to temporary rules of the Security and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
  Changes
in Internal Control Over Financial Reporting
  During
the fiscal year ended December 31, 2009, there were no changes in our internal
control over financial reporting that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
  Item
9B. Other Information
  None.
  33
  PART
III
  Item
10. Directors, Executive Officers and Corporate Governance
  The
information as to directors, executive officers, audit committee and the audit
committee financial expert will be incorporated herein by reference to the Proxy
Statement for the 2010 Annual Meeting of Stockholders.
  Code
of Ethics
  The
Company has adopted a Code of Business Conduct for all of its employees,
including the principal executive officer, principal financial officer and
principal accounting officer. The Code of Conduct can be found on the Company’s
internet web site at www.atsc.com under “Investor
Relations — Code of Conduct.”
  Item
11. Executive Compensation
  The
information required by this item will be included in our 2010 Proxy Statement
and is incorporated herein by reference.
  Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  The
information required by this item will be included in our 2010 Proxy Statement
and is incorporated herein by reference.
  Item
13. Certain Relationships and Related Transactions, and Director
Independence
  The
information required in this item will be included in our 2010 Proxy Statement
and is incorporated herein by reference.
  Item
14. Principal Accountant Fees and Services
  The
information required in this item will be included in our 2010 Proxy Statement
and is incorporated herein by reference.
  34
  PART
IV
  Item
15. Exhibits and Financial Statement Schedules
  (a)
                Documents filed as part of this
      Report
 
 (1)
                Financial
      Statements
 
 (A)
                Report of Independent Registered
      Public Accounting Firm
 
 (B)
                Consolidated Statements of
      Operations for the fiscal years ended December 31, 2009 and
      2008
 
 (C)
                Consolidated Balance Sheets as of
      December 31, 2009 and 2008
 
 (D)
                Consolidated Statements of Cash
      Flows for the fiscal years ended December 31, 2009 and
      2008
  (E)
                Consolidated Statements of
      Shareholders’ Equity for the fiscal years ended December 31, 2009 and
      2008
 
 (F)
                Notes to Consolidated Financial
      Statements
 
 (2)
                Supplementary Financial
      Data
  Schedule
II — Valuation and Qualifying Accounts for the fiscal years ended
December 31, 2009 and 2008.
  (b)   Exhibits
  The
following exhibits are included with this report or incorporated herein by
reference:
 
 Exhibit
                  Number
                
                Description2.1
                
                Stock
      Purchase Agreement dated April 19, 2006 among Federal Services Acquisition
      Corporation, Advanced Technology Systems, Inc. and the shareholders of
      Advanced Technology Systems, Inc. (“ATSI”) (included as Annex A to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.2
                
                First
      Amendment to ATSI Stock Purchase Agreement (included as Annex A-1 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.3
                
                Second
      Amendment to ATSI Stock Purchase Agreement (included as Annex A-2 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.4
                
                Third
      Amendment to ATSI Stock Purchase Agreement (included as Annex A-3 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)2.5
                
                Stock
      Purchase Agreement dated as of August 24, 2007 by and among ATS
      Corporation, Potomac Management Group, Inc. and the Shareholders of
      Potomac Management Group, Inc. (incorporated by reference to Exhibit 2.1
      to a Current Report on Form 8-K filed on September 7,
  2007)2.6
                
                Agreement
      and Plan of Merger and Reorganization, dated as of October 12, 2007 by and
      among ATS Corporation, ATS NSS Acquisition, Inc., Number Six Software,
      Inc., and the Principal Stockholders of Number Six Software, Inc.
      (incorporated by reference to Exhibit 2.1 to a Current Report on Form 8-K
      filed on October 16, 2007)3.1
                
                Second
      Amended and Restated Certificate of Incorporation dated January 16, 2007
      (incorporated by reference to Exhibit 3.1 to a Current Report on Form 8-K
      filed January 19, 2007)3.2
                
                Amended
      Bylaws (incorporated by reference to Exhibit 3.1 to a Current Report on
      Form 8-K filed May 6, 2009)4.1
                
                Specimen
      Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the
      Registration Statement on Form S-1, as amended, initially filed on May 4,
      2005)10.1
                
                Credit
      Agreement with Bank of America dated June 4, 2007 (incorporated by
      reference to Exhibit 10.1 on a Form 8-K filed June 8,
  2007)10.2
                
                Amendment
      No. 1 to Credit Agreement with Bank of America dated June 29, 2007
      (incorporated by reference to Exhibit 10.1 for the Quarterly Report on
      Form 10-Q filed November 8,
2007)
  35
  10.3
                  
                  Amendment
      No. 2 to Credit Agreement with Bank of America dated November 9, 2007
      (incorporated by reference to Exhibit 10.1 to a Current Report on Form 8-K
      filed November 13, 2007)10.4
                  
                  Amendment
      No. 3 to Credit Agreement with Bank of America dated May 9, 2008
      (incorporated by reference to Exhibit 10.1 for the Quarterly Report on
      Form 10-Q filed May 12, 2008)10.5
                  
                  Balance
      Sheet Escrow Agreement among Federal Services Acquisition Corporation,
      certain shareholders of Advanced Technology Systems, Inc. and Branch
      Banking and Trust Company as Escrow Agent (included as Annex B-1 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)10.6
                  
                  General
      Indemnity Escrow Agreement among Federal Services Acquisition Corporation,
      certain shareholders of Advanced Technology Systems, Inc. and Branch
      Banking and Trust Company as Escrow Agent (included as Annex B-2 to the
      Definitive Proxy Statement (No. 000-51552) dated December 11, 2006 and
      incorporated by reference herein)10.7
                  
                  Registration
      Rights Agreement among Federal Services Acquisition Corporation and
      certain shareholders of Advanced Technology Systems, Inc. (included as
      Annex C to the Definitive Proxy Statement (No. 000-51552) dated December
      11, 2006 and incorporated by reference herein)10.8
                  
                  Registration
      Rights Agreement among ATS Corporation and the Principal Stockholders of
      Number Six Software, Inc. dated November 9, 2007 (incorporated by
      reference to Exhibit 10.10 for Form 10-K filed March 17,
    2008)10.9
                  
                  ATS
      Corporation 2006 Omnibus Incentive Compensation Plan, as amended
      (incorporated by reference to Appendix A to the Definitive Proxy Statement
      filed March 24, 2009)10.10
                  
                  ATS
      Corporation 2007 Employee Stock Purchase Plan (incorporated by reference
      to Exhibit 99.2 to Form S-8 filed September 14, 2007)10.11
                  
                  Contract
      dated July 24, 2006, as modified September 29, 2006, under which Advanced
      Technology Systems, Inc. provides IT contractor support to mission areas
      under cognizance of the Office of the Secretary of Defense (incorporated
      by reference to Exhibit 10.11 on a Current Report on Form 8-K filed
      January 19, 2007)10.12
                  
                  Contract,
      as modified October 2006, between Advanced Technology Systems, Inc. Public
      Safety Solutions Division and the Metropolitan Nashville Police Department
      (MNPD) with respect to Advanced Records Management System (ARMS) project
      (incorporated by reference to Exhibit 10.12 on a Current Report on Form
      8-K filed January 19, 2007)10.13
                  
                  Restricted
      Share Award Agreement with Dr. Edward H. Bersoff dated March 19, 2007
      (incorporated by reference to Exhibit 10.2 on a Current Report on Form 8-K
      filed March 21, 2007)10.14
                  
                  Restricted
      Share Award Agreement with Pamela A. Little dated May 4, 2007
      (incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on
      August 9, 2007)10.15
                  
                  Restricted
      Share Award Agreement with Pamela A. Little dated December 17, 2007
      (incorporated by reference, to Exhibit 10.24 for Form 10-K filed March 17,
      2008)10.16
                  
                  Restricted
      Share Award Agreement with Dr. Edward H. Bersoff dated December 17, 2007
      (incorporated by reference, to Exhibit 10.25 for Form 10-K filed March 17,
      2008)10.17
                  
                  Restricted
      Share Award Agreement with Dr. Edward H. Bersoff dated January 2,
      200910.18
                  
                  Restricted
      Share Award Agreement with Pamela A. Little dated January 2,
      200910.19
                  
                  Employment
      Agreement with Pamela A. Little dated February 3, 2008 (incorporated by
      reference to Exhibit 10.1 on a Current Report on Form 8-K filed February
      6, 2008)10.20
                  
                  Employment
      Agreement with Dr. Edward H. Bersoff dated March 19, 2007, as amended
      (incorporated by reference to Exhibit 10.1 on Form 10-Q filed August 7,
      2009)10.21
                  
                  Employment
      Agreement with George Troendle dated August 7, 2008 (incorporated by
      reference to Exhibit 10.2 to our Form 10-Q filed on November 7,
      2008)10.22
                  
                  Deed
      of Lease between West*Group Properties, LLC and ATS Corporation, dated
      February 11, 2008, for the property located at 7925 Jones Branch Drive,
      McLean, Virginia 22102 (incorporated by reference to Exhibit 10.1 on a
      Current Report on Form 8-K filed February 14, 2008)*10.23
                  
                  Form
      of Director Restricted Share Award
Agreement
  36







Exhibit
                  Number
                
                Description*23.1
                
                Consent
      of Grant Thornton LLP regarding ATS Corporation financial statements for
      the years ended December 31, 2008 and December 31, 2009*31.1
                
                Certification
      of Principal Executive Officer pursuant to Rule 13a-14(a)/15(d)-19(a) of
      the Securities Exchange Act of 1934, as amended*31.2
                
                Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a)/15(d)-19(a) of
      the Securities Exchange Act of 1934, as amended*32.1
                
                Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002*32.2
                
                Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002





*    Filed herewith.




37





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM




Board of
Directors and Shareholders
 ATS
Corporation
  We have
audited the accompanying consolidated balance sheets of ATS Corporation and
subsidiary (a Delaware corporation) as of December 31, 2009 and 2008, and
the related consolidated statements of operations, shareholders’ equity,
comprehensive loss and cash flows for each of the two years in the period ended
December 31, 2009. Our audits of the basic financial statements included the
financial statement schedule listed in the index appearing under Item 15(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ATS Corporation and
subsidiary as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
2009 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
  /s/ Grant
Thornton LLP
  McLean,
Virginia
 March 24,
2010





38





ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF OPERATIONS





ATS CorporationYear Ended December 31,2009
                        
                        
                        2008Revenue
                        
                        $
                        118,658,939
                        
                        
                        $
                        131,548,557Operating
      costs and expensesDirect
      costs
                        
                        
                        80,349,485
                        
                        
                        
                        88,476,707Selling,
      general and administrative expenses
                        
                        
                        25,664,838
                        
                        
                        
                        30,927,440Depreciation
      and amortization
                        
                        
                        3,038,021
                        
                        
                        
                        6,444,516Impairment
      Charge
                        
                        
                        —
                        
                        
                        
                        56,772,541Total
      operating costs and expenses
                        
                        
                        109,052,344
                        
                        
                        
                        182,621,204Operating
      income (loss)
                        
                        
                        9,606,595
                        
                        
                        
                        (51,072,647
                        )Other
      (expense) incomeInterest
      expense, net
                        
                        
                        (2,859,462
                        )
                        
                        
                        (3,427,859
                        )Other
      (expense) income
                        
                        
                        (1,438,563
                        )
                        
                        
                        29,627Income
      (loss) before income taxes
                        
                        
                        5,308,570
                        
                        
                        
                        (54,470,879
                        )Income
      tax expense (benefit)
                        
                        
                        2,180,727
                        
                        
                        
                        (4,642,464
                        )Income
      (loss) from continuing operations
                        
                        $
                        3,127,843
                        
                        
                        $
                        (49,828,415
                        )Weighted
      average number of shares outstanding-
      basic
                        
                        
                        22,669,066
                        
                        
                        
                        21,231,654-
      dilutive
                        
                        
                        22,766,840
                        
                        
                        
                        21,231,654Basic
      net income (loss) per share
                        
                        $
                        0.14
                        
                        
                        
                        (2.35
                        )Diluted
      net income (loss) per share
                        
                        $
                        0.14
                        
                        
                        
                        (2.35
                        )




The
accompanying notes are an integral part of these consolidated financial
statements.




39




ATS CORPORATION


CONSOLIDATED
BALANCE SHEETS




ATS CorporationYear Ended December 31,2009
                
                
                2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                178,225
                
                
                $
                364,822Restricted
      cash
                
                
                1,324,510
                
                
                
                —Accounts
      receivable, net
                
                
                22,497,444
                
                
                
                29,268,647Prepaid
      expenses and other current assets
                
                
                625,231
                
                
                
                537,974Income
      tax receivable, net
                
                
                205,339
                
                
                
                —Other
      current assets
                
                
                46,057
                
                
                
                22,771Deferred
      income taxes, current
                
                
                2,361,611
                
                
                
                1,321,890Total
      current assets
                
                
                27,238,417
                
                
                
                31,516,104Property
      and equipment, net
                
                
                3,011,621
                
                
                
                3,712,340Goodwill
                
                
                55,370,011
                
                
                
                59,128,648Intangible
      assets, net
                
                
                6,102,798
                
                
                
                8,304,686Restricted
      cash
                
                
                —
                
                
                
                1,316,530Other
      assets
                
                
                146,567
                
                
                
                387,897Deferred
      income taxes
                
                
                1,400,260
                
                
                
                2,003,348Total
      assets
                
                $
                93,269,674
                
                
                $
                106,369,553LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of debt
                
                $
                21,191,135
                
                
                $
                2,583,333Capital
      leases – current portion
                
                
                —
                
                
                
                86,334Accounts
      payable
                
                
                4,753,800
                
                
                
                5,549,738Other
      accrued expenses and current liabilities
                
                
                6,356,896
                
                
                
                4,674,528Accrued
      salaries and related taxes
                
                
                4,541,509
                
                
                
                2,999,576Accrued
      vacation
                
                
                2,259,538
                
                
                
                2,220,865Income
      taxes payable, net
                
                
                —
                
                
                
                600,121Deferred
      revenue
                
                
                1,392,457
                
                
                
                1,745,352Deferred
      rent – current portion
                
                
                320,498
                
                
                
                379,520Total
      current liabilities
                
                
                40,815,833
                
                
                
                20,839,367Long-term
      debt – net of current portion
                
                
                —
                
                
                
                34,492,558Capital
      leases – net of current portion
                
                
                —
                
                
                
                745Deferred
      rent – net of current portion
                
                
                2,658,055
                
                
                
                2,842,171Other
      long-term liabilities
                
                
                5,795
                
                
                
                2,283,256Total
      liabilities
                
                
                43,479,683
                
                
                
                60,458,097Shareholders’
      equity:Preferred
      Stock $.0001 par value, 1,000,000 shares authorized, and no shares issued
      and outstanding
                
                
                —
                
                
                
                —Common
      stock $0.0001 par value, 100,000,000 shares authorized, 31,235,696 and
      30,867,304 shares issued, respectively
                
                
                3,124
                
                
                
                3,087Additional
      paid-in capital
                
                
                131,702,488
                
                
                
                130,767,038Treasury
      stock, at cost, 8,745,893 and 8,342,755 shares,
    respectively
                
                
                (31,209,118
                )
                
                
                (30,272,007
                )Accumulated
      deficit
                
                
                (50,062,979
                )
                
                
                (53,190,822
                )Other
      comprehensive income (net of $400,571 and $887,416 tax effect,
      respectively)
                
                
                (643,524
                )
                
                
                (1,395,840
                )Total
      shareholders’ equity
                
                
                49,789,991
                
                
                
                45,911,456Total
      liabilities and shareholders’ equity
                
                $
                93,269,674
                
                
                $
                106,369,553




The
accompanying notes are an integral part of these consolidated financial
statements.




40





ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF CASH FLOWS





ATS CorporationYears Ended December 31,2009
                                                                        
                                                                        
                                                                        2008Cash
      flows from operating activitiesNet
      income (loss)
                                                                        
                                                                        $
                                                                        3,127,843
                                                                        
                                                                        
                                                                        $
                                                                        (49,828,415
                                                                        )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
                                                                        
                                                                        
                                                                        836,133
                                                                        
                                                                        
                                                                        
                                                                        1,254,287Impairment
      charge
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        56,772,541Amortization
      of intangibles
                                                                        
                                                                        
                                                                        2,201,888
                                                                        
                                                                        
                                                                        
                                                                        5,190,229Stock-based
      compensation
                                                                        
                                                                        
                                                                        768,307
                                                                        
                                                                        
                                                                        
                                                                        876,944Deferred
      income taxes
                                                                        
                                                                        
                                                                        (767,726
                                                                        )
                                                                        
                                                                        
                                                                        (7,846,958
                                                                        )Deferred
      rent
                                                                        
                                                                        
                                                                        (243,140
                                                                        )
                                                                        
                                                                        
                                                                        (68,908
                                                                        )Gain
      on disposal of equipment
                                                                        
                                                                        
                                                                        (61,437
                                                                        )
                                                                        
                                                                        
                                                                        (1,223
                                                                        )Provision
      for bad debt
                                                                        
                                                                        
                                                                        1,150,993
                                                                        
                                                                        
                                                                        
                                                                        258,018Changes
      in assets and liabilities, net of effects of acquisitions:Accounts
      receivable
                                                                        
                                                                        
                                                                        5,620,210
                                                                        
                                                                        
                                                                        
                                                                        1,241,120Accrued
      interest payable and receivable
                                                                        
                                                                        
                                                                        636,895
                                                                        
                                                                        
                                                                        
                                                                        (31,537
                                                                        )Prepaid
      expenses and other current assets
                                                                        
                                                                        
                                                                        (87,258
                                                                        )
                                                                        
                                                                        
                                                                        385,829Accounts
      payable
                                                                        
                                                                        
                                                                        (1,078,813
                                                                        )
                                                                        
                                                                        
                                                                        130,209Other
      accrued expenses and accrued liabilities
                                                                        
                                                                        
                                                                        284,253
                                                                        
                                                                        
                                                                        
                                                                        639,262Accrued
      salaries and related taxes
                                                                        
                                                                        
                                                                        1,541,932
                                                                        
                                                                        
                                                                        
                                                                        (1,422,123
                                                                        )Accrued
      vacation
                                                                        
                                                                        
                                                                        38,672
                                                                        
                                                                        
                                                                        
                                                                        (258,675
                                                                        )Income
      taxes payable and receivable
                                                                        
                                                                        
                                                                        (961,207
                                                                        )
                                                                        
                                                                        
                                                                        3,224,632Other
      current liabilities
                                                                        
                                                                        
                                                                        (352,895
                                                                        )
                                                                        
                                                                        
                                                                        293,321Other
      long-term liabilities
                                                                        
                                                                        
                                                                        5,794
                                                                        
                                                                        
                                                                        
                                                                        (45,976
                                                                        )Other
      assets
                                                                        
                                                                        
                                                                        218,044
                                                                        
                                                                        
                                                                        
                                                                        (134,651
                                                                        )Restricted
      cash
                                                                        
                                                                        
                                                                        (7,980
                                                                        )
                                                                        
                                                                        
                                                                        (38,041
                                                                        )Net
      cash provided by operating activities
                                                                        
                                                                        $
                                                                        12,870,508
                                                                        
                                                                        
                                                                        $
                                                                        10,589,885Cash
      flows from investing activitiesPurchase
      of property and equipment
                                                                        
                                                                        
                                                                        (135,414
                                                                        )
                                                                        
                                                                        
                                                                        (371,232
                                                                        )Settlement
      of business purchase price
                                                                        
                                                                        
                                                                        3,758,637
                                                                        
                                                                        
                                                                        
                                                                        (838,459
                                                                        )Proceeds
      from disposal of equipment
                                                                        
                                                                        
                                                                        61,437
                                                                        
                                                                        
                                                                        
                                                                        21,352Net
      cash provided by (used in) investing activities
                                                                        
                                                                        $
                                                                        3,684,660
                                                                        
                                                                        
                                                                        $
                                                                        (1,188,339
                                                                        )Cash
      flows from financing activitiesBorrowings
      on credit facility
                                                                        
                                                                        
                                                                        65,880,794
                                                                        
                                                                        
                                                                        
                                                                        62,707,090Payments
      on credit facility
                                                                        
                                                                        
                                                                        (79,747,617
                                                                        )
                                                                        
                                                                        
                                                                        (71,236,157
                                                                        )Issuance
      of notes payable
                                                                        
                                                                        
                                                                        139,176
                                                                        
                                                                        
                                                                        
                                                                        —Payments
      on notes payable
                                                                        
                                                                        
                                                                        (2,157,108
                                                                        )
                                                                        
                                                                        
                                                                        (2,820,191
                                                                        )Payments
      on capital leases
                                                                        
                                                                        
                                                                        (87,079
                                                                        )
                                                                        
                                                                        
                                                                        (95,125
                                                                        )Proceeds
      from stock issued under employee stock purchase plan
                                                                        
                                                                        
                                                                        167,180
                                                                        
                                                                        
                                                                        
                                                                        271,547Proceeds
      from exchange of stock for warrants (net of expenses)
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        234,135Repurchase
      common stock
                                                                        
                                                                        
                                                                        (937,111
                                                                        )
                                                                        
                                                                        
                                                                        —Net
      cash used in financing activities
                                                                        
                                                                        $
                                                                        (16,741,765
                                                                        )
                                                                        
                                                                        $
                                                                        (10,938,701
                                                                        )Net
      decrease of cash
                                                                        
                                                                        $
                                                                        (186,597
                                                                        )
                                                                        
                                                                        $
                                                                        (1,537,155
                                                                        )Cash
      and cash equivalents, beginning of period
                                                                        
                                                                        
                                                                        364,822
                                                                        
                                                                        
                                                                        
                                                                        1,901,977Cash
      and cash equivalents, end of period
                                                                        
                                                                        $
                                                                        178,225
                                                                        
                                                                        
                                                                        $
                                                                        364,822Supplemental
      disclosures:Cash
      paid or received during the period for:Income
      taxes paid
                                                                        
                                                                        $
                                                                        3,926,398
                                                                        
                                                                        
                                                                        $
                                                                        2,726,412Income
      tax refunds
                                                                        
                                                                        $
                                                                        25,971
                                                                        
                                                                        
                                                                        $
                                                                        2,578,871Interest
      paid
                                                                        
                                                                        $
                                                                        2,280,525
                                                                        
                                                                        
                                                                        $
                                                                        3,510,719Interest
      received
                                                                        
                                                                        $
                                                                        49,978
                                                                        
                                                                        
                                                                        $
                                                                        29,913







The
accompanying notes are an integral part of these consolidated financial
statements.




41




ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY




SuccessorCommon Stock
                                              
                                              
                                              Additional
                                                Paid-In
                                              
                                              
                                              Treasury Stock
                                              
                                              
                                              Accumulated
                                                (Deficit)
                                              
                                              
                                              Accumulated
                                                Other
                                                Comprehensive
                                              
                                              
                                              Total
                                                Shareholders’Shares
                                              
                                              
                                              Amount
                                              
                                              
                                              Capital
                                              
                                              
                                              Shares
                                              
                                              
                                              Amount
                                              
                                              
                                              Earnings
                                              
                                              
                                              Income (Loss)
                                              
                                              
                                              EquityBalance – January
      1, 2008
                                              
                                              
                                              27,529,010
                                              
                                              
                                              $
                                              2,753
                                              
                                              
                                              $
                                              129,384,746
                                              
                                              
                                              
                                              (8,342,755
                                              )
                                              
                                              $
                                              (30,272,007
                                              )
                                              
                                              $
                                              (3,362,407
                                              )
                                              
                                              $
                                              (417,771
                                              )
                                              
                                              $
                                              95,335,314Stock-based
      compensation re: stock options and restricted shares
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              696,954
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              696,954Stock
      based compensation re: directors fees
                                              
                                              
                                              72,605
                                              
                                              
                                              
                                              7
                                              
                                              
                                              
                                              179,983
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              179,990Common
      stock issued re: vested restricted shares
                                              
                                              
                                              168,004
                                              
                                              
                                              
                                              17
                                              
                                              
                                              
                                              (17
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —Common
      stock issued re: ESPP
                                              
                                              
                                              125,481
                                              
                                              
                                              
                                              13
                                              
                                              
                                              
                                              271,534
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              271,547Warrant
      transaction
                                              
                                              
                                              2,972,204
                                              
                                              
                                              
                                              297
                                              
                                              
                                              
                                              233,838
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              234,135Net
      loss
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (49,828,415
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (49,828,415
                                              )Change
      in fair value of interest rate swap agreement, net of tax
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (978,069
                                              )
                                              
                                              
                                              (978,069
                                              )Balance – December
      31, 2008
                                              
                                              
                                              30,867,304
                                              
                                              
                                              $
                                              3,087
                                              
                                              
                                              $
                                              130,767,038
                                              
                                              
                                              
                                              (8,342,755
                                              )
                                              
                                              $
                                              (30,272,007
                                              )
                                              
                                              $
                                              (53,190,822
                                              )
                                              
                                              $
                                              (1,395,840
                                              )
                                              
                                              $
                                              45,911,456Stock-based
      compensation re: stock options and restricted shares
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              654,560
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              654,560Stock
      based compensation re: directors fees
                                              
                                              
                                              73,474
                                              
                                              
                                              
                                              7
                                              
                                              
                                              
                                              113,740
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              113,747Common
      stock issued re: vested restricted shares
                                              
                                              
                                              170,426
                                              
                                              
                                              
                                              17
                                              
                                              
                                              
                                              (17
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              —Common
      stock issued re: ESPP
                                              
                                              
                                              124,492
                                              
                                              
                                              
                                              13
                                              
                                              
                                              
                                              167,167
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              167,180Net
      Income
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              3,127,843
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              3,127,843Purchase
      of treasury shares
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (403,138
                                              )
                                              
                                              
                                              (937,111
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (937,111
                                              )Change
      in fair value of interest rate swap agreement, net of tax
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              752,316
                                              
                                              
                                              
                                              752,316Balance – December
      31, 2009
                                              
                                              
                                              31,235,696
                                              
                                              
                                              
                                              3,124
                                              
                                              
                                              
                                              131,702,488
                                              
                                              
                                              
                                              (8,745,893
                                              )
                                              
                                              
                                              (31,209,118
                                              )
                                              
                                              
                                              (50,062,979
                                              )
                                              
                                              
                                              (643,524
                                              )
                                              
                                              
                                              49,789,991




The
accompanying notes are an integral part of these consolidated financial
statements.




ATS
CORPORATION




CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)





Fiscal Year Ended December 31,2009
                                      
                                      
                                      2008Net
      income (loss)
                                      
                                      $
                                      3,127,843
                                      
                                      
                                      $
                                      (49,828,415
                                      )Change
      in fair value of interest rate swap agreements
                                      
                                      
                                      752,316
                                      
                                      
                                      
                                      (978,069
                                      )Comprehensive
      income (loss)
                                      
                                      $
                                      3,880,159
                                      
                                      
                                      $
                                      (50,806,484
                                      )




The
accompanying notes are an integral part of these consolidated financial
statements.




42




ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
1 — Organization and Basis of Presentation
  ATS
Corporation (the “Company”) was incorporated in Delaware on April 12, 2005. The
Company was formed to serve as a vehicle for the acquisition of operating
businesses in the federal services and defense industries through a merger,
capital stock exchange, asset acquisition, stock purchase or other similar
business combinations.
  On
January 15, 2007, the Company began operations by consummating a business
combination and acquiring all of the outstanding capital stock of Advanced
Technology Systems, Inc. (“ATSI”) and its subsidiaries (collectively, “ATSI”), a
provider of systems integration and application development to the U.S.
government, for approximately $80.2 million in cash and an aggregate of 173,913
shares of common stock of the Company, valued at $1.0 million. The Company
funded the cash portion of the ATSI purchase price with the proceeds of its
initial public offering. The Company concluded three additional acquisition
transactions in 2007 and integrated all four companies into one operational
unit.
  The
Company is an information technology and professional services firm providing
information technology solutions and professional services to its clients,
primarily the U.S. government. ATSI operates in a single homogenous business
segment. Financial information is reviewed and evaluated by the chief operating
decision maker on a consolidated basis relating to the single business segment.
The Company sells similar services that exhibit similar economic characteristics
to similar classes of customers. Revenue is internally reviewed monthly by
management on an individual contract basis as a single business
segment.
  Note
2 — Summary of Significant Accounting Policies
  Use
of Accounting Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reported periods. The actual results could
differ from those estimates. Significant management estimates include amounts
estimated for costs to complete fixed-price contracts, estimated award fees for
certain cost-reimbursable contracts, the amortization period for long-lived
intangible assets, recoverability of long-lived assets, reserves for accounts
receivable, the determination of the fair values for certain intangible assets,
derivative financial instruments, and share-based payments, loss contingencies,
and the valuation of income taxes.
  Revenue
Recognition
  The
Company recognizes revenue when persuasive evidence of an arrangement exists,
services have been rendered or goods delivered, the contract price is fixed or
determinable, and collectability is reasonably assured. The Company’s revenue is
derived from primarily three different types of contractual arrangements:
time-and-materials contracts, fixed-price contracts and, to a lesser extent,
cost-plus-fee contracts. Revenue on time-and-material contracts is recognized
based on the actual hours performed at the contracted billable rates for
services provided, plus materials cost for products delivered to the customer,
and costs incurred on behalf of the customer. Revenue on fixed-price contracts
is recognized ratably over the period of performance or on
percentage-of-completion depending on the facts and circumstances of the
contract. Revenue on cost-plus-fee contracts is recognized to the extent of
costs incurred, plus an estimate of the applicable fees earned. Fixed fees under
cost-plus-fee contracts are recorded as earned in proportion to the allowable
costs incurred in performance of the contract. For cost-plus-fee contracts that
include performance based fee incentives, the Company recognizes the relevant
portion of the expected fee to be awarded by the customer at the time such fee
can be reasonably estimated, based on factors such as the Company’s prior award
experience and communications with the customer regarding performance. We did
not have any cost-plus-fee contracts in 2009 or 2008, but we do for
2010.
  The
Company’s fixed price contracts are either maintenance and support services
based or require some level of customization. Revenue is recognized ratably over
the contract period for maintenance and support contracts. In accordance with
ASC 985, Software, 605, “Revenue Recognition” (formerly Statement of Position
(SOP) 97-2, Software Revenue
Recognition), for certain of the Company’s fixed-price-completion
contracts that involve software design, customization, or integration,
management applies contract accounting pursuant to the provisions of ASC
985-605-35, “Revenue Recognition – Construction and Production-type Contracts”
(formerly SOP 81-1, Accounting
for Performance of Construction-Type and Certain Production-Type
Contracts). Revenue for such arrangements is recognized on the
percentage-of-completion method using costs incurred in relation to total
estimated project costs.
  43
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
2 — Summary of Significant Accounting Policies – (continued)
  Contract
costs include labor, material, subcontracting costs, and allocated allowable
selling, general and administrative costs. Revenue recognition requires judgment
in estimating the revenue and associated costs, assessing risk in performance,
and evaluating technical issues. The Company may estimate award fees and
incentive fees or penalties in recognizing revenue based on anticipated awards
or when there is sufficient information to determine.
  On
federal government contracts, the Company allocates costs to contracts
consistent with the federal procurement regulations. The direct and selling,
general and administrative costs associated with these contracts are subject to
government audit by DCAA or other cognizant audit agencies. The incurred cost
audits have been completed through October 31, 2005. Management does not
anticipate any material adjustment to the consolidated financial statements in
subsequent periods for audits not yet performed. The Company’s management
performs periodic reviews with the program managers to assess contract
performance. If an adjustment is necessary to a previous estimate, the change is
normally recorded in the current period earnings.
  Contract
revenue recognition inherently involves estimation. Examples of estimates
include the contemplated level of effort to accomplish the tasks under the
contract, the costs of the effort, and an ongoing assessment of the Company’s
progress toward completing the contract. From time to time, as part of its
standard management process, facts develop that require the Company to revise
its estimated total contract costs. To the extent that a revised estimate
affects contract profit or revenue previously recognized, the Company records
the cumulative effect of the revision in the period in which the revision
becomes known. The full amount of an anticipated loss on any type of contract is
recognized in the period in which it becomes probable and can reasonably be
estimated.
  Under
certain circumstances, the Company may elect to work at-risk prior to receiving
an executed contract document. The Company has a formal procedure for
authorizing any such at risk work to be incurred. Revenue associated with such
work is recognized only when it can be reliably estimated and realization is
probable. The Company uses its previous experience with customers and
communications with the customer regarding funding status as well as its
knowledge of available funding for the contract in making these
decisions.
  Operating
Cost and Expenses
  Direct
costs consist of all directly-related contract costs, including compensation
costs for personnel, material cost and any other direct costs. Also appropriate
selling, general and administrative costs are applied to employee direct labor,
subcontractor direct labor and material costs and included as direct costs.
Selling, general and administrative expenses include executive, administrative
and business development labor costs, indirect expenses related to the
performance of these functions, and allocations for fringe benefits costs.
Depreciation and amortization include the costs associated with the systematic
expensing of the Company’s fixed assets, as well as the amortization of the
intangible assets.
  Stock
Compensation
  Under the
fair value recognition provisions of ASC 718, Stock Compensation, (formerly SFAS
No. 123(R), Share Based
Payment(“FAS 123(R)”)), the Company recognizes stock-based compensation
based upon the fair value of the stock-based awards using the Black-Scholes
option pricing model and taking into account the effects of the employees’
expected exercise and post-vesting employment termination behavior.
  Deferred
Financing Costs
  Costs
associated with obtaining the Company’s financing arrangements are deferred and
amortized over the term of the financing arrangements using the straight-line
method.
  44
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
2 — Summary of Significant Accounting Policies – (continued)
  Income
Taxes
  The
Company accounts for income taxes using the asset and liability method whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities, and their respective tax basis, and operating loss and tax
credit carry forwards. The differences between the basis of the assets and
liabilities for financial reporting and income tax purposes are recorded as
deferred income taxes. Deferred tax assets and liabilities are measured using
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. When required, a valuation allowance is
established to reduce deferred tax assets to the amount expected to be realized.
If there is a change in tax rates the effect on deferred tax assets and
liabilities is recognized in income in the period the change
occurred.
  The
Company makes a comprehensive review of its portfolio of tax positions
regularly. In this regard, an uncertain tax position represents the Company’s
expected treatment of a tax position taken in a filed return, or planned to be
taken in a future tax return or claim that has not been reflected in measuring
income tax expense for financial reporting purposes. Until these positions are
sustained by the taxing authorities, the Company does not recognize the tax
benefits resulting from such positions and reports the tax effect as a liability
for uncertain tax positions in its consolidated statements of financial
position. The Company has no tax positions that have not been
recognized.
  Cash
and Cash Equivalents
  The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
  Fair
Value of Financial Instruments
  ASC Topic
825-10-65 requires disclosure about the fair value of financial instruments. We
believe the carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses and other current liabilities approximate
their estimated fair values at December 31, 2009 due to their short
maturities.
  The fair
value of the debt approximates its carrying value at the balance sheet date. The
fair value of the Company’s interest rate swap as of December 31, 2009 was based
on current market pricing models (See Note 11).
  Derivative
Instruments and Hedging Activities
  The
Company accounts for derivative instruments and hedging activities in accordance
with ASC 815. Accordingly, derivatives are recognized as either assets or
liabilities in the consolidated balance sheet, and gains and losses are
recognized based on changes in the fair values. The Company recognizes gains and
losses on derivatives designated or deemed to be an effective hedge, net of tax,
in accumulated other comprehensive income (loss) in the accompanying
consolidated financial statements. As an offset to gains or losses recognized in
comprehensive income a gross asset or liability is recognized, as well as an
appropriate deferred tax liability or asset. To the extent that the hedging
relationship is ineffective, the ineffective portion of the change in the fair
value is recorded to operations. The classification of gains and losses
resulting from the changes in fair values is dependent on the intended use of
the derivative and its resulting designation. The Company uses the change in
variable cash flow method to measure the effectiveness of its
hedges.
  Accounting
for Warrants and Derivative Instruments
  On
October 25, 2005, the Company consummated its initial public offering of
21,000,000 units. Each unit consisted of one share of common stock and two
redeemable common stock purchase warrants. Each warrant entitled the holder to
purchase from the Company one share of its common stock at an exercise price of
$5.00. The unexercised warrants expired October 19, 2009.
  Accounts
Receivable
  Accounts
receivable include amounts billed and due from customers, amounts earned but
unbilled (primarily related to contracts accounted for under the
percentage-of-completion method of accounting), and amounts retained by
customers pending contract completion.
  Credit
Risk
  Management
believes that credit risk related to the Company’s accounts receivable is
limited since the majority of balances outstanding are with agencies of the U.S.
government and the associated creditworthiness of the U.S.
government.
  45
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
2 — Summary of Significant Accounting Policies – (continued)
  Financial
Statements Reclassifications
  Certain
amounts on the prior period financial statements and related notes have been
reclassified to conform to the current presentation.
  Allowance
for Doubtful Accounts
  An
allowance for bad debt against billed accounts receivable is established by the
Company based on experience and information available regarding collectability
of receivables. Since the majority of the Company’s receivables result from
services provided to the U.S. government, the Company believes the credit risk
to be relatively low. The majority of the bad debt recognized in the twelve
months ended December 31, 2009 was related to the pre-acquisition commercial
sector receivables of Number Six Software. When the balance of an accounts
receivable is determined to be uncollectible after exercising all means of
collection, the receivable balances are written-off.
  Property
and Equipment
  Property
and equipment are recorded at cost. Furniture and equipment are depreciated
using the straight-line method over the estimated useful life of the asset based
on the asset class ranging from three to seven years. Leasehold improvements are
amortized over the lease term or useful life of the improvements, whichever is
shorter, using the straight-line method. All repairs and maintenance costs are
expensed when incurred.
  Goodwill
and Other Purchased Intangible Assets
  Goodwill
represents the excess of costs over fair value of net assets of businesses
acquired. Other purchased intangible assets include the fair value of items such
as customer contracts, backlog and customer relationships. ASC 350 establishes
financial accounting and reporting for acquired goodwill and other intangible
assets. Goodwill and indefinite lived intangible assets acquired in a purchase
business combination are not amortized, but rather tested for impairment on an
annual basis or at an interim date in the event of a triggering
event.
  The
estimated fair value of identified definitive-lived intangible assets is
amortized over the estimated useful life of the related intangible asset. We
have a process pursuant to which we typically retain third-party valuation
specialists to assist us with our analysis in determining the fair values and
useful lives of identified intangible assets. We evaluate these assets for
impairment when events occur that suggest a possible impairment. Such events
could include, but are not limited to, the loss of a significant client or
contract, decreases in federal government appropriations or funding for specific
programs or contracts, or other similar events. We determine impairment of
goodwill by comparing the carrying value of the reporting unit to the net
present value of its future net cash flows. If an impairment occurs, we will
record an impairment charge equal to the difference between the carrying value
of the reporting unit and its estimated discounted cash flows using a discount
rate based on our cost of capital and the related risks of recoverability,
combined with market price data, which is a level 2 input under ASC 820-25. See
Note 8.
  Long-Lived
Assets (Excluding Goodwill)
  In
accordance with the provisions of ASC 350-05 in accounting for long-lived assets
such as property and equipment and intangible assets subject to amortization,
the Company reviews the assets for impairment as described in Note 8. If
circumstances indicate the carrying value of the asset may not be fully
recoverable, a loss is recognized at the time impairment exists and a permanent
reduction in the carrying value of the asset is recorded. The Company believes
that the carrying value of its long-lived assets as of December 31, 2009 and
2008 is fully realizable. See Note 9.
  Comprehensive
Income (Loss)
  Comprehensive
income (loss) is the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources.
Other comprehensive income refers to revenue, expenses, and gains and losses
that under US GAAP are included in comprehensive income, but excluded from the
determination of net income (loss). The element within other comprehensive
income (loss), net of tax, represents the change in the fair value of interest
rate swap accounted for as a cash flow hedge. As of December 31, 2009 and 2008,
the accumulated other comprehensive loss, net of income tax effects, was
$643,524 and $1,395,840, respectively, related to the change in the fair value
of the interest rate swap.
  46
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
2 — Summary of Significant Accounting Policies – (continued)
  Commitments
and Contingencies
  Liabilities
for loss contingencies arising from claims, assessments, obligations, fines and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the claim can be reasonably
estimated.
  Income
(Loss) Per Share
  Basic and
diluted net income (loss) per share information is presented in accordance with
ASC 260, Earnings Per Share (ASC 260), (formerly SFAS No. 128, Earnings Per Share). Basic
income (loss) per share is calculated by dividing the net income (loss)
attributable to common stockholders by the weighted-average common shares
outstanding during the period. Diluted net income per share is calculated by
dividing net income attributable to common stockholders by the weighted average
common shares outstanding, which includes common stock equivalents. Common stock
equivalents are excluded from a calculation of diluted income (loss) per share
if the impact would be anti-dilutive. Diluted loss per share is calculated by
dividing the net income (loss) attributable to common stockholders by only the
weighted-average common shares outstanding during the period. The Company’s
common stock equivalents include stock options, restricted stock units, and
warrants. The weighted average shares outstanding for the year ended December
31, 2009 excludes warrants and stock options to purchase approximately 2,941,129
shares because such common stock equivalents have an exercise price in excess of
the average market price of the Company’s common stock during the period, or
would be anti-dilutive. For the year ended December 31, 2008, a total of
3,358,040 common stock equivalents were excluded from the calculation of diluted
loss per share for the Company. Information regarding the weighted average
number of basic and diluted shares is presented in Note 14.
  47
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
3 — Recent Accounting Pronouncements
  Adoption
of Codification: United States accounting and reporting standards have been
restructured. On July 1, 2009, effective for interim and annual periods ending
after September 15, 2009, the new FASB Accounting Standards Codification became
effective, superseding existing FASB, AICPA, EITF, and related literature. The
Codification does not change GAAP, it organizes GAAP into a new research system.
References to previous pronouncements have been updated to reflect the new
codification.
  ASC 820
Fair Value Measurements and Disclosures (Formerly FAS 157): ASC 820 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements.
Specifically, ASC 820 sets forth a definition of fair value, and establishes a
hierarchy prioritizing the inputs to valuation techniques, giving the highest
priority to quoted prices in active markets for identical assets and liabilities
and the lowest priority to unobservable inputs. The provisions of ASC 820 are
generally required to be applied on a prospective basis, except to certain
financial instruments accounted for under ASC 815, for which the provisions of
ASC 820 should be applied retrospectively. The disclosure requirements of ASC
820, which took effect on January 1, 2008, are presented in Note 11. On January
1, 2009, the Company implemented the previously-deferred provisions of ASC 820
for nonfinancial assets and liabilities recorded at fair value as required. The
implementation did not have a material effect on the Company’s consolidated
financial position or results of operations.
  ASC
805-20-25 Business Combinations (Formerly SFAS No. 141(R), Business Combinations(“FAS
141(R)”)): ASC 805-20-05 requires that the acquisition (or purchase) method of
accounting be used for all business combinations and expands the definition of a
business, thus increasing the number of transactions which may qualify as
business combinations. Contingent consideration will be measured at fair value
at the acquisition date, with changes in fair value recognized in earnings, and
transaction-related expenses and restructuring costs will be expensed as
incurred. Changes in acquired tax contingencies will be recognized in earnings
if outside the purchase price allocation period (generally one year or less).
Adjustments to finalize purchase price allocations have been revised in the
post-acquisition financial statements to reflect the adjustments as if they had
been recorded on the acquisition date. Also, in the event of a bargain purchase
(acquisition of a business at below fair market value of net assets acquired), a
gain could be recognized, or in the event of a change in control of an existing
investment, a gain or loss could be recognized. ASC 805 will be applied
prospectively to business acquisitions with acquisition dates on or after
January 1, 2009. There is no current impact as we have made no acquisitions
since January 1, 2009.
  ASC
825-10-65 (Formerly FASB Staff Position No. FAS 107-1 and APB 28-1): ASC
825-10-65 expands the fair value disclosures required for all financial
instruments within the scope of ASC 825 to interim periods. ASC 825-10-65 also
requires entities to disclose in interim periods the methods and significant
assumptions used to estimate the fair value of financial instruments. ASC
825-10-65 affects interim reporting periods ending after June 15, 2009. The
adoption of ASC 825-10-65 has not had a material impact on our financial
position, results of operations or cash flows.
  ASC 855-10-05 Subsequent Events
(Formerly SFAS No. 165,Subsequent
Events): ASC 855-10-05
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. ASC 855-10-05 affects interim or annual
periods ending after June 15, 2009. The Company has adopted the requirements of
this pronouncement. Management has evaluated events
occurring from December 31, 2009 through February 25, 2010 to ensure that the
impact of such events has been recorded or disclosed in the financial statements
and accompanying notes thereto.
  48
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
3 — Recent Accounting Pronouncements - Continued
  ASU
2009-13 & ASU 2009-14: In September, 2009, the FASB issued Accounting
Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements, and
ASU 2009-14, Certain Revenue Arrangements That Include Software Elements – a
consensus of the FASB Emerging Issues Task Force, to amend the existing revenue
recognition guidance. ASU 2009-13 amends ASC 605, Revenue Recognition, 25,
“Multiple-Element Arrangements” (formerly EITF Issue 00-21, “Revenue
Arrangements with Multiple Deliverables”), as follows: modifies criteria used to
separate elements in a multiple-element arrangement, introduces the concept of
“best estimate of selling price” for determining the selling price of a
deliverable, establishes a hierarchy of evidence for determining the selling
price of a deliverable, requires use of the relative selling price method and
prohibits use of the residual method to allocate arrangement consideration among
units of accounting, and expands the disclosure requirements for all
multiple-element arrangements within the scope of ASC 605-25.
  ASU
2009-14 amends the scope of ASC 985, Software, 605, “Revenue Recognition”
(formerly AICPA Statement of Position 97-2, Software Revenue Recognition), to
exclude certain tangible products and related deliverables that contain embedded
software from the scope of this guidance. Instead, the excluded products and
related deliverables must be evaluated for separation, measurement, and
allocation under the guidance of ASC 605-25, as amended by ASU
2009-13.
  The
amended guidance is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. An entity may elect retrospective application to
all revenue arrangements for all periods presented using the guidance in ASC
250, Accounting Changes and Error Corrections. Entities must adopt the
amendments resulting from both of these ASUs in the same period using the same
transition method, where applicable. Management is reviewing ASU 2009-13 and ASU
2009-14 for applicability to the Company’s revenue recognition
policies.
  Other new
pronouncements issued but not yet effective until after December 31, 2009 are
not expected to have a significant effect on the Company’s consolidated
financial position or results of operations.
  Note 4 — Accounts Receivable
  Accounts
receivable consists of the following:
 
 December 31,2009
                                    
                                    
                                    2008Billed
      receivables
                                    
                                    $
                                    19,559,013
                                    
                                    
                                    $
                                    25,603,602Unbilled
      receivables at end of period
                                    
                                    
                                    3,616,316
                                    
                                    
                                    
                                    4,371,919Other
      receivables
                                    
                                    
                                    65,965
                                    
                                    
                                    
                                    64,114Total
      accounts receivable, current
                                    
                                    
                                    23,241,294
                                    
                                    
                                    
                                    30,039,635Allowance
      for doubtful accounts
                                    
                                    
                                    (743,850
                                    )
                                    
                                    
                                    (770,988
                                    )Accounts
      receivable, net
                                    
                                    $
                                    22,497,444
                                    
                                    
                                    $
                                    29,268,647
  Billed
receivables represent amounts that have either been invoiced on time and
material contracts or milestones which have been achieved and invoiced on fixed
price contracts
  Unbilled
receivables include $3.5 million associated with fixed price contracts with
specific milestone billing requirements. These fixed priced contracts have
established milestone billing schedules for the duration of the contract. The
balance of the unbilled receivables is $0.1 million, representing retentions
associated with U.S. Coast Guard contracts. Most U.S. Coast Guard contracts
require that the Company retain approximately 4% of the invoiced amounts until
the period of performance is attained or the deliverable is achieved. All
unbilled amounts are expected to be billed in 2010 and are classified as current
assets in accordance with industry practice.
  The
allowance for doubtful accounts is management’s estimate for a prudent reserve
against these receivables. The reserves shown represent 3.2% and 2.6% of total
accounts receivable at December 31, 2009 and 2008, respectively.
  49
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 5 — Prepaid Expenses
  Prepaid
expenses consisted of the following:
  December 31,
                              2009
                            
                            
                            December 31,
                              2008Insurance
                            
                            $
                            191,793
                            
                            
                            $
                            212,119Vendor
      advances
                            
                            
                            —
                            
                            
                            
                            159,791Finance
      charges
                            
                            
                            70,269
                            
                            
                            
                            —Rent
                            
                            
                            148,242
                            
                            
                            
                            —Other
                            
                            
                            214,927
                            
                            
                            
                            166,064Total
      prepaids
                            
                            $
                            625,231
                            
                            
                            $
                            537,974
  Note
6 — Property and Equipment
  Property
and equipment are recorded at cost and are depreciated over the estimated useful
lives of the respective assets (generally three to seven years) using the
straight line method.
  Property
and equipment consisted of the following:
 
 December 31,
                              2009
                            
                            
                            December 31,
                              2008Equipment
      and furniture
                            
                            $
                            2,487,982
                            
                            
                            $
                            2,614,181Leasehold
      improvements
                            
                            
                            2,194,659
                            
                            
                            
                            2,194,659Property
      held under capital leases
                            
                            
                            —
                            
                            
                            
                            269,952Property
      and equipment, at cost
                            
                            
                            4,682,641
                            
                            
                            
                            5,078,792Less
      accumulated depreciation and amortization
                            
                            
                            (1,671,019
                            )
                            
                            
                            (1,182,136
                            )Less
      accumulated depreciation and amortization for leased
assets
                            
                            
                            —
                            
                            
                            
                            (184,316
                            )Total
      property and equipment, net
                            
                            $
                            3,011,622
                            
                            
                            $
                            3,712,340
  Depreciation
and amortization of fixed assets was $836,133 for the year ended December 31,
2009 and $1,254,287 for the year ended December 31, 2008. Accumulated
depreciation for property held under capital leases on December 31, 2009 and
2008 was $0 and $184,316, respectively.
  50
 
 ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
7 — Deferred Rent
  Deferred rent represents the liability associated
with the 10 year lease on the Company’s headquarters in McLean, Virginia. The
most significant components of deferred rent are the buildout cost, the original
basis of which was $3.2 million, and the amounts associated with the rent
escalation. The buildout cost is being amortized over the 10 year life of the
lease.The straight-line
rent amortization is the sum of the difference between a monthly rent payment
and the monthly rent expense of an operating lease that contains escalated
payments in future periods.
  (nearest 000)December 31,
                              2009
                            
                            
                            Change During
                              2009
                            
                            
                            December 31,
                              2008Build-out
                            
                            $
                            2,698,000
                            
                            
                            $
                            (320,000
                            )
                            
                            $
                            3,018,000Straight-line
      rent amortization
                            
                            
                            281,000
                            
                            
                            
                            169,000
                            
                            
                            
                            112,000Expired
      leases
                            
                            
                            —
                            
                            
                            
                            (91,000
                            )
                            
                            
                            91,000Totals
                            
                            $
                            2,979,000
                            
                            
                            $
                            (242,000
                            )
                            
                            $
                            3,221,000
  Note
8 — Goodwill
  As of
December 31, 2009, there was $55.4 million in goodwill recorded. The cost basis
of the goodwill that is deductible for income tax purposes is approximately
$14.0 million as of December 31, 2009.
  Goodwill
represents the excess of purchase price over the fair value of net assets
acquired in business acquisitions. In accordance with ASC 350, goodwill must be
recorded at the reporting unit level. Reporting units are defined as an
operating segment or one level below an operating segment. We operate as one
segment and one reporting unit. ASC 350 prohibits the amortization of goodwill,
but requires that it be tested for impairment at least annually (at any time
during the year, but at the same time each year), or more frequently if events
or circumstances change, such as adverse changes in the business climate, that
would more likely than not reduce the reporting unit’s fair value below its
carrying amount.
  The
Company performs its annual impairment tests as of August 31st each
year, the valuation date. As a result of such analysis in 2008, the Company
concluded that the estimated fair value of the Company exceeded its carrying
value. Thus the Company recorded an impairment charge of $56.8 million of which
$48.8 million was related to goodwill and $8.0 million was related to customer
related intangible assets.
  Following
the impairment and adjustments related to post-acquisition expenses, goodwill at
December 31, 2008 and December 31, 2009 was:
  Balance,
      January 1, 2008
                        
                        $
                        107,600,686Impairment
                        
                        
                        (48,820,588
                        )Other
      Adjustments
                        
                        
                        348,550Balance,
      December 31, 2008
                        
                        $
                        59,128,648Other
      Adjustment
                        
                        
                        (3,758,637
                        )Balance,
      December 31, 2009
                        
                        $
                        55,370,011
  51
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
8 — Goodwill  – (continued)
  During
2009, the Company recorded an approximately $3.8 million reduction to goodwill
reflecting the amount awarded from escrow as a result of a working capital
adjustment in the ATSI acquisition.
  In 2008,
in addition to the impairment charge, goodwill was adjusted to reflect the
payment of an earn-out associated with the PMG acquisition and other acquisition
related adjustments required to finalize the purchase price allocations related
to the 2007 acquisitions.
  Note
9 — Intangible Assets
  Intangible
assets represent the customer contracts and backlog resulting from the
acquisitions as follows:
  December 31,
                                  2009
                                
                                
                                December 31,
                                  2008Customer
      contracts and relationships
                                
                                
                                8,235,000
                                
                                
                                $
                                8,235,000Marketing
      and technology
                                
                                
                                1,112,286
                                
                                
                                
                                1,112,286Intangible
      assets
                                
                                
                                9,347,286
                                
                                
                                
                                9,347,286Less
      accumulated amortization
                                
                                
                                (3,244,488
                                )
                                
                                
                                (1,042,600
                                )Total
      intangible assets, net
                                
                                $
                                6,102,798
                                
                                
                                $
                                8,304,686
  The
Company recorded an impairment charge related to intangible assets in the amount
of approximately $8 million for the fiscal year ended 2008.
  Intangible
assets subject to amortization were evaluated as follows:
 
 Assets
                                  
                                  Weighted-
                                    Average
                                    Amortization
                                    Period
                                  
                                  Carrying
                                    Amount as of
                                    December 31,
                                    2009
                                  
                                  
                                  Amortization
                                    2009
                                  
                                  
                                  Adjusted
                                    Carrying
                                    Amount as of
                                    December 31,
                                    2008Customer-related
      intangible assets
                                  
                                  53
      mos.
                                  
                                  $
                                  5,748,964
                                  
                                  
                                  $
                                  (1,864,527
                                  )
                                  
                                  $
                                  7,613,491Marketing-related
      intangible assets
                                  
                                  38
      mos.
                                  
                                  
                                  132,267
                                  
                                  
                                  
                                  (254,523
                                  )
                                  
                                  
                                  386,790Technology-related
      intangible assets
                                  
                                  60
      mos.
                                  
                                  
                                  221,567
                                  
                                  
                                  
                                  (82,838
                                  )
                                  
                                  
                                  304,405Totals
                                  
                                  52
      mos.
                                  
                                  $
                                  6,102,798
                                  
                                  
                                  $
                                  (2,201,888
                                  )
                                  
                                  $
                                  8,304,686
  The
combined weighted average amortization period of all intangible assets is
scheduled below.
 
 Basis for Amortization
                                        
                                        Asset Value
                                        
                                        Remaining LifeCustomer
      contracts and relationships
                                        
                                        $
                                        8,235,000
                                        
                                        53
      mos.Marketing
      and technology
                                        
                                        
                                        1,112,286
                                        
                                        46
      mos.Total
                                        
                                        
                                        9,347,286
  52
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
9 — Intangible Assets  – (continued)
  The
intangible assets are amortized over periods ranging from 26 to 60 months.
Amortization expense for the years ended December 31, 2009 and 2008 was $2.2
million and $5.2 million, respectively. Expected amortization expense for each
of the fiscal years through December 31, 2013 is as follows:
  Fiscal Year Ended
                          
                          AmountDecember
      31, 2010
                          
                          
                          1,992,328December
      31, 2011
                          
                          
                          1,992,328December
      31, 2012
                          
                          
                          1,962,764December
      31, 2013
                          
                          
                          155,378Total
                          
                          $
                          6,102,798
  Note
10 — Restricted Cash
  The
Company is required to maintain $1,200,000 on deposit with a financial
institution to support a bonding requirement for one of ATSI’s state contracts.
Such amount including interest earned is reflected in restricted cash in the
accompanying 2009 consolidated balance sheet.We expect the performance under this contract to be completed in 2010, whereby
the bond will be released and the deposit refunded, and have classified such
amount as a current asset.
  Note
11 — Debt
  Debt
consisted of the following:
  December 31,
                                2009
                              
                              
                              December 31,
                                2008Bank
      Financing
                              
                              $
                              18,688,235
                              
                              
                              $
                              32,555,058Notes
      payable
                              
                              
                              2,502,900
                              
                              
                              
                              4,520,833Total
      long-term debt
                              
                              $
                              21,191,135
                              
                              
                              $
                              37,075,891Less
      current portion
                              
                              
                              (21,191,135
                              )
                              
                              
                              (2,583,333
                              )Long-term
      debt, net of current portion
                              
                              $
                              —
                              
                              
                              $
                              34,492,558
  Bank Financing
  The
Company has a credit facility with Bank of America, N.A. (the “Facility”) which
provides for borrowing up to $50 million.
  The
Facility is a three-year, secured facility that permits continuously renewable
borrowings of up to $50.0 million, with an expiration date of June 4, 2010. The
Company pays a fee in the amount of .20% to .375% on the unused portion of the
Facility, based on its consolidated leverage ratio, as defined. Any outstanding
balances under the Facility are due in full June 4, 2010. Management is in the
process of renewing or obtaining a new credit facility to refinance outstanding
borrowing and provide for additional working capital for business needs. Based
upon such discussions, management believes it will obtain new financing under
terms similar to the existing Facility.
  Borrowings
under the Facility bear interest at rates based on 30 day LIBOR plus applicable
margins based on the leverage ratio as determined quarterly. As of December 31,
2009, the effective interest rate, excluding the effect of amortization of debt
financing costs, for the outstanding borrowings under the Facility was
4.7%.
  The
Company capitalized $205,000 of debt issuance costs in 2007 associated with the
Facility. An additional $130,091 in financing costs were capitalized in May 2008
in connection with the third amendment to the Facility. All debt financing costs
are being amortized from the date incurred to June 4, 2010, the maturity date of
the Facility. The unamortized balance of $70,269 at December 31, 2009 is
included in prepaid expenses.
  As a
condition to the increase in the commitments by the bank under the Facility, the
Company entered into a forward interest rate swap agreement in November 2007
under which it exchanged floating-rate interest payments for fixed-rate interest
payments. The agreement covers a notional amount of $35.0 million and provides
for swap payments through December 1, 2010 with such swaps being settled on a
monthly basis. The fixed interest rate provided by the agreement is
4.47%.
  53
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
11 — Debt – (continued)
  The
Company accounts for its interest rate swap agreement as a cash flow hedge, the
fair value of an interest rate swap is based on the net present value of its net
projected cash flows, which are a level 3 input under ASC 820-25 (Formerly FAS
157). The Company has determined that the swap is 81.1% effective for the
variable rate debt for the year ended December 31, 2009 and 100% for the year
ended December 31, 2008. Accordingly, the fair value of the interest rate swap
agreement at December 31, 2009, a liability of $1.4 million, has been reported
in other accrued expenses and current liabilities with an offset, net of an
income tax effect of $0.5 million. In addition, the ineffectiveness of the
instrument resulted in the recognition of an interest expense amount of $0.4
million, which is itself net of deferred income taxes of $0.1 million. This
resulted in an amount included in accumulated other comprehensive income within
stockholders’ equity of $0.6 million. The decrease in fair value of $0.9 million
from $2.3 million as of December 31, 2008, which is net of income tax effects of
$0.3 million, is reported as comprehensive loss in the accompanying consolidated
statement of comprehensive income for the year ended December 31, 2009.If the Company determines that the swap has
become ineffective, the remainder of the other comprehensive loss could be
reclassified to operating income.
  Cash Flow Hedge
                          
                          Balances
                            December 31,
                            2009
                          
                          
                          Changes
                            During
                            Year
                          
                          
                          Effectiveness
                            Entry
                          
                          
                          Balances
                            December 31,
                            2008Deferred
      income tax
                          
                          $
                          400,571
                          
                          
                          $
                          (349,981
                          )
                          
                          $
                          (136,864
                          )
                          
                          $
                          887,416Other
      long-term liability
                          
                          
                          (1,044,095
                          )
                          
                          
                          885,141
                          
                          
                          
                          354,020
                          
                          
                          
                          (2,283,256
                          )Other
      comprehensive loss
                          
                          
                          643,524
                          
                          
                          
                          (535,160
                          )
                          
                          
                          (217,156
                          )
                          
                          
                          1,395,840Total
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
  As of
December 31, 2009, the Company estimates the amount of unrecognized losses on
cash flow hedges to be reclassified to earnings in the next twelve months to be
approximately $0.6 million.
  Notes
Payable
  The
Company entered into notes with the sellers in connection with the acquisitions
of PMG and NSS as scheduled below, as well as a note to finance an insurance
premium.
  Notes
                                            
                                            Date of
                                              Note
                                            
                                            12/31/2009
                                              Long Term
                                              Portion
                                            
                                            
                                            12/31/2009
                                              Current
                                              Portion
                                            
                                            
                                            2009
                                              Principal
                                              Payments
                                            
                                            
                                            2009
                                              Notes Issued
                                            
                                            
                                            12/31/2008
                                              Balances
                                            
                                            
                                            2009
                                              Interest
                                              Payments
                                            
                                            
                                            Interest
                                              RatePMG
      acquisition
                                            
                                            08/31/2007
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            562,500
                                            
                                            
                                            $
                                            750,000
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            1,312,500
                                            
                                            
                                            $
                                            70,331
                                            
                                            
                                            
                                            6.82
                                            %(1)NSS
      acquisition
                                            
                                            11/09/2007
                                            
                                            
                                            —
                                            
                                            
                                            
                                            1,889,362
                                            
                                            
                                            
                                            1,318,971
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            3,208,333
                                            
                                            
                                            
                                            161,484
                                            
                                            
                                            
                                            6.6275
                                            %(2)Premium
                                            
                                            07/01/2009
                                            
                                            
                                            —
                                            
                                            
                                            
                                            51,038
                                            
                                            
                                            
                                            88,138
                                            
                                            
                                            
                                            139,176
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            1,633
                                            
                                            
                                            
                                            2.71
                                            %(3)Total
                                            
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            2,502,900
                                            
                                            
                                            $
                                            2,157,109
                                            
                                            
                                            $
                                            139,176
                                            
                                            
                                            $
                                            4,520,833
                                            
                                            
                                            $
                                            233,448
  (1)
              Interest and principal payments
      due quarterly with final payment due August
  2010.
 
 (2)
              Interest and principal payments
      due quarterly with final payment due November
  2010.
 
 (3)
              Note signed for 10 months for
      general business insurance
premium.
 
 54




ATS
CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
12 — Other Accrued Expenses and Current Liabilities




Other
accrued expenses and current liabilities consisted of the
following:





December 31,
                              2009
                            
                            
                            December 31,
                              2008Bank
      overdraft
                            
                            $
                            1,989,189
                            
                            
                            $
                            2,734,869Loss
      Contingency
                            
                            
                            1,500,000
                            
                            
                            
                            —Swap
      liability
                            
                            
                            1,398,115
                            
                            
                            
                            —Accrued
      expenses
                            
                            
                            987,375
                            
                            
                            
                            909,986Accrued
      interest expense
                            
                            
                            183,118
                            
                            
                            
                            222,726Contract
      loss reserves
                            
                            
                            52,416
                            
                            
                            
                            712,542Other
                            
                            
                            246,683
                            
                            
                            
                            94,405Total
      other accrued expenses and current liabilities
                            
                            $
                            6,356,896
                            
                            
                            $
                            4,674,528




Note
13 — Leases




The
Company leases office space and certain equipment under various operating
leases. Rent expense on certain leases containing fixed escalations or other
lease incentives is recognized on a straight line basis over the term of each
lease. The leases expire over the next nine years. As of December 31, 2009,
future minimum lease payments due under these leases are as
follows:





Year
                                  
                                  Operating
                                    Leases
                                  
                                  
                                  Facility
                                    Rent
                                  
                                  
                                  Subtotal
                                    Commitments
                                  
                                  
                                  Sublease
                                    Income
                                  
                                  
                                  Net Lease
                                    Payments2010
                                  
                                  $
                                  16,586
                                  
                                  
                                  $
                                  2,115,407
                                  
                                  
                                  $
                                  2,131,993
                                  
                                  
                                  $
                                  2,319
                                  
                                  
                                  $
                                  2,129,6742011
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,734,709
                                  
                                  
                                  
                                  1,734,709
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,734,7092012
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,745,153
                                  
                                  
                                  
                                  1,745,153
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,745,1532013
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,788,782
                                  
                                  
                                  
                                  1,788,782
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,788,7822014
      and thereafter
                                  
                                  
                                  —
                                  
                                  
                                  
                                  8,444,791
                                  
                                  
                                  
                                  8,444,791
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  8,444,791Total
                                  
                                  $
                                  16,586
                                  
                                  
                                  $
                                  15,828,842
                                  
                                  
                                  $
                                  15,845,428
                                  
                                  
                                  $
                                  2,319
                                  
                                  
                                  $
                                  15,843,109




Rent
expense was approximately $2,330,000 and $3,216,000, for the years ended
December 31, 2009 and 2008, respectively.


55


ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
14 — Income (Loss) Per Share
  Income
(loss) per share and the weighted average common shares are calculated as
follows:
 
 ATS CorporationYears Ended December 31,2009
                                      
                                      
                                      2008Net
      Income (Loss)
                                      
                                      $
                                      3,127,843
                                      
                                      
                                      $
                                      (49,828,415
                                      )Weighted
      average number of basic shares outstanding during the
    period
                                      
                                      
                                      22,669,066
                                      
                                      
                                      
                                      21,231,654Dilutive
      effect of shares from assumed conversion of options, warrants and
      restricted stock
                                      
                                      
                                      97,774
                                      
                                      
                                      
                                      —Weighted
      average number of dilutive shares outstanding during the
      period
                                      
                                      
                                      22,766,840
                                      
                                      
                                      
                                      21,231,654Basic
      net income (loss) per share
                                      
                                      $
                                      0.14
                                      
                                      
                                      $
                                      (2.35
                                      )Diluted
      net income (loss) per share
                                      
                                      $
                                      0.14
                                      
                                      
                                      $
                                      (2.35
                                      )
  The
weighted average shares outstanding for the year ended December 31, 2009
excludes warrants and stock options to purchase approximately 2,941,129 shares
because such common stock equivalents have an exercise price in excess of the
average market price of the Company’s common stock during the period, or would
be anti-dilutive. For the year ended December 31, 2008, a total of 14,690,529
common stock equivalents were excluded from the calculation of diluted loss per
share for the Company.
  56
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
15 — Stock Plans and Stock-Based Compensation
  Under the
fair value recognition provisions of ASC 718 Compensation – Stock Compensation
(formerly SFAS No. 123(R)), the Company recognizes stock-based compensation
based upon the fair value of the stock-based awards taking into account the
effects of the employees’ expected exercise and post-vesting employment
termination behavior. A summary of the components of stock-based compensation
expense and related income tax benefits recognized during the years ended
December 31, 2009 and 2008 is as follows:
 
 Years Ended December 31,2009
                                            
                                            2008Stock-based
      compensation included in selling & general administrative
      expensesNon-qualified
      stock option expense
                                            
                                            $
                                            143,153
                                            
                                            
                                            $
                                            119,066Restricted
      stock expense
                                            
                                            
                                            511,407
                                            
                                            
                                            
                                            577,888Stock
      grants to directors in lieu of cash
                                            
                                            
                                            113,747
                                            
                                            
                                            
                                            179,990Total
      stock-based compensation expense
                                            
                                            $
                                            768,307
                                            
                                            
                                            $
                                            876,944Related
      recognized tax benefit
                                            
                                            
                                            (185,770
                                            )
                                            
                                            
                                            (182,934
                                            )Total
      After-Tax Stock-Based Compensation Expense
                                            
                                            $
                                            582,537
                                            
                                            
                                            $
                                            694,010
  The fair
value of options granted during the year ended December 31, 2009 and December
31, 2008 has been estimated as of the date of grant using the Black-Scholes
option pricing model with the following range or weighted average
assumptions:
 
 Year
      Ended
                      December
      31,
                      2009
                    
                    
                    Year
      Ended
                      December
      31,
                      2008Expected
      dividend yield
                    
                    
                    —
                    %
                    
                    
                    —
                    %Expected
      volatility
                    
                    
                    55.3-80.4
                    %
                    
                    
                    36.2-43.0
                    %Risk
      free interest rate
                    
                    
                    1.42
                    %
                    
                    
                    2.99
                    %Expected
      life of options
                    
                    6.25
      years
                    
                    
                    6.25
      yearsForfeiture
      rate
                    
                    
                    4.25
                    %
                    
                    
                    4.25
                    %
  Expected
volatility is calculated based on a two-year running average based on the
Company’s stock price. Prior to December 31, 2008, the Company calculated
expected volatility using the stock prices of similar companies in its peer
group.
  On
January 12, 2008, the stockholders of the Company approved the ATS Corporation
2006 Omnibus Incentive Compensation Plan (the “Plan”). Under the Plan, the
Company reserved 1.5 million shares of the Company’s common stock for issuance
to employees and directors through incentive stock options, or non-qualified
stock options or through restricted stock units. During the year ended December
31, 2009, the Company issued 332,000 stock options and 263,142 shares of
restricted stock. The stock options have vesting periods of up to four years.
During the year ended December 31, 2009, 141,875 options vested, of which 15,125
vested options were forfeited after termination of employment. In addition,
73,375 unvested options were subsequently forfeited in 2009.
  57
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
15 — Stock Plans and Stock-Based Compensation
 – (continued)
  A summary
of the stock option activity is presented below:
  (In Thousands, Except Share
and
                            Per Share Data)
                          
                          Shares
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price
                            Per Share
                          
                          
                          Weighted
                            Average
                            Remaining
                            Contractual
                            Term (Years)
                          
                          
                          Aggregate
                            Intrinsic
                            ValueOptions
      outstanding, January 1, 2008
                          
                          
                          404,000
                          
                          
                          $
                          3.92
                          
                          
                          
                          9.66
                          
                          
                          $
                          —Options
      granted
                          
                          
                          178,500
                          
                          
                          
                          2.15
                          
                          
                          
                          
                          
                          
                          
                          —Options
      forfeited
                          
                          
                          (188,000
                          )
                          
                          
                          3.84
                          
                          
                          
                          
                          
                          
                          
                          —Options
      outstanding, January 1, 2009
                          
                          
                          394,500
                          
                          
                          $
                          3.16
                          
                          
                          
                          8.97
                          
                          
                          $
                          —Options
      granted
                          
                          
                          332,000
                          
                          
                          
                          1.52
                          
                          
                          
                          
                          
                          
                          
                          302,160Options
      forfeited
                          
                          
                          (88,500
                          )
                          
                          
                          2.39
                          
                          
                          
                          
                          
                          
                          
                          39,245Options
      outstanding, December 31, 2009
                          
                          
                          638,000
                          
                          
                          $
                          2.41
                          
                          
                          
                          8.58
                          
                          
                          
                          310,655Options
      exercisable at December 31, 2009
                          
                          
                          132,000
                          
                          
                          $
                          3.48
                          
                          
                          
                          7.82
                          
                          
                          $
                          10,430
 
 Options
outstanding as of December 31, 2009 were:
 
 Options
      Outstanding
                                        
                                        
                                        Options
      ExercisableExercise
                                          Prices
                                        
                                        Number
                                          Outstanding
                                        
                                        
                                        Weighted-
                                          average
                                          Remaining
                                          Life
      in Years
                                        
                                        
                                        Weighted-
                                          average
                                          Exercise
                                          Price
                                        
                                        
                                        Aggregate
                                          Intrinsic
      Value
                                        
                                        
                                        Number
                                          Exercisable
                                        
                                        
                                        Weighted-
                                          average
                                          Exercise
                                          Price
                                        
                                        
                                        Aggregate
                                          Intrinsic
      Value$
                                        1.40
                                        
                                        
                                        80,000
                                        
                                        
                                        
                                        9.0
                                        
                                        
                                        $
                                        1.40
                                        
                                        
                                        $
                                        82,400
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        —1.50
                                        
                                        
                                        199,500
                                        
                                        
                                        
                                        9.3
                                        
                                        
                                        
                                        1.50
                                        
                                        
                                        
                                        185,535
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —2.15
                                        
                                        
                                        149,000
                                        
                                        
                                        
                                        8.4
                                        
                                        
                                        
                                        2.15
                                        
                                        
                                        
                                        41,720
                                        
                                        
                                        
                                        37,250
                                        
                                        
                                        $
                                        2.15
                                        
                                        
                                        
                                        10,4302.23
                                        
                                        
                                        5,000
                                        
                                        
                                        
                                        9.7
                                        
                                        
                                        
                                        2.23
                                        
                                        
                                        
                                        1,000
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —2.50
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        10.0
                                        
                                        
                                        
                                        2.50
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —3.40
                                        
                                        
                                        50,000
                                        
                                        
                                        
                                        8.0
                                        
                                        
                                        
                                        3.40
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        25,000
                                        
                                        
                                        
                                        3.40
                                        
                                        
                                        
                                        —3.50
                                        
                                        
                                        30,000
                                        
                                        
                                        
                                        7.9
                                        
                                        
                                        
                                        3.50
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        3.50
                                        
                                        
                                        
                                        —3.67
                                        
                                        
                                        30,000
                                        
                                        
                                        
                                        7.8
                                        
                                        
                                        
                                        3.67
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        3.67
                                        
                                        
                                        
                                        —3.75
                                        
                                        
                                        4,500
                                        
                                        
                                        
                                        7.5
                                        
                                        
                                        
                                        3.75
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,250
                                        
                                        
                                        
                                        3.75
                                        
                                        
                                        
                                        —4.32
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        7.2
                                        
                                        
                                        
                                        4.32
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        7,500
                                        
                                        
                                        
                                        4.32
                                        
                                        
                                        
                                        —4.88
                                        
                                        
                                        60,000
                                        
                                        
                                        
                                        7.2
                                        
                                        
                                        
                                        4.88
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        30,000
                                        
                                        
                                        
                                        4.88
                                        
                                        
                                        
                                        —638,000
                                        
                                        
                                        
                                        8.6
                                        
                                        
                                        $
                                        2.41
                                        
                                        
                                        $
                                        310,655
                                        
                                        
                                        
                                        132,000
                                        
                                        
                                        $
                                        3.48
                                        
                                        
                                        $
                                        10,430
  The
weighted average grant date fair value of options granted during the years ended
December 31, 2009 and 2008 were $0.94 and $2.15. As of December 31, 2009, there
was approximately $544,000 of unrecognized compensation expense, to be
recognized over a weighted-average period of 2.8 years. The fair value of
options vested during the twelve month periods ended December 31, 2009 and 2008
was approximately $113,000 and $220,000, respectively.
  Pursuant
to the Plan, during the year ended December 31, 2009, the Company granted
263,142 restricted shares valued at $0.4 million to certain employees and
directors. The stock price range was from $1.40 to $1.75 per share. Such shares
vest ratably over a five-year period. During 2009, 170,427 shares from current
and previous years vested.
  58
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
15 — Stock Plans and Stock-Based Compensation
 – (continued)
  A summary
of the activity of the Company’s restricted shares is presented
below:
 
 Nonvested
      Restricted Stock
                            
                            No.
      of
                              Shares
                            
                            
                            Weighted-average
                              Grant-Date
                              Fair
      ValueNonvested
      at January 1, 2008
                            
                            
                            625,662
                            
                            
                            $
                            3.72Granted
                            
                            
                            102,604
                            
                            
                            
                            2.11Vested
                            
                            
                            (168,005
                            )
                            
                            
                            3.69Forfeited
                            
                            
                            (152,396
                            )
                            
                            
                            3.57Nonvested
      at January 1, 2009
                            
                            
                            407,865
                            
                            
                            $
                            3.38Granted
                            
                            
                            263,142
                            
                            
                            
                            1.49Vested
                            
                            
                            (170,427
                            )
                            
                            
                            3.08Forfeited
                            
                            
                            (37,594
                            )
                            
                            
                            3.28Nonvested
      at December 31, 2009
                            
                            
                            462,986
                            
                            
                            $
                            2.42
  There was
$1.1 million of total unrecognized compensation cost, net of estimated
forfeitures, related to restricted shares granted under the Plan as of December
31, 2009. That cost is expected to be recognized over a weighted-average period
of 1.7 years. The total fair value of shares vested during the year ended
December 31, 2009 was $524,314.
  In
addition to employee based stock compensation the directors have the option to
be paid their fees in stock or cash. Director fees paid in the form of stock
during 2009 and 2008 amounted to $113,747 and 179,990,
respectively.
  Stock
Purchase Plan
  On July
24, 2007, the Company adopted an employee stock purchase program with a
commencement date of October 1, 2007. The program is officially called the 2007
Employee Stock Purchase Plan (the “ESPP”). The Company initially reserved an
aggregate of 150,000 shares of Common Stock exclusively for issuance under the
ESPP. Under the ESPP eligible employees may acquire shares of the Company’s
common stock at periodic intervals, namely four month offering periods (the
“Offering Periods”) during which payroll deductions are made and shares are
subsequently purchased at a discount. The ESPP was approved by our shareholders
at the May 7, 2008 annual meeting. As of December 31, 2009, 249,973 shares have
been issued under the ESPP at a weighted average price per share of
$1.76.  Of these shares, 124,492 were purchased by the employees at a
weighted average price per share of $1.34 during the twelve months ended
December 31, 2009.
  The
number of shares of common stock authorized under the ESPP is subject to an
automatic annual increase on the first day of the Company’s fiscal year by an
amount equal to the lesser of (i) 100,000 shares, (ii) 1% of the outstanding
shares on such date, or (iii) a lesser amount determined by the Board of
Directors. Accordingly, the Board has increased the number of shares authorized
under the ESPP by 100,000 for fiscal years 2009 and 2010.
  Note
16 — Common Stock
  On
May 19, 2008, the Company announced the completion of its early warrant exercise
program. As a result of the 33,400,020 warrants exercised in this program,
2,972,204 new shares of common stock were issued. This consisted of 33,073,703
warrants tendered for cashless exercise in exchange for 2,645,887 shares of
common stock (on the basis of 12.5 warrants for one share of common stock), and
326,317 warrants exercised by payment of a reduced cash price of $2.25 per
share. Proceeds received by the Company were $734,192 and expenses were
$500,057. The 2,980,175 warrants that were not exercised during the tender offer
had their original terms reinstituted and expired on October 19,
2009.
  On
October 19, 2008, the Company agreed to release the 2,625,000 shares of common
stock held in escrow by the initial stockholders of Federal Services Acquisition
Corporation and former members of FSAC Partners, LLC. Also on October 19, 2008,
the Company removed the restricted legend from the 46,296 shares held by the
former owner of RISI. The legend restricted the resale of the subject
shares.
  59
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
16 — Common Stock  – (continued)
  On
February 12, 2009, the Board of Directors approved a repurchase program
authorizing the Company to purchase up to 2.0 million shares of Company common
stock for not more than $3 million, in the open market from time to time over a
twelve-month period. The timing of the share repurchases under the program is at
the discretion of the Company and will depend on a variety of factors, including
market conditions and bank approvals and may be suspended or discontinued at any
time. Common stock acquired through the repurchase program will be held by the
Company as treasury shares and may be used for general corporate purposes,
including re-issuances in connection with acquisitions, employee stock option
exercises or other employee stock plans.
  ATSC
repurchased approximately 403,000 shares of common stock for approximately
$937,000 during the five months ended December 31, 2009 as part of the
repurchase program. The Company currently has approximately 22.5 million shares
outstanding.
  Note
17 — Income Taxes
  Effective
January 1, 2007, the Company was required to adopt FASB Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes now ASC Topic 740-10, Income Taxes (ASC740-10)). ASC 740-10
prescribes a more-likely-than-not threshold of financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return.
This interpretation also provides guidance on de-recognition of income tax
assets and liabilities, classification of current and deferred tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures. Since adoption, the Company has not had any uncertain tax positions
requiring derecognition.
  The
Company files its tax returns as prescribed by the tax laws of the jurisdictions
in which it operates. The Company, or its subsidiary, files income tax returns
in the U.S. federal jurisdiction and various states. For income tax returns
filed by us, the Company is no longer subject to U.S. federal and state and
local tax examinations by tax authorities for years before 2006, although carry
forward tax attributes that were generated prior to 2005 may still be adjusted
upon examination by tax authorities if they either have been or will be
utilized. It is the Company’s policy to recognize interest and penalties related
to income tax matters in penalty expense. For both the years ended December 31,
2009 and 2008, there were less than $0.1 million interest and penalties,
respectively.
  The
components of income tax expense (benefit) are as follows:
  Year
      Ended December 31,2009
                      
                      
                      2008Current:Federal
                      
                      $
                      2,429,396
                      
                      
                      $
                      2,828,920State
      and local
                      
                      
                      519,057
                      
                      
                      
                      375,574Total
      current
                      
                      
                      2,948,453
                      
                      
                      
                      3,204,494Deferred:Federal
                      
                      
                      (684,898
                      )
                      
                      
                      (6,927,277
                      )State
      and local
                      
                      
                      (82,828
                      )
                      
                      
                      (919,681
                      )Total
      deferred
                      
                      
                      (767,726
                      )
                      
                      
                      (7,846,958
                      )Total
      income tax expense (benefit)
                      
                      $
                      2,180,727
                      
                      
                      $
                      (4,642,464
                      )
  60
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
17 — Income Taxes  – (continued)
  The
income tax expense differs from the amounts computed by applying the statutory
U.S. income tax rate of 34% as a result of the following:
 
 Year
      Ended December 31,
                              
                              
                              Year
      Ended December 31,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Expected
      tax expense computed at the federal rate
                              
                              $
                              1,804,914
                              
                              
                              $
                              (18,520,099
                              )
                              
                              
                              34.0
                              %
                              
                              
                              34.0
                              %(Not
      includable) nondeductible items
                              
                              
                              (46,885
                              )
                              
                              
                              244,568
                              
                              
                              
                              (0.8
                              )%
                              
                              
                              (0.4
                              )%Goodwill
      impairment
                              
                              
                              —
                              
                              
                              
                              15,837,442
                              
                              
                              
                              —
                              
                              
                              
                              (29.1
                              )%Adjustment
      for prior-year taxes
                              
                              
                              180,881
                              
                              
                              
                              284,034
                              
                              
                              
                              3.4
                              %
                              
                              
                              (0.5
                              )%State
      and local taxes, net of federal
                              
                              
                              235,586
                              
                              
                              
                              (2,458,771
                              )
                              
                              
                              4.4
                              %
                              
                              
                              4.5
                              %Other
                              
                              
                              6,231
                              
                              
                              
                              (29,638
                              )
                              
                              
                              0.1
                              %
                              
                              
                              0.1
                              %Total
      income tax expense (benefit)
                              
                              $
                              2,180,727
                              
                              
                              $
                              (4,642,464
                              )
                              
                              
                              41.1
                              %
                              
                              
                              8.6
                              %
  The tax
effects of temporary differences that give rise to significant deferred tax
assets (liability) are presented below:
 
 As
      of December 31,2009
                                                      
                                                      
                                                      2008Deferred
      tax assets:Reserves
      and accruals
                                                      
                                                      $
                                                      1,854,709
                                                      
                                                      
                                                      $
                                                      1,243,448Goodwill
                                                      
                                                      
                                                      1,831,086
                                                      
                                                      
                                                      
                                                      2,296,397Fixed
      assets
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —Stock-based
      compensation
                                                      
                                                      
                                                      77,336
                                                      
                                                      
                                                      
                                                      211,790Deferred
      rent
                                                      
                                                      
                                                      1,144,891
                                                      
                                                      
                                                      
                                                      1,240,800Capital
      loss on sale of ATS International
                                                      
                                                      
                                                      140,750
                                                      
                                                      
                                                      
                                                      141,029Net
      operating loss carry forward
                                                      
                                                      
                                                      327,364
                                                      
                                                      
                                                      
                                                      357,831Start
      up costs
                                                      
                                                      
                                                      400,298
                                                      
                                                      
                                                      
                                                      434,515Other
                                                      
                                                      
                                                      537,445
                                                      
                                                      
                                                      
                                                      879,371Total
      deferred tax assets
                                                      
                                                      
                                                      6,313,879
                                                      
                                                      
                                                      
                                                      6,805,181Valuation
      allowance
                                                      
                                                      
                                                      (140,750
                                                      )
                                                      
                                                      
                                                      (141,029
                                                      )Total
      deferred tax assets net of valuation allowance
                                                      
                                                      
                                                      6,173,129
                                                      
                                                      
                                                      
                                                      6,664,152Deferred
      tax liabilities:Goodwill
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —Fixed
      assets
                                                      
                                                      
                                                      (1,010,184
                                                      )
                                                      
                                                      
                                                      (1,123,725
                                                      )Intangible
      assets
                                                      
                                                      
                                                      (1,244,739
                                                      )
                                                      
                                                      
                                                      (2,007,993
                                                      )Prepaid
      expenses
                                                      
                                                      
                                                      (156,335
                                                      )
                                                      
                                                      
                                                      (207,196
                                                      )Other
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —Total
      deferred tax liabilities
                                                      
                                                      
                                                      (2,411,258
                                                      )
                                                      
                                                      
                                                      (3,338,914
                                                      )Net
      deferred tax asset
                                                      
                                                      $
                                                      3,761,871
                                                      
                                                      
                                                      $
                                                      3,325,238
  61
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
17 — Income Taxes  – (continued)
  As of
December 31, 2009, the Company had a valuation allowance of $141,750 related to
acquired capital loss carry forwards for which the Company believes more likely
than not that the benefit will not be realized prior to expiration. To the
extent the valuation allowance is reversed into income in the future due to the
utilization of the deferred tax assets.
  Our GAAP
basis net loss for the 2008 fiscal year was driven primarily by nondeductible
differences.  The loss in 2008 was the result of an impairment charge
on goodwill, the majority of which was not deductible for tax
purposes.  As such, we had operating income prior to these adjustments
for 2008, while still having taxable income.  As our operations
continue to be profitable, we expect to have taxable income in 2010 and in
future periods that will enable us to fully utilize our deferred tax assets
other than the deferred tax asset associated with the capital loss
carryforward.
  As of
December 31, 2009 the Company had federal net operating loss carry forwards for
tax purposes of approximately $0.9 million. These net operating loss carry
forwards are limited by certain tax laws and are deductible ratably through
2020, although they begin to expire in 2010. As of December 31, 2009, the
Company also had capital loss carry forwards for tax purposes of $366,000, which
expire in 2010.
  Components
of tax expense above do not include the deferred tax benefits of unrealized
gains or losses related to the interest rate swap (see Note 11) recorded to
other comprehensive income.
  Note
18 — Market Segments and Significant Customers
  Gross
revenue prior to any prompt pay discounts by customer sector was as
follows:
 
 Year Ended December 31($ in Thousands)
                                    
                                    2009
                                    
                                    
                                    2008Department
      of Defense
                                    
                                    $
                                    37,407
                                    
                                    
                                    
                                    31.5
                                    %
                                    
                                    $
                                    44,332
                                    
                                    
                                    
                                    33.7
                                    %Federal
      civilian agencies
                                    
                                    
                                    55,731
                                    
                                    
                                    
                                    46.9
                                    %
                                    
                                    
                                    51,699
                                    
                                    
                                    
                                    39.3
                                    %Commercial
      and other
                                    
                                    
                                    22,478
                                    
                                    
                                    
                                    18.9
                                    %
                                    
                                    
                                    32,098
                                    
                                    
                                    
                                    24.4
                                    %State
      & local government
                                    
                                    
                                    3,128
                                    
                                    
                                    
                                    2.7
                                    %
                                    
                                    
                                    3,420
                                    
                                    
                                    
                                    2.6
                                    %Total
                                    
                                    $
                                    118,744
                                    
                                    
                                    
                                    100.0
                                    %
                                    
                                    $
                                    131,549
                                    
                                    
                                    
                                    100.0
                                    %
  Although
ATSI views itself as having several market segments, it operates in a single
homogenous reporting segment. Financial information is reviewed and evaluated by
the chief operating decision maker on a consolidated basis relating to the
single reporting segment. The Company sells similar services that exhibit
similar economic characteristics to similar classes of customers. Revenue is
internally reviewed monthly by management on an individual contract basis as a
single business segment.
  Note
19 — Retirement Savings Plan
  The
Company has a qualified 401(k) retirement plan (“401(k) Plan”) that was funded
by contributions from the Company and substantially all full-time employees who
elect to participate in the plan. The employer contributions are 50% of employee
contributions, up to 3% of an employee’s gross salary. The employer
contributions to the 401(k) Plan for the years ended December 31, 2009 and 2008
were $1,381,712 and $1,526,500, respectively. Employer contributions vest
immediately.
  62
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
20 — Commitments & Contingencies
  Employment
Agreements
  On May 5,
2009, the Company and Dr. Edward H. Bersoff, the Company’s Chairman, President
and Chief Executive Officer, amended Dr. Bersoff’s employment agreement,
extending his employment term as Chief Executive Officer through December 31,
2011. The Company originally entered into an employment agreement with Dr.
Bersoff on March 19, 2007, who had been serving in that capacity since January
16, 2007.
  In
addition, the Company has entered into employment agreements with certain key
employees that provide for severance payments in the event of
termination.
  Legal
Proceedings
  From time
to time, we are involved in various legal matters and proceedings concerning
matters arising in the ordinary course of business. Other than possibly the
matters discussed below, we currently believe that any ultimate liability
arising out of these matters and proceedings will not have a material adverse
effect on our financial position, results of operations or cash
flows.
  We were a
defendant in Maximus, Inc. vs. Advanced Technology Systems, Inc., previously
pending in the Connecticut Superior Court, Complex Litigation Docket. The
lawsuit regarded breach of contract and other claims related to a subcontract
between Maximus and ATSI associated with a prime contract between Maximus and
the State of Connecticut. Based on the complaint filed in the suit, Maximus
sought damages in excess of $3.5 million. The case was filed in August
2007.
  In
January of 2009, the case was consolidated for discovery purposes with an action
brought by the State of Connecticut against Maximus relating to the prime
contract.  As of February 23, 2010, the State of Connecticut advised
Maximus that it was accepting Maximus' settlement offer.  We, in turn,
have agreed to the financial terms of a settlement with Maximus.  As
of this time, we, Maximus, and the State of Connecticut are negotiating other
terms of the settlement with a view towards memorializing the settlement into a
final written agreement. In accordance with the terms of the expected
settlement, ATSC has recorded a $1.5 million loss contingency.
  Further,
based on the claims asserted in the lawsuit, we have made an indemnification
demand against the former principal owners of ATSI under the stock purchase
agreement governing the transaction in which the Company (then Federal Services
Acquisition Corporation) acquired ATSI.
  Following
the indemnification demand, the former principal owners of ATSI brought an
arbitration against us with the American Arbitration Association claiming that
the former owners do not owe us any indemnification obligations for the Maximus
lawsuit or the Maximus subcontract. At our request, the arbitration was stayed
pending the outcome of the Maximus lawsuit described above. Once the Maximus
lawsuit has been fully resolved, we intend to pursue our indemnification claim
against the former principal owners of ATSI.
  63
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
21 — Summarized Quarterly Financial Information
(Unaudited)
  The table
below sets forth selected unaudited quarterly condensed financial operating
results of the Company for years ended December 31, 2009 and 2008.
 
 Year Ended December 31,
2009First
                              
                              
                              Second
                              
                              
                              Third
                              
                              
                              FourthRevenue
                              
                              $
                              27,156,514
                              
                              
                              $
                              30,266,809
                              
                              
                              $
                              32,074,434
                              
                              
                              $
                              29,161,182Operating
      expenses
                              
                              
                              25,472,379
                              
                              
                              
                              27,546,164
                              
                              
                              
                              28,204,114
                              
                              
                              
                              27,829,687Income
      from operations
                              
                              $
                              1,684,135
                              
                              
                              $
                              2,720,645
                              
                              
                              $
                              3,870,320
                              
                              
                              $
                              1,331,495Other
      income (expense)
                              
                              
                              (774,080
                              )
                              
                              
                              (792,604
                              )
                              
                              
                              (537,705
                              )
                              
                              
                              (2,193,636
                              )Provision
      for income taxes
                              
                              
                              (484,466
                              )
                              
                              
                              (756,253
                              )
                              
                              
                              (1,340,816
                              )
                              
                              
                              400,808Net
      income (loss)
                              
                              $
                              425,589
                              
                              
                              $
                              1,171,788
                              
                              
                              $
                              1,991,799
                              
                              
                              $
                              (461,333
                              )Basic
      earnings per share
                              
                              $
                              0.02
                              
                              
                              $
                              0.05
                              
                              
                              $
                              0.09
                              
                              
                              $
                              (0.02
                              )Diluted
      earnings per share
                              
                              $
                              0.02
                              
                              
                              $
                              0.05
                              
                              
                              $
                              0.09
                              
                              
                              $
                              (0.02
                              )Weighted-average
      shares outstanding:Basic
                              
                              
                              22,542,200
                              
                              
                              
                              22,660,767
                              
                              
                              
                              22,741,726
                              
                              
                              
                              22,728,722Diluted
                              
                              
                              22,542,200
                              
                              
                              
                              22,660,767
                              
                              
                              
                              22,846,549
                              
                              
                              
                              22,890,749
  Year Ended December 31,
2008First
                              
                              
                              Second
                              
                              
                              Third
                              
                              
                              FourthRevenue
                              
                              $
                              34,873,525
                              
                              
                              $
                              33,788,772
                              
                              
                              $
                              32,032,605
                              
                              
                              $
                              30,853,655Operating
      expenses
                              
                              
                              33,760,930
                              
                              
                              
                              32,763,907
                              
                              
                              
                              87,837,435
                              
                              
                              
                              28,258,932Income
      from operations
                              
                              $
                              1,112,595
                              
                              
                              $
                              1,024,865
                              
                              
                              $
                              (55,804,830
                              )
                              
                              $
                              2,594,723Other
      income (expense)
                              
                              
                              (733,530
                              )
                              
                              
                              (949,434
                              )
                              
                              
                              (910,371
                              )
                              
                              
                              (804,897
                              )Gain
      (loss) on warrant liability
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Provision
      for income (tax expense) benefit
                              
                              
                              (104,036
                              )
                              
                              
                              (8,579
                              )
                              
                              
                              5,759,836
                              
                              
                              
                              (1,004,757
                              )Net
      income (loss)
                              
                              $
                              275,029
                              
                              
                              
                              66,852
                              
                              
                              $
                              (50,955,365
                              )
                              
                              $
                              785,069Basic
      earnings per share
                              
                              $
                              0.01
                              
                              
                              $
                              —
                              
                              
                              $
                              (2.28
                              )
                              
                              $
                              0.03Diluted
      earnings per share
                              
                              $
                              0.01
                              
                              
                              $
                              —
                              
                              
                              $
                              (2.28
                              )
                              
                              $
                              0.03Weighted-average
      shares outstanding:Basic
                              
                              
                              19,242,698
                              
                              
                              
                              20,410,516
                              
                              
                              
                              22,381,860
                              
                              
                              
                              22,442,163Diluted
                              
                              
                              19,242,698
                              
                              
                              
                              20,465,439
                              
                              
                              
                              22,381,860
                              
                              
                              
                              22,442,163
  64
  ATS
CORPORATION
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
22 — Subsequent Events
  Exchange
Listing
  On
January 5, 2010, the Company’s shares began trading on the New York Stock
Exchange Amex exchange under the ticker “ATSC”.
  Claim
Settlement
  On
January 13, 2010, the Company settled an indemnification claim with the sellers
of Number Six Software, Inc. for $495,000 which will be recorded as a reduction
to notes payable and an increase in other income in the first quarter 2010
interim financial statements.
  65
  ATS
CORPORATION
  Item
15(a) 2. Supplementary Financial Data
  Schedule
II — Valuation and Qualifying Accounts for fiscal years ended December
31, 2009 and 2008.
 
 Balance
      at
                            Beginning
                            of
      Period
                          
                          
                          Additions
                            at
      Cost
                          
                          
                          Deductions
                          
                          
                          Other
                            Changes
                          
                          
                          Balance
                            at
      End
                            of
      Period2009Reserves
      deducted from assets to which they apply:Allowances
      for doubtful accounts
                          
                          $
                          770,988
                          
                          
                          $
                          1,150,993
                          
                          
                          $
                          (1,178,131
                          )
                          
                          $
                          —
                          
                          
                          $
                          743,8502008Reserves
      deducted from assets to which they apply:Allowances
      for doubtful accounts
                          
                          $
                          91,247
                          
                          
                          $
                          1,278,265
                          
                          
                          $
                          (598,524
                          )
                          
                          $
                          —
                          
                          
                          $
                          770,988
  Deductions
for bad debt write-offs associated with Number Six Software, Inc. accounted for
$654,011 of 56% of the deductions for 2009. These were included in the claim
against the former NSS shareholders, net of associated tax
benefits.
  66
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) 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.
 
 ATS
      CORPORATIONMarch
      24, 2010
                  
                  By:
                    /s/
      Edward H. Bersoff Dr. Edward H. Bersoff
                    Chairman,
      President and
                    Chief
      Executive Officer
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Name
                
                Position
                
                Date/s/ Edward H. Bersoff
                  Dr. Edward H. Bersoff
                
                Chairman, President and Chief Executive Officer (Principal
                  Executive Officer)
                
                March 24, 2010/s/ Pamela A. Little
                  Pamela A. Little
                
                Executive Vice President and Chief Financial Officer
                
                March 24, 2010/s/ Kevin Flannery
                  Kevin Flannery
                
                Director
                
                March 24, 2010/s/ Joel R. Jacks
                  Joel R. Jacks
                
                Director
                
                March 24, 2010/s/ Joseph A. Saponaro
                  Joseph A. Saponaro
                
                Director
                
                March 24, 2010/s/ Peter M. Schulte
                  Peter M. Schulte
                
                Director
                
                March 24, 2010/s/ Edward J. Smith
                  Edward J. Smith
                
                Director
                
                March 24, 2010/s/ Jack Tomarchio
                  Jack Tomarchio
                
                Director
                
                March 24, 2010