**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-K**

 

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

 

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**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)

 

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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)

 

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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.

 

 

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***SAFE HARBOR STATEMENT***

 

*This Annual Report on Form 10-Kand the documents incorporated by reference into the Annual Report on Form 10-Kinclude forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Theseforward-looking statements can be identified by the use of forward-lookingterminology, including the words “believes,” “estimates,” “anticipates,” “expects,”“intends,” “may,” “will” or “should,” or, in each case, their negative or othervariations or comparable terminology. Such statements include, but are not limitedto, any statements relating to our ability to consummate any acquisition orother business combination and any other statements that are not historicalfacts. These statements are based on management’s current expectations, butactual results may differ materially due to various factors, including, but notlimited to:*

 

•      *our being a developmentstage company with no operating history;*

•      *our dependence on keypersonnel, some of whom may or may not join us following a business combination;*

•      *our personnel allocatingtheir time to other businesses and potentially having conflicts of interestwith our business;*

•      *our potentially beingunable to obtain additional financing to complete a business combination;*

•      *the ownership of oursecurities being concentrated;*

•      *risks associated with the federalservices industry;*

•      *risks associated with thedefense industry; and*

•      *those other risks anduncertainties detailed in the Company’s filings with the Securities andExchange Commission.*

 

*By their nature, forward-lookingstatements involve risks and uncertainties because they relate to events anddepend on circumstances that may or may not occur in the future. We caution youthat forward-looking statements are not guarantees of future performance andthat our actual results of operations, financial condition and liquidity, anddevelopments in the industry in which we operate, may differ materially fromthose made in or suggested by the forward-looking statements contained in thisAnnual Report on Form 10-K. In addition, even if our results of operations,financial condition and liquidity, and developments in the industry in which weoperate, are consistent with the forward-looking statements contained in thisAnnual Report on Form 10-K, those results or developments may not be indicativeof results or developments in subsequent periods.*

 

*These forward-looking statementsare subject to numerous risks, uncertainties and assumptions about us. Theforward-looking events we discuss in this Annual Report on Form 10-K speak onlyas of the date of such statement and might not occur in light of these risks,uncertainties and assumptions. We undertake no obligation and disclaim anyobligation to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise.*

 

*Unless otherwise provided in thisAnnual Report on Form 10-K, references to “the Company,” “the Registrant,” “we,”“us” and “our” refer to Federal Services Acquisition Corporation.*

 

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**PART I**

 

**Item 1. Business.**

 

**General**

 

We are a “blank check” company organized under thelaws of the State of Delaware on April 12, 2005 and were formed for thepurpose of acquiring, through a merger, capital stock exchange, assetacquisition, stock purchase or other similar business combination, an operatingbusiness in the federal services and defense industries. We intend to use cashderived from the net proceeds of our initial public offering, together with anyadditional financing arrangements that we undertake, to effect a business combinationwith a target whose fair market value is at least equal to 80% of our netassets at the time of such acquisition.

 

A registration statement for our initial publicoffering was declared effective on October 19, 2005. On October 25, 2005, wesold 21,000,000 units and consummated our initial public offering. Each of ourunits consists of one share of our common stock, $0.0001 par value per share,and two redeemable common stock purchase warrants. Each warrant entitles theholder to purchase from us one share of common stock at an exercise price of$5.00. The net proceeds from our initial public offering were approximately $119,169,000,after deducting offering expenses of approximately $531,000 and underwritingdiscounts of $6,300,000. Of this amount, $117,180,000 (referred to in thisAnnual Report on Form 10-K as the “trust account funds”) was deposited into atrust account and the remaining proceeds (approximately $1,989,000 (referred toin this Annual Report on Form 10-K as the “available funds”)) were made availableto be used to provide for business, legal and accounting due diligence onprospective business combinations and continuing general and administrativeexpenses. Through December 31, 2005, we have used $133,161 of the availablefunds for start up costs representing general and administrative expenses,travel expenses, professional services, insurance and taxes based on capital. Thetrust account funds remain on deposit in the trust account earning interest. Asof December 31, 2005, there was $117,990,384, including interest receivable of$39,444, held in the trust account.

 

**Federal services and defense industries**

 

Companies operating in the federal services anddefense industries contract to provide the federal government with outsourced services,including information technology and other technical services, and products andtechnologies. Joel R. Jacks, our Chairman and Chief Executive Officer, andPeter M. Schulte, our President, Chief Financial Officer and Secretary,are both co-founders and co-managers of CM Equity Management, L.P. andCMLS Management, L.P., which manage various private equity funds under thebrand CM Equity Partners. Dr. Edward H. Bersoff, our Vice-Chairman,was the founder and chairman, president and chief executive officer of BTG,Inc., a federal services contractor. Messrs. Jacks and Schulte andDr. Bersoff have collectively been involved in six platform companies and15 acquisitions by such companies in the federal services industry. A platformcompany is one of sufficient magnitude that can serve as a basis for growth andadditional acquisitions.

 

We will likely acquire a business that operates in oneor more of the following sectors of the federal services and defense industries.In selecting a target, we have no preference among these various sectors: 

 
| • | Human Resources -  government workforce management                                                    |
|--------|-------------------------------------------------------------------------------------------------------|
| • | Financial Management -  program review, efficiency and cost-benefit analyses and accounting functions |
| • | Environmental - analysis;  policy development; management                                             |
| • | Information Technology -  management of government information                                        |
| • | Site Management - real  estate services                                                               |
| • | Engineering - civil and  military                                                                     |
| • | Logistics - goods and  services supply chain management                                               |
| • | Data Analysis -  collection, review and organization of information                                   |

 

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| • | Program Management -  outsourced management of government programs                                      |
|--------|---------------------------------------------------------------------------------------------------------|
| • | Policy Consulting - study  and development of policies                                                  |
| • | Communications - intra-,  inter- and extra-government communications management                         |
| • | Systems Engineering and  Technical Analysis - technical support for government programs                 |
| • | Network Management and  Administration - helping insure the continued operation of government  networks |
| • | Information Security -  helping protect government information                                          |
| • | Outsourcing - augmenting  government staff                                                              |
| • | Defense - procurement and  resale of products related to defense programs                               |
| • | Aerospace - procurement  and resale of products related to aerospace programs                           |
| • | Intelligence - procurement  and resale of products related to intelligence programs                     |
| • | Homeland Security -  procurement and resale of products related to homeland security                    |

 

There has been a high level of acquisition activityamong companies operating in the federal services and defense industries inrecent years. We believe that these transactions occurred for a variety ofreasons, including competitive pressure to improve economies of scale,operating complexity and the desire of companies’ founders to gain liquidity. Webelieve that these trends will continue and, based upon management’s years ofexperience in the federal services and defense industries, are likely to createattractive acquisition opportunities for us.

 

Many federal service providers provide similarservices to state and local governments and commercial entities. Accordingly,our target company may, to a lesser extent, provide services to state and localgovernments and to commercial entities.

 

**Effecting a Business Combination**

 

*General*

 

We are not presently engaged in, and we will notengage in, any substantive commercial business until we consummate a businesscombination. Upon approval of a business combination by our stockholders, weintend to use our cash, including the trust account funds, capital stock, debtor a combination of these to effect a business combination involving anoperating business in the federal services and defense industries. A businesscombination may involve the acquisition of, or merger with, an operatingbusiness which does not need substantial additional capital but which desiresto establish a public trading market for its shares, while avoiding what it maydeem to be adverse consequences of undertaking a public offering itself. Webelieve these include certain time delays, significant expense, loss of votingcontrol and compliance with various federal and state securities laws.

 

*Search for a target businesses*

 

We are currently in the process of identifying andevaluating target businesses for a business combination. Although we areparticipating in acquisition processes, we have not entered into any binding acquisitionagreements. Subject to the requirement that our initial business combinationmust be with an operating business with a fair market value of at least 80% ofour net assets at the time of the acquisition, we have virtually unrestrictedflexibility in identifying and selecting prospective acquisition candidates inthe federal services and defense industries.

 

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Target business candidates have been and willcontinue to be brought to our attention from various unaffiliated sources thathave included or may include investment bankers, venture capital funds, privateequity funds, leveraged buyout funds, management buyout funds and other membersof the financial community. To date, we have received both solicited andunsolicited proposals. Our stockholders, officers and directors as well astheir affiliates have brought and may continue to bring to our attention targetbusiness candidates. While we do not presently anticipate engaging the servicesof professional firms that specialize in business acquisitions on any formalbasis, we may engage these firms in the future, in which event we may pay afinder’s fee or other compensation from the available funds. In no event,however, will we pay any stockholders that owned shares of our common stockprior to our initial public offering, officers or directors (referred to inthis Annual Report on Form 10-K as our “founders”), or any entity with whichthey are affiliated, any finder’s fee or other compensation for servicesrendered to us prior to or in connection with the consummation of a businesscombination. In addition, none of our founders will receive any finder’s fee,consulting fees or any similar fees or other compensation from any other personor entity in connection with any business combination other than anycompensation or fees to be received for any services provided following suchbusiness combination.

 

*Selection of a target business and structuring of abusiness combination*

 

In evaluating prospective acquisition candidates,our management will likely consider, among other factors, the following: 

 
| • | financial condition and  results of operation;                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------|
| • | historical revenue growth;                                                                                             |
| • | growth potential;                                                                                                      |
| • | earnings before interest,  taxes, depreciation and amortization charges;                                               |
| • | consistent operating  margins:                                                                                         |
| • | experience and skill of  management and availability of additional personnel;                                          |
| • | nature of the customers  and contracts;                                                                                |
| • | stability and continuity  in customer relationships;                                                                   |
| • | backlog of orders for  services;                                                                                       |
| • | capital requirements;                                                                                                  |
| • | competitive position;                                                                                                  |
| • | barriers to entry into  other industries;                                                                              |
| • | stage of development of  the services, processes or products;                                                          |
| • | degree of current or potential  market acceptance of the services, processes or products;                              |
| • | proprietary features and  degree of intellectual property or other protection of the services,  processes or products; |
| • | regulatory environment of  the industry;                                                                               |
| • | potential growth in government  spending in the segment in which the target company operates; and                      |
| • | costs associated with  effecting the business combination.                                                             |

 

These criteria are not intended to be exhaustive. Anyevaluation relating to the merits of a particular business combination with anoperating business will be based, to the extent relevant, on the above factorsas well as other considerations deemed relevant by our management in effectinga business combination consistent with our business objective. In evaluatingprospective target businesses, we intend to conduct an extensive due diligencereview which will encompass, among other things, meetings with incumbent 

 

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managementand inspection of facilities, as well as review of financial and otherinformation which will be made available to us.

 

The time and costs required to select and evaluatetarget businesses and to structure and complete the business combination cannotpresently be ascertained with any degree of certainty. Any costs incurred withrespect to the identification and evaluation of prospective target businesseswith which a business combination is not ultimately completed will result in aloss to us and reduce the amount of capital available to otherwise complete abusiness combination. Additionally, our founders, directors, officers, and anyentity with which they are affiliated, will receive reimbursement for anyout-of-pocket expenses incurred by them in connection with activities on ourbehalf such as identifying potential target businesses and performing duediligence on suitable business combinations.

 

In addition, the terms of sales of target businessesmay require a prospective bidder to provide earnest money or a deposit at thetime of signing a definitive acquisition agreement or to expend funds prior toclosing in excess of those amounts allocated for such purposes. As a result ofthe terms of the trust arrangements for the trust account funds, the trustaccount funds are not available for any such earnest money or deposit. Accordingly,unless we could obtain such funds from another source, we would not be able toselect any target business that would require earnest money or a deposit, orthe expenditure of transaction expenses prior to closing in excess of amountsallocated for such purposes.

 

*Fair market value of target business*

 

The initial target business that we acquire musthave a fair market value equal to at least 80% of our net assets at the time ofsuch acquisition. The fair market value of such business will be determined byour board of directors based upon standards generally accepted by the financialcommunity, such as actual and potential sales, earnings and cash flow and bookvalue. If our board is not able to independently determine that the targetbusiness has a sufficient fair market value or if a conflict of interest existswith respect to such determination, we will obtain an opinion from anunaffiliated, independent investment banking firm which is a member of theNational Association of Securities Dealers, Inc. with respect to thesatisfaction of such criteria. However, we are not required to obtain anopinion from an investment banking firm as to the fair market value if ourboard of directors independently determines that the target business hassufficient fair market value.

 

*Opportunity for stockholder approval of businesscombination*

 

Prior to the completion of our initial businesscombination, we will submit the transaction to our stockholders for approval,even if the nature of the acquisition is such as would not ordinarily requirestockholder approval under applicable state law. In connection with seekingstockholder approval of a business combination, we will furnish ourstockholders with proxy solicitation materials prepared in accordance with theSecurities Exchange Act of 1934, which, among other matters, will include adescription of the operations of the target business and certain requiredfinancial information regarding the business.

 

In connection with the vote required for our initialbusiness combination, all of our founders, including all of our officers anddirectors, have agreed to vote all of their shares of common stock (wheneveracquired) in accordance with the majority of the shares of common stock votedby stockholders that purchased their shares in our initial public offering orsubsequently in the open market (referred to in this Annual Report on Form 10-Kas “public stockholders”). We will proceed with the business combination onlyif a majority of the shares of common stock voted by the public stockholdersare voted in favor of the business combination and public stockholders owningless than 20% of the shares sold in this offering exercise their conversionrights.

 

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*Conversion rights*

 

At the time we seek stockholder approval of anybusiness combination, we will offer each public stockholder the right to havesuch stockholder’s shares of common stock converted to cash if the stockholdervotes against the business combination and the business combination is approvedand completed. Our founders will not have this right because they have agreedto vote their stock (whenever acquired) in accordance with the majority of theshares of common stock voted by the public stockholders. The actual per-shareconversion price will be equal to the amount in the trust account, inclusive ofany interest (calculated as of two business days prior to the consummation ofthe proposed business combination, and net of taxes payable), divided by thenumber of shares sold in our initial public offering. As of December 31,2005, the per-share conversion price was approximately $5.60 ($5.62 less $0.02per share which is accrued for taxes), or $0.40 less than the price ($6.00 perunit) that we sold each unit for in our initial public offering. An eligiblestockholder may request conversion at any time after the mailing to ourstockholders of the proxy statement and prior to the vote taken with respect toa proposed business combination at a meeting held for that purpose, but therequest will not be granted unless the stockholder votes against the businesscombination and the business combination is approved and completed. Any requestfor conversion, once made, may be withdrawn at any time up to the date of themeeting. It is anticipated that the funds to be distributed to stockholders whoare entitled to convert their shares and who elect conversion will bedistributed promptly after completion of a business combination. Publicstockholders who convert their stock into their share of the trust account willretain the right to exercise the warrants they received as part of the units. Wewill not complete any business combination if public stockholders owning 20% ormore of the shares sold in our initial public offering both vote against abusiness combination and exercise their conversion rights.

 

*Liquidation if no business combination*

 

If we do not complete a business combination byApril 25, 2007, or October 25, 2007 if we enter into a letter of intent, anagreement in principle or a definitive agreement to complete a businesscombination prior to April 25, 2007, but are unable to complete such businesscombination by such date, we will be dissolved and will distribute to all ofour public stockholders, and to any of our founders with respect to any sharesof common stock which they purchased in or following our initial publicoffering, in proportion to their respective equity interests, an aggregate sumequal to the amount in the trust account, inclusive of any interest (net oftaxes payable), plus any remaining net assets. Our founders have agreed towaive their respective rights to participate in any liquidation distributionoccurring upon our failure to consummate a business combination solely withrespect to the shares of common stock owned by them immediately prior to ourinitial public offering. There will be no distribution from the trust accountwith respect to our warrants.

 

As of December 31, 2005, and assuming we hadexpended all of the available funds, the per share liquidation price wasapproximately $5.60 ($5.62 less $0.02 per share which is accrued for taxes), or$0.40 less than the price ($6.00 per unit) that we sold each unit for in ourinitial public offering. The proceeds deposited in the trust account could,however, become subject to the claims of our creditors which could be prior tothe claims of our public stockholders. We cannot assure you that the actualper-share liquidation price will not be less than $5.60, plus interest (net oftaxes payable), due to claims of creditors. Joel R. Jacks and Peter M. Schultehave agreed pursuant to an agreement with us and CRT Capital Group LLC that, ifwe liquidate prior to the consummation of a business combination, they may bepersonally liable to ensure that the proceeds of the trust account are notreduced by the claims of vendors or other entities that are owed money by usfor services rendered or products sold to us or the claims of prospectivetarget businesses. We cannot assure you, however, that they will be able tosatisfy those obligations.

 

If we enter into a letter of intent, an agreement inprinciple or a definitive agreement to complete a business combination prior toApril 25, 2007, but are unable to complete the business combination by suchdate, then we will have until October 25, 2007 in which to complete thebusiness combination contemplated by the letter of intent, agreement inprinciple or definitive agreement. If we are unable to do so by October 25,2007, we will then liquidate. Upon notice from us, the trustee of the trustaccount will 

 

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commenceliquidating the investments constituting the trust account and will turn overthe proceeds to our transfer agent for distribution to our public stockholdersand to our founders with respect to any shares of our common stock which theypurchased in or following our initial public offering. We anticipate that ourinstruction to the trustee would be given promptly after the expiration of theapplicable deadline.

 

Our public stockholders will be entitled to receivefunds from the trust account only in the event of our liquidation or if apublic stockholder seeks to convert his respective shares into cash upon abusiness combination which the public stockholder voted against and which isactually completed by us. In no other circumstances will a public stockholderhave any right or interest of any kind to or in the trust account.

 

**Competition**

 

In identifying, evaluating and selecting targetbusinesses, we may encounter intense competition from other entities having abusiness objective similar to ours. Many of these entities are well establishedand have extensive experience identifying and effecting business combinationsdirectly or through affiliates. Many of these competitors possess greatertechnical, human and other resources than us and our financial resources willbe relatively limited when contrasted with those of many of these competitors. Whilewe believe there are numerous potential target businesses that we couldacquire, our ability to compete in acquiring certain sizable target businesseswill be limited by our available financial resources. This inherent competitivelimitation gives others an advantage in pursuing the acquisition of targetbusinesses. Further:

 

 

•      our obligation to seek stockholder approvalof a business combination may delay the completion of a transaction;

•      our obligation to convert into cash shares ofcommon stock held by our public stockholders in certain instances may reducethe resources available to us for a business combination; and

•      our outstanding warrants, and the futuredilution they potentially represent, may not be viewed favorably by certaintarget businesses.

 

Any of these factors may place us at a competitivedisadvantage in successfully negotiating a business combination. Our managementbelieves, however, that our status as a public entity and potential access tothe United States public equity markets may give us a competitive advantage overprivately-held entities having a similar business objective as ours inacquiring a target business on favorable terms.

 

If we succeed in effecting a business combination,there will be, in all likelihood, intense competition from competitors of thetarget businesses. The degree of competition characterizing the industry of anyprospective target business cannot presently be ascertained. We cannot assureyou that, subsequent to a business combination, we will have the resources tocompete effectively, especially to the extent that the target business is in ahigh-growth industry.

 

**Employees**

 

We currently have three officers, each of whom isalso a member of our board of directors. We have no other employees. Theseindividuals are not obligated to devote any specific number of hours to ourmatters and intend to devote only as much time as they deem necessary to ouraffairs. We do not intend to have any full time employees prior to theconsummation of a business combination.

 

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**Item 1.A. Risk Factors.**

 

*In addition to other informationincluded in this Annual Report on Form 10-K, the following factors should beconsidered in evaluating our business and future prospects.*

 

***We are a development stage companywith no operating history and, accordingly, you will have no basis upon whichto evaluate our ability to achieve our business objective.***

 

We are a recently incorporated development stagecompany with no operating results to date. Since we do not have an operatinghistory, you have no basis upon which to evaluate our ability to achieve ourbusiness objective, which is to acquire an operating business in the federalservices and defense industries. We will not generate any revenues (other thaninterest income on the trust account funds) until, at the earliest, after theconsummation of a business combination. We cannot assure you as to when or if abusiness combination will occur.

 

***We may not be able to consummate abusiness combination within the required time frame, in which case, we would beforced to liquidate.***

 

We must complete a business combination with a fairmarket value of at least 80% of our net assets at the time of acquisition byApril 25, 2007 (or by October 25, 2007 if a letter of intent, agreement in principleor a definitive agreement has been executed by April 25, 2007 and the businesscombination relating thereto has not yet been consummated by such date). If wefail to consummate a business combination within the required time frame, wewill be forced to liquidate our assets. We may not be able to find a suitabletarget business within the required time frame. In addition, our negotiatingposition and our ability to conduct adequate due diligence on any potentialtarget may be reduced as we approach the deadline for the consummation for abusiness combination.

 

***Because there are numerous companieswith a business plan similar to ours seeking to effectuate a businesscombination, it may be more difficult for us to do so.***

 

Between August 1, 2003 and March 13, 2006, basedupon publicly available information, approximately 48 similarly structured “blankcheck” companies completed initial public offerings. Of these companies, sixcompanies have consummated a business combination, while ten other companies haveannounced they have entered into a letter of intent or a definitive agreementfor a business combination, but have not consummated such business combination.Accordingly, as of March 13, 2006, there are approximately 32 “blank check”companies with approximately $2.1 billion in trust that are seeking tocarry out a business plan similar to our business plan. Furthermore, as ofMarch 13, 2006, there were approximately 36 additional offerings for “blankcheck” companies that were still in the registration process but had notcompleted initial public offerings and there are likely to be more “blank check”companies filing registration statements for initial public offerings after March13, 2006 and prior to our completion of a business combination. While some ofthose companies must complete a business combination in specific industries, anumber of them may consummate a business combination in any industry theychoose or have a very broad definition of the industry they will target. Therefore,we may be subject to competition from these and other companies seeking toconsummate a business plan similar to ours. Because of this competition, wecannot assure you that we will be able to effectuate a business combinationwithin the required time period. Further, because only 16 of such companieshave either consummated a business combination or entered into a letter ofintent or a definitive agreement for a business combination, it may indicatethat there are fewer attractive target businesses available to such entities orthat many privately held target businesses are not inclined to enter into thesetypes of transactions with publicly held “blank check” companies like ours. Ifwe are unable to consummate a business combination with a target businesswithin the prescribed time period, we will be forced to liquidate.

 

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***If we are forced to liquidate beforea business combination, our public stockholders will receive less than $6.00per share upon distribution of the trust account, and our warrants will expireworthless.***

 

If we are unable to complete a business combinationand are forced to liquidate our assets, the per-share liquidation value will beless than $6.00 (the price per unit that we sold each unit for in our initialpublic offering) because of the expenses related to our public offering, ourgeneral and administrative expenses and the anticipated costs of seeking abusiness combination. Furthermore, the warrants will expire worthless if weliquidate before the completion of a business combination.

 

***You will not be entitled toprotections normally afforded to investors of “blank check” companies underfederal securities laws.***

 

Since the net proceeds of our public offering areintended to be used to complete a business combination with an operatingbusiness that has not been identified, we may be deemed to be a “blank check”company under the federal securities laws. However, since we have net tangibleassets in excess of $5,000,000 and have filed a Current Report onForm 8-K with the SEC, including an audited balance sheet demonstratingthis fact, we believe that we are exempt from rules, such as rule 419 under theSecurities Act of 1933, as amended, promulgated by the Securities and ExchangeCommission, to protect investors of “blank check” companies. Accordingly,investors will not be afforded the benefits or protections of those rules. Becausewe do not believe we are subject to Rule 419, our units were immediatelytradeable, and we have a longer period of time within which to complete abusiness combination in certain circumstances.

 

***If third parties bring claimsagainst us, the proceeds held in trust could be reduced and the per-shareliquidation price received by stockholders will be reduced.***

 

Our placing of funds in trust may not protect thosefunds from third party claims against us. Although we will seek to have allvendors, prospective target businesses or other entities we engage executeagreements with us waiving any right, title, interest or claim of any kind inor to any monies held in the trust account, there is no guarantee that theywill execute such agreements. Nor is there any guarantee that such entitieswill agree to waive any claims they may have in the future as a result of, orarising out of, any negotiations, contracts or agreements with us and will notseek recourse against the trust account for any reason. Accordingly, theproceeds held in the trust account could be subject to claims which could takepriority over the claims of our public stockholders and the per-shareliquidation price could be reduced due to claims of such creditors. If we areunable to complete a business combination and are forced to liquidate, Joel R.Jacks, our chairman and chief executive officer, and Peter M. Schulte, ourpresident, chief financial officer and secretary, may be personally liableunder certain circumstances to ensure that the proceeds in the trust accountare not reduced by the claims of various vendors or other entities that areowed money by us for services rendered or products sold to us or claims ofprospective target businesses. However, we cannot assure you that they will beable to satisfy those obligations.

 

***Since we have not entered into abinding agreement with any prospective target businesses with which to completea business combination, public shareholders are unable to currently ascertainthe merits or risks of any particular target business’ operations.***

 

Since we have not entered into a binding agreementwith any prospective target businesses, public shareholders have no currentbasis to evaluate the possible merits or risks of any particular targetbusiness’ operations. To the extent we complete a business combination with afinancially unstable company or an entity in its development stage, we may beaffected by numerous risks inherent in the business operations of such entity. Althoughour management will endeavor to evaluate the risks inherent in a particulartarget business, we cannot assure you that we will properly ascertain or assessall of the significant risk factors, or that we will have adequate time tocomplete due diligence.

 

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***We may issue shares of our capitalstock, including convertible debt securities, to complete a businesscombination, which could reduce the equity interest of our stockholders andpossibly cause a change in control of our ownership.***

 

Our certificate of incorporation authorizes theissuance of up to 100,000,000 shares of common stock, par value $.0001 per share,and 1,000,000 shares of preferred stock, par value $.0001 per share. We have31,750,000 authorized but unissued shares of our common stock available forissuance (after appropriate reservation for the issuance of shares upon fullexercise of our outstanding warrants) and 1,000,000 shares of preferred stockavailable for issuance. Although we currently have no commitments to issue anysecurities, we may issue a substantial number of additional shares of ourcommon stock or preferred stock, or a combination of both, includingconvertible debt securities, to complete a business combination. The issuanceof additional shares of our common stock or any number of shares of preferredstock, including upon conversion of any debt securities:

 

•      may significantly reduce the equity interest of investors in oursecurities;

•      may cause a change in control if asubstantial number of our shares of common stock or voting preferred stock areissued, which may affect, among other things, our ability to use our netoperating loss carry forwards, if any, and may also result in the resignationor removal of our present officers and directors; and

•       may adversely affect prevailing market prices for our common stock.

 

***We may issue notes or other debtsecurities, or otherwise incur substantial debt, to complete a businesscombination, which may adversely affect our leverage and financial condition.***

 

Although we currently have no commitments to issueany notes or other debt securities, or to otherwise incur outstanding debt, wemay choose to incur substantial debt to complete a business combination. Theincurrence of debt:

 

•      may lead to default and foreclosure onour assets if our operating earnings after a business combination areinsufficient to pay our debt obligations;

•      may cause an acceleration of ourobligations to repay the indebtedness even if we make all principal andinterest payments when due if we breach the covenants contained in any debtagreements, such as covenants that require the maintenance of certain financialratios or reserves, without a waiver or renegotiation of such covenants;

•      may create an obligation to immediately repayall principal and accrued interest, if any, upon demand to the extent any debtsare payable on demand; and

•      may hinder our ability to obtain additionalfinancing, if necessary, to the extent any debt agreements contain covenantsrestricting our ability to obtain additional financing while such debt isoutstanding, or to the extent our existing leverage discourages other potentialinvestors.

 

***Our ability to successfully effect abusiness combination and to be successful afterwards will be completelydependent upon the efforts of our key personnel, some of whom may join usfollowing a business combination and may be unfamiliar with the requirements ofoperating a public company, which may adversely affect our operations.***

 

Our ability to successfully effect a businesscombination will be completely dependent upon the efforts of our key personnel.The future role of our key personnel following a business combination, however,cannot presently be fully ascertained. Specifically, the members of our currentmanagement are not obligated to remain with us subsequent to a businesscombination, and we cannot assure you that the resignation or retention of ourcurrent management will be included as a term or condition in any agreementwith respect to a business combination. Although we expect one or more membersof our management to serve on our board of directors following a businesscombination, subject to continued election by the stockholders, it is unlikelythat they will operate the target company on a day-to-day basis. 

 

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Accordingly,we anticipate employing other personnel following the business combination. While we intend toclosely scrutinize any additional individuals we engage after a businesscombination, we cannot assure you that our assessment of these individuals willprove to be correct. These individuals may be unfamiliar with the requirementsof operating a public company as well as United States securities laws whichcould cause us to expend time and resources helping them become familiar withsuch laws. This could be expensive and time-consuming and could lead to variousregulatory issues that may adversely affect our operations.

 

Our officers and directors are not required to, andwill not, commit their full time to our affairs, which may result in a conflictof interest in allocating their time between our operations and other businesses.This could have a negative impact on our ability to consummate a businesscombination. We do not intend to have any full time employees prior to theconsummation of a business combination. Each of our officers is engaged inother business endeavors and is not obligated to contribute any specific numberof hours per week to our affairs. If our officers’ other business affairsrequire them to devote substantial amounts of time to such affairs in excess oftheir current commitment levels, it could limit their ability to devote time toour affairs and could have a negative impact on our ability to consummate abusiness combination. We cannot assure you that these conflicts will beresolved in our favor.

 

***Our officers and directors are andmay in the future become affiliated with entities engaged in businessactivities similar to those intended to be conducted by us and, accordingly,may have conflicts of interest in determining to which entity a particularbusiness opportunity should be presented.***

 

Our officers and directors may in the future becomeaffiliated with entities, including other “blank check” companies, engaged inbusiness activities similar to those conducted by us. Additionally, ourofficers and directors may become aware of business opportunities which may beappropriate for presentation to us as well as the other entities with whichthey are or may be affiliated. Further, certain of our officers and directorsare currently involved in other businesses that are similar to the businessactivities that we intend to conduct following a business combination. Forexample, Joel R. Jacks, our chairman and chief executive officer, and Peter M.Schulte, our president, chief financial officer and secretary, have preexistingfiduciary obligations that arise as a result of their affiliations with theprivate equity funds for which they act as principals and their directorshipswith those funds’ portfolio companies. In addition, Dr. Edward H. Bersoff,our vice-chairman, and Arthur L. Money, our non-executive director, serve onthe boards of various companies in the federal services and defense industries.Due to these existing affiliations, our officers and directors may havefiduciary obligations to present potential business opportunities to thoseentities prior to presenting them to us which could cause additional conflictsof interest. Accordingly, they may have conflicts of interest in determining towhich entity a particular business opportunity should be presented. We cannotassure you that these conflicts will be resolved in our favor.

 

***Because all of our directors ownshares of our securities that will not participate in liquidationdistributions, they may have a conflict of interest in determining whether aparticular target business is appropriate for a business combination.***

 

All of our directors own stock in our company, buthave, solely with respect to those shares of common stock acquired by themprior to our initial public offering, waived their right to receivedistributions upon our liquidation in the event we fail to complete a businesscombination. Additionally, Joel R. Jacks, Peter M. Schulte, Dr. Edward H.Bersoff and FSAC Partners, LLC purchased warrants in the public marketplace followingour initial public offering. None of our executive directors or any of theiraffiliates is precluded from acquiring additional warrants in the aftermarketif any of them so chooses. All of the shares of common stock owned by ourdirectors immediately prior to our public offering and any warrants owned by ourdirectors will be worthless if we do not consummate a business combination. Thepersonal and financial interests of our directors may influence theirmotivation in identifying and selecting a target business and completing abusiness combination in a timely manner. Consequently, our directors’discretion in identifying and selecting a suitable target business may resultin a conflict of interest when 

 

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determiningwhether the terms, conditions and timing of a particular business combinationare appropriate and in our stockholders’ best interest.

 

***If our common stock becomes subjectto the SEC’s penny stock rules, broker-dealers may experience difficulty incompleting customer transactions and trading activity in our securities may beadversely affected.***

 

If at any time we have net tangible assets of$5,000,000 or less and our common stock has a market price per share of lessthan $5.00, transactions in our common stock may be subject to the “penny stock”rules promulgated under the Securities Exchange Act of 1934, as amended. Underthese rules, broker-dealers who recommend such securities to persons other thaninstitutional accredited investors must:

 

•      make a special written suitabilitydetermination for the purchaser;

•      receive the purchaser’s written agreement toa transaction prior to sale;

•      provide the purchaser with risk disclosuredocuments which identify certain risks associated with investing in “pennystocks” and which describe the market for these “penny stocks” as well as apurchaser’s legal remedies; and

•      obtain a signed and dated acknowledgment fromthe purchaser demonstrating that the purchaser has actually received therequired risk disclosure document before a transaction in a “penny stock” canbe completed.

 

If our common stock becomes subject to these rules,broker-dealers may find it difficult to effect customer transactions andtrading activity in our securities may be adversely affected. As a result, themarket price of our securities may be depressed, and you may find it moredifficult to sell our securities.

 

***We will only be able to complete onebusiness combination with the proceeds of our public offering, which will causeus to be solely dependent on a single business which may have a limited numberof services or products.***

 

The net proceeds from our initial public offeringhave provided us with approximately $119,169,000, which we may use to completeour initial business combination. Our initial business combination must be withan operating business with a fair market value of at least 80% of our netassets at the time of such business combination. It is probable that thecompany we acquire in our initial business combination will have only a limitednumber of services or products. The resulting lack of diversification:

 

•      will result in our dependency upon theperformance of a single operating business;

•      may result in our dependency upon thedevelopment or market acceptance of a single or limited number of services,processes or products; and

•      may subject us to numerous economic,competitive and regulatory developments, any or all of which may have asubstantial adverse impact upon the particular industry in which we may operatesubsequent to a business combination.

 

In this case, we will not be able to diversify ouroperations or benefit from the possible spreading of risks or offsetting oflosses, unlike other entities which may have the resources to complete severalbusiness combinations in different industries or different areas of a singleindustry so as to diversify risks and offset losses. Further, the prospects forour success will be entirely dependent upon the performance of the initialtarget business we acquire and such target business may not be successful.

 

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***Because of our limited resources andthe significant competition for business combination opportunities, we may notbe able to consummate an attractive business combination.***

 

We expect to encounter intense competition fromother entities having a business objective similar to ours, including venturecapital funds, leveraged buyout funds and operating businesses competing foracquisitions. Many of these entities are well established and have extensiveexperience in identifying and effecting business combinations directly orthrough affiliates. Many of these competitors possess greater technical, humanand other resources than we do and our financial resources will be relativelylimited when contrasted with those of many of these competitors. While webelieve that there are numerous potential target businesses that we couldacquire with the net proceeds of our initial public offering, together withadditional financing if available, our ability to compete in acquiring certainsizable target businesses will be limited by our available financial resources.This inherent competitive limitation gives others an advantage in pursuing theacquisition of certain target businesses. Further:

 

•      our obligation to seek stockholder approvalof a business combination may delay the consummation of a transaction;

•      our obligation to convert into cash certainshares of common stock in the event a business combination is consummated andpublic stockholders owning less than 20% of the shares sold in our initialpublic offering vote against such business combination and exercise theirconversion rights may reduce the resources available for a businesscombination; and

•      our outstanding warrants, and the futuredilution they potentially represent, may not be viewed favorably by certaintarget businesses.

 

Any of these obligations may place us at acompetitive disadvantage in successfully negotiating a business combination.

 

***We may have insufficient resourcesto cover our operating expenses and the expenses of consummating a businesscombination.***

 

As of October 25, 2005, we reserved approximately $1,989,000from the proceeds of our initial public offering to cover our operatingexpenses for at least 24 months following the date we consummated our initialpublic offering, and to cover the expenses incurred in connection with abusiness combination. This amount is based on management’s estimates of thecosts needed to fund our operations for such period and consummate a businesscombination. Those estimates may prove inaccurate, especially if a portion ofthe available proceeds is used to make a down payment or pay exclusivity orsimilar fees in connection with a business combination or if we expend asignificant portion of the available proceeds in pursuit of a businesscombination that is not consummated. If we do not have sufficient proceedsavailable to fund our expenses, we may be forced to obtain additionalfinancing, either from our management or our founders or from third parties. Wemay not be able to obtain additional financing and our existing stockholdersand management are not obligated to provide any additional financing. If we donot have sufficient proceeds and cannot find additional financing when neededto consummate a particular business combination, we would be compelled torestructure or abandon that particular business combination or seek alternatetarget businesses, and eventually may be forced to liquidate prior toconsummating a business combination. In addition, if we consummate a businesscombination, we may require additional financing to fund the operations orgrowth of the target business. The failure to secure additional financing couldhave a material adverse effect on the continued development or growth of thetarget business.

 

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***Our founders control a substantialinterest in us and thus may influence certain actions requiring stockholdervote.***

 

Our founders collectively own 20% of our issued andoutstanding shares of common stock as of March 15, 2006. Additionally, as of March15, 2006, four of our founders, Joel R. Jacks, Peter M. Schulte,Dr. Edward H. Bersoff and FSAC Partners, LLC, collectively owned 3,699,528warrants, or 8.8% of our outstanding warrants.

 

Furthermore, our founders are not precluded frompurchasing additional warrants or shares of common stock in the aftermarket. Anyexercise of these warrants by our founders would substantially increase theirrelative percentage ownership in us.

 

Our board of directors is divided into threeclasses, each of which will generally serve for a term of three years with onlyone class of directors being elected in each year. It is unlikely that therewill be an annual meeting of stockholders to elect new directors prior to the consummationof a business combination, in which case all of the current directors willcontinue in office at least until the consummation of the business combination.If there is an annual meeting, as a consequence of our “staggered” board ofdirectors, only a minority of the board of directors will be considered forelection and our founders, because of their ownership position, will haveconsiderable influence regarding the outcome. Accordingly, our founders willcontinue to exert control at least until the consummation of a businesscombination. In addition, our founders and their affiliates and relatives arenot prohibited from purchasing units or shares in the aftermarket, and havefull voting rights with respect to any shares of common stock they may acquirein such market transactions. If they do, we cannot assure you that our founderswill not have considerable influence upon the vote on a business combination.

 

***Our amended and restated certificateof incorporation and by-laws contain certain provisions that may make it moredifficult, expensive or otherwise discourage, a tender offer or a change incontrol or takeover attempt by a third party, even if such a transaction wouldbe beneficial to our stockholders.***

 

The existence of certain provisions in our amendedand restated certificate of incorporation and by-laws may have a negativeimpact on the price of our common stock by discouraging a third party frompurchasing our common stock. These provisions could also have the effect ofdiscouraging a third party from pursuing a non-negotiated takeover of ourcompany and preventing certain changes of control. In addition to our staggeredboard, our by-laws require that, subject to certain exceptions, any stockholderdesiring to propose business or nominate a person to the board of directors ata stockholders meeting must give notice of any proposals or nominations withina specified time frame. Our by-laws also limit the ability of stockholders toremove directors, call stockholders meetings and act by written consent andprovide that vacancies of the board of directors may only be filled by amajority of the remaining directors.

 

***Our outstanding warrants may have anadverse effect on the market price of common stock and make it more difficultto effect a business combination.***

 

In connection with our initial public offering, aspart of the units, we issued warrants to purchase 42,000,000 shares of commonstock. To the extent we issue shares of common stock to effect a businesscombination, the potential for the issuance of substantial numbers ofadditional shares upon exercise of these warrants could make us a lessattractive acquisition vehicle in the eyes of a target business as suchsecurities, when exercised, will increase the number of issued and outstandingshares of our common stock and reduce the value of the shares issued tocomplete the business combination. Accordingly, our warrants may make it moredifficult to effectuate a business combination or increase the cost of a targetbusiness. Additionally, the sale, or even the possibility of sale, of theshares underlying the warrants could have an adverse effect on the market pricefor our securities or on our ability to obtain future public financing. If andto the extent these warrants are exercised, you will experience dilution toyour holdings.

 

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***If our founders exercise theirregistration rights, it may have an adverse effect on the market price of ourcommon stock and the existence of these rights may make it more difficult toeffect a business combination.***

 

Our founders are entitled to demand that we registerthe resale of their shares of common stock in certain circumstances. If our foundersexercise their registration rights with respect to all of their shares ofcommon stock, then there will be an additional 5,250,000 shares of common stockeligible for trading in the public market. The presence of this additionalnumber of shares of common stock eligible for trading in the public market mayhave an adverse effect on the market price of our common stock. In addition,the existence of these rights may make it more difficult to effect a businesscombination or increase the cost of a target business, as the stockholders of aparticular target business may be discouraged from entering into a businesscombination with us or will request a higher price for their securities as aresult of these registration rights and the potential future effect theirexercise may have on the trading price of our common stock.

 

***Our securities are quoted on the OTCBulletin Board, which limits the liquidity and price of our securities morethan if our securities were quoted or listed on the Nasdaq Stock Market or anational exchange.***

 

Our securities are traded in the over-the-countermarket and are quoted on the OTC Bulletin Board, an inter-dealer automatedquotation system for equity securities sponsored and operated by the NationalAssociation of Securities Dealers, Inc., or NASD, but not included in theNasdaq Stock Market. We cannot assure you that our securities will continue tobe quoted on the OTC Bulletin Board. Quotation of our securities on the OTCBulletin Board may limit the liquidity and price of our securities more than ifour securities were quoted or listed on The Nasdaq Stock Market or a nationalexchange. Lack of liquidity may limit the price at which you may be able tosell our securities or your ability to sell our securities at all.

 

***If we are deemed to be an investmentcompany, we may be required to institute burdensome compliance requirements andour activities may be restricted, which may make it difficult for us tocomplete a business combination.***

 

If we are deemed to be an investment company underthe Investment Company Act of 1940, as amended, our activities may berestricted, including:

 

•      restrictions on the nature of ourinvestments; and

•      restrictions on the issuance of securities,each of which may make it difficult for us to complete a business combination.

 

Inaddition, we may have burdensome requirements imposed upon us, including:

 

•      registration as an investment company;

•      adoption of a specific form of corporatestructure; and

•      reporting, record keeping, voting, proxy anddisclosure requirements and other rules and regulations.

 

We do not believe that our principal activities willsubject us to the Investment Company Act of 1940. To this end, the proceedsheld in the trust account may only be invested by the trust agent in “governmentsecurities” with specific maturity dates or in money market funds meetingcertain conditions under Rule 2a-7 promulgated under the Investment Company Actof 1940. By restricting the investment of the proceeds to these instruments, weintend to meet the requirements for the exemption provided in Rule 3a-1promulgated under the Investment Company Act of 1940. If we were deemed to besubject to the Investment Company Act of 1940, compliance with these additionalregulatory burdens would require additional expense that we have not providedfor.

 

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***Our directors may not be considered “independent”under the policies of the North American Securities AdministratorsAssociation, Inc. and, therefore, may take actions or incur expenses thatare not deemed to be independently approved or independently determined to bein our best interest.***

 

Under the policies of the North American SecuritiesAdministrators Association, Inc., an international organization devoted toinvestor protection, because each of our directors owns shares of oursecurities and may receive reimbursement for out-of-pocket expenses incurred bythem in connection with activities on our behalf such as identifying potentialtarget businesses and performing due diligence on suitable businesscombinations, state securities administrators could take the position that suchindividuals are not “independent.” If this were the case, they would take theposition that we would not have the benefit of independent directors examiningthe propriety of expenses incurred on our behalf and subject to reimbursementby us. Additionally, there is no limit on the out-of-pocket expenses that couldbe incurred by our directors and there will be no reviewof the reasonableness of the expenses we reimburse by anyone other than ourboard of directors, which would include persons who may seek reimbursement or acourt of competent jurisdiction if such reimbursements are challenged. To theextent such out-of-pocket expenses exceed the available funds, suchout-of-pocket expenses would not be reimbursed by us unless we consummate abusiness combination. Although we believe that all actions taken by ourdirectors on our behalf will be in our best interests, whether or not they aredeemed to be “independent,” we cannot assure you that this will actually be thecase. If actions are taken or expenses are incurred that are actually not inour best interests, it could have a material adverse effect on our business andoperations and the price of our stock held by our stockholders.

 

**Risksassociated with the federal services and defense industries**

 

We may acquire an operating business that contractsdirectly with the federal government and its agencies, in which case the risksbelow would directly affect us. We may also acquire an operating business that actsas a subcontractor, supplier or partner with another party or parties thatcontract with the federal government and its agencies, in which case the riskfactors below would still affect us directly or indirectly.

 

***The loss or impairment of ourrelationship with the federal government and its agencies could adverselyaffect our business.***

 

Our target company may derive a substantial portionof its revenue from government contracts, either directly or as asubcontractor, partner or supplier to a party working under such a contract. Ifour target company or other company with which it had any such relationshipwere suspended or prohibited from contracting with the federal government orits agencies, or with a significant agency of the government, or if any ofthese agencies ceased doing business with them or significantly decreased theamount of business it does with them, our target company’s business, prospects,financial condition and operating results could be significantly impaired.

 

***Changes by the federal government inits spending priorities may cause a reduction in the demand for the products orservices that we may ultimately offer, which could adversely affect ourbusiness.***

 

Because our target company may derive a significantportion of its revenues from contracts with the federal government or itsagencies, we believe that the success and development of the target company’sbusiness will depend on its successful participation in the federal contractprogram. Changes in the federal government budgetary priorities could directlyaffect the target company’s financial performance. Government expenditures tendto fluctuate based on a variety of political, economic and social factors. Asignificant decline in government expenditures, or a shift of expenditures awayfrom programs our target company supports, or a change in federal governmentcontracting policies causing its agencies to reduce their expenditures undercontracts, to exercise their right to terminate contracts at any time withoutpenalty, not to exercise options to renew contracts or to delay or not enterinto new contracts, could adversely affect our target company’s business,prospects, financial condition or operating results. Moreover, although 

 

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contractswith governmental agencies often contemplate that the services will beperformed over a period of several years, Congress usually must approve fundsfor a given program each government fiscal year and may significantly reduce oreliminate funding for a program. Significant reductions in these appropriationsby Congress or the failure by Congress to pass a budget resolution in a timelymanner could have a material adverse effect on our target company’s business.

 

***Federal government contracts oftencontain provisions that are unfavorable, which could adversely affect ourbusiness.***

 

Federal government contracts contain provisions andare subject to laws and regulations that give the federal government rights andremedies not typically found in commercial contracts, including withoutlimitation, allowing the federal government to:

 

•      terminate existing contracts for convenience,as well as for default;

•      reduce or modify contracts or subcontracts;

•      cancel multi-year contracts and relatedorders if funds for contract performance for any subsequent year becomeunavailable;

•      decline to exercise an option to renew amulti-year contract;

•      claim rights in services or products providedby the target company;

•      suspend or bar the target company from doingbusiness with the federal government or with a governmental agency; and

•      control or prohibit the export of products.

 

If the federal government terminates a contract “forconvenience” (for instance, due to a change in its perceived needs or itsdesire to consolidate work under another contract), our target company mayrecover only its incurred or committed costs, settlement expenses and profit onservices completed prior to the termination. If the government terminates acontract for default, our target company may not recover even those amounts,and instead may be liable for excess costs incurred by the government or agencyin procuring undelivered services or products from another source. As is commonwith government contractors, some of our target company’s contracts mayexperience performance issues in the future. Our target company may in thefuture receive “show cause” or cure notices under contracts that, if notaddressed to the government’s satisfaction, could give the government the rightto terminate those contracts for default or to cease procuring services underthose contracts in the future. Even if the target company is not directly theparty to a government contract, as in the case of a subcontract relationship,the impact of the above on the prime contractor would likely have a materialadverse effect on our target company.

 

***We will likely have to comply withcomplex procurement laws and regulations, and the cost of compliance with theselaws and regulations and penalties and sanctions for any non-compliance couldadversely affect our business.***

 

Our target company will likely have to comply withand will be affected by laws and regulations relating to the formation,administration and performance of federal government contracts, which affecthow the target company does business with its customers and may impose addedcosts on its business. For example, our target company or parties with which itdoes business will likely be subject to the Federal Acquisition Regulations andall supplements, which comprehensively regulate the formation, administrationand performance of federal government contracts, and to theTruth-in-Negotiations Act, which requires certification and disclosure of costand pricing data in connection with contract negotiations. If a governmentreview or investigation uncovers improper or illegal activities, our targetcompany may be subject to civil and criminal penalties and administrativesanctions, including termination of contracts, forfeiture of profits,suspension of payments, fines and suspension or debarment from doing businesswith federal government agencies, which could materially adversely affect ourtarget company’s business, prospects, financial condition or operating results.In addition, our target company or parties with which it 

 

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doesbusiness will likely be subject to industrial security regulations of the Department of Defense and otherfederal agencies that are designed to safeguard against foreigners’ access toclassified information. The target company may also be liable for systems andservices failure and security breaks with respect to the solutions, services orproducts, or other applications it sells to the government. If the targetcompany were to come under foreign ownership, control or influence, its federalgovernment customers could terminate or decide not to renew their contracts,and it could impair their ability to grant new contracts to our target company.

 

***The federal government may reform itsprocurement or other practices in a manner adverse to us.***

 

The federal government may reform its procurementpractices or adopt new contracting rules and regulations, includingcost-accounting standards, that could be costly to satisfy or that could impairour target company’s ability to obtain new contracts. It also could adopt newcontracting methods for General Services Administration, or GSA, or othergovernment-wide contracts, or adopt new standards for contract awards intendedto achieve certain social or other policy objectives, such as establishing newset-aside programs for small or minority-owned businesses. In addition, thefederal government may face restrictions from new legislation or regulations,as well as pressure from government employees and their unions, on the natureand amount of services the federal government may obtain from privatecontractors. These changes could impair our target company’s ability to obtainnew contracts. Any new contracting methods could be costly or administrativelydifficult for our target company to implement and, as a result, could harm itsoperating results.

 

***Government contracts are usuallyawarded through a competitive bidding process which entails risks not presentin other circumstances.***

 

A meaningful amount of the business that our targetcompany may expect to seek directly or through parties with which it doesbusiness in the foreseeable future will likely be awarded through competitivebidding. Competitive bidding presents a number of risks, including withoutlimitation:

 

•      the need to bid on programs in advance of thecompletion of their design, which may result in unforeseen technologicaldifficulties and cost overruns;

•      the substantial cost and managerial time andeffort that our target company may spend to prepare bids and proposals forcontracts that may not be awarded to our target company;

•      the need to accurately estimate the resourcesand cost structure that will be required to service any contract our targetcompany is awarded; and

•      the expense and delay that may arise if ourtarget company’s or its partners’ competitors protest or challenge contractawards made to our target company or partners pursuant to competitive bidding,and the risk that any such protest or challenge could result in theresubmission of bids on modified specifications, or in termination, reductionor modification of the awarded contract.

 

Our target company may not be provided theopportunity to bid on contracts that are held by other companies and arescheduled to expire if the government determines to extend the existingcontracts. If our target company is unable to win particular contracts that areawarded through the competitive bidding process or our target company is unableto consistently win new contract awards over any extended period its businessand prospects could be adversely affected.

 

***Federal government customerssometimes spend their procurement budgets through multiple award contracts andour target company’s failure to successfully compete for post-award ordersunder these contracts could adversely affect its business.***

 

Budgetary pressure and reforms in the procurementprocess may cause the federal government to increase its use of task order ordelivery order contracts (commonly known in the industry as “indefinitedelivery, indefinite quantity” contracts, or ID/IQ contracts), including GSAContracts, and other 

 

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government-wideacquisition contracts, or GWAC contracts, to purchase services or products. Undera task order or delivery order contract, the federal government may submit, butis not required to submit, orders for services or products. Thus, the revenuethat may be realized under these contracts is not guaranteed, but insteaddepends, among other things, on the quantity of orders that the government infact submits to the contractor. Such contracts, some of which are awarded tomultiple contractors, have increased pricing pressure and require thatcontractors make sustained post-award efforts to procure service orders inorder to realize revenue under such contracts. Our target company may not beable to successfully sell its services or products or otherwise increase itsrevenues under these contracts. Our target company’s failure to compete effectivelyin the procurement environment could have a material adverse effect on ourtarget company’s business, prospects, financial condition and results ofoperations.

 

***We may lose money on some contractsif we underestimate the resources we need to perform under the contract.***

 

Our target company may provide services or productsto the federal government under three types of contracts: cost-plus-fee,time-and-materials, and fixed-price. Each of these types of contracts, todiffering degrees, involves the risk that our target company couldunderestimate its cost of fulfilling the contract, which may reduce the profitit earns or lead to a financial loss on the contract.

 

•      Under cost-plus-fee contracts, which aresubject to a ceiling amount, our target company may be reimbursed for allowablecosts and paid a fee, which may be fixed or performance-based. However, if itscosts exceed the ceiling or are not allowable under the terms of the contractor applicable regulations, our target company may not be able to recover thosecosts.

•      Under time-and-materials contracts, ourtarget company may be reimbursed for labor at negotiated hourly billing ratesand for certain expenses, and our target company assumes the risk that itscosts of performance may exceed the negotiated hourly rates.

•      Under fixed-price contracts, our targetcompany performs specific tasks for a fixed price. Compared to cost-plus-feecontracts and time-and-materials contracts, fixed-price contracts involvegreater financial risk because our target company bears the impact of costoverruns. To the extent its actual costs exceed the estimates upon which theprice was negotiated, our target company will generate less than theanticipated amount of profit or could incur a loss.

 

***Our contracts with the federalgovernment and its agencies will be subject to audits and cost adjustments.***

 

The federal government audits and reviewsperformance on contracts, pricing practices, cost structure and compliance withapplicable laws, regulations and standards. Like most government contractors,our target company’s contract costs will be audited and reviewed on a continualbasis. In addition, nonaudit reviews by the government may still be conductedon all government contracts. An audit of work performed by our target companycould result in a substantial adjustment to its revenues because any costsfound to be improperly allocated to a specific contract will not be reimbursed,and revenues our target company may have already recognized may need to berefunded. If a government audit uncovers improper or illegal activities, ourtarget company may be subject to civil and criminal penalties andadministrative sanctions, including termination of contracts, forfeiture ofprofits, suspension of payments, fines and suspension or debarment from doingbusiness with federal government agencies. In addition, our target companycould suffer serious harm to its reputation if allegations of impropriety weremade.

 

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***Our business depends upon obtainingand maintaining required security clearances, and our failure to do so couldresult in termination of certain of our contracts or cause us to be unable tobid or rebid on certain contracts.***

 

Many federal government contracts will require ourtarget company’s employees to maintain various levels of security clearances,and our target company may be required to maintain certain facility securityclearances complying with federal government requirements. Obtaining andmaintaining security clearances for employees involves a lengthy process, andit is difficult to identify, recruit and retain employees who already holdsecurity clearances. If our target company’s employees are unable to obtain orretain security clearances or if such employees who hold security clearancesterminate employment with the target company, the customer whose work requirescleared employees could terminate the contract or decide not to renew it uponits expiration. In addition, we expect that some of the contracts on which ourtarget company will bid will require it to demonstrate its ability to obtainfacility security clearances and perform work with employees who hold specifiedtypes of security clearances. To the extent our target company is not able toobtain facility security clearances or engage employees with the requiredsecurity clearances for a particular contract, it may not be able to bid on orwin new contracts, or effectively rebid on expiring contracts.

 

***Failure to maintain strongrelationship with other contractors could result in a decline in our revenue.***

 

Our target company may act as a subcontractor orunder a “teaming” arrangement in which the target company and other contractorsjointly bid on particular contracts or programs. As a subcontractor or teammember, the target company will often lack control over fulfillment of acontract, and poor performance on the contract could tarnish its reputation,even when the target company performs as required. Moreover, our target company’srevenue and operating results could be adversely affected if any primecontractor or teammate chooses to offer a client services of the types that thetarget company provides or if any prime contractor or teammate teams with othercompanies to independently provide those services.

 

***We may rely on third-partymanufacturers or subcontractors to complete our contracts, and any delay orfailure to perform by these manufacturers or subcontractors may result in adecline in our revenue.***

 

Our target company may use third-party manufacturersin addition to or instead of any internal manufacturing capacity that it mayhave. This arrangement affords less control over the reliability of supply,quality and price of products or components than internal manufacturing. Ourtarget company may risk disruptions in its supply of key products andcomponents if its suppliers fail to perform because of strikes, naturaldisasters, financial condition or other factors beyond the control of ourtarget business. Products that are supplied by a third-party manufacturer maynot perform as expected, and these performance failures may result in delays incompletion of a project or additional costs to complete a project. Any delay bysubcontractors to complete their portion of a project, or any failure by a subcontractorto satisfactorily complete its portion of a project, may result in delays inthe overall progress of the project and may cause our target business to incuradditional costs. The additional costs incurred by our target company due tothe delay or failure to perform by a third-party manufacturer or asubcontractor may be substantial. While our target company may recover some ofthese additional costs from the responsible third-party manufacturer orsubcontractor, it may not be able to recover all of these costs in allcircumstances.

 

***We may be unable to protect orenforce our intellectual property rights.***

 

After completing a business combination, theprotection of our target company’s trade secrets, proprietary know-how,technological innovations and other proprietary rights through patents andother intellectual property protections in the U.S. and other countries may becritical to our success. We may rely on a combination of patent, copyright,trademark, trade secret laws and contractual restrictions to protect anyproprietary technology or other rights that we may acquire. Despite ourefforts, we may not be able to prevent misappropriation of those proprietaryrights or deter independent development of technologies that 

 

19

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competewith the business we acquire. Our competitors may file patent applications orobtain patents and proprietary rights that block or compete with our patents. Litigationmay be necessary in the future to enforce our intellectual property rights, toprotect our trade secrets, or to determine the validity and scope of theproprietary rights of others. It is also possible that third parties may claimwe have infringed their patent, trademark, copyright or other proprietaryrights. Claims or litigation, with or without merit, could result insubstantial costs and diversions of resources, either of which could have amaterial adverse effect on our competitive position and business.

 

**Item 1B. Unresolved Staff Comments.**

 

None.

 

**Item 2. Properties.**

 

We do not own any real estate or other physicalproperties materially important to our operation. Our headquarters are locatedat 900 Third Avenue, 33rd Floor, New York, New York 10022-4775. The cost ofthis space is included in the $7,500 per month fee CM Equity Management, L.P.charges us for general and administrative service pursuant to a letteragreement between us and CM Equity Management, L.P. We believe that our officefacilities are suitable and adequate for our business as it is presentlyconducted.

 

**Item 3. Legal Proceedings.**

 

There are no material legal proceedings pendingagainst us.

 

**Item 4. Submission of Matters to a Vote of SecurityHolders.**

 

Not applicable.

 

20

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**PART II**

 

**Item 5. Market for Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities.**

 

Our units, common stock and warrants are traded onthe Over-The-Counter Bulletin Board under the symbols FDSAU, FDSA and FDSAW,respectively. Each of our units consists of one share of our common stock andtwo redeemable common stock purchase warrants. The following table sets forththe range of high and low closing bid prices for the units, common stock andwarrants for the period indicated. The units commenced public trading onOctober 19, 2005 and the common stock and warrants commenced public trading on December5, 2005. The quotations listed below reflect interdealer prices without retailmarkup, markdown or commission, and may not necessarily represent actual transactions.Prior to October 19, 2005, there was no established public trading marketfor our units. Prior to December 5, 2005, there was no established publictrading market for our common stock or warrants.

 
| ** **             | ** ** | **Units** | ** ** | **Common Stock** | ** ** | **Warrants** | ** ** |
|------------------------|------------|-----------|------------|------------------|------------|--------------|------------|
| **Quarter ended** | ** ** | **High**  | ** ** | **Low**          | ** ** | **High**     | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| ** **             |       |      |       |             |       |         |       |   |   |   |   |   |   |
| December 31,  2005     |       | $         | 6.28       |             | $          | 5.90         |       | $ | 5.34 |   | $ | 5.25 |   | $ | 0.47 |   | $ | 0.32 |   |
|                        |            |           |            |                  |            |              |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Holders of Common Equity**

 

As of March 22, 2006, there were one (1) recordholder of our units, six (6) record holders of our common stock and one (1)record holder of our warrants.

 

**Dividends**

 

We have not paid any dividends on our common stockto date and do not intend to pay dividends prior to the completion of abusiness combination. The payment of dividends in the future will be contingentupon our revenues and earnings, if any, capital requirements and generalfinancial condition subsequent to completion of a business combination. Thepayment of any dividends subsequent to a business combination will be within thediscretion of our then board of directors. It is the present intention of ourboard of directors to retain all earnings, if any, for use in our businessoperations and, accordingly, our board does not anticipate declaring anydividends in the foreseeable future.

 

21

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**Recent Sales of Unregistered Securities**

 

On April 27, 2005, we sold the following shares ofcommon stock without registration under the Securities Act:

 
| **Stockholders**       | ** ** | **Number  of Shares** | ** ** |
|------------------------|------------|-----------------------|------------|
| Joel R.  Jacks         |       | 2,940,000             | *          |
| Peter M.  Schulte      |       | 2,940,000             | *          |
| Dr. Edward  H. Bersoff |       | 525,000               |       |
| Arthur L.  Money       |       | 52,500                |       |
| FSAC  Partners, LLC    |       | 1,207,500             |       |

 

----

*****Includes1,207,500 shares held by FSAC Partners, LLC over which Messrs. Jacks andSchulte have shared voting and dispositive power. The member of FSAC Partners,LLC include Joel R. Jacks, Peter M. Schulte, Dr. Edward H. Bersoff andemployees and affiliates of CM Equity Partners who may assist the Company infinding and evaluating a business combination. They will not receive anycompensation for such services.

 

Such shares were issued in connection with ourorganization pursuant to the exemption from registration contained in theSection 4(2) of the Securities Act of 1933 as they were sold to sophisticated,wealthy individuals or entities. The shares were issued for an aggregateoffering price of $6,000, at an average purchase price of approximately $0.001per share. No underwriting discounts or commissions were paid with respect tosuch sales.

 

**Use of Proceeds from our Initial Public Offering**

 

The effective date of our registration statement,which was filed on Form S-1 under the Securities Act of 1933 (File No.333-124638), and which relates to the initial public offering of our units, wasOctober 19, 2005. Each unit consists of one share of common stock, $.0001 parvalue per share, and two warrants, each to purchase one share of common stock. Pursuantto our registration we also registered common stock and warrants. Each warrantis exercisable for one share of common stock. A total of 24,150,000 units,including 3,150,000 units to cover any over-allotments, were registered at aproposed maximum aggregate offering price of $144,900,000.

 

The offering was consummated and terminated onOctober 25, 2005. The managing underwriter for the offering was CRT CapitalGroup LLC. A total of 21,000,000 units were sold in the offering for anaggregate offering price of $126,000,000. Each of our units became separableinto its constituent parts of common stock and warrants on December 5, 2005.

 

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Our use of net proceeds from our initial publicoffering are as set forth in the following table:

 
| *Gross proceeds*                                                    |   | $           | 126,000,000 |   |
|---------------------------------------------------------------------|--------|-------------|-------------|--------|
| *Offering  expenses(1)*                                             |   |        |        |
| Underwriting discount (5% of gross  proceeds)                       |   | 6,300,000   |        |
| Legal fees and expenses (including blue sky  services and expenses) |   | 298,875     |        |
| Miscellaneous expenses(2)                                           |   | 67,334      |        |
| Printing and engraving expenses                                     |   | 45,567      |        |
| Accounting fees and expenses                                        |   | 35,000      |        |
| SEC registration fee                                                |   | 45,479      |        |
| NASD registration fee                                               |   | 39,140      |        |
|                                                                |   |        |        |
| *Net  proceeds*                                                     |   |        |        |
| Held in trust                                                       |   | 117,180,000 |        |
| Not held in trust                                                   |   | 1,988,605   |        |
|                                                                |   |        |        |
| Total net proceeds                                                  |   | $           | 119,168,605 |   |

 

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(1) A portion of theoffering expenses were paid from the funds we received from Joel R. Jacks andPeter M. Schulte. These funds have been repaid out of the proceeds of ourinitial public offering.

(2)Miscellaneousexpenses include the reimbursement of our founders for out-of-pocket expensesincurred in connection with the offering.

 

$117,180,000 of net proceeds were placed in a trustaccount, which has been invested in government securities, at JPMorgan Chase NYBank maintained by Continental Stock Transfer & Trust Company, New York,New York, as trustee. These proceeds will not be released from the trustaccount until the earlier of the completion of a business combination or ourliquidation. The proceeds held in the trust account may be used asconsideration to pay the sellers of a target business with which we ultimatelycomplete a business combination. Any amounts not paid as consideration to thesellers of the target business may be used to finance operations of the targetbusiness or to effect other acquisitions, as determined by our board ofdirectors at that time.

 

We have agreed to pay CM Equity Management, L.P., anaffiliate of Messrs. Jacks and Schulte, a monthly fee of $7,500 for general andadministrative services including office space, utilities and secretarialsupport. We believe, based on rents and fees for similar services in the NewYork, New York metropolitan area, that the fee charged by CM Equity Management,L.P. is at least as favorable as we could have obtained from an unaffiliatedthird party.

 

On October 25, 2005, we used $154,000 of our netproceeds from the public offering to repay the notes payable to two of ourfounders, Messrs. Jacks and Schulte. The loans were repaid in full, withoutinterest, and cancelled.

 

**Item 6. Selected Financial Data.**

 

The following is a summary of selected financialdata of the Company for the period from April 12, 2005, (inception) to December31, 2005, which should be read in conjunction with our financial statements andthe notes thereto:

 

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**SELECTEDFINANCIAL DATA**

 

**Income statement data**

** **
| ** **                                                                                             | ** **     | **For the period from   April 12, 2005   (date of inception) through   December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------|----------------|--------------------------------------------------------------------------------------------|------------|
| Operating  costs                                                                                       |           | $                                                                                          | (133,161   | ) |
| Interest  income                                                                                       |           | 819,167                                                                                    |       |
|                                                                                                   |           |                                                                                       |       |
| Income  before provision for taxes                                                                     |           | 686,006                                                                                    |       |
| Provision  for income taxes                                                                            | —current  |                                                                                       | (333,000   | ) |
|                                                                                                   | —deferred |                                                                                       | 18,915     |   |
|                                                                                                   |           |                                                                                       |       |
| Net income                                                                                             |           | $                                                                                          | 371,921    |   |
| Interest income attributable to common  stock subject to possible conversion (net of taxes of $64,000) |           | (97,996                                                                                    | )          |
|                                                                                                   |           |                                                                                       |       |
| Net income  allocable to common stockholders not subject to possible conversion                        |           | $                                                                                          | 273,925    |   |
|                                                                                                   |           |                                                                                       |       |
| Weighted average number of shares outstanding                                                          |           |                                                                                       |       |
| —basic                                                                                            |           | 10,599,810                                                                                 |       |
|                                                                                                   |           |                                                                                       |       |
| —diluted                                                                                          |           | 11,050,752                                                                                 |       |
|                                                                                                   |           |                                                                                       |       |
| Net income per share                                                                                   |           |                                                                                       |       |   |
| —basic                                                                                            |           | $                                                                                          | .04        |   |
|                                                                                                   |           |                                                                                       |       |
| —diluted                                                                                          |           | $                                                                                          | .03        |   |
|                                                                                                   |           |                                                                                       |       |
| Weighted average number of shares  outstanding exclusive of shares subject to possible redemption      |           |                                                                                       |       |
| —basic                                                                                            |           | 9,530,382                                                                                  |       |
|                                                                                                   |           |                                                                                       |       |
| —diluted                                                                                          |           | 9,891,181                                                                                  |       |
|                                                                                                   |           |                                                                                       |       |
| Net income  per share not subject to possible redemption                                               |           |                                                                                       |       |   |
| —basic                                                                                            |           | $                                                                                          | .03        |   |
|                                                                                                   |           |                                                                                       |       |
| —diluted                                                                                          |           | $                                                                                          | .03        |   |

 

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**Balance sheet data**

 
| ** **                                                                                    | ** ** | **December 31, 2005** | ** **  |
|-----------------------------------------------------------------------------------------------|------------|---------------------------------|-------------|
| Cash and  cash equivalents                                                                    |       | $                               | 1,855,394   |   |
|                                                                                          |       |                            |        |
| Investments  held in trust (including interest receivable of $39,444) and cash held in  trust |       | 117,990,384                     |        |
| Other Assets                                                                                  |       | 106,751                         |        |
|                                                                                          |       |                            |        |
| Total Assets                                                                                  |       | $                               | 119,952,529 |   |
|                                                                                          |       |                            |        |
| Total  liabilities                                                                            |       | $                               | 406,003     |   |
| Common stock  subject to possible redemption (including interest income)                      |       | 23,522,278                      |        |
| Total  stockholders’ equity                                                              |       | 96,024,248                      |        |
|                                                                                          |       |                            |        |
| Total  Liabilities and Stockholders’ equity                                              |       | $                               | 119,952,529 |   |

 

**Item 7. Management Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

We are a “blank check” company organized under thelaws of the State of Delaware on April 12, 2005 and were formed for thepurpose of acquiring, through a merger, capital stock exchange, assetacquisition, stock purchase or other similar business combination, an operatingbusiness in the federal services and defense industries. We intend to use thetrust account funds, together with any additional financing arrangements thatwe undertake, to effect a business combination.

 

We have neither engaged in any operations norgenerated any revenues nor incurred any debt or expenses during the periodended December 31, 2005, other than in connection with our public offering and,thereafter, certain legal and other expenses related to pursuing acquisitionsof target businesses. Our entire activity since inception has been to preparefor and consummate our initial public offering and to identify and investigatetarget businesses for a business combination.

 

Our net proceeds from the sale of our units, after deductingoffering expenses of approximately $531,000 and underwriting discounts of$6,300,000, were approximately $119,169,000. Of this amount, $117,180,000, wasplaced in trust and the remaining $1,989,000 was not placed in trust. We willuse substantially all of the net proceeds of our offering to acquire a targetbusiness, including identifying and evaluating prospective acquisitioncandidates, selecting the target business, and structuring, negotiating andconsummating the business combination. To the extent that our capital stock isused in whole or in part as consideration to effect a business combination, theproceeds held in the trust account as well as any other net proceeds notexpended will be used to finance the operations of the target business. Webelieve that the funds available to us outside of the trust account will besufficient to allow us to operate for at least the next 24 months, assumingthat a business combination is not consummated during that time. Since ourinception and until December 31, 2005, we have incurred the following expenses:

 

•                  $10,535 for legal, accounting, travel andother expenses attendant to the due diligence investigations, structuring, andnegotiating of a business combination;

•                  $18,145 for administrative services andsupport ($7,500 per month);

•                  $25,827 of expenses for legal and accountingfees relating to our SEC reporting obligations;

 

25

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•                  $46,244 for franchise and capital taxes;

•                  $17,233 for director and officer liabilityinsurance premiums; and

•                  $15,177 for miscellaneous expenses andreserves.

 

We do not believe we will need to raise additionalfunds in order to meet the expenditures required for operating our business. However,we may need to raise additional funds through a private offering of debt orequity securities if such funds are required to consummate a businesscombination that is presented to us. We would only consummate such afundraising simultaneously with the consummation of a business combination.

 

On October 25, 2005, we used $154,000 of our generalworking capital to repay the notes payable to our initial stockholders, Mr.Jacks and Mr. Schulte. The loans were repaid in full, without interest, andcancelled.

 

On October 25, 2005, we used $85,000 of our generalworking capital to pay premiums associated with our directors and officers’liability insurance, of which, $67,767 of this amount represents the prepaidportion for the cost of such insurance for 2006.

 

We have agreed to pay, through the date of ouracquisition of a target business, CM Equity Management, L.P., an affiliate ofMessrs. Jacks and Schulte, $7,500 per month for office space and certain officeand secretarial services.

 

As of December 31, 2005, approximately $117,990,384,including interest receivable of $39,444, was held in trust and we hadapproximately $1,855,000 of the available funds remaining and available to usfor our activities in connection with identifying and conducting due diligenceof a suitable business combination, and for general corporate matters.

 

**Item 7A. Quantitative and Qualitative DisclosuresAbout Market Risk**

 

Market risk is the sensitivity of income to changesin interest rates, foreign exchanges, commodity prices, equity prices, andother market-driven rates or prices. We are not presently engaged in, and if asuitable business target is not identified by us prior to the prescribedliquidation of the trust account, we may not engage in, any substantivecommercial business. Accordingly, the risks associated with foreign exchangerates, commodity prices, and equity prices are not significant. The availablefunds which are not immediately required to pay our expenses have been investedonly in United States “government securities,” defined as any Treasury Billissued by the United States having a maturity of one hundred and eighty days orless. Given our limited risk in our exposure to U.S. Treasury Bills, we do notview the interest rate risk to be significant. We do not enter into derivativesor other financial instruments for trading or speculative purposes.

 

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

 

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

 

**Item 9. Changes in and Disagreements with Accountantson Accounting and Financial Disclosure.**

 

Not applicable.

 

**Item 9A. Controls and Procedures.**

 

Our management carried out an evaluation, with theparticipation of our Chief Executive Officer (principal executive officer) andour Chief Financial Officer (principal financial officer) of the effectivenessof our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d– 15(e) of the Securities Exchange Act of 1934, as amended) as of December 31,2005. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded that our disclosure controls and procedureswere effective to ensure that information required to be disclosed by us inreports that we file or submit under the Securities Exchange Act of 1934, asamended, is recorded, processed, summarized and 

 

26

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reported,within the time periods specified in the rules and forms of the Securities andExchange Commission.

 

There has not been any change in our internalcontrol over financial reporting (as defined in Rule 13a-15(f) or 15d – 15(f)of the Securities Exchange Act of 1934, as amended) in connection with theevaluation required by Rule 13a-15(d) under the Exchange Act that occurredduring the quarter ended December 31, 2005, that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**Item 9B. Other Information.**

 

Not applicable.

 

**PART III**

 

**Item 10. Directors and Executive Officers of theRegistrant.**

 

Our current directors and executive officers are asfollows:

 
| **Name**               | ** ** | **Age**    | ** ** | **Position**                                                 |
|------------------------|------------|------------|------------|--------------------------------------------------------------|
| ** **             | ** ** | ** ** | ** ** | ** **                                                   |
| Joel  R. Jacks         |       | 58         |       | Chairman  of the Board, Chief Executive Officer and Director |
| Peter  M. Schulte      |       | 48         |       | President,  Chief Financial Officer, Secretary and Director  |
| Dr.  Edward H. Bersoff |       | 63         |       | Vice-Chairman  and Director                                  |
| Arthur  L. Money       |       | 66         |       | Director                                                     |

 

**Joel R. Jacks**, who has served as our chairman and chiefexecutive officer since inception and a Director since April 20, 2005, has over30 years of experience in private equity investing, mergers andacquisitions and managing and operating companies in a wide variety ofindustries. In 1996, Mr. Jacks together with Peter M. Schulte co-foundedCMLS Management, L.P. and in 2000 they co-founded CM Equity Management, L.P.Mr. Jacks serves as a managing partner of each of these CM EquityManagement, L.P. entities. CM Equity Management, L.P. manages private equityfunds which make investments in middle-market companies, and specializes ininvesting in companies which serve the federal government. CM EquityManagement, L.P. is affiliated with Carl Marks and Co. Inc., a privately-ownedmerchant banking firm, since 1996. From 1992 to 1996, Mr. Jacks co-foundedand managed Carl Marks Consulting Group Co., the predecessor of Carl MarksAdvisory Group, LLC, a consulting company that is affiliated with Carl Marks& Co., Inc. Neither Carl Marks & Co. Inc. nor any of its shareholders,directors or officers owns any interest in us. From 1988 to 1992,Mr. Jacks was involved in interim management and profit improvementprograms for under-performing companies as a private consultant. From 1984 to1988, Mr. Jacks served as chief financial officer, was responsible forinformation technology and subsequently was chief executive officer of USSCO(affiliated with ADT, Ltd.), a distributor of security alarm and CCTVequipment throughout the U.S. and Puerto Rico. From 1976 to 1983,Mr. Jacks worked for The Penn Central Corporation as Director of FinancialPlanning and Information Technology Director, where he was involved with therestructuring of Penn Central’s public securities, and was later assigned tothe New York City Partnership to assist the NYC Transportation Authority as theInformation Technology vice president. Prior to 1976, Mr. Jacks was amanagement consultant for Deloitte Haskins & Sells.

 

Mr. Jacks is a director of several portfoliocompanies of CM Equity Partners, which are managed by CM Equity Management,L.P. or CMLS Management, L.P., including ICF Consulting Group, Inc., amanagement, technology and policy consulting firm in the areas of defense,homeland security, energy, environment, social programs, and transportationserving the Department of Defense, U.S. Department of 

 

27

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HomelandSecurity, U.S. civil agencies and the commercial sector; 3001, Inc., ageospatial data analysis firm serving various national security and civilagencies of the federal government; Falcon Communications, Inc., a globalprovider of mobile and fixed satellite communications services to commercial,U.S. and international government clients, as well as emergency response,crisis management and humanitarian organizations; Echo Bridge Entertainment,LLC; Evans Consoles Inc., a Canadian company that consummated a court-orderedreorganization in 2004 by which all of its assets were transferred to itscreditors; Martin Designs, Inc. and Devon Publishing Group. Mr. Jackswas previously a director of Resource Consultants, Inc., a technicalservices and program management firm serving the Department of Defense andfederal civil agencies; Examination Management Services, Inc. (EMSI),which, subsequent to Mr. Jacks’ serving as Chairman of the Board,underwent a voluntary restructuring in January 2005 resulting in the seniorlenders and certain members of management owning all of the equity in EMSI’sbusiness and, consequently, CM Equity Partners losing its investment in EMSI;Kronos Products, Inc.; Central Foodservice Co. and a member of theexecutive committee of Missota Paper Holding LLC, a company whose assets weresold in 2004 to an unaffiliated third party at a loss. From January 2000to April 2003, Mr. Jacks was chairman of Beta Brands Incorporated, aCanadian manufacturer, exporter and marketer of quality confectionery and bakedgoods products. In May 2003, following default by Beta Brands in therepayment of its secured indebtedness, a Canadian court approved a consensualforeclosure by which the secured lenders acquired all of the assets of BetaBrands. As a consequence of the foreclosure, CM Equity Partners lost its equityinvestment in Beta Brands.

 

Mr. Jacks received a Bachelor of Commercedegree from the University of Cape Town and an MBA from the Wharton School,University of Pennsylvania.

 

**Peter M. Schulte**, who has served as our president andsecretary since inception, as chief financial officer since November 8, 2005and as a Director since April 20, 2005, has over 20 years of experience inprivate equity investing and mergers and acquisitions. In 1996,Mr. Schulte together with Mr. Jacks co-founded CMLS Management, L.P.,and in 2000 they co-founded CM Equity Management, L.P. Mr. Schulte servesas a managing partner of each of these CM Equity Management, L.P. entities. From1992 to 1996, Mr. Schulte co-founded and co-managed a private equity investmentpartnership that was associated with Carl Marks & Co., Inc. and thatfocused on private equity investments and acquisitions of middle-marketcompanies. From 1990 to 1992, Mr. Schulte was a member of the buyout groupat Arnhold and S. Bleichroeder, Inc. From 1983 to 1990, Mr. Schultewas a vice president of Salomon Brothers Inc. Prior to graduate school,Mr. Schulte was employed at IBM in its Data Processing Division (DPD)focused on the financial services sector.

 

Mr. Schulte is a director of several portfoliocompanies of CM Equity Partners, which are managed by CM Equity Management,L.P. or CMLS Management, L.P., including ICF Consulting Group, Inc.;3001, Inc.; Falcon Communications, Inc.; and Echo Bridge Entertainment,LLC. Mr. Schulte was previously a director of ResourceConsultants, Inc.; AverStar, Inc., a provider of informationtechnology services and software products for the mission-critical systems offederal, civil and defense agencies and to large commercial companies, whichwas managed by the private equity investment partnership co-managed byMr. Schulte from 1992 to 1996; Evans Consoles, Inc., a Canadiancompany that consummated a court-ordered reorganization in 2004 by which all ofits assets were transferred to its creditors; Kronos Products, Inc.;Central Foodservice Co.; and as a member of the executive committee of MissotaPaper Holding LLC, a company whose assets were sold in 2004 to an unaffiliatedthird party at a loss. Subsequent to the Canadian court-approved foreclosure ofthe assets of Beta Brands Incorporated and until its dissolution,Mr. Schulte was a director of Beta Brands Incorporated.

 

Mr. Schulte received a BA in Government fromHarvard College and a Masters in Public and Private Management from the YaleSchool of Management.

 

**Dr. Edward H. Bersoff** has served as our vice-chairman and Directorsince April 27, 2005. Dr. Bersoff is the chairman and founder of GreenwichAssociates, a business advisory firm located in Northern Virginia which wasformed in 2003. From November 2002 to June 2003, he was managing director ofQuarterdeck Investment Partners, LLC, an investment banking firm, and chairmanof Re-route 

 

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Corporation,a company that offers email forwarding and address correction services. FromFebruary 1982 until November 2001, Dr. Bersoff was chairman, president andchief executive officer of BTG, Inc., an information technology firm he foundedin 1982. Under Dr. Bersoff’s leadership, BTG, Inc. completed six acquisitionsin the federal services industry. In November 2001 BTG, Inc. was acquired byThe Titan Corporation, a NYSE listed company. Dr. Bersoff served as a directorof Titan from February 2002 until August 2005 when Titan was sold to L-3 Corporation.Dr. Bersoff serves on the boards of EFJ, Inc., a manufacturer of wirelesscommunications products and systems primarily for public service and governmentcustomers, and Fargo Electronics, Inc., a manufacturer of identity cardissuance systems, materials and software for government and corporateapplications, which are both public companies, and a number of privatecompanies, including 3001, Inc. and ICF Consulting, Inc., each of which areportfolio companies of CM Equity Management, L.P.

 

Dr.Bersoff holds A.B., M.S. and Ph.D. degrees in mathematics from New YorkUniversity and is a graduate of the Harvard Business School’s Owner/PresidentManagement Program. Previously, as an officer in the U.S. Army, he was assignedto the NASA Electronics Research Center in Cambridge, Massachusetts.

 

Dr.Bersoff is the Rector of the Board of Visitors of Virginia CommonwealthUniversity, a Trustee of the VCU Medical Center, and a Trustee of New YorkUniversity. He also serves as a Trustee of the Inova Health System.

 

**Arthur L. Money** has served as a Director since April 27,2005. Mr. Money served as Assistant Secretary of Defense (ASD) for Command,Control, Communications and Intelligence from 1998 to 2001. Mr. Money alsoserved as the Department of Defense Chief of Information from 1998 to 2001 andas the Senior Civilian Officer, Office of the ASD from 1998 to 1999. Mr. Moneyserved as Assistant Secretary of the Air Force for Research, Development andAcquisition, and as Chief Information Officer for the Air Force from 1996 to1998. Prior to that, Mr. Money was Vice President and Deputy General Manager ofTRW’s Avionics and Surveillance Group and held various positions with ESL Inc.(a subsidiary of TRW) from 1990 to 1994.

 

Mr.Money is a director of the following public companies: CACI International Inc,Silicon Graphics, Inc., SafeNet, Inc., Essex Corporation, Intelli-Check, Inc.,Terremark Worldwide, Inc., Intevac, Inc. and SteelCloud, Inc. Mr. Money alsoserves on the boards of directors of various private companies. Mr. Moneyserves on the advisory boards of several companies in the federal services anddefense industries.

 

Ourboard of directors is divided into three classes with only one class ofdirectors being elected in each year and each class serving a three-year term. Theterm of office of the first class of directors, consisting of Dr. EdwardH. Bersoff will expire at our first annual meeting of stockholders. The term ofoffice of the second class of directors, consisting of Joel R. Jacks and ArthurL. Money will expire at the second annual meeting. The term of office of thethird class of directors, consisting of Peter M. Schulte, will expire at thethird annual meeting.

 

Theseindividuals will play a key role in identifying and evaluating prospective acquisitioncandidates, selecting the target business, and structuring, negotiating andconsummating its acquisition. None of these individuals has been a principal ofor affiliated with a public company or blank check company that executed abusiness plan similar to our business plan and none of these individuals iscurrently affiliated with such an entity. However, we believe that the skillsand expertise of these individuals, their collective access to acquisitionopportunities and ideas, their contacts, and their transaction expertise shouldenable them to successfully identify and effect a business combination. However,we cannot assure you that they will, in fact, be able to do so.

 

**AuditCommittee**

 

On November 8,2005, our board of directors established an Audit Committee. The AuditCommittee was established to provide assistance to the board of directors infulfilling its oversight 

 

29

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responsibility to the stockholders, potential stockholders, the investmentcommunity, and others relating to our financial statements and the financialreporting process, our systems of internal accounting and financial controls,the internal audit function, the annual independent audit of our financialstatements and report on internal control over financial reporting, and thelegal compliance and ethics programs as established by management and our boardof directors. In so doing, it is the responsibility of the Audit Committee tomaintain free and open communication among the Audit Committee, our independentregistered public accounting firm, and our management. In discharging itsoversight role, the Audit Committee is empowered to investigate any matterbrought to its attention with full access to all books, records, facilities,and personnel and has the power to retain outside counsel or other experts forthis purpose. Notwithstanding the foregoing, the Audit Committee is notresponsible for conducting audits, preparing financial statements, or assuringthe accuracy of financial statements or filings, all of which is theresponsibility of our management and the independent registered publicaccounting firm. Dr. Edward H. Bersoff and Mr. Arthur L. Money comprise theAudit Committee, of which Dr. Bersoff is the Chairman.

 

The Company’s board of directors has not determined whether any of themembers of the Audit Committee of the board of directors meets the definitionof “audit committee financial expert” as defined in the rules adopted by theSecurities and Exchange Commission because we currently are not an operatingcompany and, therefore, have not sought out a person with such qualificationsto add to our board of directors. The Audit Committee did not meet during thefiscal year ended December 31, 2005.

 

**Section 16(a) Beneficial Ownership ReportingCompliance**

 

Section 16(a) of the Securities Exchange Act of1934, as amended, requires our officers, directors and persons who beneficiallyown more than ten percent of our common stock to file reports of ownership andchanges in ownership with the SEC. These reporting persons are also required tofurnish us with copies of all Section 16(a) forms they file. All of thesereports were filed in a timely manner.

 

**Code of Ethics**

 

Our board of directors has adopted a Code ofEthics for our employees, officers and directors, available on our website atwww.fedsac.com.

 

**Item 11. Executive Compensation.**

 

No executive officer or director has received anycash compensation for services rendered. We will not pay any finders orconsulting fees to our founders, or any of their respective affiliates, forservices rendered to or in connection with the consummation of the businesscombination. However, our founders will receive reimbursement for anyout-of-pocket expenses incurred by them in connection with activities on ourbehalf such as identifying potential target businesses and performing duediligence on suitable business combinations. There is no limit on the amount ofthese out-of-pocket expenses and there will be no review of the reasonablenessof the expenses or fees by anyone other than our board of directors, whichincludes persons who may be entitled to reimbursement or a court of competentjurisdiction if such expenses are challenged. If all of our directors are notdeemed “independent,” we will not have the benefit of independent directorsexamining the propriety of expenses incurred on our behalf and subject toreimbursement or monitoring our compliance with the terms of this offering. Inaddition, because the role of our current management and directors subsequentto a business combination is uncertain, we have no ability to determine whatremuneration, if any, will be paid to our current management and directorsafter a business combination. We have agreed to pay CM Equity Management, L.P.,an affiliate of Messrs. Jacks and Schulte, a monthly fee of $7,500 for generaland administrative services including office space, utilities and secretarialsupport.

 

30

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**Item 12. Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.**

 

The following table sets forth information regardingthe beneficial ownership of our common stock as of February 28, 2006, by eachof our officers and directors, all of our officers and directors as a group,and each person known by us, as a result of such person’s public filings withthe SEC and the information contained therein, to be the beneficial owner ofmore than 5% of our outstanding shares of common stock.

 
| **Name and Address of  Beneficial Owner(1)**                                                                           | ** ** | **Amount and Nature of  Beneficial Ownership** | ** ** | **Percentage of Outstanding  Common Stock** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | ** **                                                    | ** ** | ** **                                                 | ** ** |
| Joel R. Jacks(2) (3)                                                                                                   |       | 2,940,000                                                     |       | 11.2                                                       | %          |
| Peter M. Schulte(2) (4)                                                                                                |       | 2,940,000                                                     |       | 11.2                                                       | %          |
| Dr. Edward H. Bersoff (5)                                                                                              |       | 525,000                                                       |       | 2.0                                                        | %          |
| Arthur L. Money                                                                                                        |       | 52,500                                                        |       | *                                                          |       |
| FSAC Partners, L.P.                                                                                                    |       | 1,207,500                                                     |       | 4.6                                                        | %          |
| All directors and executive officers as a  group(5 individuals)                                                        |       | 5,250,000                                                     |       | 20.0                                                       | %          |
| Sapling, LLC/ Fir Tree Recovery Master Fund  LP (6)  535 Fifth Avenue, 31st Floor  New York, New York 10017            |       | 2,500,000                                                     |       | 9.5                                                        | %          |
| Scion Capital, LLC/ Scion Qualified Value  Fund (7)  20400 Stevens Creek Blvd.  Suite 804  Cupertino, California 95014 |       | 2,500,000                                                     |       | 9.5                                                        | %          |

 

----

*Less than 1% of shares of our common stock outstanding.

 
| (1) |   | Unless  otherwise indicated, the business address of each of the above is 900 Third  Avenue, 33rd Floor, New York, New York 10022-4775.                                                                                                                                                                                                                                                                                                                               |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Includes  1,207,500 shares held by FSAC Partners, LLC over which Messrs. Jacks and  Schulte have shared voting and dispositive power. The members of FSAC Partners,  LLC include Joel R. Jacks, Peter M. Schulte, Dr. Edward H. Bersoff and  employees and affiliates of CM Equity Partners who may assist the Company in  finding and evaluating a business combination. They will not receive any  compensation for such services.                                  |
| (3) |   | Does  not include 803,184 shares of common stock issueable upon the exercise of  warrants held by Mr. Jacks, which warrants are exercisable upon the later of  the completion of a business combination or October 19, 2006. Does not  include 1,849,764 shares of common stock issuable upon the exercise of  warrants held by FSAC Partners, LLC, which warrants are exercisable upon the  later of the completion of a business combination or October 19, 2006.   |
| (4) |   | Does  not include 803,184 shares of common stock issueable upon the exercise of  warrants held by Mr. Schulte, which warrants are exercisable upon the later  of the completion of a business combination or October 19, 2006. Does not  include 1,849,764 shares of common stock issuable upon the exercise of warrants  held by FSAC Partners, LLC, which warrants are exercisable upon the later of  the completion of a business combination or October 19, 2006. |
| (5) |   | Does  not include any shares or warrants held by FSAC Partners, LLC, of which Dr.  Bersoff is a member. Dr. Bersoff does not currently have voting or  dispositive power as to any shares or warrants held by FSAC Partners, LLC.  Does not include 243,396 shares of common stock issueable upon the exercise  of warrants held by Dr. Bersoff, which warrants are exercisable upon the  later of the completion of a business combination or October 19, 2006.      |
| (6) |   | As  reported in a Schedule 13G dated October 31, 2005, and filed with the SEC on  October 31, 2005.                                                                                                                                                                                                                                                                                                                                                                   |
| (7) |   | As  reported in a Schedule 13G dated October 25, 2005, and filed with the SEC on  October 25, 2005.                                                                                                                                                                                                                                                                                                                                                                   |

 

31

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**Item 13. Certain Relationships and RelatedTransactions.**

 

On April 20, 2005, we issued an aggregate of 100shares to Joel R. Jacks and Peter M. Schulte and, on April 27, 2005, we issued5,249,900 shares of our common stock to the individuals set forth below asfollows:

 
| **Name**               | ** ** | **Number of Shares** | ** ** | **Relationship to ISE**                            |
|------------------------|------------|--------------------------------|------------|--------------------------------------------------------------|
| ** **             | ** ** | ** **                     | ** ** | ** **                                                   |
| Joel  R. Jacks         |       | 1,732,450                      |       | Chairman  of the Board, Chief Executive Officer and Director |
| Peter  M. Schulte      |       | 1,732,450                      |       | President,  Chief Financial Officer, Secretary and Director  |
| Dr.  Edward H. Bersoff |       | 525,000                        |       | Vice-Chairman  and Director                                  |
| Arthur  L. Money       |       | 52,500                         |       | Director                                                     |
| FSAC  Partners, LP     |       | 1,207,500                      |       | Stockholder                                                  |

 

Such shares were issued in connection with our organizationpursuant to the exemption from registration contained in the Section 4(2) ofthe Securities Act of 1933 as they were sold to sophisticated, wealthyindividuals or entities. The shares were issued for an aggregate offering priceof $6,000, at an average purchase price of approximately $0.001 per share. Nounderwriting discounts or commissions were paid with respect to such sales.

 

The holders of the majority of these shares will beentitled to make up to two demands that FSAC register these shares pursuant toa registration rights agreement previously entered into. The holders of themajority of these shares may elect to exercise these registration rights at anytime after the date on which these shares of common stock are released fromescrow, which, except in limited circumstances, is not before October 19, 2008.In addition, these stockholders have certain “piggy-back” registration rightson registration statements filed subsequent to the date on which these sharesof common stock are released from escrow. We will bear the expenses incurred inconnection with the filing of any such registration statements.

 

On October 25, 2005, we used $154,000 of our netproceeds from the public offering to repay the notes payable to our initialstockholders, Mr. Jacks and Mr. Schulte. The loans were repaid in full, withoutinterest, and cancelled.

 

We will reimburse our officers and directors for anyreasonable out-of-pocket business expenses incurred by them in connection withcertain activities on our behalf such as identifying and investigating possibletarget businesses and business combinations. There is no limit on the amount ofaccountable out-of-pocket expenses reimbursable by us, which will be reviewedonly by our board of directors or a court of competent jurisdiction if suchreimbursement is challenged.

 

All ongoing and future transactions between us andany of our officers and directors or their respective affiliates, includingloans by our officers and directors, will be, or are, on terms believed by usto be no less favorable than are available from unaffiliated third parties, andsuch transactions or loans, including any forgiveness of loans, will requireprior approval in each instance by a majority of our uninterested “independent”directors (to the extent we have any) or the members of our board of directorswho do not have an interest in the transaction, in either case who had access,at our expense, to independent legal counsel.

 

32

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**Item 14. Principal Accountant Fees and Services.**

 

Thefees billed by Eisner LLP for services rendered to us in 2005 were as follows(we did not pay any fees to Eisner LLP for services that fall under thecategories “Audit-Related Fees,” “Tax Fees” or “All Other Fees”, as suchcategories are defined in the rules promulgated by the Securities and ExchangeCommission):

 

**Audit Fees**

 

Feesincurred in connection with our initial public offering, the review of ourquarterly financial statements, and services provided in connection with theour statutory and regulatory filings in respect of year ended December 31, 2005were in the amount of $39,000.

 

**Pre****-****Approval****of****Fees**

 

All theservices and fees described above were approved by our full board of directorswhich considered whether the provision of non-audit related services wascompatible with maintaining the independence of Eisner LLP. Commencing onNovember 8, 2005, the Audit Committee of the Board of Directorswas granted the authority to pre-approve all auditing services and allnon-audit services (including the fees and terms thereof) to be performed bythe independent auditors. The Audit Committee may delegate to the AuditCommittee Chairman the authority to grant pre-approvals for audit and permittednon-audit services to be performed for us by the independent auditor, providedthat decisions of such member to grant pre-approvals shall be presented to thefull Audit Committee at its next regularly scheduled meeting. Substantially all hours expended on theindependent registered public accounting firm’s engagement to audit the Company’s financial statement for the yearended December 31, 2005, were attributed to work performed by persons that werefull-time, permanent employees of the independent registered publicaccounting firm.

 

**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.

 

33

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3.     **Exhibits:**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                    |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                  |       | Amended  and Restated Certificate of Incorporation**                                                                                               |
| 3.2                  |       | By-laws*                                                                                                                                           |
| 4.1                  |       | Specimen  Unit Certificate*                                                                                                                        |
| 4.2                  |       | Specimen  Common Stock Certificate*                                                                                                                |
| 4.3                  |       | Specimen  Warrant Certificate*                                                                                                                     |
| 4.4                  |       | Warrant  Agreement between Continental Stock Transfer & Trust Company  and the Company**                                             |
| 10.1                 |       | Letter  Agreement between the Company and Joel R. Jacks**                                                                                     |
| 10.2                 |       | Letter  Agreement between the Company and Peter M. Schulte**                                                                                  |
| 10.3                 |       | Letter  Agreement between the Company and Dr. Edward H. Bersoff**                                                                        |
| 10.4                 |       | Letter  Agreement between the Company and Arthur L. Money**                                                                                        |
| 10.5                 |       | Letter  Agreement between the Company and FSAC Partners, LLC**                                                                                     |
| 10.6                 |       | Letter  Agreement between CRT Capital Group LLC and Joel R. Jacks**                                                                           |
| 10.7                 |       | Letter  Agreement between CRT Capital Group LLC and Peter M. Schulte**                                                                        |
| 10.8                 |       | Letter  Agreement between CRT Capital Group LLC and Dr. Edward H. Bersoff**                                                                   |
| 10.9                 |       | Letter  Agreement between CRT Capital Group LLC and Arthur L. Money**                                                                              |
| 10.10                |       | Letter  Agreement between CRT Capital Group LLC and FSAC Partners, LLC**                                                                           |
| 10.11                |       | Investment  Management Trust Agreement between Continental Stock Transfer &  Trust Company and the Company**                         |
| 10.14                |       | Registration  Rights Agreement among the Company and FSAC Partners, LLC, Joel R. Jacks,  Peter M. Schulte, Edward H. Bersoff and Arthur L. Money** |
| 10.15.1              |       | Warrant  Purchase Agreement between CRT Capital Group LLC and Joel R. Jacks**                                                                      |
| 10.15.2              |       | Warrant  Purchase Agreement between CRT Capital Group LLC and Peter M. Schulte**                                                                   |
| 10.15.3              |       | Warrant  Purchase Agreement between CRT Capital Group LLC and Dr. Edward H.  Bersoff **                                                       |
| 10.15.4              |       | Warrant  Purchase Agreement between CRT Capital Group LLC and FSAC Partners, LLC **                                                                |
| 10.16                |       | Office  Service Agreement between the Company and CM Equity Management, L.P.**                                                                     |
| 10.17                |       | Stock  Escrow Agreement between the Company and Continental Stock  Transfer & Trust Company**                                             |
| 14                   |       | Code  of Ethics is available at Company’s website at www.fedsac.com                                                                           |
| 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**                                         |

 

----

*      Incorporated by reference to exhibits of the same number filedwith our Registration Statement on Form S-1 or amendments thereto (FileNo. 333-124638).

**   Filed herewith.

 

34

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**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:  March 30, 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 |   | March  30, 2006 |
| Joel R. Jacks         |   | Officer)                                                                  |   |            |
|                  |   |                                                                      |   |            |
| /s/ PETER M. SCHULTE  |   | President,  Chief Financial Officer,   Secretary and Director (Principal  |   | March  30, 2006 |
| Peter M. Schulte      |   | Financial  Officer)                                                       |   |            |
|                  |   |                                                                      |   |            |
| /s/ EDWARD H. BERSOFF |   | Vice-Chairman                                                             |   | March  30, 2006 |
| Edward H. Bersoff     |   |                                                                      |   |            |
|                  |   |                                                                      |   |            |
| /s/ ARTHUR L. MONEY   |   | Director                                                                  |   | March  30, 2006 |
| Arthur L. Money       |   |                                                                      |   |            |

 

35

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**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**                                                                                                    |   |

 

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 financialstatements based 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.

 

EisnerLLP

NewYork, New York

 

March23, 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      |        |
|                                                                                                                                                                    |       |        |        |
| Total current liabilities                                                                                                                                               |       | 406,003     |        |
|                                                                                                                                                                    |       |        |        |
| 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 $64,000)                                                                 |       | 97,996      |        |
|                                                                                                                                                                    |       |        |        |
| Total common stock, subject to possible  redemption                                                                                                                     |       | 23,522,278  |        |
|                                                                                                                                                                    |       |        |        |
| COMMITMENTS  AND CONTINGENCIES (Note H)                                                                                                                                 |       |        |        |
|                                                                                                                                                                    |       |        |        |
| STOCKHOLDERS’  EQUITY:                                                                                                                                             |       |        |        |
| Preferred stock—$.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       |        |
| Additional paid-in capital                                                                                                                                              |       | 95,747,698  |        |
| Income accumulated during the development  stage                                                                                                                        |       | 273,925     |        |
|                                                                                                                                                                    |       |        |        |
| Total stockholders’ equity                                                                                                                                         |       | 96,024,248  |        |
|                                                                                                                                                                    |       |        |        |
|                                                                                                                                                                    |       | $           | 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:                                                                                          |   |       |    |
| Bank interest                                                                                           |   | 8,783      |    |
| Interest on cash and short term investments  held in trust                                              |   | 810,384    |    |
|                                                                                                    |   |       |    |
| Total other income                                                                                      |   | 819,167    |    |
|                                                                                                    |   |       |    |
| **Income  before provision for taxes**                                                                  |   | 686,006    |    |
| Provision  for income taxes                                                                             |   |       |    |
| Current                                                                                                 |   | (333,000   | )       |
| Deferred                                                                                                |   | 18,915     |    |
|                                                                                                    |   |       |    |
| **Net income**                                                                                          |   | 371,921    |    |
| Interest  income attributable to common stock subject to possible redemption (net of  taxes of $64,000) |   | (97,996    | )       |
| Net income  allocable to common stockholders not subject to possible redemption                         |   | $          | 273,925 |   |
|                                                                                                    |   |       |    |
| Weighted  average number of shares outstanding                                                          |   |       |    |
| —basic                                                                                             |   | 10,599,810 |    |
|                                                                                                    |   |       |    |
| —diluted                                                                                           |   | 11,050,752 |    |
|                                                                                                    |   |       |    |
| Net income  per share                                                                                   |   |       |    |   |
| —basic                                                                                             |   | $          | 0.04    |   |
|                                                                                                    |   |       |    |
| —diluted                                                                                           |   | $          | 0.03    |   |
|                                                                                                    |   |       |    |
| Weighted  average number of shares outstanding exclusive of shares subject to possible  redemption      |   |       |    |
| —basic                                                                                             |   | 9,530,382  |    |
|                                                                                                    |   |       |    |
| —diluted                                                                                           |   | 9,891,181  |    |
|                                                                                                    |   |       |    |
| Net income  per share not subject to possible redemption                                                |   |       |    |   |
| —basic                                                                                             |   | $          | 0.03    |   |
|                                                                                                    |   |       |    |
| —diluted                                                                                           |   | $          | 0.03    |   |

 

Seenotes to financial statements.

 

F-4

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

 
| ** **                                                                                                                                                       | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | **Income  Accumulated  During the** | ** ** | ** **  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|-------------------------------------|------------|-------------|------------|
| ** **                                                                                                                                                       | ** ** | **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 as a result 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 income for the period                                                                                                                                        |       | —           |       | —      |       | —          |       | 371,921                             |       | 371,921     |       |
|                                                                                                                                                             |       |             |       |        |       |            |       |                                |       |        |       |
| **Balance—December 31, 2005**                                                                                                                               |       | 26,250,000       |       | $           | 2,625      |            | $          | 95,747,698                          |       | $           | 273,925    |   | $ | 96,024,248 |   |

 

Seenotes to financial statements

 

F-5

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

** **
| **Cash  flows from operating activities:**                                         |   |         |       |
|------------------------------------------------------------------------------------|--------|--------------|------------|
| Net income                                                                         |   | $            | 371,921    |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |         |       |
| Deferred income tax                                                                |   | (18,915      | )          |
| 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                                |   | 0            |       |
|                                                                               |   |         |       |
| 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       |       |

 

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 beentitled to convert their stock into a pro rata share of the Trust Account,including any interest earned on their portion of the Trust Account (net oftaxes payable), 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.

 

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 cash dividends,if declared.  If dividends are declaredand payable in shares of common stock, such dividends will also be placed inescrow.  If the Company is unable toeffect a business combination and liquidates, none of the Founders will receiveany portion of the liquidation proceeds with respect to common stock owned bythem.

 

F-7

----

 

**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 makeestimates and assumptions that affect the amounts in the financial statementsand accompanying 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.

 

**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—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-8

----

 

**NOTE E—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 onacquiring an operating company and the ability to use the deferred tax expensesto offset operating income.  Althoughrealization is not assured, management believes it is more likely than not thatall of the deferred 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

 
| Federal  statutory rate                                          |   | 34.0   | %      |
|------------------------------------------------------------------|--------|--------|--------|
| State and  local income taxes, net of federal income tax benefit |   | 11.8   |   |
|                                                             |   |   |   |
|                                                             |   | 45.8   | %      |

 

**NOTE F—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-9

----

 

**NOTE G—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 H—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 I—COMMON STOCK RESERVED FOR ISSUANCE**

 

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

 

**NOTE J—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-10

----