**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

----

 

**FORM 10-K/A**

**Amendment No. 2**

----

 

| **ý** | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                               |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |
|       |       | **For the fiscal year ended December 31, 2005**                                                                                                                                         |
|       |
| **OR**     |
|       |       |                                                                                                                                                                                    |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                           |
|       |       |                                                                                                                                                                                    |
| ** ** | ** ** | **For the transition period from               to            ** |

 

**Commissionfile number: 000-51047**

 

----

 

**FEDERAL SERVICES ACQUISITIONCORPORATION**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                          | ** ** | **11-3747850**                         |
|-----------------------------------------------------------------------|------------|----------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (IRS  Employer  Identification Number) |

 

**900 ThirdAvenue, 33rd FloorNew York, New York, 10022-4775**

(Addressof principal executive office)

 

**(646) 403-9765**

(Registrant’stelephone number, including area code)

 

----

 

Securitiesregistered pursuant to section 12(b) of the Act:

**NONE**

 

Securitiesregistered pursuant to section 12(g) of the Act:

**Units, eachconsisting of one share of Common Stock, $0.0001 par value, and two Warrants**

**CommonStock, $0.0001 par value**

**Warrants topurchase shares of Common Stock**

(TitleOf Class)

 

----

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o    No  ý

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o    No  ý

 

Indicate by checkmark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  ý    No  o

 

Indicate by checkmark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is notcontained herein, and will not be contained to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

 

 Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.     Large Accelerated Filer  o     Accelerated Filer  o    Non-accelerated Filer ý

 

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

 

The aggregate market value of the voting andnon-voting common equity held by non-affiliates of the Registrant computed byreference to the closing sales price for the Registrant’s Common Stock onDecember 30, 2005, as reported on the OTC Bulletin Board, was approximately $112,140,000.

 

The number of shares outstanding of the Registrant’sCommon Stock as of February 23, 2006: 26,250,000 shares.

 

 

----

 

Explanatory Note:

 

ThisAnnual Report on Form 10-K/A is being filed as Amendment No. 2 to our AnnualReport on Form 10-K, which was originally filed with the Securities andExchange Commission on March 31, 2006 and subsequently amended on September 29,2006.  Amendment No. 1 was filed torestate our financial statements for the period ended December 31, 2005 toreflect non-operating gains and losses related to the classification andaccounting for the warrants to purchase common stock associated with the unitssold in our initial public offering.

ThisAmendment No. 2 does not amend the financial data as reflected in Amendment No.1, but does conform certain disclosures in Note B[6] to the financialstatements with disclosures that will be reflected in the definitive proxystatement for our special meeting of stockholders at which our proposedacquisition of Advanced Technology Systems, Inc., among other proposals, willbe voted upon.

ThisAmendment No. 2 amends only certain information in Part II– Item 8, FinancialStatements, as a result of the amendments described above.

Inaddition, we are also including currently dated Sarbanes-Oxley Act Section 302and Section 906 certifications of the Chief Executive Officer and ChiefFinancial Officer that are attached to this Form 10-K/A as Exhibits 31.1, 31.2,32.1 and 32.2.

Pursuantto SEC Rule 12b-15, this Amendment No. 2 to the 2005 Form 10-K/A sets forth thecomplete text of only the financial statements reflected in Part II – Item 8 ofForm 10-K, as previously amended, and includes, as Exhibits 31 and 32, newcertifications by the Chief Executive Officer and Chief Financial Officer.  The balance of the 2005 Form 10-K/A, aspreviously amended, is not included. Accordingly, except for the foregoing amended information and theamendments reflected in Amendment No. 1, this Form 10-K/A continues to speakas of March 31, 2006 (the original filing date of the 2005 Form 10-K), anddoes not reflect events occurring after the filing of our 2005 Form 10-K anddoes not modify or update those disclosures affected by subsequent events.

 

1

----

 

**Item 8. Financial Statements and Supplementary Data.**

 

Reference is made to our financial statementsbeginning on page F-1 of this report.

 

2

----

 

**PART IV**

 

**Item 15. Exhibits and Financial Statement Schedules.**

 

(a)     The following documents are filed as a part of this Report: 

 

**1.     ****Financial Statements****:**

 

Indexto Financial Statements and Schedules

 

Reportof Independent Registered Public Accounting Firm

 

Balancesheet as of December 31, 2005

 

Statementof operations for the period from April 12, 2005 (date of inception) throughDecember 31, 2005

 

Statementof changes in stockholders’ equity for the period from April 12, 2005 (date ofinception) through December 31, 2005

 

Statementof cash flows for the period from April 12, 2005 (date of inception) throughDecember 31, 2005

 

Notesto Financial Statements

 

**2.      FinancialStatement Schedule(s):**

 

All schedules are omitted for the reason that theinformation is included in the financial statements or the notes thereto orthat they are not required or are not applicable.

 

3

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                    | **Federal Services Acquisition Corporation** |
|-------------------------|----------------------------------------------|
|                    |                                         |   |   |
|                    | By:                                          | /s/  Joel R. Jacks |   |
|                    | * *                                     | *Chairman of the Board and* | * * |
| * *                | * *                                     | *Chief Executive Officer* | * * |
|                    | * *                                     | *(Principal executive officer)* | * * |
|                    |                                         |   |   |
|                    |                                         |   |   |
|                    | By:                                          | /s/  Peter M. Schulte |   |
|                    | * *                                     | *President and* | * * |
| * *                | * *                                     | *Chief Financial Officer* | * * |
|                    | * *                                     | *(Principal financial officer)* | * * |
| Date:  December 5, 2006 |                                         |   |   |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 

 
| **Name**               |   | **Position**                                                              |   | **Date**          |
|------------------------|--------|---------------------------------------------------------------------------|--------|-------------------|
| ** **             |   | ** **                                                                |   | ** **        |
| /s/ JOEL R. JACKS      |   | Chairman  of the Board and Chief   Executive Officer (Principal Executive |   | December  5, 2006 |
| Joel R. Jacks          |   | Officer)                                                                  |   |              |
|                   |   |                                                                      |   |              |
| /s/ PETER M. SCHULTE   |   | President,  Chief Financial Officer,   Secretary and Director (Principal  |   | December  5, 2006 |
| Peter M. Schulte       |   | Financial  Officer)                                                       |   |              |
|                   |   |                                                                      |   |              |
| /s/ EDWARD H. BERSOFF  |   | Vice-Chairman                                                             |   | December  5, 2006 |
| Edward H. Bersoff      |   |                                                                      |   |              |
|                   |   |                                                                      |   |              |
| /s/ JOSEPH A. SAPONARO |   | Director                                                                  |   | December  5, 2006 |
| Joseph A. Saponaro     |   |                                                                      |   |              |
|                   |   |                                                                      |   |              |
| /s/ EDWARD J. SMITH    |   | Director                                                                  |   | December  5, 2006 |
| Edward J. Smith        |   |                                                                      |   |              |

 

4

----

 

**INDEX TOFINANCIAL STATEMENTS AND SCHEDULES**

 

**Federal Services Acquisition Corporation**(a development stagecompany)

 
| **Report  of Independent Registered Public Accounting Firm**                                                                         |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                 |   |
| **Financial statements**                                                                                                             |   |
|                                                                                                                                 |   |
| Balance sheet as of  December 31, 2005                                                                                               |   |
| Statement  of operations for the period from April 12, 2005 (date of inception) through  December 31, 2005                           |   |
| Statement  of changes in stockholders’ equity for the period from April 12, 2005 (date  of inception) through December 31, 2005 |   |
| Statement  of cash flows for the period from April 12, 2005 (date of inception) through  December 31, 2005                           |   |
|                                                                                                                                 |   |
| **Notes to Financial Statements, as  restated**                                                                                      |   |

 

F-1

----

 

**Report of Independent Registered Public Accounting Firm**

 

Tothe Board of Directors

FederalServices Acquisition Corporation

 

Wehave audited the accompanying balance sheet of Federal Services AcquisitionCorporation (a development stage company) as of December 31, 2005, and therelated statements of operations, changes in stockholders’ equity and cashflows for the period from April 12, 2005 (date of inception) through December31, 2005. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statementsbased on our audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of Federal Services AcquisitionCorporation as of December 31, 2005, and the results of its operations and itscash flows for the period from April 12, 2005 (date of inception) throughDecember 31, 2005 in conformity with U.S. generally accepted accountingprinciples.

 

As discussed in Note D to the accompanying financial statements, the Companyhad previously restated its financial statements for the period from April 12,2005 (date of inception) through December 31, 2005, to reflect theclassification of and accounting for the warrants to purchase common stockassociated with the units sold at the initial public offering of the Company asa liability at its fair value and the resulting change in its fair value as aloss on the derivative liability.

 

The Company has expanded its disclosure regarding its accounting forderivative financial instruments in Note B[6].

 

EisnerLLP

NewYork, New York

 

March 23, 2006, except fornotes D and F which are dated September 27, 2006 and note B[6] which is dated November3, 2006

 

F-2

----

 

**Federal Services Acquisition Corporation**(a development stagecompany)

 

**BalanceSheet**

**December 31, 2005**

** **
| **ASSETS**                                                                                                                                                              |       |        |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|
| Current  assets:                                                                                                                                                        |       |        |        |
| Cash and cash equivalents                                                                                                                                               |       | $           | 1,855,394   |   |
| Prepaid expenses                                                                                                                                                        |       | 72,122      |        |
|                                                                                                                                                                    |       |        |        |
| Total current assets                                                                                                                                                    |       | 1,927,516   |        |
|                                                                                                                                                                    |       |        |        |
| Short-term investments held in Trust  Account (including interest receivable of $39,444) (fair value $117,709,036)                                                      |       | 117,709,036 |        |
| Cash and cash equivalents held in trust  fund                                                                                                                           |       | 281,348     |        |
|                                                                                                                                                                    |       |        |        |
| Deferred income tax benefit                                                                                                                                             |       | 34,629      |        |
|                                                                                                                                                                    |       |        |        |
| Total assets                                                                                                                                                            |       | $           | 119,952,529 |   |
| ** **                                                                                                                                                              | ** ** | ** **  | ** **  |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                          |       |        |        |
| Current  liabilities:                                                                                                                                                   |       |        |        |
| Accrued expenses                                                                                                                                                        |       | $           | 34,289      |   |
| Income tax payable - current                                                                                                                                            |       | 356,000     |        |
| Deferred income tax                                                                                                                                                     |       | 15,714      |        |
| Warrant liabilities                                                                                                                                                     |       | 19,740,000  |        |
|                                                                                                                                                                    |       |        |        |
| Total current liabilities                                                                                                                                               |       | 20,146,003  |        |
|                                                                                                                                                                    |       |        |        |
| Common  Stock, subject to possible redemption 4,197,900 shares                                                                                                          |       | 23,424,282  |        |
| Interest  income attributable to common stock subject to possible redemption (net of  taxes of $64,000)                                                                 |       | 97,996      |        |
|                                                                                                                                                                    |       |        |        |
| Total common stock, subject to possible  redemption                                                                                                                     |       | 23,522,278  |        |
|                                                                                                                                                                    |       |        |        |
| COMMITMENTS  AND CONTINGENCIES (Note I)                                                                                                                                 |       |        |        |
|                                                                                                                                                                    |       |        |        |
| STOCKHOLDERS’  EQUITY:                                                                                                                                             |       |        |        |
| Preferred stock—$.0001 par value; 1,000,000  shares authorized; 0 issued and outstanding                                                                           |       |        |        |
| Common stock—$.0001 par value, 100,000,000  shares authorized; 26,250,000 issued and outstanding (which includes  4,197,900 shares subject to possible redemption) |       | 2,625       |        |
| Additional paid-in capital                                                                                                                                              |       | 81,467,698  |        |
| Deficit accumulated during the development  stage                                                                                                                       |       | (5,186,075  | )           |
|                                                                                                                                                                    |       |        |        |
| Total stockholders’ equity                                                                                                                                         |       | 76,284,248  |        |
|                                                                                                                                                                    |       |        |        |
|                                                                                                                                                                    |       | $           | 119,952,529 |   |

 

Seenotes to financial statements

 

F-3

----

 

**Statement of Operations**

**For the period from April 12, 2005 (date ofinception) through December 31, 2005**

 
| Expenses:                                                                                               |   |       |       |
|---------------------------------------------------------------------------------------------------------|--------|------------|------------|
| Operating costs                                                                                         |   | $          | 133,161    |   |
| Other income  (loss):                                                                                   |   |       |       |
| Bank interest                                                                                           |   | 8,783      |       |
| Interest on cash and short term investments  held in trust                                              |   | 810,384    |       |
| Loss on warrant liabilities                                                                             |   | (5,460,000 | )          |
|                                                                                                    |   |       |       |
| Total other income (loss)                                                                               |   | (4,640,833 | )          |
|                                                                                                    |   |       |       |
| **Loss  before provision for taxes**                                                                    |   | (4,773,994 | )          |
| Provision  for income taxes                                                                             |   |       |       |
| Current                                                                                                 |   | (333,000   | )          |
| Deferred                                                                                                |   | 18,915     |       |
|                                                                                                    |   |       |       |
| **Net loss**                                                                                            |   | (5,088,079 | )          |
| Interest  income attributable to common stock subject to possible redemption (net of  taxes of $64,000) |   | (97,996    | )          |
| Net loss  allocable to common stockholders not subject to possible redemption                           |   | $          | (5,186,075 | ) |
|                                                                                                    |   |       |       |
| Weighted  average number of shares outstanding                                                          |   |       |       |
| —basic and diluted                                                                                 |   | 10,599,810 |       |
|                                                                                                    |   |       |       |
| Net loss per  share                                                                                     |   |       |       |   |
| —basic and diluted                                                                                 |   | $          | (0.48      | ) |
|                                                                                                    |   |       |       |
| Weighted  average number of shares outstanding exclusive of shares subject to possible  redemption      |   |       |       |
| —basic and diluted                                                                                 |   | 9,530,382  |       |
|                                                                                                    |   |       |       |
| Net loss per  share not subject to possible redemption                                                  |   |       |       |   |
| —basic and diluted                                                                                 |   | $          | (0.54      | ) |

 

Seenotes to financial statements.

 

F-4

----

 

**Statement of changes in Stockholders’ EquityFor the period from April 12, 2005 (date of inception) through December 31,2005**

 
| ** **                                                                                                                                                       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | **Deficit**     | ** ** | ** **  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|-----------------|------------|-------------|------------|
| ** **                                                                                                                                                       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | **accumulated** | ** ** | ** **  | ** ** |
| ** **                                                                                                                                                       | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | **during**      | ** ** | ** **  | ** ** |
| ** **                                                                                                                                                       | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **development** | ** ** | ** **      | ** ** |
| ** **                                                                                                                                                       | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **stage**       | ** ** | **Total**   | ** ** |
|                                                                                                                                                             |       |             |       |        |       |            |       |            |       |        |       |
| **Balance—April 12, 2005 (date of  inception)**                                                                                                        |       |             |       |        |       |            |       |            |       |        |       |
| Initial capital from founding stockholders                                                                                                                       |       | 5,250,000        |       | $           | 525        |            | $          | 5,475           |       | $           | —     |   | $ | 6,000 |   |
| Sale of 21,000,000 units (including  4,197,900 shares of common stock subject to possible redemption), net of  underwriters’ discount and offering expenses |       | 21,000,000       |       | 2,100       |       | 119,166,505     |       | —          |       | 119,168,605 |       |
| Reclassification of proceeds allocated to  warrants — derivatives liability                                                                                 |       | —           |       | —      |       | (14,280,000     | )          | —          |       | (14,280,000 | )          |
| Reclassification of 4,197,900 shares of  common stock being subject to possible redemption                                                                       |       |             |       |        |       | (23,424,282     | )          | —          |       | (23,424,282 | )          |
| Accretion of trust fund relating to common  stock subject to possible redemption                                                                                 |       | —           |       | —      |       | —          |       | (97,996         | )          | (97,996     | )          |
| Net loss for the period                                                                                                                                          |       | —           |       | —      |       | —          |       | (5,088,079      | )          | (5,088,079  | )          |
|                                                                                                                                                             |       |             |       |        |       |            |       |            |       |        |       |
| **Balance—December 31, 2005**                                                                                                                               |       | 26,250,000       |       | $           | 2,625      |            | $          | 81,467,698      |       | $           | (5,186,075 | ) | $ | 76,284,248 |   |

 

Seenotes to financial statements

 

F-5

----

 

**Statement of Cash FlowsFor the period from April 12, 2005 (date of inception) through December 31,2005**

 
| **Cash  flows from operating activities:**                                       |   |         |       |
|----------------------------------------------------------------------------------|--------|--------------|------------|
| Net loss                                                                         |   | $            | (5,088,079 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |   |         |       |
| Deferred income tax                                                              |   | (18,915      | )          |
| Loss on warrant liabilities                                                      |   | 5,460,000    |       |
| Changes in:                                                                      |   |         |       |
| Interest receivable                                                              |   | (39,444      | )          |
| Prepaid expenses                                                                 |   | (72,122      | )          |
| Accrued expenses                                                                 |   | 34,289       |       |
| Income taxes payable—current                                                |   | 356,000      |       |
|                                                                             |   |         |       |
| Net cash provided by operating activities                                        |   | 631,729      |       |
|                                                                             |   |         |       |
| **Cash  flows from investing activities:**                                       |   |         |       |
| Purchase of U.S. government securities held  in Trust fund                       |   | (234,848,658 | )          |
| Maturities of U.S. government securities  held in Trust fund                     |   | 117,179,066  |       |
| Cash held in Trust Fund                                                          |   | (281,348     | )          |
|                                                                             |   |         |       |
| Net cash used in investing activities                                            |   | (117,950,940 | )          |
|                                                                             |   |         |       |
| **Cash  flows from financing activities:**                                       |   |         |       |
| Proceeds from public offering, net of  expenses                                  |   | 119,168,605  |       |
| Proceeds from notes payable to stockholders                                      |   | 154,000      |       |
| Repayment of notes to stockholders                                               |   | (154,000     | )          |
| Proceeds from sale of common stock to  founders                                  |   | 6,000        |       |
|                                                                             |   |         |       |
| Net cash provided by financing activities                                        |   | 119,174,605  |       |
|                                                                             |   |         |       |
| **Net  increase in cash and cash equivalents**                                   |   | 1,855,394    |       |
| Cash and  cash equivalents—beginning of period                              |   | —       |       |
|                                                                             |   |         |       |
| Cash and  cash equivalents—end of period                                    |   | $            | 1,855,394  |   |
|                                                                             |   |         |       |
| **Supplemental  Disclosure of noncash activities:**                              |   |         |       |
| Reclassification of common stock subject to  possible redemption                 |   | $            | 23,424,282 |   |
| Accretion of trust fund relating to common  stock subject to possible redemption |   | 97,996       |       |
| Warrant obligation in connection with sale  of units in offering                 |   |         | 14,280,000 |   |
|                                                                                  |        |              |            |  |  |

 

Seenotes to financial statements.

 

F-6

----

 

**Notes to Financial Statements**

**December 31, 2005**

 

**NOTE A—ORGANIZATION AND BUSINESS OPERATIONS**

 

FederalServices Acquisition Corporation (the “Company”) was incorporated in Delawareon April 12, 2005. The Company was formed to serve as a vehicle for theacquisition of an operating business in the federal services and defenseindustries through a merger, capital stock exchange, asset acquisition, stockpurchase or other similar business combination. The Company has neither engagedin any operations nor generated revenue to date. The Company is considered tobe in the development stage and is subject to the risks associated withactivities of development stage companies.  The Company has selectedDecember 31 as its fiscal year end.

 

Theregistration statement for the Company’s initial public offering (“Offering”)was declared effective on October 19, 2005.  The Company consummated theoffering on October 25, 2005 and received net proceeds of $119,169,000. TheCompany’s management has broad discretion with respect to the specificapplication of the net proceeds of the Offering, although substantially all ofthe net proceeds of the Offering are intended to be generally applied towardconsummating a business combination with (or acquisition of) an operatingbusiness in the federal services and defense industries (“Business Combination”).Nonetheless, there is no assurance that the Company will be able tosuccessfully effect a Business Combination. As of December 31, 2005, an amountof $117,990,384 including interest receivable of $39,444 of the net proceeds isbeing held in a trust account (“Trust Account”) and is invested in U.S.government securities, and cash or cash equivalents until the earlier of (i)the consummation of its first Business Combination or (ii) the distribution ofthe Trust Account to the Company’s public stockholders. The remaining proceedsmay be used to pay for business, legal and accounting due diligence onprospective acquisitions and continuing general and administrative expenses.The Company, after signing a definitive agreement for the acquisition of atarget business, will submit such transaction for stockholder approval. In theevent that public stockholders of 20% or more of the outstanding stock(excluding, for this purpose, those shares of common stock issued prior to theOffering) vote against the Business Combination and exercise their conversionrights, the Business Combination will not be consummated.

 

Inthe event that the Company does not consummate a Business Combination within18 months from the date of the consummation of the Offering, or24 months from the consummation of the Offering if certain extensioncriteria have been satisfied (the “Acquisition Period”), the proceeds held inthe Trust Account will be distributed to the Company’s public stockholders,excluding the Founders (defined in the following sentence) to the extent oftheir stock acquired prior to the Offering. However, the persons who werestockholders prior to the Offering (the “Founders”) will participate in anyliquidation distribution with respect to any shares of the common stockacquired in connection with or following the Offering. In the event of suchdistribution, it is likely that the per share value of the residual assetsremaining available for distribution (including Trust Account assets) will beless than the initial public offering price per unit in the Offering (assumingno value is attributed to the Warrants contained in the Units offered in theOffering as discussed in Note C).

 

Publicstockholders owning less than 20% of the shares sold in the Offering who voteagainst a business combination and exercise their conversion rights will be entitledto convert their stock into a pro rata share of the Trust Account, includingany interest earned on their portion of the Trust Account (net of taxespayable), if the business combination is approved and consummated.  The Founders cannot convert their stock intoa pro rata share of the Trust Account under these circumstances, because theyhave agreed to vote their stock in accordance with the majority of the sharesof common stock voted by the public stockholders.  Public stockholders who convert their stockwill retain any warrants they hold.

 

TheFounders will be entitled to registration rights pursuant to an agreementsigned as a part of the Offering.  Theholders of the majority of these shares are entitled to make up to two demandsthat the Company register these shares. The holders of the majority of these shares can elect to exercise theseregistration rights at any time after the date on which their shares of commonstock are released from escrow (see below). In addition, these stockholders have certain “piggy-back” registrationrights on registration statements filed subsequent to such date.  The Company will bear the expenses incurredin connection with the filing of any such registration statement.

 

Uponconsummation of the Offering the Founders have placed the shares they ownedinto an escrow account.  These shareswill not be transferable during the escrow period and will not be released fromescrow until the earliest of:

 

•         three years following the date of theOffering,

•         liquidation; or

•         the consummation of a liquidation, merger,stock exchange or other similar transaction which results in all of thestockholders having the right to exchange their shares of common stock forcash, securities or other property subsequent to the Company consummating abusiness combination with a target business.

 

F-7

----

 

During the escrow period, the holders ofthese shares will not be able to sell or transfer their securities except totheir spouses and children or trusts established for their benefit, but willretain all other rights as stockholders, including, without limitation, theright to vote their shares of common stock and the right to receive cashdividends, if declared.  If dividends aredeclared and payable in shares of common stock, such dividends will also beplaced in escrow.  If the Company isunable to effect a business combination and liquidates, none of the Founderswill receive any portion of the liquidation proceeds with respect to commonstock owned by them.

 

On October 25, 2005, the Company consummated its initial publicoffering of 21,000,000 units. Each unit consists of one share of common stockand two redeemable common stock purchase warrants. Each warrant entitles theholder to purchase from the Company one share of its common stock at anexercise price of $6.00.

 

F-8

----

 

**NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**[1]    Cash and cash equivalents:**

TheCompany considers all highly liquid investments with original maturities ofthree months or less to be cash equivalents. The Company had cash deposits inexcess of the federally insured limits at December 31, 2005.

 

**[2]   Earnings per common share:**

Basicincome per share is based on the weighted average number of common sharesoutstanding during the period. Diluted income per share reflects the potentialdilution assuming common shares were issued upon the exercise of outstandingin-the-money warrants and the proceeds thereof were used to purchase treasuryshares at the average market price during the period.

 

**[3]    Use of estimates:**

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimatesand assumptions that affect the amounts in the financial statements andaccompanying notes. Actual results could differ from those estimates.

 

**[4]    Fair value of financialinstruments:**

The carrying amounts of the Company’sfinancial assets, including cash and cash equivalents and short terminvestments, approximate fair value because of their short term maturities.

 

**[5]    Income taxes:**

Deferredincome taxes are provided for the differences between the bases of assets andliabilities for financial reporting and income tax purposes. Deferred taxassets and liabilities are measured using tax rates in effect for the year inwhich those temporary differences are expected to be recovered or settled. Avaluation allowance is established when necessary to reduce deferred tax assetsto the amount expected to be realized.

 

**[6]    Accounting for Warrantsand Derivative Instruments-As Restated:**

Emerging Issues Task Force 00-19, or EITF00-19, “*Accounting for Derivative FinancialInstruments Indexed to and Potentially Settled in, a Company’s Own Stock*,”provides criteria for determining whether freestanding contracts that aresettled in a company’s own stock, including common stock warrants, should bedesignated as either an equity instrument, an asset or as a liability underSFAS No. 133. Under the provisions of EITF 00-19, a contract designated as anasset or a liability must be carried at fair value on a company’s balancesheet, with any changes in fair value recorded in a company’s results ofoperations. A contract classified as an equity instrument is included withinequity, and no fair value adjustments are required from period to period. Inaccordance with EITF 00-19, the warrants to purchase common stock included inthe units sold in the Company’s initial public offering are separatelyaccounted for as liabilities. 

The agreement related to the Company’swarrants sold in the Offering, provides for the Company to register andmaintain the registration of the shares underlying the warrants and does notspecify a penalty in the absence of the Company’s ability to deliver registeredshares to holders upon exercise of the warrants.  Further, the warrant agreement does notspecify that the Company cannot be obligated to net cash settle theinstrument.  Paragraph 14 ofEITF 00-19 states that if the contract allows the company tonet-share or physically settle the contract only by delivering registered shares, it is assumed that the company will berequired to net-cash settle the contract, and as a result liabilityclassification will be required.  Paragraph 17 of EITF 00-19 statesthat if the contract requires physical or net-share settlement bydelivery of registered shares and does not specify any circumstances under which net-cash settlement is permitted or required, and the contract does not specify how the contract would be settledin the event that the company is unable to deliverregistered shares, then net cash settlement is assumed if the company is unable to deliver registered shares (becauseit is unlikely that nonperformancewould be an acceptable alternative).  UnderEITF 00-19, registration of the common stock underlying the warrants is notwithin the Company’s control and, as a result, the Company must assume that itcould be required to settle the securities on a net-cash basis, therebynecessitating the treatment of the potential settlement obligation as aliability. The fair value of these securities is presented on the Company’sbalance sheet as “warrant liabilities,” and the unrealized changes in thevalues of these derivatives are shown in the Company’s statement of operationsas “Gain (loss) on warrant liability.”

Fair values for tradedsecurities and derivatives are based on quoted market prices.  Where market prices are not readilyavailable, as in the case of the Company’s warrants as of the date of issuance,fair values are determined using methods requiring judgment and estimates.  Utilizing such methods, the fair value of thewarrant liability at October 20, 2005 (the date of issuance) was determined tobe $0.34 per warrant.  At thedate of issuance, the Company allocated the unit price between the share ofcommon stock and the warrants issued based upon relative fair value determined,among other things, by reference to the underlying cash held in the trustfund.  The warrants included in the unitssold in the Company’s initial public offering began to be publicly traded onthe Over the Counter Bulletin Board on December 5, 2005, and consequently thefair value of the warrants is reflected as the market price of a warrant ateach period end. To the extent that the market prices of the Company’s warrantsincrease or decrease, the Company’s derivative liabilities will also increaseor decrease with a corresponding impact on its statement of operations.

 

**NOTE C—INITIAL PUBLIC OFFERING**

 

OnOctober 25, 2005 the Company sold 21,000,000 Units (“Units”).  Each Unitconsisted of one share of the Company’s common stock, $.0001 par value, and twowarrants (“Warrants”). Each Warrant entitles the holder to purchase from theCompany one share of common stock at an exercise price of $5.00.  EachWarrant is exercisable on the later of (a) the completion of a BusinessCombination or (b) October 19, 2006 and expires October 19, 2009, or earlierupon redemption.  The Warrants are redeemable at a price of $.01 perWarrant upon 30 days notice after the Warrants become exercisable, only inthe event that the last sale price of the common stock is at least $8.50 pershare for any 20 trading days within a 30 trading day period ending on thethird day prior to the date on which notice of redemption is given.

 

Inconnection with the Offering, the Company paid CRT Capital Group LLC anunderwriter’s discount of 5% of the gross proceeds of the Offering.

 

**NOTE D-PRIOR RESTATEMENT AND RECLASSIFICATIONS OF INITIALLY ISSUEDFINANCIAL STATEMENTS**

 

Summary of restatement items:

 

In September 2006, the Company previously concluded that it wasnecessary to restate its financial statements for the period ended December 31,2005 to reflect the classification of and accounting for the warrants topurchase common stock associated with the units sold at the initial publicoffering of the Company. The Company had initially classified the value ofthese warrants to purchase common stock, when applicable, as equity. Afterfurther review in connection with the preparation of Amendment No. 2 to the ProxyStatement related to the acquisition contemplated by the Stock PurchaseAgreement dated April 19, 2006, by and among the Company, Advanced TechnologySystems, Inc., a Virginia corporation (“ATS”) and shareholders of ATS, the Companyhad determined that these instruments should have been classified asliabilities and, therefore, the fair value of each instrument must be recordedas a liability on the Company’s balance sheet. Changes in the fair values ofthese instruments resulted in adjustments to the amount of the recordedliabilities, and the corresponding gain or loss was recorded in the Company’sstatement of operations. At the date of the conversion of each warrants orportion thereof (or exercise of the warrants or portion thereof, as the casemay be), the corresponding liability will be reclassified as equity.

 
| ** **                                                                       | ** ** | **At issuance date** | ** ** | **At December 31, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                       | ** ** | **per  warrant**               | ** ** | **Total**                               | ** ** | **per  warrant** | ** ** | **Total** | ** ** |
| Fair Value of warrants part of initial  public offering unit 42,000,000 warrants |       | $                              | 0.34       |                                    | $          | 14,280,000 |   | $ | 0.47 |   | $ | 19,740,000 |   |
|                                                                                  |            |                                |            |                                         |            |  |  |  |  |  |  |  |  |

 

**Statement of Operations**

 

The accompanying financial statements for the period ended December 31,2005 were restated to effect the changes described above. The impact of theadjustments related to the classification of and accounting for the warrantsfor the period ended December 31, 2005 are summarized below. The followingtable shows the impact of the restatements on the statement of operations.

 
| ** **                                                                                             | ** ** | **For the period from April 12, 2005 (date of inception) through  December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **As Initially  Reported**                                                                                                                   | ** ** | **Adjustment** | ** ** | **As Previously  Restated** | ** ** |
| Operating costs                                                                                        |       | $                                                                                                                                                 | (133,161   | ) | $ | — |   | $ | (133,161 | ) |
| Interest income                                                                                        |       | 819,167                                                                                                                                           |       |   |   | 819,167 |   |
| Loss on warrant liabilities                                                                            |       |                                                                                                                                              |       |   |   | (5,460,000 | ) |
| Income (loss) before provision for taxes                                                               |       |                                                                                                                                              | 686,006    |   |   | (5,460,000 | ) |   | (4,773,994 | ) |
| Provision for income taxes                                                                             | -current   |                                                                                                                                              | (333,000   | ) | — |   | (333,000 | ) |
|                                                                                                   | -deferred  |                                                                                                                                              | 18,915     |   | — |   | 18,915 |   |
| Net income (loss)                                                                                      |       |                                                                                                                                              | 371,921    |   |   | (5,460,000 | ) |   | (5,088,079 | ) |
| Interest income attributable to common  stock subject to possible conversion (net of taxes of $64,000) |       | (97,996                                                                                                                                           | )          | — |   | (97,996 | ) |
| Net income (loss) allocable to common  stockholders not subject to possible conversion                 |       | $                                                                                                                                                 | 273,925    |   | $ | (5,460,000 | ) | $ | (5,186,075 | ) |
| Weighted average number of shares  outstanding                                                         |       |                                                                                                                                              |       |   |   |   |   |
| -basic                                                                                                 |       | 10,599,810                                                                                                                                        |       |   |   | 10,599,810 |   |
| -diluted                                                                                               |       | 11,050,752                                                                                                                                        |       |   |   | 10,599,810 |   |
| Net income (loss) per share                                                                            |       |                                                                                                                                              |       |   |   |   |   |
| -basic                                                                                                 |       | $                                                                                                                                                 | 0.04       |   |   |   | $ | (0.48 | ) |
| -diluted                                                                                               |       | $                                                                                                                                                 | 0.03       |   |   |   | $ | (0.48 | ) |
| Weighted average number of shares  outstanding exclusive of shares subject to possible redemption      |       |                                                                                                                                              |       |   |   |   |   |
| -basic                                                                                                 |       | 9,530,382                                                                                                                                         |       |   |   | 9,530,382 |   |
| -diluted                                                                                               |       | 9,891,181                                                                                                                                         |       |   |   | 9,530,382 |   |
| Net income (loss) per share not subject to  possible redemption                                        |       |                                                                                                                                              |       |   |   |   |   |
| -basic                                                                                                 |       | $                                                                                                                                                 | 0.03       |   |   |   | $ | (0.54 | ) |
| -diluted                                                                                               |       | $                                                                                                                                                 | 0.03       |   |   |   | $ | (0.54 | ) |
|                                                                                                        |            |                                                                                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |

 

As a result of recording thechange in the fair value of warrant liability, the Company has reported a netloss for the period ended December 31, 2005 compared to net income as previouslyreported. Therefore, the per share effect of potential common shares issued uponthe exercise of warrants, aggregating 42,000,000 shares, have not been includedin diluted loss per share as the effect is anti-dilutive.

 

F-9

----

 

**Balance Sheet Impact**

 

The following table set forththe effects for the restatement adjustment on the Company’s balance sheet as ofDecember 31, 2005:

 
| ** **                                                                                                                                                          | ** ** | **December 31,  2005**     | ** **  | ** **     | ** ** | **December 31,  2005**      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|-------------|----------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                          | ** ** | **As Initially  Reported** | ** **  | **Adjustment** | ** ** | **As Previously  Restated** | ** ** |
| ASSETS                                                                                                                                                              |       |                            |        |           |       |                             |       |
| Current assets:                                                                                                                                                     |       |                            |        |           |       |                             |       |
| Cash and cash equivalents                                                                                                                                           |       | $                               | 1,855,394   |           | $          | —                           |       | $ | 1,855,394 |   |
| Prepaid expenses                                                                                                                                                    |       | 72,122                          |        | —         |       | 72,122                           |       |
| Total current assets                                                                                                                                                |       | 1,927,516                       |        | —         |       | 1,927,516                        |       |
| Short-term investments held in Trust  Account (including interest receivable of $39,444)(fair value $117,709,036)                                                   |       | 117,709,036                     |        | —         |       | 117,709,036                      |       |
| Cash and cash equivalents held in trust                                                                                                                             |       | 281,348                         |        | —         |       | 281,348                          |       |
| Deferred income tax benefit                                                                                                                                         |       | 34,629                          |        | —         |       | 34,629                           |       |
| Total assets                                                                                                                                                        |       | $                               | 119,952,529 |           | —     |                             | $          | 119,952,529 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                           |       |                            |        |           |       |                             |       |
| Current liabilities:                                                                                                                                                |       |                            |        |           |       |                             |       |
| Accrued expenses                                                                                                                                                    |       | $                               | 34,289      |           | $          | —                           |       | $ | 34,289 |   |
| Income tax payable-current                                                                                                                                          |       | 356,000                         |        | —         |       | 356,000                          |       |
| Deferred income tax                                                                                                                                                 |       | 15,714                          |        | —         |       | 15,714                           |       |
| Warrant liabilities                                                                                                                                                 |       | —                          |        | 19,740,000     |       | 19,740,000                       |       |
| Total current liabilities                                                                                                                                           |       | 406,003                         |        | 19,740,000     |       | 20,146,003                       |       |
| Common Stock subject to possible redemption  4,197,900 shares                                                                                                       |       | 23,424,282                      |        | —         |       | 23,424,282                       |       |
| Interest income attributable to common  stock subject to possible redemption (net of taxes of $64,000)                                                              |       | 97,996                          |        | —         |       | 97,996                           |       |
| Total common stock, subject to possible  redemption                                                                                                                 |       | 23,522,278                      |        | —         |       | 23,522,278                       |       |
| COMMITMENTS AND CONTINGENCIES (Note H)                                                                                                                              |       |                            |        |           |       |                             |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                          |       |                            |        |           |       |                             |       |
| Preferred stock-$.0001 par value; 1,000,000  shares authorized; 0 issued and outstanding                                                                            |       |                            |        |           |       |                             |       |
| Common stock- $.0001 par value; 100,000,000  shares authorized; 26,250,000 issued and outstanding (which includes  4,197,900 shares subject to possible redemption) |       | 2,625                           |        | —         |       | 2,625                            |       |
| Additional paid-in capital                                                                                                                                          |       | 95,747,698                      |        | (14,280,000    | )          | 81,467,698                       |       |
| Earnings (deficit) accumulated during the  development stage                                                                                                        |       | 273,925                         |        | (5,460,000     | )          | (5,186,075                       | )          |
| Total stockholders’ equity                                                                                                                                     |       | 96,024,248                      |        | (19,740,000    | )          | 76,284,248                       |       |
| Total liabilities and stockholders’ equity                                                                                                                     |       | $                               | 119,952,529 |           | $          | —                           |       | $ | 119,952,529 |   |

 

**NOTE E—INVESTMENTS HELD IN TRUST**

 

The management of the Company intends to holdtill maturity the investments held in the Trust Account which consistsprincipally of short-term Treasury Bills. These bills are purchased at a discount and the Company accretes thedifference between the purchase price and the market price which is consideredas interest income.

 

F-10

----

 

**NOTE F—INCOME TAXES**

 

Theprovision for income taxes for the period ending December 31, 2005 consists ofthe following:

 
| Current                |   |    |    |
|------------------------|--------|---------|---------|
| Federal                |   | $       | 206,000 |   |
| State and local        |   | 127,000 |    |
| Deferred tax (benefit) |   |    |    |
| Federal                |   | (14,733 | )       |
| State and local        |   | (4,182  | )       |
|                   |   |    |    |
| Total                  |   | $       | 314,085 |   |

 

Provisions have been made for deferred taxesbased on differences between the financial statements and the tax basis ofassets and liabilities using currently enacted rates and regulations.

 

Deferredtax assets and liabilities at December 31, 2005 consist of the following:

 
| Deferred tax assets – start up costs                  |   | $       | 34,629 |   |
|------------------------------------------------------------|--------|---------|--------|--------|
| Deferred tax  liability – accrued interest receivable |   | (15,714 | )      |
|                                                       |   |    |   |
| Net deferred  tax benefit                                  |   | $       | 18,915 |   |

 

The Company has recorded a deferred taxasset.  Realization is dependent on acquiringan operating company and the ability to use the deferred tax expenses to offsetoperating income.  Although realizationis not assured, management believes it is more likely than not that all of thedeferred tax will be realized through future taxable income.

 

Theprovision for income taxes differs from the amount computed using the federalstatutory rate of 34% as a result of the following:

 

Periodfrom April 12, 2005 (inception) to December 31, 2005

 
| ** **                                                       | ** ** | **As Reported** | ** ** | **As Previously  Restated** | ** ** |
|------------------------------------------------------------------|------------|-----------------|------------|-----------------------------|------------|
| Federal statutory  rate                                          |       | 34.0            | %          | (34.0                       | )%         |
| State and  local income taxes, net of federal income tax benefit |       | 11.8            |       | 1.7                         |       |
| Non deductible  loss                                             |       |            |       | 38.9                        |       |
|                                                             |       | 45.8            | %          | 6.6                         | %          |

 

**NOTE G—NOTES PAYABLE TO STOCKHOLDERS**

 

TheCompany issued two $77,000 non-interest bearing unsecured promissory notes totwo of the Founders of the Company on April 18, 2005.   Thenotes where repaid in the accordance with their terms on October 25, 2005 fromthe proceeds of the Offering.

 

F-11

----

 

**NOTE H—RELATED PARTY TRANSACTION**

 

TheCompany has agreed to pay CM Equity Management, L.P., a company where certainof the Founders serve in executive capacities, an administrative fee of $7,500per month for office space and general and administrative services from October19, 2005 through the effective date of the acquisition of a target business. Forthe period from inception to December 31, 2005, the amount paid to this entitywas $18,145.

 

Twoof the Founders have agreed with the Company and the underwriters that if theCompany liquidates prior to the consummation of a Business Combination, theymay be personally liable to ensure that the proceeds of the trust account arenot reduced by the claims of vendors or others entities that are owed money bythe Company for services rendered or products sold to the Company or the claimsof prospective target businesses.

 

**NOTE I—COMMITMENTS**

 

TheCompany has a commitment to pay to CRT Capital Group LLC a 2% fee of the grossoffering proceeds, or $2,520,000, payable upon the Company’s consummation of aBusiness Combination.

 

TheCompany has engaged CRT Capital Group LLC, the underwriter, on a non-exclusivebasis, as their agent for the solicitation of the exercise of the warrants. TheCompany has agreed to pay CRT Capital Group LLC a commission equal to 2% of theexercise price for each warrant exercised more than one year from October 19,2005 if the exercise was solicited by CRT Capital Group LLC.

 

**NOTE J—COMMON STOCK RESERVED FOR ISSUANCE**

 

AtDecember 31, 2005, 42,000,000 shares of common stock were reserved for issuanceupon exercise of redeemable warrants.

 

**NOTE K—FOUNDERS**

 

Oneor more of the Founders agreed with the Company that during the 40 trading dayperiod beginning 60 days after the end of the “restricted period” underRegulation M, they collectively would spend up to $2,000,000 to purchasewarrants in the public marketplace at prices not to exceed $.65 per warrant.They have further agreed that any warrants purchased by them or theiraffiliates or designees would not be sold or transferred until the completionof a Business Combination. Subsequent to December 31, 2005, 3,699,528 warrantshave been purchased by the Founders.

 

F-12

----